How the T-Mobile-Sprint merger will increase inequality
February 12, 2020
A federal judge gave his blessing to the US $26.5 billion merger between T-Mobile and Sprint on Feb. 11, several months after the deal got final antitrust approval from the U.S. government. A group of attorneys general from 13 states and the District of Columbia had sued to try to block the merger, arguing it would reduce competition in the telecommunications industry and raise customer prices by billions of dollars. Let me add a third reason the judge should have blocked the deal: It will likely increase economic inequality....Anti-competitive behavior frequently arises when there is common ownership of corporations. The airline industry provides a great illustration of this. From 2013 to 2015, the same seven shareholders controlled 60% of United Airlines, 27.5% of Delta, 27.3% of JetBlue and 23.3% of Southwest. Harvard law professor Einer Elhauge argues this kind of common ownership of multiple companies in an industry is very likely to lead to anti-competitive prices. And that’s exactly what researchers have found. A 2018 paper showed that ticket prices are 3% to 11% higher due to common ownership, and studies of the banking and other industries have found similar effects.
The Hidden Dangers of the Great Index Fund Takeover
January 9, 2020
The potential impact of common ownership reaches beyond antitrust matters to questions about how companies are run. Index fund managers may follow passive investment strategies, but they don’t blindly choose stocks and sit back, says John Coates, a Harvard law professor. Fund companies have multiple tools to influence corporate behavior, such as developing preferred policies on executive compensation, carbon footprints, gender diversity, and other governance matters. They often do this in coordination with other industry leaders, Coates says. “A small number of unelected agents, operating largely behind closed doors, are increasingly important to the lives of millions who barely know of the existence much less the identity or inclinations of those agents,” Coates wrote in a widely cited 2018 paper. The agents, in this case, are the managers of fund companies—and the most important of those are the index giants...Lucian Bebchuk, a Harvard law professor, says index fund managers don’t have incentives to invest the time into actively supervising companies. That’s because any effort to increase the value of a company would also increase the value of the index, which in turn benefits every fund that tracks the index. As a result, the fund that pushes management can’t stand out from its peers and attract more money—yet it incurs higher stewardship costs. The concern is that such deference will “result in insufficient checks on corporate managers,” Bebchuk says. In a 2019 paper, he writes that the Big Three spent minuscule amounts on stewardship. According to Morningstar, Vanguard employed 21 people to do the work of corporate oversight at a cost, by Bebchuk’s estimate, of about $6.3 million—a drop in the bucket considering Vanguard’s trillions of dollars under management.
Inside The E-Book ‘War’ Waging Between Libraries And Publishers
January 7, 2020
According to the American Library Association (ALA), about one fifth of the books sold in the U.S. are eBooks. Some publishers are worried that the ease of borrowing a digital book from a library is hurting sales and have decided to limit how and when libraries can access digital books. Now, libraries in Massachusetts and nationwide are vowing to fight back. They say the practices are not just unfair and unethical, but they might be illegal...Librarians are also hopeful that relief will come from a Congressional antitrust subcommittee investigating competition in digital markets...Einer Elhauge, an antitrust expert at Harvard Law School, has looked into this topic. “Antitrust law is basically competition law. It’s a law that regulates how firms can compete with each other,” he said. “So, it’s similar to a referee in a sports competition.” Elhauge parsed the arguments, and as far as he can tell from all the media reports, libraries would not have an easy time winning this case. The publishers do not seem to be violating the rules. There’s no single publishing house with monopoly power. Publishers are not “meeting in a smoke-filled room and agreeing to do the same thing,” he said.
Inside The E-Book ‘War’ Waging Between Libraries And Publishers
January 6, 2020
In the old days, when you wanted to borrow a book, you trudged down to your local library and checked it out. Now, if you want an e-book or an audiobook, you can sit on your couch at home, open your library's app, and download it. Viola! According to the American Library Association (ALA), about one fifth of the books sold in the U.S. are eBooks. Some publishers are worried that the ease of borrowing a digital book from a library is hurting sales and have decided to limit how and when libraries can access digital books. Now, libraries in Massachusetts and nationwide are vowing to fight back. They say the practices are not just unfair and unethical, but they might be illegal. ... Einer Elhauge, an antitrust expert at Harvard Law School, has looked into this topic. “Antitrust law is basically competition law. It’s a law that regulates how firms can compete with each other,” he said. “So, it’s similar to a referee in a sports competition.” Elhauge parsed the arguments, and as far as he can tell from all the media reports, libraries would not have an easy time winning this case. The publishers do not seem to be violating the rules. There’s no single publishing house with monopoly power. Publishers are not “meeting in a smoke-filled room and agreeing to do the same thing,” he said.
