From Slate: The Feds Are Investigating Whether the Maker of Budweiser Is Waging a Secret War on Craft Beer

An interest group tries to stifle competition.

- Click here for the article.

On Monday, Reuters reported that the Department of Justice was "probing allegations" that AB InBev has been attempting to stifle competition from craft brewers by choking off their access to distributors, thus making it harder to get their products to thirsty beer fans. If true, that would be something to get agitated about.

In the vast majority of U.S. states, beer makers are not allowed to sell directly to bars or grocery stores. Instead, they have to work through middlemen known as wholesalers, or distributors, who exist solely to market alcohol to America's retailers and watering holes. Known as the "three-tier-distribution system," the setup is basically an outmoded holdover from the early post-prohibition era that persists largely because wholesalers are major political donors. As archaic as the system may be, the bottom line is that without a distributor, a brewer can't really get its ales and lagers on shelves or on tap.

As the brewer of all things Bud, AB InBev already has plenty of heft with wholesalers. But in recent years, it has tried to slash its distribution costs by taking advantage of state laws that allow beer makers to purchase wholesalers outright so long as they operate independently. Thanks to a spate of recent acquisitions, Bud currently owns17 of the 500 companies that move its beer, with operations in cities including Boston, New York, and Los Angeles.

Craft brewers say that AB InBev is abusing its growing power over America's beer distribution network in two ways. First, they claim that some distributors purchased by AB InBev either stop selling products made by rival brewers outright, or seemingly stop making much of an effort to sell them. Second, they claim that AB InBev has pressured distributors it doesn't own "to only carry the company's products and end their ties with the craft industry." Conveniently, AB InBev has also purchased a number of well-loved craft brewers, such as Elysian and Goose Island, which it could readily offer to wholesalers as substitutes for other small brands.

Can a Board of Dental Examiners prevent non-dentists from offering teeth whitening services?

One of the cases up for grabs dealt with this question.

- Click here for North Carolina Board of Dental Examiners v. Federal Trade Commission.

The direct answer was no. They - and any other similar licensing board - can be sued for trying arbitrarily to stifle competition.

The reason - as best I can tell - is that doing so allows for monopolistic practices and therefore violates federal anti-trust laws. Normally a state can make its agencies immune from such lawsuits, but the court ruled that that is not necessarily the case if the agency is controlled by a group of professionals that can regulate themselves. In this case, dentists in the state could issue regulations protecting their control of a service. While there can be good reasons for doing so - we don't want just anyone to be able to perform surgery - that same power should not be used to unduly control the market place.

Students interested in writing up this decision might want to look at how the court
struck that balance.

Some useful related terminology.

- License: a document that allows for an activity to be performed - by the holder of the license - the would otherwise be specific. The licensee can be private of public entity.

-  State Licensing: Permission granted by the state for a person or organization to perform a service or engage in an activity or profession. This falls under the reserved powers of the state. Aside from issues raised in cases like this one, the national government giver states leeway in these matters.  For information regard the licensing process in Texas click here for the Texas Department of Licensing and Regulation. 

- State Licensing Board: The relatively small group of individuals affiliated with a profession that are allowed to determine who can practice that profession. These are established by the state legislature and can be found in the Texas Occupations Code - click here for it. Most of these boards are composed of members who are appointed by the governor - which explains why professional associations get involved in politics. The ability to be able to regulate one's profession is a principle source of power. Click here for a list of the positions that the Texas Governor can appoint.

- Professional Association: Similar to a state licensing board except that they have no governing power. They are nonprofit organizations that seek to further the interests of a particular profession. This includes using the political process to have state boards established and having influence over who is on those boards.

- State Action Antitrust Immunity: A doctrine stating that "state and municipal authorities are immune from federal antitrust lawsuits for actions taken pursuant to a clearly expressed state policy that, when legislated, had foreseeable anti competitive effects. When a state approves and regulates certain conduct, even if it is anti competitive under FTC or DOJ standards, the federal government must respect the decision of the state.' - Source. 

- Antitrust Law: "Legislation enacted by the federal and various state governments to regulate trade and commerce by preventing unlawful restraints, price-fixing, and monopolies; to promote competition; and to encourage the production of quality goods and services at the lowest prices, with the primary goal of safeguarding public welfare by ensuring that consumer demands will be met by the manufacture and sale of goods at reasonable prices." - Source.

- Sherman Antitrust Act: " . . . a landmark federal statute in the history of United States antitrust law (or "competition law") passed by Congress in 1890. It prohibits certain business activities that federal government regulators deem to be anti-competitive, and requires the federal government to investigate and pursue trusts." - Source.

- Federal Trade Commission: "an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act. Its principal mission is the promotion of consumer protection and the elimination and prevention of anticompetitive business practices, such as coercive monopoly." - Source.

- Regulatory Capture: ". . . a form of political corruption that occurs when a regulatory agency, created to act in the public interest, instead advances the commercial or special concerns of interest groups that dominate the industry or sector it is charged with regulating." - Source.

Are online publishers guilty of violating anti trust laws?

The Justice Department is set to find out. It is suing publishers (in the United States District Court for the Southern District in New York) for price fixing.

Anti trust laws - which have been a staple of national power since passed of the Sherman and Clayton anti-trust acts - allow the national government to break apart real or budding monopolies, or any activity which leads to uncompetitive practices.

The Justice Department is investigating whether this has happened in the e-book market. Did Apple secretly force- or persuade - other publishers to not under price its books? But this effort might allow Amazon, which controls 60% of the market, to expand its influence over it by reducing its prices far below what other publishers can command.

