Is Congress Starting to Take Antitrust Seriously? (Episode 79)

So, the Judiciary Committee is undertaking this months-long investigation into the power of big tech, really looking to build a comprehensive knowledge base about the size of these companies, what they’re doing, what the impacts are. And by big tech, I mean Amazon, Facebook, Google, Apple, these really dominant kind of gatekeepers in our economy. So this hearing was one part of this bigger process that we expect will lead to a big report and recommendations maybe as soon as the end of the year.

So the hearing had two parts. The first part was the four companies or representatives from the four companies were up there in front of the committee to answer questions. And then part two were a second panel of experts including me.

I think the other thing that was quite remarkable is that Amazon got a huge number of the questions. I mean, they had Facebook up there and with everything that’s been going on with Facebook, I thought there was a decent chance that the whole hearing would end up being about Facebook or maybe Google. But I think Amazon maybe got more questions than anyone else, which was really interesting to see.

The other thing that I thought was quite good about the hearing is that several members of Congress including Congressman Cicilline, who chairs this subcommittee and is really leading the charge on this, asked questions or made statements that connected the power of these big tech companies back to their districts. So like, “How does this matter to real people, real businesses? How is this affecting communities?” And I thought that was quite powerful and really useful to see that that’s how they’re thinking about this.

And a lot of the questions revolved around that. Some of the questions were about how Amazon uses data that it gathers from companies that rely on its platform to undermine them as competitors, to compete against them with a kind of built-in advantage. So, one of the things that I’m hoping that the committee’s investigation will uncover, and of course, they can request information from Amazon that is nonpublic information. They could even subpoena information from Amazon.

Some of the things that I’d like to see them bring to light are more details about the marketplace. You know, how many sellers are on it, what is the picture of all of these sellers, and how they’re doing? More information about how exactly Amazon uses the data that it gathers from these sellers, how its algorithms work, how does it decide who gets the Buy Box, that is, who gets to be the default seller on the platform. And then information about the pricing and terms that Amazon has for sellers. In order to be successful on Amazon’s platform, you really have to use fulfillment by Amazon. And we know that those fees have increased considerably in recent years. So actually documenting those cost changes, I think is important. Those are just like a few things around the marketplace that I’d love to see the committee look into.

All of those issues really point to the fact that there is a deep conflict of interest when you have a company that controls what other businesses need to access the market and then is also competing with those businesses and has a godlike view of everything that they’re doing. That’s just inherently problematic. So what I also hope that committee is going to do is release a strong report that makes some recommendations about the kind of policy change that we need to see. So, Zach, I was curious if you had any big takeaways from watching the hearing.

And lo and behold, we see that the FTC has launched a task force around big tech. There are reports that they may be having an investigation underway about Amazon. The DOJ says it’s probing issues around big tech. You know, I’m not holding my breath that either of those agencies as they’re currently configured within this administration are going to come forward and really fundamentally address these issues. But nevertheless, we’re seeing some movement. And it’s sort of a sign that hopefully, Congress isn’t going to continue to allow them to not take responsibility for what their job is, what they’re charged with under U.S. law.

Like the FTC and DOJ and, but you’re starting to see Congress kind of start to really do its job and take its role very seriously in a way that it hasn’t before and, yeah, like you said, it’s causing momentum on the agency side as well.

So, Stacy, can you tell me about the survey’s findings this year? What stuck out to you?

Other top issues included the fact that their biggest competitors are often able to get lower prices from suppliers, that Walmart can strong arm a supplier into giving it special treatment that competing businesses aren’t able to get. That was a huge issue. We also saw issues around credit card fees. The fact that Visa and MasterCard dominate the market for processing credit cards and are able to really extract a sizeable share right off the top of independent businesses’ revenue.

So, over and over again in this survey, we were seeing that this issue of concentrated economic power and the fact that public policy largely favors big business and isn’t doing anything about concentration is a huge issue that that is the biggest barrier. In many cases, in the case of Amazon, for example, independent retailers ranked that as a bigger threat than government red tape, taxes, rising healthcare costs, a bunch of other things on that list that were much lower than Amazon’s market power.