A ninth-generation farmer, Mr. Lamport, 47, shut down his dairy business in September...His struggle is a familiar one for America’s dairy farmers, who have been battered over the past decade by a nationwide drop in milk consumption, the rise of dairy-free and plant-based alternatives and the trade war with China...But Mr. Lamport says there is another factor pushing down milk prices and harming farmers: the business practices of Dairy Farmers of America, a farmer-owned cooperative...The co-op is in talks to acquire Dean Foods, the century-old milk processing company that sought bankruptcy protection in November. No agreement has been reached, but the prospect of D.F.A.’s taking control of Dean Foods, the co-op’s biggest customer, has raised new antitrust concerns...An expert witness for the plaintiffs, the Harvard Law School antitrust specialist Einer Elhauge, calculated that D.F.A.’s business practices have reduced the price of milk by nearly 80 cents per hundred pounds sold, costing dairy farmers a total of millions of dollars every month. While those losses affect D.F.A. members and nonmembers alike, Mr. Lamport, a plaintiff in the case, said his milk profits declined soon after he joined the co-op in 2017.
Farmers’ case against giant dairy co-op will go to trial
October 2, 2019
A collection of dairy farmers who allege anti-competitive conduct by the nation’s largest dairy cooperative will take their case to a jury trial. A U.S. district court judge late last week denied a motion for summary judgment — which would have wrapped the case up without trial — from defendant Dairy Farmers of America (DFA). ...Yet the farmers in this lawsuit argue that DFA’s growing business as a processor has introduced a conflict of interest in how the co-op generates income. DFA owns many of its own processing facilities, which could mean that the less DFA pays for milk, the more money it makes from its products. As Harvard Law School Professor Einer R. Elhauge, who is serving as an expert witness for the plaintiffs in the case, put it in court documents, “Reducing raw milk prices [paid to dairy farmers] directly increases DFA’s profit per unit as a processor.”
Passive investments come under pressure from regulators
September 24, 2019
Investors are allocating ever greater sums to passive investments including ETFs and index trackers. Regulators have taken note, says David Stevenson. Passive investments are on a roll. In the US both exchange-traded funds (ETFs) and passively managed funds have recorded massive inflows. Both products share the same idea: keep costs low and eliminate the risk of an active fund manager underperforming a benchmark index by just buying the stocks inside an index...But a backlash against passive funds is building. The key issue is regulatory concerns about market power and potentially uncompetitive behaviour... The upshot, Harvard Law’s Einer Elhuage told ETF Insight, is that the Big Three’s dominance “could lead to antitrust liability.”
The Week in Tech: How Does 8chan Whack-a-Mole End?
August 12, 2019
...A cynic may point to antitrust investigations into Facebook by the Justice Department and the Federal Trade Commission, partly focused on how it has reduced competition, including by buying rising competitors. One of Facebook’s biggest fears seems to be that it could be forced to split off WhatsApp and Instagram. So it’s hard not to view the branding exercise as a (clumsy?) play to demonstrate that the services are too tightly intertwined to be torn apart. In the same spirit, Bloomberg reported that Facebook planned to take its first real steps toward technical integration of the services by rebuilding Instagram’s chat feature using Messenger technology. Can Facebook deter a potential breakup? Einer Elhauge, a Harvard law professor, told me that the answer could be contingent on how feasible the authorities deemed a successful split to be. “It’s hard to unscramble eggs,” he said. “Can these eggs be easily unscrambled or not?”
When AT&T acquired Time Warner last year for $85 billion, the companies said the deal would be great for consumers, who would benefit from lower prices and improved service. The Justice Department said the opposite, predicting the merger would give AT&T so much market power that price hikes and channel blackouts were all but inevitable. Einer Elhauge, a professor at Harvard Law School, said the current circumstances “seem to be precisely what the Department of Justice predicted would happen after the merger of AT&T and Time Warner, and precisely what AT&T successfully persuaded the trial court was implausible for it to ever do post-merger.” His verdict? “It looks like the court just got it wrong.”
