The Trump administration achieved a landmark antitrust victory this week. The Justice Department was gearing up to oppose drugmaker Bayer's plan to buy agribusiness giant Monsanto for $66 billion. Bayer only won approval by agreeing to sell off $9 billion worth of assets. It's the biggest such divestment in the history of U.S. antitrust enforcement.
It also demonstrated that, in the area of antitrust at least, President Trump may actually be an improvement over Barack Obama.
The basic point of antitrust law is to prevent companies from gaining a market position that allows them to squash competitors, and thus force either consumers or other businesses to come to them alone for goods or services. Once antitrust regulators determine that a company has that market position (or in this case, that a proposed merger will give it that market position) they must decide what to do about it.
The Obama administration's solution typically centered on what are called "behavioral remedies." Simply put, they'd allow a deal to go through if the merged company agreed to abide by certain rules. For instance, when Charter Communications wanted to merge with Time Warner Cable, Obama's Justice Department gave it the green light on a few conditions: that it not impose usage-based pricing or caps on data for several years, or that it not charge rival content creators extra to reach customers.
Behavioral remedies like this look nice because they seem less heavy-handed. Rather than busting businesses up, the feds get them to agree to some rules.
Unfortunately, this also makes behavioral remedies difficult to enforce.
"It is difficult for the Department of Justice to police behavioral remedies over time, especially in complicated and changing markets," Fiona Scott Morton explained at the blog Pro-Market.
The agency does not have the expertise, procedures, or personnel needed to be a good regulator, and the antitrust laws were not designed to create a regulator. Moreover, the division is fully occupied analyzing current transactions. The mechanism for seeking change or punishment, should the environment shift or the parties fail to comply with the consent decree, is relatively slow and costly. Small, harmed competitors do not have the time or capital to defend themselves through that process. [Pro-Market]
This has led Makan Delrahim, Trump's assistant attorney general for antitrust cases, and other enforcers to focus on structural remedies instead. Essentially, if a merger is problematic, either force the company to break up or block the deal entirely. It may be a more old-school and blunt force solution. But it's also a lot simpler and cleaner than saying "Yes, but ..."
That brings us back to the Bayer-Monsanto deal. Among other things, the settlement with the Justice Department forces Bayer to sell off its business assets in vegetable, canola, and soybean seeds. Otherwise, all of that would've been combined with Monsanto's seed business to kill off competitive pressure.
This is hardly the only instance of Trump's antitrust enforcers relying on structural remedies. They also went to the mat to stop AT&T from merging with Time Warner (which is distinct from Time Warner Cable). Instead of relying on behavioral remedies, Trump's regulators insisted that Time Warner sell off its Turner Broadcasting Division, or that AT&T sell off DirecTV. The companies balked, so the case went to trial and just recently wrapped up. The decision should come down in mid-June. Herbert Hovenkamp, a University of Pennsylvania professor and a well-known antitrust expert, thinks the government has a good shot at winning the case.
The fight over the AT&T and Time Warner merger is also significant because it's an example of vertical integration. That's when two companies at different points in a supply chain merge. In this case, Time Warner produces media content, and AT&T controls the wires and networks that deliver that content to customers. Since the 1980s, regulators have allowed a lot more vertical integrations on the assumption that they're not as dangerous as more traditional horizontal mergers — two companies that provide the same products and services combining. But now the government is surprising everyone by cracking down on vertical mergers again.
“One reason for more concern about vertical deals is that behavioral remedies are falling out of favor because they do not work well,” Steven Salop, a Georgetown University Law Center professor, explained to Reuters.
On the whole, Trump's policies have been the exact opposite of the anti-big-business populism he promised. So the aggressive antitrust enforcement looks a little strange. Delrahim himself said he didn't see the AT&T and Time Warner deal as "a major antitrust problem" as recently as 2016. There are swirling suspicions Trump wants to ax the deal just to punish CNN for negative coverage. Delrahim has been a longtime Trump loyalist: He was a vocal supporter, he helped with the transition team and with Neil Gosruch's nomionation to the Supreme Court, and he served as Trump's deputy White House counsel. Before that, Delrahim was a registered lobbyist for Comcast and AT&T, of all things.
Yet the turns towards structural remedies and more strict scrutiny of vertical mergers are both unquestionably good things. And the content of their cases against both mergers make sense on their internal merits.
Whatever weird mix of motives is driving Team Trump's aggression on antitrust, let's just hope it holds. And that Democrats have the wisdom to continue and expand it next time they're in power.