From Deal Book: The Antitrust Battle Ahead

The story:

When President Obama took office, he vowed a new era of antitrust enforcement, promising to crack down on deals that undermined competition.

Now the administration faces its biggest test.

On Wednesday, the Justice Department sued to block AT&T’s $39 billion takeover of T-Mobile USA, a merger that would create the nation’s largest mobile carrier.

“We believe the combination of AT&T and T-Mobile would result in tens of millions of consumers all across the United States facing higher prices, fewer choices and lower-quality products for their mobile wireless services,” said James M. Cole, the deputy attorney general.
The national government was granted the power to either break apart monopolies or prevent their formation since the passage of the Sherman Anti-Trust Act in the late 19th Century. Monopolies tend to be able to set prices wherever they choose and provide products and services at whatever level of quality they desire since consumers have no other options for where to purchase them.

This fits into several places in our class discussions. In 2301 we can talk about this when we discuss the proper role of government, how the Constitution ought to be interpreted, and federalism. For 2302 this is an example of how Congress has expanded the role of the executive branch over time. We can also discuss this when we talk about the judiciary and what factors lead it to interpret the Constitution one way or the other.

For a general discussion question we might want to speculate on whether it is a proper role of government - and if so what level - to ensure there is competition in the marketplace.

- Wikipedia: Competition Law.
- The Concise Encyclopedia of Economics: Antitrust.
- Department of Justice: Antitrust Division.

Justice Department Investigates Credit Card Companies for Anti-Competitive Practices

- Some companies settle, some don't.
- Will the results matter?

The Supreme Court Rules Against the NFL.

The National Football League, and other sports leagues, are not single entities immune from anti-trust laws. They are separate entities and must compete amongst themselves. They are subject to anti-trust laws spelled out in the Sherman Anti-Trust Act.
.
The case is American Needle Inc, v. NFL.
- Comments from ESPN.
- Washington Post.

The Health Insurance Industry Has Antitrust Protection

I had no idea.

The exemption was established in 1945 in the McCarran-Ferguson Act, which "gives states the authority to regulate the 'business of insurance' without interference from federal regulation, unless federal law specifically provides otherwise." The act, interestingly enough, was a response to a Supreme Court ruling that held that insurance is not "commerce."

A bill has been introduced to remove this exception: H.R.3596: Health Insurance Industry Antitrust Enforcement Act of 2009.

More Info:
- Pelosi pushing forward with robust public option -- House Dems may ...
- House Panel Approves Bill Curbing Insurers' Antitrust Exemption
- BIG “I” SAYS INSURANCE ANTITRUST EXEMPTION IMPORTANT TO POLICYHOLDERS

Antitrust Initiatives Strengthened, but also Resisted

From the NYT:

President Obama’s top antitrust official and some senior Democratic lawmakers are preparing to rein in a host of major industries, including airline and railroad giants, moving so aggressively that they are finding some resistance from officials within the administration.

...

The more aggressive antitrust policy was described in interviews with officials at the White House, the Justice Department, other agencies and Congress. It is a major policy reversal from the Bush administration, which did not prosecute cases in which some dominant companies engaged in potentially anticompetitive behavior, often because those officials maintained such behavior was not harmful to consumers.

Democrats have spent years trying to gain the support of businesses, and the policy changes under way may have long-term political implications for their party. Some companies would like to see more aggressive antitrust enforcement against their rivals, while others could be hurt by it.

In some cases, though, the new approach is being opposed by administration officials. Some fear that the crackdown is coming at a bad time, as corporate America reels from the recession. Other officials embrace the Bush administration’s view that larger companies and industry alliances can provide consumer benefits by making their businesses more efficient.

A variety of subjects we cover in class, both 2301 and 2302, are covered in this story.

One regards the proper functions of government, should it have the power to regulate "anticompetitive" behavior by larger companies? Since the late 19th Century it has, so also file this under our discussion of the growth of the national government. The major parties tend to disagree on this issue (Democrats tend to favor aggressive anti-trust policy more than Republicans), so it also fits within our discussion of parties, and since the story also highlights conflicts within the White House, it fits with our discussion of executive power, especially the complicated nature of executive power that has accompanied the growth of the functions of the national government.

Obama Reverses Anti Trust Policy

From the NYT:

President Obama’s top antitrust official this week plans to restore an aggressive enforcement policy against corporations that use their market dominance to elbow out competitors or to keep them from gaining market share.

The new enforcement policy would reverse the Bush administration’s approach, which strongly favored defendants against antitrust claims. It would restore a policy that led to the landmark antitrust lawsuits against Microsoft and Intel in the 1990s.

This is no surprise, and it points to a key dispute over what constitutes a free market and what type of capitalist system we want to have, a laissez faire or regulated. Simply put, a free market--as explained in the economics textbooks--is called free because it is free from control by forces on the demand or supply side. Monopolies are argued to violate the free market because they can control the market. There are no downward pressures on prices because the consumer has no options in purchases due to efforts by the monopolists to remove them.

Anti-trust policies allow for government to break apart monopolies in order to allow for competition, but tend to upset monopolists who want their profits (in the perfectly free market profits are zero). The story above points out that the business friendly Bush Administration limited anti-trust actions. Obama's more skeptical attitude towards business, and the apparent suspicion that recessions provide great opportunities for predatory activities, has led to the reversal above.

Another clear indication of the ideological shifts that are underway in American politics.

For further info:

- Definition: laissez-faire.
- Senator Obama's position on anti-trust policy.
- Anti-trust policy timeline.
- Greg Mankiw on Obama's Actions.