Loading summary
Transcript76 lines
- [00:01]
A
You're listening to Is Business Broken, A podcast from the Mehrotra Institute for Business, Markets and Society at Boston University Questrom School of Business. I'm Kurt Nickish. Antitrust is one of those terms we hear often but rarely stop to unpack. At its core, it's about reining in concentrated power. But in a world where digital platforms shape our choices and markets are evolving rapidly, the boundaries of competition and fairness seem to be shifting. Today, we're tugging on the loose threads of antitrust to see where they're unraveling. Who truly gets to compete? What keeps markets open and innovative? And how are new technologies testing the limits of rules written for another era? At a moment when the stakes feel higher than ever, we're asking, where? What should antitrust protect today? For this conversation, I'm joined by two experts, Dionne Lomax and Kathy Fazio. Both join us from BU questrom. Dion is a senior lecturer of markets, public policy and law. Dion, thanks for being here.
- [01:10]
B
Absolutely. Happy to be here. Thanks for having me.
- [01:13]
A
And Kathy is a clinical assistant professor and the associate dean of MBA programs. Kathy, thank you, too.
- [01:20]
C
I'm excited to be here. Thank you.
- [01:23]
A
So let's start this conversation with the word antitrust. The word itself is grounded in this idea that we should be against trusts, which is a little bit of a problematic word, right? Like, trust seems positive, high level, like, you know, why is that? Why is this antitrust?
- [01:40]
B
Back in the late 1800s, the word trust really referred to powerful business alliances. And in that sense, it was companies that were combined that essentially colluded and controlled the market. I think the best example of that is if you think back to Standard Oil, which was started by John D. Rockefeller, and that company was massive oil conglomerate, dominated refining and transportation and distribution, really across the country, and controlled the pipelines, controlled the railroads. And people got a little nervous, and they were like, this is kind of not a good thing. Not only does this restrict competition, but it is impacting the economy. Something must be done. And so in 1890, Congress passed this Sherman Antitrust Act. And the idea behind that landmark legislation was that it could ensure that markets would remain open, fair and competitive.
- [02:41]
A
So it's interesting, you know, this gilded age history. You are both former practicing lawyers. You also both worked for the Department of Justice in antitrust enforcement. You're now professors and teaching. When your students take antitrust law from you, do they come in thinking this is kind of like 1890 fuddy duddy law? That's settled. And it's kind of obvious if you're Coke, don't buy Pepsi, don't set prices with them, and you're going to be okay. Or do they have more to learn than that?
- [03:12]
C
I'll just come right out and say that my students expect the antitrust part of my class to be boring. They do. I think, though, once we get into it, they get really excited because it's rooted and in real things, in how markets evolve. How do you deal with technology that changes everything? How do you separate out protecting competition from protecting competitors? These are questions that they haven't grappled with before. And I think once they get into it, they get as excited as we do about antitrust.
- [03:52]
A
They may be working for some of these companies, but they're also consumers of Google and Apple and the big tech companies that a lot of people equate now with, like the standard oils of back in the day.
- [04:03]
B
Absolutely. And I think. Well, let me just say, you know, I'm actually developing an antitrust course at the School of Business that's going to launch as a pilot in the spring. And what's interesting is when people think about antitrust, the first thing they think about is monopoly and mergers. But what they forget is that antitrust is also a strategy. And when you think about business executives making pricing decisions, making decisions about how they're going to structure their contracts and what their contracting behavior is going to look like and how that's going to evolve, antitrust is at the background of all of those decisions, and that's what students are sometimes surprised to learn about.
- [04:46]
A
Okay, so on that note, right, we hear now that we're in an era of deregulation in the current administration, which is treating deregulation itself almost as an antitrust tool, a way to increase competition. What's happening there? Does regulation help or hinder innovation? How does it.
