Antitrust at the Agencies Roundup: Supply Chains, Noncompetes, and Greedflation

Cite this Article
Daniel J. Gilman, Antitrust at the Agencies Roundup: Supply Chains, Noncompetes, and Greedflation, Truth on the Market (March 21, 2024),

The big news from the agencies may be the lawsuit filed today by the U.S. Justice Department (DOJ) and 16 states against Apple alleging monopoly maintenance in violation of Section 2 of the Sherman Act. It’s an 86-page complaint and it’s just out. I’ll write more about it next week.

Two quick observations: First, the complaint opens with an anecdote from 2010 that suggests lock-in (a hard case under antitrust law), but demonstrates nothing. Second, the anecdote is followed by a statement that “[o]ver many years, Apple has repeatedly responded to competitive threats… by making it harder or more expensive for its users and developers to leave than by making it more attractive for them to stay.” 

I’m not going to pretend to bless every bit of Apple’s conduct “over many years”—not least because I haven’t reviewed nearly all of it, and there really can be complex issues in that very big mix—however curious things seem at 30,000 feet. But the second part of the DOJ’s gloss on their allegation does make one wonder.

I happen to have an iPhone now (partly because my employer gave it to me). But “over many years,” I’ve had phones from several manufacturers—even two at once. Could I switch from Apple? Sure. I’d have to pay for a different phone with my own money (ick). But I could buy an alternative and I’d be able to use it just fine. I would not have to consult my (computer-science student) son or my wife (my partner in all things except tech support; she is my tech support and I’ve got nothing to give in that area).

Has cell-phone quality improved over the many years? Features? Um . . . yeah. That doesn’t prove that there wouldn’t be more or better but for someone’s conduct, but . . . there are other phones, all sorts of cool features, and I HAD A BLACKBERRY. Heck, my first cell phone was mostly just a phone. 

You’re Pulling My Supply Chain, Aren’t Ya? 

Today also featured an open meeting of the Federal Trade Commission (FTC), with two or three orders of business, depending on how you count:

  1. A series of two-minute statements from various members of the public on this or that;
  2. Amendments to the telemarketing-sales rule (including both a final rule and a notice of proposed rulemaking); and
  3. An FTC staff report, “Feeding America in a Time of Crisis: The United States Grocery Supply Chain and the COVID-19 Pandemic.”  

A few words on the report. First, an apology for (and to) the staff: it’s not a good report, but that’s not really the staff’s fault. Read the section on study design at Page 3 and the announcement of the “study,” and you might well conclude that no economists were harmed or even mildly inconvenienced in the study’s design. Assign a handful of smart, conscientious lawyers a hopeless task, hundreds of thousands of documents, and no systematic or uniform data and . . . it could have been a lot worse.

On study design, they responsibly note that:

the conclusions reported here are based on specific information, but they do not measure the wider prevalence of observed practices or the magnitude of their impact on competition.

Right. One might even say that one shouldn’t jump to any conclusions about the present state of competition in the grocery retail, wholesale, and production sectors, or about anticompetitive conduct in those sectors, based on the report. (Ok, I’m saying it.)

As a descriptive matter, the overview of the many moving parts in the various supply chains is potentially useful, as are descriptions of various complications, both isolated and interrelated. 

One could even attempt an apology for the commission. Supply-chain disruptions were far from trivial, and pressure came from all corners (including both ends of Pennsylvania Avenue) to do something. Chair Lina Khan’s remarks at the open meeting reflect some of that, noting a “whole of government” approach and administration initiatives spread across several executive agencies.

Still, the document requests (via Section 6(b) orders, that is—compulsory process) to three large grocery retailers, three large wholesalers, and three large producers was a recipe for disaster, and it’s the commission that set the study’s terms and blessed issuing the report. 

Why is the n nine, you might ask (or three sets of three, or not really an n)?  Compulsory orders issued under Section 6(b) of the FTC Act can be issued to numerous firms, but if they are asking questions of 10 or more firms, the Paperwork Reduction Act requires that they jump through various hoops and receive approval from the Office of Management and Budget. Sometimes they do just that, but it’s no small thing. It’s nine so as to avoid the no small thing. 

Given the three, three, and three, why those firms? It’s plain enough that those are all big players, but there’s no real explanation of the sample selection. So there’s that. Or isn’t. Amazon is a large retailer, not just (or mainly) via Whole Foods but, well, the FTC seems to really like investigating Amazon. We call that “revealed preference.” 

While the report’s conclusions are qualified, those conclusions—and Chair Khan’s gloss on them—do sound in the “big is bad” chorus and intimate a need to investigate (contemplate? Initiate?) intervention. For example, noting that, “on one measure of annual profits for food and beverage retailers” (emphasis added) profits rose (reaching 7% in the first three quarters of 2023, versus 5.6% in 2015). According to the report:

This casts doubt on assertions that rising prices at the grocery store are simply moving in lockstep with retailers’ own rising costs. These elevated profit levels warrant further inquiry by the Commission and policymakers.

But wait, there’s more: 

Some firms seem to have used rising costs as an opportunity to further hike prices to increase their profits, and profits remain elevated even as supply chain pressures have eased.

