A federal district court ruling that blocks Penguin Random House’s $2.18 billion acquisition of Simon & Schuster bolsters the US Department of Justice’s focus on the anti-competitive impact of mergers on labor markets.
The DOJ’s antitrust division sought to block the acquisition by arguing the combined companies would dominate the market for bestselling author manuscripts. The agency’s focus on monopsony—where a single buyer dominates the market—is part of the Biden administration’s aggressive approach to antitrust enforcement.
If Judge Florence Pan’s Monday ruling survives on appeal, antitrust regulators will likely make similar labor-related arguments against consolidation in other sectors as harmful to wages, attorneys said. Such arguments would be a notable pivot from over a century of antitrust enforcement that’s focused almost exclusively on concentration in product markets and its effect on prices.
“I think the decision will support the DOJ’s and FTC’s renewed focus on how mergers and consolidation have monopsony effects on labor, and embolden the agencies to continue down that path and further expand on this theory of harm in terms of future antitrust cases,” Bloomberg Intelligence analyst Jennifer Rie said.
Anti-monopoly advocates hailed the ruling as a major rebuke of decades of antitrust law that, they say, has focused too much on reducing consumer prices rather than concentration in labor and supply markets. Justice took a novel approach to the case, primarily arguing not that the merger would increase book prices but instead decrease advances above $250,000, paid to the most successful authors.
“The ruling makes clear that antitrust is about the effects of concentrated power on producers, and that includes in this case authors, but also workers of all kinds, as well as farmers and suppliers,” said Stacy Mitchell, the co-director of the Institute for Local Self Reliance, an anti-corporate nonprofit. “Everyone who is engaged in selling either labor or goods to a dominant company is potentially impacted and harmed by that dominant company’s monopoly power.”
The DOJ hailed the US District Court for the District of Columbia’s Monday ruling for its protection of labor, calling it a “victory for workers.”
“It reaffirms that the antitrust laws protect competition for the acquisition of goods and services from workers,” said Jonathan Kanter, head of the DOJ’s antitrust division.
The ruling solidifies judicial support for the argument that mergers between dominant companies can reduce wages by eliminating employer competition for workers, said Nell Geiser, research director at the Communications Workers of America.
“We’re pleased to see the Department of Justice continuing to take enforcement actions against transactions that are going to harm workers through labor monopsony and other vertical restraints, unfair contracts and unfair methods of competition,” Geiser said. “We see it as a harbinger for future successes for the judiciary’s understanding of labor impacts in merger cases.”
Critics of the consumer welfare standard—a theory of antitrust that prioritizes consumer savings over some competition—see the ruling as progress towards reforming antitrust with more focus on competition’s impact beyond prices at the cash register.
The consumer welfare standard can lead to the assumption that bigger is better, and that greater efficiency and purported savings would trickle down to consumers, Mitchell said.
But federal regulators’ challenge of mergers that impact the labor market might only be tenable in cases involving specific, highly distinct markets, said Douglas Ross, an antitrust professor at the University of Washington School of Law. Merger challenges may be pointless for larger groups of low-wage workers who lack specialized skills, he said.
It can be harder for regulators to demonstrate that low-wage workers lack options when their employers merge, compared to the more limited employment opportunities for highly paid authors.
Prosecutors’ star witness in the publishers trial illustrates that divide, Ross said.
“There’s something ironic about saying that you’re protecting labor when Stephen King was your lead witness,” Ross said. “He’s not everyone’s idea of your working man or woman.”
DOJ could also run the risk of self-sabotage by focusing too much on labor antitrust charges in merger cases, Ross said. By bringing long-shot labor charges rather than more tried and true product market allegations, prosecutors looking to expand antitrust law’s ability to protect workers could lose a simple case altogether, he said.
However, the enforcers’ insistence on arguing both sets of allegations—monopsony and monopoly—limits the strength of case law even in wins such as this where they focus on monopsony, said Hal Singer, an economist who serves as an expert witness in antitrust cases. DOJ did argue in filings that the publishers merger would have a long-term effect on book prices, although it didn’t make the argument its central focus.
“We do that because we’re scared to death that that’s what the case will turn on,” Singer said.
But despite the DOJ’s multi-layered argument, Pan’s ruling is a massive development for antitrust’s relatively recent recognition of harms to labor markets, even if the case law’s effect is limited to other merger cases.
“We can’t escape the fact that this is first merger challenge where monopsony was driving the bus,” Singer said. “It does represent a sea change, if I’m reading it correctly.”
The case is UNITED STATES OF AMERICA v. BERTELSMANN SE & CO. KGAA et al, D.D.C., no. 1:21-cv-02886, 10/31/22.
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