The Federal Trade Commission (FTC) issued comments Sept. 11 in support of a proposed U.S. Department of Agriculture (USDA) rule that “seeks to clarify the scope of what constitutes unfair practices under the Packers and Stockyards Act (PSA), which assures fair competition and fair trade practices to protect farmers, ranchers, growers, and consumers.”
In the abstract, “fairness” is a fine thing—or, at least, a fair one. And covered entities ought to obey the law. But why is the commission chiming in to deny the importance of competitive harm in USDA regulations implementing the PSA?
Packers and stockyards? Yep. Those who follow antitrust (and FTC enforcement within and without antitrust) know that the PSA is one of the express statutory exceptions to the scope of the FTC’s Section 5 authority. That is, the commission is empowered to prevent “persons, partnerships, or corporations . . . from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce” across most of the economy.
Most, but not all.
The FTC’s authority does not apply to, for example, banks, federal credit unions, savings and loan institutions, or air carriers, foreign and domestic. And subject to a narrow exception to the exception, it does not apply to persons, partnerships, or corporations “insofar as they are subject to the Packers and Stockyards Act, 1921.” Hmm.
To be fair, the FTC may exercise jurisdiction over such firms under limited circumstances. So, for example, if it’s a matter “involving meat, meat food products, livestock products in unmanufactured form, or poultry products . . . . When the Secretary [of Agriculture] . . .requests of the Commission that it make investigations and reports in any case.” So, the carveout notwithstanding, the FTC may have something to do with some of the commerce covered by the PSA, at least under certain conditions.
But to be a little more critical, not so much. The limited window of potential jurisdiction is not an exception that swallows the general rule—not by a long shot. Search the FTC’s enforcement-actions page under “packers,” “stockyards,” or “packers & stockyards” and nothing comes up. Trying “meat” doesn’t help; neither does “livestock.”
Of course, the FTC has scrutinized proposed mergers in related industries, such as a 2004 merger that raised concerns about phytase, an enzyme added to certain animal feed to promote digestion of nutrients important to livestock production. But that was a competition challenge under Section 7 of the Clayton Act and Section 5 of the FTC Act, not a PSA matter; and it was resolved under a consent order that included divestiture of the phytase assets at-issue.
The only thing that comes up of direct relevance to the PSA is 2020 comment, by a single commissioner (then-Commissioner Rohit Chopra) on another regulatory proposal by the USDA. Those comments happened to oppose the proposed rule in question. They were of dubious analytic quality, imported none of the commission’s experience and expertise and, as far as I know, had no more impact than expected. No matter. The searchable database does not cover all matters since the FTC’s inception (by statutory authorization in 1914 in actual operation in 1915), but it is substantial. So, at least in this century, and much of the last, nada.
The letter does cite to a history of FTC/USDA collaboration, including a 1919 investigation of, and report on, the question: “whether there was reason to believe that the production, preparation, storage, distribution and sale of foodstuffs were subject to control or manipulation.” Legitimate topics, but…1919?
Not just 1919, as I’m not prepared to gainsay the commission’s 2024 claim that “The FTC’s report also prompted Congress to pass the PSA in 1921.” In addition, the FTC notes that the report led to a 1925 consent decree, secured with the aid of the U.S. Justice Department (DOJ), to enjoin anticompetitive horizontal agreements among five competitors. That takes us from the latter days of the Wilson administration well into the Harding administration. Is the experience and expertise still fresh? Are any of the staffers who worked on the 1917 report still alive a century (plus seven years) later?
I don’t know that the comments will do any special harm, but it’s still a bit odd—not least because, whereas some courts require a showing of competitive injury under certain provisions of the PSA, the commission writes to argue that “the plain text of the PSA’s § 202(a) affirms Congress did not intend the PSA to require for proof of an adverse effect on competition as an element of a claim, as § 202(a) lacks any textual limitation to acts having an adverse effect on competition.”
Maybe that’s the best reading of the PSA—I’m not arguing the point one way or the other—but what’s the FTC’s special expertise here? Historically, competition advocacy before other federal agencies has sought to provide competition expertise and to advocate that rulemaking and administration take competitive effects into account, to the extent consistent with the agencies’ statutory charges. Here, they seem to be writing to suggest, nah, never mind that, because of . . . the agency’s unique expertise in statutory construction and regulatory implementation?
Whatever Happened to Competition Advocacy?
From time to time, I’ve lamented the gutting of the FTC’s long-vaunted competition-advocacy program, while recognizing that it’s not quite dead yet. I’m not the only one (I’m here and here; former FTC General Counsel Alden Abbott is here). I was glad to see the FTC advocating against certificates of public advantage (COPAs), which largely function as get-out-of-antitrust-scrutiny-free cards for otherwise anticompetitive health-care transactions, and which tend to raise prices for and suppress access to (supply of) health-care services. See an FTC staff policy paper here; FTC staff comments to state legislatures here and here; and my own discussions endorsing the advocacy here and here.
As I have written here before:
The staff’s thorough comments reflect investigation of the proposed merger, recent research, and the FTC’s long experience with COPAs. In brief, the staff identified anticompetitive rent-seeking for what it is. Antitrust exemptions for health-care providers tend to make health care worse, but more expensive. Which is a corollary to the evergreen truth that antitrust exemptions help the special interests receiving them but not a living soul besides those special interests. That’s it, full stop.
Good for the staff who drafted those advocacy pieces.
I have, however, lamented the dearth of such comments under current leadership, not to mention the dearth of competition expertise (or even arguments) in the commission’s advocacy on behalf of overly broad application of march-in rights, which are supposed to provide for very limited, special-case suspensions of innovators intellectual-property rights, such as developers of new pharmaceutical drugs. You can find me lamenting here; read my International Center for Law & Economics (ICLE) colleague Kristian Stout here; and, again, Alden Abbott here.
