Category: Antitrust

Feds’ Regulatory Delay Supports High-Fare Trans-Atlantic Airline Oligopoly

(p. B1) In the past three years, Norwegian, one of Europe’s biggest low-cost airlines, has quietly established a beachhead in the trans-Atlantic market by offering low-fare, no-frills service on long-haul flights.
Thanks to a small but expanding fleet of fuel-efficient planes combined with deeply discounted ticket prices, Norwegian Air Shuttle has attracted a growing number of leisure travelers looking for cheap flights.
It is all part of the vision of Norwegian’s outspoken chief executive, Bjorn Kjos, who is determined to force the same kind of low-fare competition on international routes that has been so successful in domestic markets for airlines like Southwest and Spirit, and Ryanair in Europe.
. . .
But Norwegian’s expansion has been stymied by vigorous opposition. Legacy airlines on both sides of the Atlantic see a low-cost competitor on their cash-cow routes as a major threat to their long-term profitability. Labor unions object to Norwegian’s plans to hire flight crew from Thailand, a practice they have repeatedly described as “labor dumping.”
The airline has also faced lengthy delays in receiving regulatory approvals in the United States.
. . .
(p. B4) A spokeswoman for the Transportation Department did not give any reasons for the delays that have left Norwegian in bureaucratic limbo in the United States. The airline’s first request was filed more than two years ago. . . .
The long delay in approving the application “does not reflect well on the political independence of the Department of Transportation with respect to the free trade principles behind the E.U.-U.S. open skies agreement,” according to a report by analysts at the CAPA Center for Aviation. “The calculated inaction only serves to restrict competition and to deny consumer choice.”
. . .
“There is still a lot to do,” Mr. Kjos said. “We have to think about how to fly more people more cheaply. There are hundreds of millions of people that don’t have access to cheap flights.”

For the full story, see:
JAD MOUAWAD. “Norwegian Air Flies in the Face of the Trans-Atlantic Establishment.” The New York Times (Tues., FEB. 23, 2016): B1 & B4.
(Note: ellipses added.)
(Note: the online version of the story has the date FEB. 22, 2016.)

Government Regulations Protect Health-Care Incumbents Against Innovation

(p. A15) As people age, the main valve controlling the flow of blood out of the heart can narrow, causing heart failure, and sometimes death. In the past the only way to repair the damage was risky open-heart surgery. But an ingenious medical device now allows the heart to be repaired using a catheter that introduces a replacement valve through a main artery in the leg–another miracle of modern medicine.
In 2011, more than four years after they hit the European market, the Food and Drug Administration finally approved aortic heart valves for use in the U.S. The total cost of the new procedure is about the same as open-heart surgery. But government bureaucrats feared that the new replacement valve’s lower risks and easier administration would mean that many more elderly patients would seek to fix their failing heart valves, pushing up Medicare’s total spending. To limit their use, regulators created coverage rules based on a set of strained medical criteria. It was a budget prerogative masquerading as clinical reasoning.
This episode is a vivid example of the government’s increasing practice to regulate medicine and ration care. A series of landmark studies published earlier this month in the Lancet and the New England Journal of Medicine, and presented at the annual meeting of the American College of Cardiology in Chicago, makes clear how contrived the original Medicare guidelines were.
For a patient to be qualified for the aortic valve device, Medicare required two cardiac surgeons to certify first that a patient wasn’t a candidate for the open-heart repair. Also mandated was the presence of a cardiothoracic surgeon and an interventional cardiologist in the operating room during the procedure.

For the full commentary, see:
SCOTT GOTTLIEB. “Warning: Medicare May Be Bad for Your Heart; Aortic valve replacements are superior to open-heart surgery and less risky. So why are they hard to get?” The Wall Street Journal (Tues., April 12, 2016): A15.
(Note: the online version of the commentary has the date April 11, 2016.)