For example, one of the things we found is that over 40% of businesses that were looking to start or grow were unable to secure the loans that they needed in order to be able to do that. We really have, I think, a broken financial system in that it can’t actually supply the capital that we need in the places that we need it in order for small local businesses to grow, to create jobs. It’s a huge economic problem and it’s part of the reason that so many communities are depressed and that we’re not getting the kind of quality jobs. People are really struggling out there. So that’s sort of just one example of a data point that I think is very informative for policymakers.

This is a great survey for kind of breaking through that perception and talking about what independent business owners are really seeing. One of the great things that I think about this survey is we don’t only, we not only ask multiple choice questions and present that data, but we have several sections in the survey where we ask businesses just to talk about what they’re seeing. On the question of trying to get a loan, this is just an open-ended question, questions about Amazon and all of this, and in those comment boxes, we had hundreds of businesses who wrote in some cases multiple paragraphs describing their experiences.

Our former colleague, Marie Donahue, who analyzed the survey results, very carefully went through all of those comments and actually analyzed and pulled out other findings from them. This survey is really a great way for business owners to speak for themselves, and those comments yielded a lot of great data. We also include in the survey report some representative samples of some of those comments, which I think make it kind of a dynamic read on top of the usual graphs and the usual kinds of numeric data that came out of this.

We felt like independent businesses were just completely ignored in all of that, and so we did a survey that initially asked them how they had done in the previous year, how they’d done over the holidays, like what they were seeing in their communities in terms of people’s support for local businesses. We kept it to just a handful of questions because we were certain that independent business owners, they’re really busy and we were, we didn’t know if they would even take the time to do a three-minute survey. But it turns out we got a huge response, and every year we ask more and more questions. We have lots and lots of business owners who are super eager to answer them, and, as I said, often writing many-paragraphs responses and that kind of thing, which I think as a sort of meta-finding of our experiences with the survey is that business owners are deeply concerned about what they’re seeing in the market and in the policy environment. And they are very eager to share their perspective on those things and to take the time to do that.

Over the years, the survey grew from just being retailers to being all kinds of businesses. We started asking more and more in-depth questions. We started probing these areas that we were particularly interested in. So we ask questions now about commercial rents. How hard is it to lease a space? Are you seeing your commercial rent rates rise faster than your sales? We ask a lot of detailed questions about access to capital. We asked businesses, have you needed a, have you sought a business loan in the last couple of years, and then tell us about your experience? Then we find all kinds of interesting patterns in that data, particularly that local banks really matter and that the big banks are not serving the small business market very well.

We’ve asked more and more questions about Amazon. As Amazon has become a force in the economy, we’ve been interested to find out not only what do brick-and-mortar retailers think about Amazon as a competitor, but increasingly those same brick-and-mortar retailers feel compelled to sell on Amazon’s platform. So what are they finding when they become sellers on the platform? So the survey has just grown, and every year we think, Oh, maybe we’re asking too many questions and we’re not going to get a response, but every year we just get a flood of responses.

When we do reports, oftentimes it’ll start with like an inkling of an idea or a single question. Was there a research question that led you down the path of making this report?

It sort of makes up what you might call a commuting zone or an economically integrated region, so that’s a metropolitan area. A micropolitan area, many people are less familiar with, but that’s the same idea. It’s just that the central city is smaller. It’s between 10 and 50000 people. So it’s kind of like a smaller version of a metro area.

And so if you live in a metro region where 70% of the sales are going to Walmart, Walmart has multiple stores. Most people in that region are probably going to be living in a neighborhood where Walmart really is in a reasonable sense, their only option unless they want to drive across town. It is truly kind of monopolizing these grocery markets.

How we got here is that beginning in the 1980s, we chipped away at antitrust enforcement and we began to allow companies to engage in practices that would have drawn antitrust scrutiny, just a few years before. Walmart is an incredible beneficiary of that change. It started out in Bentonville, Arkansas and started growing within its region in the 1960s and seventies and then in the 1980s. Walmart really was able to sort of explode and grow across the country into the eighties, nineties and two thousands and it benefited enormously from the fact that at exactly that moment, we made these dramatic changes in how we enforce our antitrust laws.