Right. The cover story. Maybe not?

But first, note a disclaimer in the report: “This study did not test whether the specific companies that received 6(b) Orders increased their prices by more or less than their input cost increases.” So, it’s not a finding that certain retailers, or certain large retailers, or any retailer in particular, “increased their prices by more or less than their input cost increases.”

Was the Amazon delta bigger than that at the bodega where I get tamales? Well, the FTC didn’t issue orders to the bodega, or to any other small or mid-sized retailer, and they don’t have a finding on that, anyway. 

I suppose one can infer something other than perfect, idealized, undifferentiated competition in retail-grocery markets—at least, if one likes that one measure. But so what? A monopolist doesn’t need “cover” to raise prices. And while it will likely pass on some of its cost increases to consumers, a profit-maximizing monopolist will not pass on all of its cost increases. That is, we can expect its markups to decline, not rise, as costs increase.

If this is unfamiliar or unintuitive, my International Center for Law & Economics (ICLE) colleague Brian Albrecht has a nice clear post on markups, pricing, and purported explanations (like greed), for those interested in an accessible  primer (here). And there’s this, and this on “greedflation” and price theory from Josh Hendrickson, as a useful addition.

More on the “greedflation” business (or nonsense) below.

Also, while the report doesn’t quite say so, Chair Khan’s open-meeting remarks made clear that she’s wondering if there might be some good Robinson-Patman cases in this area. Good, bad, or ugly, I’ll bet that she finds something.     

Sins of Omission

As the FTC notes in its “Deception Statement,” one can violate Section 5 of the FTC Act by a “representation, omission or practice that is likely to mislead the consumer.” (emphasis added) That is, the FTC Act contemplates sins of omission, as well as sins of commission. Or, if not sins, then federal civil violations. I’ll get back to that.

From time to time (for example, here and here), I’ve applauded the resurfacing of the FTC’s much lauded competition-advocacy program (see Alden Abbott’s post here; former Chairman Bill Kovacic’s “FTC at 100” report here; former Acting Chair and Commissioner Maureen Ohlhausen here; Todd Zywicki, James Cooper, and Paul Pautler here; and Andy Gavil here). The program is not what it once was, but it’s “not dead yet,” and that’s been a good thing, for the most part. 

Still, a recent piece of advocacy—a letter from Office of Policy Planning Director Hannah Garden-Monheit to Oregon state Sen. Deb Patterson (D-Salem) about a proposal to, among other things, prohibit noncompete agreements for medical professionals—seems odd to me in several ways. 

It’s not about the topic. Restrictions on labor-market competition are a legitimate area of interest. The FTC has settled several matters in which it alleged that specific noncompete agreements were inconsistent with the FTC Act. This FTC has also published a notice of proposed rulemaking (NPRM) on noncompetes in the Federal Register.

I have many concerns about the FTC’s NPRM (see here and here, for example, and add Brian Albrecht here and here; Alden Abbott here; and Greg Werden here). Still, noncompete agreements—at least some terms, in some markets—can raise antitrust concerns, among others. These are acknowledged in, among many other places, a very critical review of the FTC’s NPRM by ICLE and numerous scholars of law and economics. There are, as well, reasons to be concerned about some physician noncompete agreements specifically, as I reviewed in a recent paper here

So what’s so strange? One is the emphasis on anecdote: about half of the evidence in Garden-Monheit’s letter consists of excerpts from statements submitted to the FTC by individual physicians about their personal experiences of noncompete restrictions. Of course, personal accounts can make problems vivid to policymakers, but they are, after all, just anecdotes. One might wonder the extent to which the seven selected excerpts represent the perspectives of the roughly 1 million practicing U.S. physicians, much less the real impact of varied noncompete terms on health-care providers, patients, or other payers. And the FTC’s potential value add—one expects or hopes—is that of an agency with special expertise in antitrust law and economics, not piquant narratives.

Another is a conspicuous lacuna in the four-page single-spaced letter. It notes that the FTC’s NPRM on noncompetes includes an “extensive discussion of the literature, studies, and evidence on the effects of non-compete clauses,” and, specifically, that it covers “[e]vidence that non-compete clauses reduce earnings for both workers who are and who are not covered by non-compete clauses…” 

Maybe. Sort of. There is very little literature on the direct impact of noncompete agreements themselves, but there are papers suggesting that, for example, the greater “enforceability” of noncompetes under state law is associated, on average, with lower wages for certain classes of workers. Most of those studies were not designed to show what’s causing lower wages, but let’s leave that aside.

A 2019 literature review from the FTC’s own Bureau of Economics noted that studies of wage effects—among others—report “mixed” results. (see John McAdams here). “Mixed” does not mean uniform or, in this case, even directionally consistent. 

That brings me to a paper that’s not mentioned at all, even though it was cited in the NPRM and was discussed at the FTC’s 2019 workshop on noncompetes: a 2020 paper by Kurt Lavetti, Carol Simon, and William White on “The Impacts of Restricting Mobility of Skilled Service Workers: Evidence from Physicians.” 