- [05:06]
B
Well, I'm going to give you the standard response that Kathy will recognize is sometimes the reason that people don't like lawyers very much, and that is, it depends. Some regulation is critical, as we all know. It protects consumers. It can ensure safety. It can create trust in the marketplace, which is absolutely true. But what we're seeing now is something pretty interesting, and that is the regulators are starting to look at the regulation itself as possibly being a hindrance to competition. Just a couple of months ago, the Federal Trade Commission issued what's being called as the Ferguson letter, and that letter was issued by the chair of the Federal Trade Commission, essentially urging antitrust authorities to, you know what? Let's take a close look at all of the Regulations that we have out there. And is regulation itself causing a competitive barrier? Is it causing a problem? Is it making it difficult for competitors to enter and to compete at the same time? You saw the US Department of Justice Antitrust Division develop an anti competitive regulations task force also in the same vein, to take this closer look at regulation.
- [06:21]
A
Now, task force sounds very like blah, but this is what I've read about this group is it's like it's got data scientists, economists, lawyers, it's like pretty complex. And a lot of people in business and in law are kind of watching this group to see what they actually go after.
- [06:37]
B
Absolutely.
- [06:38]
A
So what's an example of the things that they're looking at?
- [06:40]
B
Well, I think one of the examples for sure is a good example is certificate of need laws, laws that essentially require providers to obtain approval from the state regulatory bodies before they expand services, build facilities, acquire certain types of equipment. Some have said at the federal government, you know what, that's a barrier to entry. That's making it too difficult for other providers to enter and to compete effectively, essentially. And so that's kind of been an ongoing mantra by the agencies.
- [07:17]
A
Is this sort of a resource allocation motivation that was behind this originally? Like, don't let somebody go in and build hospitals where we already have some, because like we need to use our doctors and put our resources to where they're most needed.
- [07:32]
B
Absolutely, absolutely.
- [07:33]
A
So that was the thinking.
- [07:34]
B
That was the thinking.
- [07:36]
A
The unintended consequence that's now being scrutinized.
- [07:39]
B
Is that, yeah, the unintended consequences. Now that that's actually when in reality making it more difficult for others to enter the market to provide more options for consumers and potentially, you know, causing health care prices to rise, which is the exact opposite of what we want.
- [07:58]
A
So one example of this is a case in Nebraska where a startup wanted to drive seniors, like literally, you know, put them in a car and drive them to appointments.
- [08:07]
C
Right? Which just at first blush you would say that's a good thing, having helping elderly patients go to see their doctors. And it was a surprise to me because when I usually think of certificate of need laws, I think hospitals or building a new radiology department. And in that circumstance, it was an individual who wanted to start transport service.
- [08:40]
A
Small business owner.
- [08:41]
C
Small business owner. And the competitors in the market said, hey, there's no need for this, and got him blocked. And the antitrust lawyer in me looks at that and says, my goodness, right. That's a regulation that's operating to protect competitors, not seed competition. So building on just Great explanation that Dion gave. That's kind of exactly the point. That's why the DOJ efforts and the FTC efforts to say, let's identify regulations that might be acting to impede competition. That's why you see it carryover from administration to administration. Antitrust should be about protecting competition, competition, not picking winners. And when regulations have the opposite effect, then you do want the antitrust enforcer stepping in to say, hey, let's think about this a little bit more.
- [09:49]
A
Okay, so that's an example in the healthcare industry, but A, B2C business, right, that was being affected by this. Let's talk about antitrust in the labor market. How does that work? And non competes are a big topic here.
- [10:03]
C
They are a big topic and they're surprisingly common. You see them in all kinds of different employment agreements. And before we kind of dive into the topic, I just wanted to start with what are they? And so basically they're pretty common clauses that say you have to agree when you're starting a position that after you leave this job you can't work for a competitor. And sometimes they're fine. And I think when they got started where they aimed were high level positions, employees that might have access to trade secrets or proprietary information that might control a lot of client relationships. So if they move to a competitor, the employer they were leaving would really suffer.
- [11:01]
A
There was that famous case of an executive at. What's the name of the company?
