Will Trump’s DOJ Crack Down on Massive Vertical Mergers?

Lina Khan –

Over the weekend, CVS announced a proposal to acquire Aetna. The $69 billion merger would be the biggest deal ever in the health insurance industry, consolidating in a single entity the role of insurer, pharmacy, and pharmacy benefit manager. There’s good reason to think the deal—if approved by the Justice Department—would harm the public.

To get a better sense of how DOJ might view the deal, it’s worth reviewing another recent action: its move to block AT&T/DirecTV from acquiring Time Warner. That deal—first announced in October 2016—would join the biggest telecom company in the country with some of the most popular news and entertainment producers, creating a behemoth and driving further consolidation in the media and telecommunications industries. By concentrating control over distribution and content in a single company, the acquisition would create a Pandora’s box of perverse incentives and give the merged entity significant power over both rival companies and consumers. The public would pay more for the same or worse service, independent programmers and producers would find it even tougher to reach market, and the health and diversity of our media ecosystem would further suffer.

Most coverage of DOJ’s action has focused on the possibility that President Trump improperly directed the Antitrust Division to oppose the merger, given his disdain for CNN (owned by Time Warner). To be sure, there is sound reason to be concerned: Trump has repeatedly attacked CNN for unfavorable coverage, even tweeting a video of himself wrestling a CNN figure to the ground. Journalists reported that White House advisors discussed using the merger review process as potential leverage over Time Warner to seek favorable coverage. Given the administration’s disregard for the rule of law and Trump’s penchant for picking winners and losers, it is reasonable to wonder whether the White House interfered in DOJ’s enforcement decision. The prospect is disturbing, and—as my organization, the Open Markets Institute, has recommended—Congress should hold hearings to ensure no improper meddling.

But it’s worth looking beyond Trump’s potential involvement to recognize that—on the merits—DOJ’s decision to oppose the deal is significant. In recent decades the government has shifted to a permissive approach to merger enforcement generally—and especially towards vertical mergers, which join two companies operating at different levels of a sector, like AT&T/DirecTV and Time Warner. Traditionally, the government had viewed vertical tie-ups skeptically, recognizing that a merger between, say, a dominant shoe manufacturer and leading shoe retailer would position the new firm to hike costs for competing retailers and manufacturers, or discriminate against them in other ways. Through the 1970s, the antitrust agencies sued to block vertical mergers on these grounds.

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