So to give you just a couple of examples, one of the changes is that we made it essentially impossible to bring a case for what’s known as predatory pricing. So predatory pricing is technically illegal, but the courts have set this bar for proving it so high that effectively you can get away with it. And what predatory pricing means is when a company comes into a market and they sell goods below their own costs, they lose money in order to drive other competitors out. And this has been a consistent practice of Walmarts all the way along. They come into these communities, it would sell groceries or health and beauty items below cost. You would have local grocers, local pharmacies that … they had to pay their bills at the end of the month. They couldn’t operate in the red the way that Walmart could. And they would eventually go out of business and then Walmart would raise it’s prices.

We saw this across the country. This was a thing that Walmart consistently did, but we no longer prosecute that. So Walmart got away with it. One of the other big changes was we have this law on the books called the Robinson-Patman Act. It dates from the 1930s and it was a law that was enacted very much to deal with the power of big retailers. It was enacted in response to an earlier grocery store chain called A&P, the Great Atlantic and Pacific Tea Company, A&P, which was this dominant grocer back in the 1920s and thirties, never as big as Walmart is today, I should say. In part because as it began to grow and to dominate the grocery industry, Congress and the Enforcement Agency stepped in and Congress passed this law, Robinson-Patman Act that says, if you’re a big retailer, you cannot force suppliers to give you discounts that are not available to other competitors.

So what you can imagine sort of in the grocery situation, imagine that you’re a supplier of some type of food product. Walmart is this giant customer and they come to you and say, “You know, we want a discount that’s bigger than any of our competitors get, for no reason other than we’re huge and you can’t say no to us because we make up a quarter of your sales. And so we have a lot of power to make you do what we want.”

And the result of that is that Walmart gets that discount and then the supplier has to make up that money somewhere else. And it often means they raise costs on the independent grocers. So it creates an incredibly unlevel playing field. Not because anybody is a better competitor, but simply because Walmart has the power. So Robinson-Patman Act, technically again, that’s illegal, but we really shelved that law and no longer enforce it. And so those are two of the biggest antitrust changes that allowed Walmart to grow to this kind of dominance.

A lot of the talk these days about how to reform antitrust policy is around mergers. Having a stricter approach to merger reviews. Walmart didn’t get to be this huge because of buying other companies. It just got to be this huge by engaging in predatory practices. So Walmart’s a good example of why we actually need to enforce those laws. And it’s not just about about merger reviews, it’s about a bigger set of policies.

The second recommendation is we think that the federal trade commission should review these 203 markets where Walmart has more than 50% of grocery sales and wherever it’s feasible, they should force divestitures. That is, they should force Walmart to sell stores to competitors in order to break up their market share in those markets. And it’s worth noting that this is something that’s not unusual in the context of mergers.

And in fact, in 2015, the FTC was reviewing a merger between two big supermarket chains, Albertsons and Safeway. That merger I think should not have been approved at all. But the FTC did approve it, but they did have these huge concerns about these local markets in which the combined grocery store would have a lot of market share and where the number of “meaningful competitors” would fall. And so they required that some of those stores be sold off in order to approve the merger. So what I’m saying with all of that is the FTC has basically provided the logic for why they should go in and do this in the case of of Walmart.

And then the last thing is that in addition to checking Walmart’s power, we also need to support the growth of independent grocers. We know that one of the biggest challenges for independent grocers that want to expand or open a second location or new grocers starting out, is access to capital. It’s really hard as an independent business to get approved for a loan. It’s especially hard if you want to go into a lower income community or into an underserved rural area, exactly the places where we really need new grocery stores and so we make a number of recommendations in the report for how to expand access to capital for independent grocers.

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This show is produced by Lisa Gonzalez, Hibba Meraay, and myself, Zach Freed. Our music is Funk Interlude by Dysfunctional. For the Institute for Local Self-Reliance, I am Zach Freed and I hope you join us again in two weeks for the next episode of Building Local Power. Thanks all.