- [11:06]
C
Were you thinking of Thomas English Muffins?
- [11:08]
A
Thomas English Muffins. Right, the Nooks and Crannies guy.
- [11:11]
C
Yeah, exactly, the Nooks and Crannies. I'm gonna go off on a tangent here.
- [11:16]
A
He was one of the few people who knew the recipe.
- [11:19]
C
So Thomas, it's an incredibly valuable recipe. The next time you're taking a bite out of your English muffin, think about it. The company had invested a tremendous amount of money in protecting that trade secret. There were only seven people total in the entire company that knew all the pieces of how you got those nooks and crannies. And so one of those seven got recruited to work for Hostess. I think it was, please forgive me if I've gotten the details wrong for competitor. And that would be the type of example where a non compete clause would say, hey, you and Thomases filed a motion for preliminary injunction to stop that from happening.
- [12:11]
A
Even in that case, there's a lot of debate about whether.
- [12:14]
C
Whether it might be good. I teach that case in intellectual property strategy because it's a great example of trade secrets.
- [12:23]
A
So we Think about that for like executives or like you know, top designers at like a tech company that they shouldn't go work for Google right away.
- [12:32]
C
And that makes sen. Right, like that actually makes sense. Dion, chime in here. Where doesn't it make sense?
- [12:37]
B
Well, here's where it doesn't make sense. When you're thinking about lower level employees that don't necessarily have trade secrets, that's where the regulators kind of step in and say, okay, wait, wait a minute, this has gone a bit too far. One very good example is this Prudential securities case, which was a settlement that the Federal Trade Commission entered into with that company because what they had essentially done, this was a Michigan based security services company.
- [13:06]
C
But it was big, right?
- [13:07]
B
Huge.
- [13:07]
C
Huge. Yeah, yeah.
- [13:08]
B
And one of the things that it had done essentially was enter into a non compete. It required their each security guard that worked for it to enter into a non compete agreement. And it was so onerous that essentially it said that if they left the company, they couldn't work for a competitor within 100 miles. Not only that, if they violated the non compete, they had to pay $100,000 in damages. And so this was a few years ago that this settlement was entered into. But it's been touted by the FTC as a perfect example of a non compete gone wrong.
- [13:48]
C
The company was really aggressive at seeking those kind of pre scripted penalties. So if a security guard, you know, lived in the neighborhood and went to work for a nearby company, there'd be threats of lawsuits. I can't imagine how scary that would be for somebody in an everyday job.
- [14:12]
A
And so antitrust regulators are looking at that, just thinking, well, you're using this now as a way to artificially depress their wages because they don't have competitive options, they can't go somewhere else for a raise. The antitrust enforcer there would say that these companies are misapplying, misusing non competes to essentially give them business advantages that they don't deserve.
- [14:36]
C
I agree with that.
- [14:36]
B
No, I think that that's right. And let me also say that this is not just something that the federal regulators have looked at. Now I will also say this. The FTC at one point in time, especially during the Biden administration, had proposed a new rule that would be a nationwide ban on non competes. It got challenged in the courts and it got struck down. However, they are of course, even in this administration on a case by case basis, going after and looking at things that seem egregious. The other thing that I'll add is that you see a number of state attorneys general also taking a close look at these. And so some states like California almost have a virtual ban on post employment non competes, except with respect to high level C suite level employees. States are saying, okay, you can have a post employment non compete, but just for a year, or you can have it, but not with respect to lower hourly wage employees.
- [15:34]
C
Well, and to build on that, you know, for lower hourly wage employees, they can't really bargain when they're accepting the job. It's not like if you're taking a job to work as a hairstylist at a hair salon that you can bargain over a non compete provision. It's kind of you take the job in the way it's offered to you or you don't take the job. And that to me is a big difference between some of the higher level kind of types of positions that you were bringing up, Kurt, where it is a bigger negotiation over salary and terms and things of that nature.