The FTC, opining on a draft framework and request for information from the National Institute of Standards and Technology (NIST), advocated for “an expansive and flexible approach to march-in rights, including providing that agencies can march in on the basis of high prices.” That is, the FTC advocated for an “expansive and flexible approach” to suspending statutory IP protections without any allegation of an antitrust violation or, say, that the protections were improperly granted or claimed.
Similarly, I complained about the plain misstatement of the economic literature on physician noncompete agreements by FTC staff. In brief, in a letter to the Oregon Legislative Assembly advocating for a state-law prohibition of physician noncompetes, the director of the FTC’s Office of Policy Planning touted the FTC’s “extensive discussion of the literature, studies, and evidence on the effects of non-compete clauses,” including, specifically, “[e]vidence that non-compete clauses reduce earnings for both workers who are and who are not covered by non-compete clauses.”
Physician noncompetes may, indeed, have anticompetitive effects under various circumstances, as I’ve analyzed here. Curious, however, was a certain lacuna in the FTC’s expert contribution to state policymaking. I had to wonder:
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 physician compensation? 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?
Kroger Case Coming to a Close
Moving on to enforcement matters (and ones vaguely related to the PSA, at least in having to do with food), the FTC has scrutinized proposed mergers in the retail-grocery industry. But these, like the 2004 matter, involved enforcement of the Clayton and FTC acts, not the PSA.
Has scrutinized, and is scrutinizing: the FTC is seeking to block Kroger’s acquisition of Albertsons and the trial is winding down, with closing arguments expected early next week. The FTC might well prevail, at least at the trial level, although parts of their case look challenging, if not suspect. While it is indeed a large transaction, the combined firm would still account for a relatively small percentage of grocery sales nationwide—substantially less than that of Walmart, for example. Perhaps more to the point, workable divestitures would seem to be available in most of the specific locales where post-merger concentration might be worrisome.
Market definition in the FTC’s case also seems arguable, as the FTC seeks to exclude, for example, Costco from its retail “supermarket” definition, even though Costco sells more groceries than Albertsons does, just as it seeks to exclude natural-foods groceries and other specialty competitors. The FTC’s focus on the purported impact of the merger on the bargaining power of unionized grocery workers, in particular, also appears challenging, as well as hard to reconcile with the allegation that the merger will lead to higher consumer prices. That is hardly a full-scale analysis, but I can point readers to a more careful discussion in a white paper by my ICLE colleagues Brian Albrecht, Dirk Auer, Eric Fruits, and Geoff Manne here, as well as further discussion by Brian Albrecht, Alden Abbott, and Eric Fruits and Geoff Manne.
Getting Real About RealPage
Moving on down Pennsylvania Avenue to the Antitrust Division, the DOJ—together with the attorneys general of North Carolina, California, Colorado, Connecticut, Minnesota, Oregon, Tennessee, and Washington—has brought an interesting case against RealPage, alleging that its pricing software suppresses competition among landlords in various apartment-rental markets, in violation of Sections 1 and 2 of the Sherman Act.
And maybe they’re right. In the press, this looks like a price-fixing case but, as my colleague Mario Zúñiga points out in a very useful primer on the matter, that’s not quite what the DOJ has alleged. A straightforward price-fixing case—which would allege a per se violation of Section 1 of the Sherman Act—would be a slam dunk, were the facts to support it. It would also require evidence of an actual agreement between horizontal competitors—although the evidence could be direct or indirect, and the collusion could be coordinated by a “hub-and-spoke” conspiracy. In this case, RealPage would be the hub, and the software would provide the spokes connecting the various landlords through that hub.
What’s complicated? Well, algorithmic pricing could facilitate anticompetitive collusion and anticompetitive information sharing, but not all information sharing is anticompetitive, and algorithmic pricing need not be anticompetitive either. It could, in fact, be procompetitive. Indeed, as Mario points out, it need not lead to lower prices to avoid antitrust sanction.
What looks bad here, for RealPage, are some “hot docs.” On the one hand, I often view hot docs through doubt-colored glasses—snippets culled from thousands (or millions) of documents may or may not say much about the conduct at-issue, much less its actual or likely effects. On the other hand, in a price-fixing case (if this were a price-fixing case), such documents can provide direct evidence of the requisite agreement. And, in any case, some of these look pretty bad. Here are a couple from the DOJ, via Mario’s primer:
In its own words, RealPage “helps curb [landlords’] instincts to respond to down-market conditions by either dramatically lowering price or by holding price when they are losing velocity and/or occupancy… Our tool [] ensures that [landlords] are driving every possible opportunity to increase price even in the most downward trending or unexpected conditions.”
In fact, as RealPage’s Vice President of Revenue Management Advisory Services described, “there is greater good in everybody succeeding versus essentially trying to compete against one another in a way that actually keeps the entire industry down”. As he put it, if enough landlords used RealPage’s software, they would “likely move in unison versus against each other” (at 1, emphasis in the original).
Oooh, that first bit doesn’t look good. The second one kind of looks like a pitch to be a hub in a hub-and-spoke conspiracy. Note to self: if I ever want to fix prices, take a deep breath and just say no. Also, not to shill for my pals in the consulting and lawyering businesses, but sometimes it’s handy to consult antitrust counsel before shooting yourself in the foot. (Also, in another note to self: next time you go out to the Bull Run Shooting Center, don’t shoot yourself in the foot.)
We’ll learn more about the case as things move along. In the meantime, this may be a good complaint. Whether algorithmic pricing merits any more general concern is harder to say. Case by case, and code by code, the agencies will need to muddle through.
