WASHINGTON - U.S. Senators Amy Klobuchar (D-MN) and Mike Lee (R-UT), Chairwoman and Ranking Member of the Senate Judiciary Subcommittee on Competition Policy, Antitrust, and Consumer Rights, held a hearing on trends in vertical merger enforcement.
“For too long, I believe there has not been enough attention paid to another kind of merger that can greatly harm consumers: the vertical merger. Vertical mergers happen when a company buys a supplier, distributor, or retail locations above or below them in the supply or distribution chain. For years, companies have argued that this kind of vertical integration helps consumers by lowering their costs. But it's not really the story,” said Klobuchar.
“Vertical mergers can also allow companies to amass market power and clout that they can use to unfairly leverage power against their competitors. These mergers can also create potential conflicts of interest by incentivizing companies to preference their own products over the products of competitors,” Klobuchar continued. “It's beyond time that we stop ignoring the problems that vertical mergers pose for competition.”
A transcript of Klobuchar’s full opening statement is below:
I think we all know that for years competition policy has focused on mergers of two companies that sell the same or similar products or services. Those so-called horizontal mergers clearly impact competition. When two companies that previously competed to offer consumers high-quality goods or services at a good price merge, it makes the market less competitive and gives consumers fewer choices.
We saw this after, say, T-Mobile and Sprint merged when consumers were left with one less option for phone service. It's important that we continue to police mergers between competitors, but those mergers cannot be our only focus.
For too long, I believe there has not been enough attention paid to another kind of merger that can greatly harm consumers: the vertical merger. Vertical mergers happen when a company buys a supplier, distributor, or retail locations above or below them in the supply or distribution chain. For years, companies have argued that this kind of vertical integration helps consumers by lowering their costs. But it's not really the story.
Vertical mergers can also allow companies to amass market power and clout that they can use to unfairly leverage power against their competitors. These mergers can also create potential conflicts of interest by incentivizing companies to preference their own products over the products of competitors. Sounds familiar for those of us that have been working on tech legislation.
There was a time when vertical mergers were a key part of antitrust enforcement. One of the most significant antitrust cases ever brought was the Department of Justice's suit against Standard Oil. DOJ argued way back then that Standard Oil used its power in the oil refining business to buy and expand its monopoly power from refining to other parts of the oil supply chain, including production, pipelines, and even gas stations. The DOJ won that case and Standard Oil was broken up. Yet in the last half century we have forgotten that lesson.
Since the 1980s, antitrust enforcers have largely ignored the way vertical mergers can entrench monopoly power. Instead of considering a merger’s anti-competitive impact in the long run, enforcers have too often taken businesses at face value when they say that buying a company up or down the supply chain will lower prices for consumers.
In January, and this is a good example of this, we held a full committee hearing on how Ticketmaster’s 2010 merger with Live Nation has allowed Ticketmaster to wield power over artists, venues and consumers, which has resulted in high fees and botched ticket sales. It was a highly bipartisan hearing.
Before the merger, Live Nation was primarily a concert promoter. But since acquiring ticketing provider Ticketmaster, Live Nation has used its role as a concert promoter to force venues to sell tickets through its newly acquired platform. This has decimated competition in the ticketing industry, and resulted in higher fees for consumers.
Unfortunately, this is not a surprising result. At the time of the merger, DOJ was so concerned that something like this might happen that it made Live Nation promise not to retaliate against concert venues for using another ticketing company. But guess what? That didn't work. Live Nation’s conduct created such an issue that in 2019, DOJ reopened the consent decree and strengthened the limits on Live Nation. So that's one example.
Another example, something Senator Lee knows well: Google advertising. In May, we held a hearing in this Subcommittee on Google's dominance in the digital advertising space. But Google's dominance in online advertising was no accident. Google was already a significant player in the online advertising industry when it acquired the largest online ad publisher business, DoubleClick, in 2007. In hindsight, this merger effectively cemented Google's online advertising monopoly. The FTC cleared the deal largely because it assumed, contrary to what we know now, that vertical mergers are almost always good.
One former Commissioner, Bill Kovacic, who voted to allow the acquisition recently told the New York Times, if I knew in 2007 what I know now, I would have voted to challenge the DoubleClick acquisition.
It's beyond time that we stop ignoring the problems that vertical mergers pose for competition. That's why I have introduced, along with Senator Grassley, the American Innovation and Choice Online Act to put in place some rules of the road. It is why Senator Lee has worked on the advertising issue with regard to Google, the AMERICA Act, to resolve many of the problems that have resulted from Google's DoubleClick acquisition, and I've been proud to join him on that bill.
We are not the only ones who think that it's time to rethink how to approach vertical mergers. Just this morning, we got news that the DOJ and FTC have released new merger guidelines, including updated guidance on how enforcers should consider the harms posed by vertical mergers. These proposed guidelines take an important step toward ensuring that enforcers consider how markets, including digital markets, actually work before deciding to allow a merger to go forward. They acknowledge that it is not enough to assume that consumers will benefit when a company buys a supplier or a tech company acquires an up-and-coming technology.
Under the new guidelines enforcers must focus on the facts of the market in front of them, rather than on outdated assumptions. These new guidelines will move us closer to addressing the problems that vertical mergers can create. I turn it over to Senator Lee for his opening remarks. Thank you.