The Lancet article mentioned above, is:
Thourani, Vinod H., Susheel Kodali, Raj R. Makkar, Howard C. Herrmann, Mathew Williams, Vasilis Babaliaros, Richard Smalling, Scott Lim, S. Chris Malaisrie, Samir Kapadia, Wilson Y. Szeto, Kevin L. Greason, Dean Kereiakes, Gorav Ailawadi, Brian K. Whisenant, Chandan Devireddy, Jonathon Leipsic, Rebecca T. Hahn, Philippe Pibarot, Neil J. Weissman, Wael A. Jaber, David J. Cohen, Rakesh Suri, E. Murat Tuzcu, Lars G. Svensson, John G. Webb, Jeffrey W. Moses, Michael J. Mack, D. Craig Miller, Craig R. Smith, Maria C. Alu, Rupa Parvataneni, Ralph B. D’Agostino, Jr., and Martin B. Leon. “Transcatheter Aortic Valve Replacement Versus Surgical Valve Replacement in Intermediate-Risk Patients: A Propensity Score Analysis.” The Lancet (April 3, 2016), DOI: 10.1016/S0140-6736(16)30073-3.

The New England Journal of Medicine article mentioned above, is:
Leon, Martin B., Craig R. Smith, Michael J. Mack, Raj R. Makkar, Lars G. Svensson, Susheel K. Kodali, Vinod H. Thourani, E. Murat Tuzcu, D. Craig Miller, Howard C. Herrmann, Darshan Doshi, David J. Cohen, Augusto D. Pichard, Samir Kapadia, Todd Dewey, Vasilis Babaliaros, Wilson Y. Szeto, Mathew R. Williams, Dean Kereiakes, Alan Zajarias, Kevin L. Greason, Brian K. Whisenant, Robert W. Hodson, Jeffrey W. Moses, Alfredo Trento, David L. Brown, William F. Fearon, Philippe Pibarot, Rebecca T. Hahn, Wael A. Jaber, William N. Anderson, Maria C. Alu, and John G. Webb. “Transcatheter or Surgical Aortic-Valve Replacement in Intermediate-Risk Patients.” New England Journal of Medicine (April 2, 2016), DOI: 10.1056/NEJMoa1514616.

Government Limits Hospital Competition

(p. A9) When the 124-bed StoneSprings Hospital Center opened in December, it became the first new hospital in Loudoun County, Va., in more than a century. That’s more remarkable than it might at first seem: In the past two decades, Loudoun County, which abuts the Potomac River and includes growing Washington suburbs, has tripled in population. Yet not a single new hospital had opened. Why? One big reason is that StoneSprings had to fight through years of regulatory reviews and court challenges before laying the first brick.
County officials and the Hospital Corporation of America, or HCA, began talking about building a new hospital in 2001. But Virginia is one of the 36 states with a “certificate of need” law, which requires health-care providers to obtain a state license before opening a new facility. Getting a license is supposed to take about nine months, according to the state Health Department. HCA first submitted an application in July 2002 but didn’t win approval for a new facility until early 2004.
Then the plan faced a series of legal challenges from the Inova Health System, an entrenched, multibillion-dollar competitor. Over decades Inova has become the dominant player in the Virginia suburbs.
. . .
It’s not hard to understand why Inova might fight so hard to keep out challengers: There’s a direct correlation between prices and competition. In a paper released in December, economists with Yale, Carnegie Mellon and the London School of Economics evaluated claims data from Aetna, Humana and UnitedHealth. They found that rates were 15.3% higher, on average, in areas with one hospital, compared with those serviced by four or more. In markets with a two-hospital duopoly, prices were 6.4% higher. Where only three hospitals compete they were 4.8% higher.
Research by Chris Koopman of the free-market Mercatus Center suggests that Virginia could have 10,000 more hospital beds and 40 more hospitals offering MRIs if the certificate of need restrictions did not exist. “In many instances, they create a quasi-monopoly,” he says. “In essence, it’s a government guarantee that no one will compete with you, until you get notice and an opportunity to challenge that person’s entry into that market.”

For the full commentary, see:
ERIC BOEHM. “CROSS COUNTRY; For Hospital Chains, Competition Is a Bitter Pill; Building a new medical center in Virginia can take a decade, because state laws favor entrenched players.” The Wall Street Journal (Sat., Jan. 30, 2016): A9.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date Jan. 29, 2016.)