Why not mention a published and peer-reviewed paper that seems precisely on point, not to mention the only published empirical study of the impact of noncompete terms (and noncompete “enforceability”) on physicians? Might it have something to do with the paper finding that, for example, “noncompetes increase the annual rate of earnings growth by an average of 8 percentage points in each of the first 4 years of a job, with a cumulative effect of 35 percentage points after 10 years on the job”? Which really does seem contrary to the FTC narrative? 

One might not think the physician-compensation paper to be definitive. Fair enough. It’s an interesting and useful paper, but it’s one paper—subject to certain limitations—and the economic literature on noncompete terms is very much a work in progress. 

The McAdams literature review observes that “the more credible empirical studies tend to be narrow in scope, focusing on a limited number of specific occupations . . . or potentially idiosyncratic policy changes with uncertain and hard-to-quantify generalizability.” Certain issues run throughout the body of literature (in addition to my article above, the McAdams review, and the ICLE comments, see, e.g., Norman Bishara and Evan Starr here; the Global Antitrust Institute here; and ICLE here). 

Still, we’re not worried about generalizing from one profession to the very same profession. Any reservations one might have about the physician-compensation estimates go double (at least) for the paper the FTC cites on price effects (which is also an interesting paper, but subject to many questions and presenting an entirely dubious estimate—see my discussion here again).

Bottom line: if an expert agency offers to summarize its “extensive discussion of the literature, studies, and evidence on the effects of non-compete clauses,” including ““[e]vidence that non-compete clauses reduce earnings,” and the expert agency neglects to mention contrary results, including those of the only extant study of non-competes and physician earnings . . . 

Let’s put it this way: if the FTC were a private firm selling its advocacy position to Oregon, would this count as a material omission, in violation of Section 5 of the FTC Act? I mean, it’s not, not misleading.

And Another Thing . . . 

I wrote “that’s been a good thing, for the most part,” and I meant it, but several recent pieces of interagency advocacy are just plain odd. Back in February, I noted another sort of omission entirely in the FTC’s advocacy for “an expansive and flexible approach to march-in rights.” That is, the advocacy wasn’t missing a citation or two, it was missing anything recognizable as a competition argument.

As Zywicki, Cooper, and Pautler explain:

Competition advocacy, broadly, is the use of FTC expertise in competition, economics, and consumer protection to persuade governmental actors at all levels of the political system and in all branches of government to design policies that further competition and consumer choice. 

The 2022 and 2023 comments on certificates of public advantage (COPA) and other state-based attempts to shield certain health-care providers from antitrust scrutiny fit that definition well, building on decades of institutional experience and expertise on the topic. Some of the latest advocacies . . . not so much, and not so well. Maybe, and I’m just spit-balling here, a bit less politics and a bit more of that old expertise? 

Greedy for Greed? 

More hands across the agencies and the whole wide world of government: On March 5, the FTC, DOJ, and U.S. Department of Health and Human Services (HHS) separately announced that they’d “jointly launched a cross-government public inquiry into private-equity and other corporations’ increasing control over health care.” 

They also each did it somewhat differently. The HHS press release is titled “HHS, DOJ, and FTC Issue Request for Public Input as Part of Inquiry into Impacts of Corporate Ownership Trend in Health Care.” The announcement from the DOJ’s Antitrust Division is nearly identical; they just swapped the order of the agencies to put the DOJ first. And the FTC continued the me-first trend, but followed with a different spin: “Federal Trade Commission, the Department of Justice, and the Department of Health and Human Services Launch Cross-Government Inquiry on Impact of Corporate Greed in Health Care.” 

Technically, the three agencies jointly issued a request for information (RFI). And what better and less-biased way to solicit diverse and informative public input and commence an inquiry into ownership trends? 

Interestingly—or “interestingly”—the language in the FTC press release mirrors that of a White House fact sheet, which noted that the administration is “[l]aunching a cross-government public inquiry into corporate greed in health care.” 

I’ve yet to see a study design, much less a report on findings. For all I know, it’s just a coincidence that the “independent agency” used the White House language, while the cabinet-level executive agencies did not. After all, a press release is just a press release. Still, I wonder whether an inquiry into the moral fiber or foibles of corporate persons is the best way to learn about health-care markets or, for that matter, quite in the wheelhouse of the FTC, the division, or HHS.   

That’s not to say that everyone’s an angel or that health-care providers cannot violate the antitrust laws, among others. The next antitrust violation in the health-care sector will not be the first, second, or third. And such violations can do real harm to consumers—human persons, among others. Still, it’s a large and heterogeneous sector, and an RFI should signal the beginning of an inquiry, not its conclusion.

And by the way, yes, some people seem greedy, in the colloquial sense. But “greed” has no clear meaning in antitrust law and economics, and no explanatory value when it comes to analyzing pricing or acquisitions. None. ­

But the greedy refrain . . . oy. “Corporate greed in health care,” “greedflation,” etc. The supply-chain study. As an explanation for inflation?

Colorful rhetoric, perhaps, but economic nonsense. Again, the links from Brian Albrecht (here) and Josh Hendrickson (here and here) that I mentioned above may be helpful.