- [16:16]
A
Well, let's talk. If we're talking about catching up with sort of realities. Right. Or the way business is being done today, let's talk about how artificial intelligence is reshaping antitrust. What's the impact?
- [16:28]
C
AI is reshaping so much about how work happens, how businesses function. And antitrust is no exception. And I think we're still learning the full dimensions of how it will change antitrust. It's certainly changing how coordination between companies happens. And so a topic that has been really intriguing to me is collusion through AI algorithms. Super interesting. Not good, you know, don't do it.
- [17:08]
A
And just to like underline this, like, companies are not supposed to talk to each other and set prices. You know, two gas stations across the street from each other, they may have like the same price for gas, but they're not allowed to like plan it out and talk to each other.
- [17:20]
C
They are not allowed to plan it out. Exactly. So there are few bright lines in law, but the law against price fixing is one of them. If Dionne and I were, well, we'll always be friends, but if we were competitors in the same market or industry, we could not sit down and say, you know, it'd be much easier for our product. Let's pretend it's widgets. Why not? For us both to charge the same prices. You're not allowed to do that independent of whether it's going to have an impact on the market or not. You're not allowed to kind of affect prices through agreements, say, to restrict output or to pull other levers to make the Prices go up only if you're.
- [18:13]
A
An oil company from somewhere else.
- [18:15]
C
There you go. Exactly. OPEC is allowed. That's a set of nations, which is why that's different. But that is a topic for another day.
- [18:26]
A
So how does AI enable this conversation between two competitors?
- [18:30]
C
It changes how coordination happens. So the example that is jumping to mind is the RealPage case. That was a case of a software firm that had an algorithm, took in very competitively sensitive information from competing landlords and property management companies. Things like what rents are you charging, what concessions are you giving to those rents, what are your occupancy rates? Stuff that allowed them to then suggest what rental prices should you be charging in a market? And so facilitated kind of a new type of coordination that landed in rents going up. It's just a new kind of, I don't know, modality through which price fixing is starting to happen. Not smoke filled rooms, but codes and group chats, I would say.
- [19:37]
B
Well, no, absolutely. But well the other thing is you've got these third party vendors and I think companies should not assume that, well we've got, we're using a third party and so we're okay. The liability doesn't fall on us if the third party is using our data to train their system and our competitors data as well, you know, that's not us. Well, just as Kathy said, the regulators believe it does fall on you. And so it's almost as if companies have to think about an algorithmic compliance. You know, maybe they have to in their contracts with these third party vendors, say hey, you cannot use our data to train your data set. Particularly if you have as a client also one of our competitors, they may need to do some auditing of their vendor or have a right contractually to audit what their vendor is doing with their data. Because at the end of the day the regulators say the onus falls on the company to make sure that their data's not being mishandled from an antitrust perspective.
- [20:39]
C
And I'll add on to that, if as a company you're using these types of tools, keep a lookout for what level of coordination they enable. In the RealPage case, it wasn't just the algorithm, it was user groups facilitated by the company that promoted back and forth discussions. It was system setups that led to automatic kind of acceptance of the rent suggestions that were made.
- [21:14]
A
Adds a really interesting layer onto that question of like which vendor should we go with?
- [21:19]
C
Yeah, absolutely. Makes it harder I think at the next frontier, right. Because of the way that Genai trains and where it draws from the antitrust laws are not necessarily set up to go after single party behavior. But these AI tools may actually facilitate outcomes that are worse for consumers, but that are based on huge amounts of training. But single party action? I don't think we have answers on that. I think it's problematic, but I don't think antitrust is there yet in terms of its ability to address that type of behavior. I don't know. Dion, do you agree? Do you disagree?
- [22:10]
B
I agree. Because you wonder what would the theory of harm be? It's not an if you don't have the fact to support an actual agreement or even a tacit agreement, unless you argue it's some type of conscious parallelism. But I don't think the law even supports that. And it's not a Section 2 monopolization situation.
- [22:28]
C
There you go.
- [22:29]
B
Maybe we need some new antitrust laws. Cover this.