The academic paper mentioned above that relates hospital charges to the number of hospitals in the area, is:
Cooper, Zack, Stuart V. Craig, Martin Gaynor, and John Van Reenen. “The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured.” NBER Working Paper # 21815. National Bureau of Economic Research, Inc., 2015.

Chris Koopman’s research, mentioned above, can be found in:
Koopman, Christopher, and Thomas Stratmann. “Certificate-of-Need Laws: Implications for Virginia.” In Mercatus on Policy: Mercatus Center, George Mason University, 2015.

A&P, Once Dominant Grocery Chain, Files for Bankruptcy Again

(p. B1) A&P, a former titan of the grocery industry, has filed for bankruptcy protection for the second time in five years and is trying to sell more than 100 of its stores.
The company, which owns Pathmark, Food Emporium and other food retailers clustered primarily in New York, New Jersey and Pennsylvania, said on Sunday that a restructuring in 2010 had failed to put it on secure enough financial footing to keep up with a shifting grocery landscape.
A&P, less commonly referred to as the Great Atlantic & Pacific Tea Company, has lost market share to competing stores like ShopRite and Stop & Shop Supermarket Company, as well Walmart and Target, retail giants that have spent the last few years expanding their offerings in the grocery aisles. A&P has debts of about $2.3 billion, court filings show, and assets of $1.6 billion.
. . .
Founded in 1859 as a mail-order tea business, A&P evolved into a discount food retailer that operated 16,000 stores by the mid-1930s and remained a dominant player in America’s grocery landscape into the second half of the century.
“It was truly a powerhouse,” said Marc Levinson, an independent historian and the author of “The Great A&P and the Struggle for Small Business in America.” “In those days, independent grocers were every bit as afraid of A&P as mom-and-pop retailers are today of Walmart.”
In 1912, A&P opened its first discount store in Jersey City. The idea of a retailer focused on low-cost groceries was novel at the time, and a reputation for rock-bottom prices helped the company flourish.
“They were opening stores literally more than one a day during World War I,” Mr. Levinson said.

For the full story, see:
RACHEL ABRAMS. “A&P Files for Bankruptcy and Aims to Sell 120 Stores.” The New York Times (Tues., JULY 21, 2015): B3.
(Note: ellipsis added.)
(Note: the online version of the story has the date JULY 20, 2015.)

Levinson’s excellent book on the economic history of A&P, mentioned above, is:
Levinson, Marc. The Great A&P and the Struggle for Small Business in America. New York: Hill and Wang, 2011.

Mast Brothers Started Their Chocolate Business in Their Apartment

The Masts provide another example showing the possibility of entry into the candy business. The issue is relevant to the claim of those who support sugar quotas, that a decline in sugar prices would not be passed on to consumers in the form of lower candy prices. If there is easy entry into the candy business, then the business is traditionally competitive, and lower costs of production will be passed on to consumers.

(p. A20) In an interview on Sunday [Dec. 20, 2015], Rick Mast, who with his brother began making chocolate in a Brooklyn apartment in 2006, said the allegations were untrue — for the most part. But on the claim that the Masts were “remelters” at the start, Mr. Mast confirmed the brothers did use industrial chocolate, what is known as couverture, in some of their early creations, before settling on the bean-to-bar process for which they are now known.

“It was such a fun experimental year,” Mr. Mast said, adding that the brothers were transparent “to anyone that asked.”

For the full story, see:
SARAH MASLIN NIR. “Unwrapping a Chocolatier’s Mythos.” The New York Times (Mon., DEC. 21, 2015): A20 & A22.
(Note: bracketed date added.)
(Note: the online version of the story has the date DEC. 20, 2015, and has the title “Unwrapping the Mythos of Mast Brothers Chocolate in Brooklyn.”)

Canadian Cartel Seizes 20,400 Pounds of Robert Hodge’s Maple Syrup

Video interviews related to the New York Times article quoted below.

