PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

FTC’s Disparate Action Against US Business Undermines the Startup Ecosystem

By at 18 May, 2024, 9:36 am

by Raymond J. Keating –

It’s hard to make the case that hyper-activism on the part of antitrust regulators in recent times is rooted in any kind of relationship to clear economic thinking or to economic reality.

Recently, I listened to Lina Khan, who Chairs the Federal Trade Commission (FTC), and I heard a great deal of confrontational, yet vague language and accusations about unfairness, coercion, exploitation, consolidated markets, illegal mergers, monopolies, and anecdotal complaints (“I heard…”).

This is disturbing comportment and language coming from an FTC Chair. Disturbing because this powerful regulator seems to possess little understanding about how the marketplace works. At the same time, Chair Khan yet is working to expand and wield regulatory power without grasping the consequences of intrusive and unnecessary action. For example, what the FTC is doing to stop M&A activity or trying to break up companies.

Antitrust regulation always has had a rather precarious link to the realities of business and markets, but at least it had been narrowed to consider how M&A activity and size might or might not affect consumer welfare. But since antitrust law is fuzzy, it is open to being weaponized by ideologues who have little use for economics at all. Hence, for example, the term “monopoly” or “monopoly power” gets tossed around without any fundamental understanding of what a monopoly actually is. That is, a monopoly exists when an industry has only one seller; there are no close substitutes for the product; and high barriers to enter the market prevail.

Today’s antitrust ideologues ignore these basic requirements, and merely assert that big is bad. As I’ve explained before in an SBE Council analysis (among others):

“The underlying assumption is that ‘big’ is inherently bad in the economy. In recent years, we’ve seen a retreat from, or a reversal of efforts to apply sound economic thinking to antitrust. Assorted progressives in academia, with some now in the Biden administration, have pushed efforts to use antitrust regulation to fulfill political preferences by emphasizing a bias against large businesses, and assumptions that competition is suffering.

“The idea is to create an opportunity for advancing a hyper-regulatory agenda via antitrust. The academics putting forth this agenda claim the ‘neo-Brandeis’ or ‘neo-Brandeisian’ label in reference to former Supreme Court Justice Louis Brandeis, who opposed big business essentially for being big. Like Brandeis, these activists reject serious considerations of economics, markets and business.

“Indeed, after being a meaningless mess during its first eight to nine decades in existence, antitrust law and regulation since the 1970s has been focused on assessing issues of monopoly and mergers from the perspective of consumer welfare. This lent some rationality and legitimacy to antitrust laws that were, for the most part, created out of politics and gross misunderstandings of how markets work. However, Biden, his antitrust appointees and assorted Members of Congress wish to shift away from how consumers may or may not benefit, to an expansive agenda covering a wide range of issues. It’s an attempted return to a time of uncertainty and political whims, with the point being to make it easier to regulate, restrain, and even break up large businesses.”

The Case of iRobot

Consider a recent case whereby antitrust bureaucrats stopped a proposed merger, with clear costs. Amazon’s proposed acquisition of iRobot was opposed by both U.S. and European regulators.

Reuters reported in late January: “Amazon and robot vacuum maker iRobot said Monday they would end their plans to merge in the face of opposition from EU and U.S. antitrust regulators.” The report went on: “iRobot announced a significant restructuring plan to reduce costs and said it would cut about 31% of its workforce, or 350 jobs.”

Interestingly, U.S. House of Representatives Oversight Committee Chairman James Comer (R-KY) has launched a probe into the FTC’s role in the collapse of the Amazon-iRobot merger – and justifiably so. Congressional actions such as this are welcome to hopefully rein in hyper-activist regulators, such as Khan and others.

Of course, given the deep integration and interrelatedness in our economy, when government decides to replace decisions in the marketplace with political dictates, the costs are not limited to the particular, targeted firms or firms. The effects spread far and wide, and in an economy that is overwhelmingly about small and mid-size businesses, those firms are affected in assorted ways, including as customers of large businesses, as partners and suppliers to such businesses, as well as providers of goods and services to the employees of large companies.

For good measure, as M&A activity is undermined by antitrust actions unhinged from economic reality, investors will react by moving their investment capital to less threatening and less uncertain opportunities. That, of course, means that entrepreneurs and small businesses, which need such capital to startup and grow, once more are negatively impacted.

In a joint company statement regarding the termination of the Amazon-iRobot merger, David Zapolsky, Amazon SVP and General Counsel, correctly pointed out:

“Mergers and acquisitions like this help companies like iRobot better compete in the global marketplace, particularly against companies, and from countries, that aren’t subject to the same regulatory requirements in fast-moving technology segments like robotics. Undue and disproportionate regulatory hurdles discourage entrepreneurs, who should be able to see acquisition as one path to success, and that hurts both consumers and competition – the very things that regulators say they’re trying to protect.”

That last point is essential. Indeed, SBE Council has argued before that antitrust regulators undermining M&A activity translates into reducing investment in startup and smaller businesses – thereby limiting entrepreneurship and competition.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist, The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist and The Weekly Economist III: Another 52 Quick Reads to Help You Think Like an Economist.

 

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