It’s easy to feel like there’s not a whole lot in one’s control as a consumer, and that the government is run largely through backdoor deals concealed from the public’s eye. When it comes to antitrust law, that view might not be too far off.
Any merger over $78.0 million in the United States requires government approval, which is meant as a layer of protection in order to help prevent the creation of monopolies or companies with a dominant market share, and therefore free rein to manipulate prices.(Source: “These Professors Make More Than a Thousand Bucks an Hour Peddling Mega-Mergers,” ProPublica, November 16, 2016.)
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While the government rubber-stamps most mergers, the deals that the government deems to need further examination are presented to the Antitrust Division of the U.S. Department of Justice, where companies have to prove that the merger in question will not, in fact, negatively affect consumers.
And that’s where experts like Dennis Carlton come in.
Carlton, an economist at the University of Chicago’s Booth School of Business, also works at the private firm Compass Lexecon LLC, where he charges at least $1,350/hour for his services consulting on mega-mergers. While Carlton’s fees are more than double the average of $512.00/hour, there’s a reason he commands those prices: he’s one of the best.
During the spring meeting of the American Bar Association’s Antitrust Section, a panel was discussing new theories about the damage caused by concentration in the airline industry and the overall economy. Jack Harkrider, an antitrust attorney, said this to his fellow panelists: “I’m sure if you paid Dennis Carlton a million bucks, he’d blow up all these things.” (Source: Ibid.)
And that’s where things get dicey for consumers. One might think that economics is firmly grounded in data and scientific analysis, but it seems that, depending on your method (and who’s paying for your research), economics can be more art than science.
Take the 2012 the federal and state governments’ lawsuit against Apple Inc. (NASDAQ:AAPL) for conspiring with several major publishers to fix prices on e-books. The states went to American University’s Jonathan Baker as an expert consultant. Like Carlton, Baker works at Compass Lexecon. His conclusion was that, due to price-fixing, e-books are 19% more expensive than they should be. A government expert came to the same conclusion, estimating that consumers had been overcharged by $300.0 million.
Not to be deterred, Apple hired Jonathan Orszag, senior managing director of Compass Lexecon LLC, to argue its case. Orszag came up with a more preferable and more modest 1.9% price-hike when benefits were calculated.
Not only did the court determine Orszag’s study to be “unmoored” from facts and “unsupported by any rigorous analysis,” but Orszag had never told the states that he was also working for Apple. The government ended up suing Compass for a breach of contract, which had been signed at $1.2 million, ultimately winning some of the money back when Compass settled.
And this is just the tip of the iceberg. There’s Carlton’s prediction that helped pass a large home appliance company merger, which proved to be inaccurate, harmed consumers, and brought attention to the carousel of private firm consultants in and out of government. The situation highlighted the unsettling fact that these firms often are paid to provide a desired result, regardless of whether that result has a basis in reality.
And, to make matters worse, the studies presented in court are sealed away due to client privilege, so the public has no idea as to their content most of the time. Only government officials ever see these reports and, as mentioned above, they often are looking to get back into private firms as soon as they swap out of government.
It’s a mess of a process that sees men like Carlton benefit to the tune of $100.0 million, his estimated net worth.
And here’s the final kicker: President-elect Donald Trump’s transition team on antitrust is headed by Joshua Wright, a professor and former economic consultant who wants to expand the influence of economists in assessing monopoly power. (Source: “Google Gets a Seat on the Trump Transition Team,” The Intercept, November 15, 2016.)
That could turn out to not be such great news for consumers.