(p. B1) The scenic and narrow lane that leads to Robert Hodge’s sugar camp is surrounded by a cat’s cradle of plastic piping that draws sap from 12,000 trees. At the end of the lane, a ramshackle hut contains reverse osmosis pumps to concentrate the harvest. A stainless steel evaporator, about the size of a truck, finishes the conversion into maple syrup.
Just one thing is missing: the maple syrup.
For weeks, security guards, hired by the Federation of Quebec Maple Syrup Producers, kept watch over Mr. Hodge’s farm. Then one day, the federation seized 20,400 pounds of maple syrup, his entire annual production, worth about 60,000 Canadian dollars, or nearly $46,000.
The incident was part of the escalating battle with farmers like Mr. Hodge who break the law by not participating in the federation’s tightly controlled production and sales system.
“It’s a good thing that I’m not 35, 40 years old because I’d pack up all my sugar equipment that’s movable, and I’d go to the United States — oh yes, in a minute, in a minute,” said Mr. Hodge, 68.
While many Americans associate Vermont with maple syrup, Quebec is its center. The province’s trees produce more than 70 (p. 4) percent of the world’s supply and fill the majority of the United States’ needs. The federation, in turn, has used that dominance to restrict supply and control prices of the pancake topping.
. . .
Mr. Hodge is similarly intransigent. At this point in the season, Mr. Hodge would normally have sold his syrup, turning his attention to his cattle and other crops. But this year he had nothing to sell. He contends that farmers should be allowed to set their own level of production and sell directly to large buyers, regardless of what the law says.
“They call us rebels, say we’re in a sugar war or something. I’ve heard rumors of that,” said Mr. Hodge, at his farm in Bury, Quebec.
“Yeah, I guess you could call it that.”
Across the table, Whitney, his 20-year-old daughter, who also farms, looked up from her smartphone and interjected.
“A war over maple syrup, like how pathetic can you get?”
. . .
Prices are set by the federation, in negotiation with a buyers’ group. The federation holds most of the power, given that it controls a majority of the world’s production.
Such domestic systems are facing scrutiny in a global marketplace. One major hurdle in the talks over the Trans-Pacific Partnership, a major trade deal with 12 countries, has been Canada’s refusal to dismantle a similar quota system for dairy and poultry farmers.
Maple syrup buyers, including some American companies, have bristled at the federation’s tactics. They appreciate the steady supply. But some have taken issue with the aggressive enforcement efforts, including large fines for companies buying from Quebec producers outside the system, and the rising prices.
The situation, critics contend, could prompt buyers and producers to shift to the neighboring province of New Brunswick, and Vermont in the United States. Or consumers might simply pour artificial syrup instead.
“People will always eat chicken,” said Antoine Aylwin, a Montreal lawyer who has represented several buyers in disputes with the federation, including some American companies. “But they will not always eat maple syrup if they think that they can’t afford it.”

Defying the Law
Mr. Hodge was shocked in 2009 when the federation demanded 278,000 Canadian dollars for not joining the system and for selling directly to a buyer in Ontario.
Most years, Mr. Hodge’s sugar bush grosses about 50,000 Canadian dollars. About half the money goes to cover electricity for the vacuum pumps and oil for the evaporator.
“I’d have to give them 100 percent of what I gross for five years, and I would have nothing for production cost,” he said. “That just ain’t possible.”
Mr. Hodge openly acknowledges that he is defying the law. When the quota and centralized selling system were introduced, he continued to sell directly to a buyer in Ontario.
. . .
Like others who have invoked the federation’s wrath, Mr. Hodge’s battle seems as much about principle as avoiding a potentially crippling fine.
In Mr. Hodge’s view, the system’s restrictions are stunting the growth of Quebec’s industry. It is less bureaucratic and less expensive, he explains, for buyers to go to Vermont or New Brunswick. He said that he had no problem with paying the federation its 12 cents a pound tax for various services, like promoting maple syrup in new markets, particularly in Asia. But he will not adhere to the quotas.
“Well, I don’t accept the system because I don’t believe in not being able to sell our product,” he said. “We just think that that product is ours. We bought the land. We’ve done all the work. Why should we not be able to sell our product the way we want as long as we legitimately put it on our income tax?”
That’s a question that exasperates Mr. Trépanier of the federation. While Mr. Trépanier studiously avoids calling the organization a cartel, he has described it as the OPEC of maple syrup in the past, referring to the group of oil-producing countries. The system, he said, is doomed to collapse without production discipline.