- [22:33]
C
Possibly. Oh, look, Diana's like, she's not necessarily comfortable suggesting that, but it merits thinking about that. Technology is changing really fast. It's always been a perennial concern with antitrust is that it can't keep up with markets. So it's starting bias, so to speak, is to step back, see how things evolve, and then take those well worn principles and approaches and apply it to the new wine and old bottles.
- [23:12]
B
Right. And that's not necessarily a bad thing. Why? Because antitrust regulators, I do think, certainly even long, long ago when I was at the division, there was this thought that we don't want to overregulate because we don't want to stifle innovation. And so, I mean, I remember eons ago when I was a baby antitrust lawyer, I worked on the Microsoft case. And yeah, it's like we want to challenge anti competitive conduct, but we don't want to stifle innovations.
- [23:40]
A
You don't want to be a knee jerk either.
- [23:42]
B
Exactly, exactly.
- [23:43]
A
But we're talking here about some situations where it was slow to come. Right. Real page, maybe. I know there were a lot of other places where similar things were challenged. And now a lot of people pointed to the recent Google decision with Alphabet, the parent company. Right. As an example. What's your take there on how competition law can adapt to new market realities?
- [24:10]
C
You know, Google was found to be a monopolist in search with a pretty direct opinion that they had not only become a monopoly, but they had inappropriately leveraged their power to exclude competition in search. So that was a decision kind of at the liability phase. But then when you got to remedies, what should the judge Do Antitrust remedies are supposed to be forward looking. They are supposed to say let's keep Google from continuing to leverage its market power to benefit from the moat in search so that it doesn't tilt competition in its favor going forward. But Genai happened in the interim and the remedy's decision that the judge put out really struggles with that. What to do given that the nature of search is changing and the way that people engage with search is changing. I found it to be incredibly telling that when that decision came out, Google stock went up. It was almost as if the market was saying antitrust law can't keep up.
- [25:40]
A
Let's bring it back to your students or the people who are going to be running business and working in law firms going forward. What's most misunderstood about antitrust? What's the big misconception that you'd like to clear up?
- [25:52]
B
Well, I think the big misconception is that it's boring. And that's like what Kathy said at the very beginning. Her students assume that when she covers antitrust it's going to be boring. And yeah, I think there's a misconception also that it's all about mergers, it's all about monopolies. What I really think it's all about is strategy. I think it's all about learning about the law enough to understand what strategic business decisions are made are really going to help your company grow, but grow in a way that you're not going to run into a regulatory buzzsaw with respect to the competition authorities. And what I love about antitrust is the same thing. When I think back to again being a baby lawyer at the antitrust division and even now is that it's not just about complex legal theories. It really is very much real world. It's very practical. It's about assessing risk, it's about making room for innovation and really long term competitiveness.
- [26:54]
C
I agree with that. I think a misconception that they have is that we're forcing them to learn about it, but that it doesn't impact them and it hasn't impacted them. And it has and it does, right? Being able to bring examples like the non competes. Has anybody ever worked, did you have one of these clauses in your employment agreement? Chances are in one of them you did, right? Or you can point out examples where there were price fixing agreements and it changed the market and it raised prices for them. I see lights go off in their eyes. This is relevant. And once, once I see that, I know I got them.
- [27:45]
A
Dion and Kathy, thank you so much for talking about this. This has been great.
- [27:50]
B
Absolutely. Well, thanks for having us.
- [27:52]
C
Thank you.
- [27:58]
A
That's Dionne Lomax and Kathy Fazio on our next episode. In this episode, we dive into corporate governance and international tensions. What happens when global politics land in the boardroom and companies can't look away? And how can businesses navigate political polarization and still do right by their shareholders and their communities? That's next. Time to get that episode and more, please follow the show on Apple Podcasts, Spotify or wherever you listen. And while you're at it, make sure to give us a rating. Thanks for listening to Is Business Broken? I'm Kurt Nickish.