Two Democratic lawmakers introduced a new bill on Wednesday that would institute a host of new regulations to scrutinize mergers, including a prohibition of those valued at more than $5 billion.
The Prohibiting Anticompetitive Mergers Act, sponsored by Sen. Elizabeth Warren (D-Mass.) and Rep. Mondaire Jones (D-N.Y.), would also prevent mergers and acquisitions that would increase market share among sellers and buyers beyond certain thresholds and would give regulators additional tools to unwind mergers.
While the $5 billion threshold, indexed to inflation, may capture headlines, this bill is perhaps most notable because it attempts to limit companies’ dominance in the labor market, too.
“The recent rise in corporate consolidation has increased unemployment, suppressed wages, and allowed companies to hike up prices even further during this period of inflation,” Jones said.
Market share measures
The new bill addresses a familiar antitrust concern, the concentration of sellers, by barring mergers that would give one company control of more than 33 percent of the market. Currently, many antitrust cases revolve around seller market power, but they tend to focus on a different measure.
Today, one statistic regulators consider when analyzing mergers is the Herfindahl-Hirschman Index, which is a measure of overall market concentration. HHI is calculated by squaring the market shares of competitors and adding them up. The US Department of Justice says that regulators “generally consider markets in which the HHI is between 1,500 and 2,500 points to be moderately concentrated and consider markets in which the HHI is in excess of 2,500 points to be highly concentrated.”
To see how that works, consider the case of wireless providers in the US. This example is somewhat hypothetical since it focuses on nationwide providers, but it’s illustrative nonetheless. According to Evercore ISI Research, in 2020, AT&T had 27 percent of the market, T-Mobile had 29 percent, Verizon had 42 percent, and cable companies had 2 percent. The HHI for the market at the time was 3,338, which is considered highly concentrated.
HHI is different from strictly looking at market share because it also attempts to describe relative market power. A market in which firms have a relatively equal share will have a lower HHI than one in which a single firm’s share is significantly larger than the others. It’s a more nuanced approach than a simple figure, like what is proposed in the new bill.
Focus on labor
The use of antitrust law to help balance the labor market isn’t novel, but neither has it been widely used in the US. Recently, though, there has been an increased focus on how market concentration harms workers. In the labor market, companies are considered buyers. If a company is dominant on the buy-side, it’s called a monopsony. Monopsonies can distort markets by throwing their weight around with sellers. For example, a dominant retailer can impose onerous terms on suppliers because they have few other places to sell. But monopsonies can also affect wages, benefits, and employment among workers.
“Labor market power is the mirror image of product market power,” legal scholars Suresh Naidu, Eric Posner, and Glen Weyl wrote in the Harvard Law Review in 2018. “New evidence suggests that many labor markets around the country are not competitive but instead exhibit considerable market power enjoyed by employers, who use their market power to suppress wages.”
The turning point may have been the Justice Department’s 2010 lawsuit against Google, Apple, and other tech companies regarding their anti-poaching agreements, Posner has noted. In the intervening years, economists and legal scholars alike have taken a fresh look at labor market concentration.
While the new bill may face resistance from Republicans, none of whom have signed on as cosponsors yet, it’s unlikely to be the last attempt to broaden antitrust policy to include the labor market.
“For the last five decades, big companies have had almost free rein over our economy,” Warren said, “squashing competitors, growing bigger and bigger, and abusing their market power to price gouge consumers and crush workers and small businesses. This unconstitutional behavior has to stop.”