For the full story, see:
IAN AUSTEN. “The Maple Syrup Mavericks.” The New York Times, SundayBusiness Section (Sun., AUG. 23, 2015): 1 & 4.
(Note: ellipses added.)
(Note: the online version of the story has the date AUG. 20, 2015, and has the title “Canadian Maple Syrup ‘Rebels’ Clash With Law.”)

Entrepreneurs Who Pay Taxes “Expect Services–Like Justice”

(p. B3) ATHENS — Demetri Politopoulos, the founder of a midsize beer producer in northern Greece, says he nearly fainted when he heard the news late one night in October.
The Greek Parliament was planning to pass a law that would increase the tax he paid for each hectoliter of beer he sold by 50 percent.
Just like that, the microbrewery he started 17 years ago would go under, as his new tax bill of 1.6 million euros would wipe out his expected 1.45 million euros in profit for the year.
. . .
He started his business in 1998, but even as demand for his Vergina beer grew, his share of the market stayed in the low single-digits as the market leader did all in its power to prevent shops and restaurants from selling his product.
. . .
In 2005, Mr. Politopoulos took his case to the Hellenic Republic Competition Commission, citing numerous examples of what he said were unfair business practices by Heineken, from persuading retailers to not stock Vergina to more serious examples of bullying and intimidation.
But as is often the case in Greece, his petition went nowhere.
With Greece under unremitting pressure to find new revenue sources, the idea to close the gap between the way small and large brewers are taxed may have seemed a good idea.
That is, until Mr. Politopoulos took the floor in Parliament on Nov. 2.
“We are proud to pay taxes in Greece, but this is going to put us out of business,” he said. “And when we do pay our taxes, we expect services — like justice. Without justice in a society, there is nothing.”
His 10-minute declamation hit a cord. A video of the speech went viral and parliamentary members rallied to his cause.
Indeed, concerns are growing here that in a rush to raise much-needed revenue, Greece and its creditors are placing an unfair burden on an already decimated private sector.

For the full story, see:
LANDON THOMAS Jr. “A Greek Dvid Lands Some Big Punches.” The New York Times (Sat., DEC. 12, 2015): B3.
(Note: ellipses added.)
(Note: the online version of the story has the date DEC. 11, 2015, and has the title “In Greece, Brewer’s Woes Reflect Struggle of Business Owners.”)

French Billionaire Entrepreneur Starts Small and Cuts Costs

On Mon., October 13, 2014, Iliad dropped its bid for T-Mobile, after lack of interest from some of the T-Mobile board and from the majority owner, Deutsche Telekom AG.

(p. B1) Iliad wants to improve T-Mobile US’s cost structure by applying its own ultraslim cost base, under which it has kept costs to a minimum in everything from IT services to back office to equipment purchases. Iliad estimates it will be able to save about $2 billion annually by cutting out costs such as sending paper bills, and savings on equipment and IT systems, Mr. Niel said.
. . .
(p. B4) . . . before Mr. Niel can execute his American dream, Iliad has to win over T-Mobile US’s board, which could prove a formidable challenge.
. . .
He says he is sticking to the same principle that has guided his ascent from a teenage computer programmer in a working class Paris suburb to one of France’s richest men.
“I always follow the same idea: Start small and disrupt to create something big,” he said.

For the full story, see:
RUTH BENDER. “Will This Billionaire Bring $3-a-Month Phone Plans to U.S.?” The Wall Street Journal (Sat., Aug. 2, 2014): B1 & B4.
(Note: ellipses added.)
(Note: the online version of the story says it was updated on Aug. 4, 2014.)