This past week, Senator Kamala Harris and Joseph R. Biden Jr., two of the Democrats running for president, said it should be considered, joining another, Senator Elizabeth Warren, who has called for wider Big Tech breakups. And don’t forget that Chris Hughes, a Facebook co-founder, wrote this month that he wanted its split up, too. We could argue (at length) about the validity of the idea. But how plausible is it? The weapon of choice behind most of these calls is antitrust law. Fine. There’s plenty of potentially anticompetitive behavior to go after. But in terms of end results, a breakup is possible, but by no means certain, from such legal action, according to antitrust experts I spoke with. Einer Elhauge, a Harvard law professor who was chairman of the antitrust advisory committee to the Obama campaign in 2008, told me that splitting WhatsApp and Instagram from Facebook — the most popular proposal — was plausible but might depend on how deeply integrated they had become. “It’s hard to unscramble eggs,” he said. And Facebook’s push to intertwine the platforms more closely may make such unscrambling only harder.
How Big a Problem Is It That a Few Shareholders Own Stock in So Many Competing Companies?
February 19, 2019
Many critics claim that anti-trust enforcement has dangerously weakened since the 1980s, often citing the dominance of the tech giants as evidence of this. They argue that any benefit gained from Google’s free services or Amazon’s low prices is outweighed by their chokehold on suppliers, their possession of mountains of personal data, and more. Others have noted rising concentration outside of tech: two-thirds of U.S. industries became more concentrated between 1997 and 2012. ...Horizontal shareholding therefore hurts competition because, as Einer Elhauge of Harvard Law School has argued, it reduces “each individual firm’s incentives to cut prices or expand output by increasing the costs [to shareholders, and thus managers] of taking away sales from rivals.” These issues are easy to imagine with direct investors (such as activist hedge funds) who typically have more concentrated holdings and thus greater ability to influence practices within a company or industry.
Yes, Kamala Harris is eligible to run for president
January 23, 2019
California Sen. Kamala Harris had barely become a candidate for the Democratic presidential nomination before birther accusations started on Twitter. Harris announced her candidacy on Jan. 21. The following morning, Jacob Wohl -- a self-described Trump supporter who has been described by media outlets as a "far-right conspiracy theorist" -- questioned whether Harris was eligible to run. ..."If you are born in the U.S, you are automatically a natural-born U.S. citizen under the constitution," said Harvard Law Professor Einer Elhauge.
Common ownership of shares faces regulatory scrutiny
January 22, 2019
Global regulators are starting to home in on an academic theory on the drawbacks of overlapping corporate ownership by investors, a trend that could pose a threat to the $80tn asset management industry. The theory is known as “common ownership”, which refers to shareholders, or owners, holding shares in competing companies within the same sector. According to the argument, managers of companies have fewer incentives to invest in new products or services, or to try to lure customers from rivals, if they know that big owners of their shares also have big stakes in their rivals. In other words, common ownership hurts competition. ... Under current US antitrust laws, common ownership would need proven anti-competitive effects in order for it to be considered illegal. Professor Einer Elhauge of Harvard Law School argues in a recent paper that the anti-competitive effects of horizontal shareholding, as he calls it, have been empirically confirmed, and that it is in fact illegal under US and EU antitrust laws.
Do Institutional Investors Suppress Competition? (subscription)
September 18, 2018
Can institutional investing have anticompetitive effects?...Disagreeing was panelist Einer Elhauge, a Harvard Law School professor who supports the idea that common ownership, sometimes referred to as...
New Evidence and Legal Theories About Horizontal Shareholding
February 14, 2018
An article by Einer Elhauge. When the leading shareholders of horizontal competitors overlap, horizontal shareholding exists. In my initial Harvard Law Review article on horizontal shareholding, I showed that economic theory and two intra-industry studies indicated that high levels of horizontal shareholding in concentrated product markets can have anticompetitive effects, even when each individual horizontal shareholder has a minority stake...In a new article, I show that new proofs and new empirical evidence strongly confirm my economic claims.
Harvard Law School Professor Einer Elhauge ’86 will receive the prestigious Jerry S. Cohen Award for Antitrust Scholarship from the American Anititrust Institute at their annual conference on June 21.
On March 23, William B. Schultz, former general counsel of the U.S. Department of Health and Human Services (2011-2016), discussed the complicated politics surrounding the Affordable Care Act and possible policy options for the next phase of the law’s evolution.
Voting rights, big money and Citizens United: Scholars explore issues in election law
September 15, 2016
With the U.S. presidential election weeks away, Harvard Law Today offers a look back at what scholars from campus and beyond had to say in recent months about democracy's challenges in a series of talks on Election Law.