Not Clear If Net Neutrality Is Good for Consumers

(p. B2) Of course, government antitrust and communications policy is supposed to benefit consumers, not any individual company or group of companies. “It’s fair to say Netflix has gotten something of a free pass,” said Scott Hemphill, visiting professor of antitrust and intellectual property at New York University School of Law. “This open Internet principle that’s in ascendance is certainly good for Netflix. It’s harder to say it’s good for consumers.”
. . .
Despite Netflix’s arguments that it shouldn’t have to pay fees to a broadband provider, that proposition is hardly self-evident. The fees Netflix so fiercely opposes are analogous to those found in many industries, such as credit cards, where both consumers and merchants pay the credit card companies. “It’s hard to say if these fees are good or bad for consumers,” Professor Hemphill said.

For the full story, see:
JAMES B. STEWART. “Common Sense; Netflix’s Invisible Hand In Policy and Mergers.” The New York Times (Fri., MAY 29, 2015): B2-B3.
(Note: ellipsis added.)
(Note: the date of the online version of the story is MAY 28, 2015, and has the title “Her Majesty’s Jihadists” which was also the title used on the cover, but not at the start of the actual article on p. 42, which has the title “Common Sense; How Netflix Keeps Finding Itself on the Same Side as Regulators.”)

Occupational Licensing Creates Cartels

(p. 251) Aaron Edlin and Rebecca Haw discuss “Cartels by Another Name: Should Licensed Occupations Face Antitrust Scrutiny?” “Once limited to a few learned professions, licensing is now required for over 800 occupations. And once limited to minimum educational requirements and entry exams, licensing board restrictions are now a vast, complex web of anticompetitive rules and regulations. . . . State-level occupational licensing is on the rise. In fact, it has eclipsed unionization as the dominant organizing force of the U.S. labor market. While unions once claimed 30% of the country’s working population, that figure has since shrunk to below 15%. Over the same period of time, the number of workers subject to state-level licensing requirements has doubled; today, 29% of the U.S. workforce is licensed and 6% is certified by the government. The trend has important ramifications. Conservative estimates suggest that licensing raises consumer prices by 15%. There is also evidence that professional licensing increases the wealth gap; it tends to raise the wages of those already in high-income occupations while harming low-income consumers who cannot afford the inflated prices.” “We contend that the state action doctrine should not prevent antitrust suits against state licensing boards that are comprised of private competitors deputized to regulate and to outright exclude their own competition, often with the threat of criminal sanction.” University of Pennsylvania Law Review, April 2014, pp. 1093-1164. http://www.pennlawreview.com/print/162-U-Pa-L-Rev-1093.pdf.

Source:
Taylor, Timothy. “Recommendations for Further Reading.” Journal of Economic Perspectives 28, no. 3 (Summer 2014): 249-56.
(Note: ellipsis in original.)

Delta and Atlanta Protect Their Huge Hartsfield-Jackson Airport from Little Silver Comet Field

(p. B6) DALLAS, Ga. — Airports do not get much smaller than Silver Comet Field at Paulding Northwest Atlanta Airport, where an undeveloped two-lane road weaves to a church-quiet setting framed by small hills.
On a recent weekday morning, four small business jets were planted on the tarmac, if it can be called that. Nine automobiles dotted the parking lot, most of them driven there for a meeting. Outside the two-story building that serves as the terminal, which was reminiscent of a lodge in off-peak season, there was no sign of human life.
Only 50 miles away sits the world’s most bustling airport, Hartsfield-Jackson. It maintains a monopoly on commercial flights in Atlanta, the largest metropolitan region without a secondary airport.
Paulding Northwest would like to change that grip on the market. The airport has applied for a commercial license so it can introduce two flights a week, and has since encountered stiff opposition.
Leading the charge against the bid is the Atlanta-based Delta Air Lines, which averages about 1,000 daily departures from its sprawling hub.
But the airport’s supporters are crying foul, saying that Delta, along with the city of Atlanta, which owns Hartsfield-Jackson, has managed to throw up a series of barriers, legal and political, against the bid.

For the full story, see:
MIKE TIERNEY. “Fighting for 2 Fights a Week.” The New York Times (Tues., DEC. 23, 2014): B6.
(Note: the online version of the story has the date DEC. 22, 2014, and has the title “Tiny Airport Fights for Sliver of Atlanta Market.”)