Latest / Come Together with Ephraim Herschmann / Economics Series 3: Nicholas Hill / Working DOJ / FTC / JetBlue & Spirit / Anti-Trust & Monopolies

Transcript

Economics Series 3: Nicholas Hill / Working DOJ / FTC / JetBlue & Spirit / Anti-Trust & Monopolies · Come Together with Ephraim Herschmann

• 0:01
  Welcome to another episode of Come Together
• 0:14
  Mr. Nicholas Hill. Welcome to the show.
• 0:16
  So happy to have you on how you doing today.
• 0:18
  Great, happy to be here. Yes, I appreciate your time.
• 0:22
  I appreciate the generosity with your time and I'm looking
• 0:24
  forward to hearing and learning a lot from you.
• 0:26
  I have, I started an economic series about a year ago and I
• 0:30
  had some fun guests on. And, and the one thing that I
• 0:33
  did want to start looking a little bit more into and perhaps
• 0:36
  trying to draw a little more attention to is the importance
• 0:41
  and the relevance of antitrust, breaking up monopoly.
• 0:44
  Because I think we live in a world at the moment where big
• 0:47
  businesses are so enormous that that the power that they have,
• 0:52
  it's certainly not unprecedented, but you know, it
• 0:55
  kind of goes and ebbs and flows with waves throughout history,
• 0:58
  particularly American history. But but I wanted to just maybe
• 1:01
  understand this a little bit and, and, and I think you're the
• 1:03
  right person to help me breakdown some of these ideas in
• 1:05
  a really clear and coherent way. Sure, happy to help.
• 1:08
  So, so just a little bit on your background.
• 1:11
  You had some time working at the DOJ and the FTCDOJ stands for
• 1:15
  the Department of Justice. The FTC is the Federal Trade
• 1:18
  Commission. And then you went private and,
• 1:23
  and I don't actually know where you're working at the moment,
• 1:26
  but yeah, yeah, maybe. A little background A.
• 1:29
  Little bit about about about yourself and your past
• 1:31
  experiences. Yeah.
• 1:32
  So I'll give you some background and you can cut out all the
• 1:34
  parts that are boring. So prior to going into
• 1:38
  antitrust, I actually worked in demographic and health surveys
• 1:43
  in developing countries. And I did that for about 5
• 1:46
  years. And for various reasons, I was
• 1:48
  ready to change what I was doing a little bit.
• 1:50
  And I went back to grad school to get a PhD.
• 1:53
  And after I did that, when I was applying to jobs, my supervisor
• 1:58
  at the time told me you should apply to some government jobs.
• 2:01
  And he said it largely because he said something not entirely
• 2:04
  flattering, like, yeah, most of these academic places wouldn't
• 2:07
  hire Someone Like You, so maybe you should try a government job.
• 2:11
  What made. And so I did apply to a bunch of
• 2:12
  government. You'll have to ask him.
• 2:16
  Possibly he was just right. He was just possibly very
• 2:19
  perceptive. So anyway, I, I interviewed with
• 2:22
  the Department of Justice Antitrust Division.
• 2:25
  I didn't really know anything about antitrust at the time.
• 2:28
  And they just, I heard them talking about what they did and
• 2:31
  why. And they they in particular
• 2:33
  talked about mergers. You know, two companies are
• 2:35
  trying to merge and we have to determine whether or not that
• 2:37
  would hurt consumers. And they gave some examples and
• 2:40
  it just really caught my imagination.
• 2:42
  I liked talking to them. I thought it was great.
• 2:44
  So, you know, they invited me out.
• 2:46
  I talked to their group. I gave a presentation.
• 2:49
  And, you know, the more I talked to them, the more I liked them
• 2:52
  and the more interested I was. And, you know, eventually, for
• 2:56
  reasons that it will never be clear to me, they offered me a
• 2:58
  job and I accepted. And there was, there was
• 3:01
  definitely a learning adjustment.
• 3:03
  I mean, I really didn't know much about antitrust.
• 3:05
  So I learned through talking to the economist, talking to the
• 3:09
  lawyers, working on cases, it's really in that sense.
• 3:13
  You know, I had an economics background on this.
• 3:15
  I have a PhD in it, but a lot of it was just working with people.
• 3:19
  And so I was there for seven years.
• 3:22
  I moved to the FTC, as you said, the Federal Trade Commission.
• 3:26
  They do the same things in general, but they have different
• 3:29
  industries, like DOJ and FTC often work on different
• 3:33
  industries. And I was interested to see how
• 3:35
  do these other interests in these industries work.
• 3:38
  Do we come have the same theories, the same ideas?
• 3:41
  And after being there for a while, I moved back to DOJ to to
• 3:45
  be in a manager's role. And then after a couple of years
• 3:47
  of that, I went private and I joined Bates White Economic
• 3:50
  Consulting, which is where I work today.
• 3:52
  Gotcha. That's a lot.
• 3:54
  That sounds like quite a trip to.
• 3:55
  There's a couple of things that you said that I'm very curious
• 3:57
  about. Maybe if you could help clarify
• 3:59
  #1 is it seems like the way that you just phrased it, that the
• 4:05
  end goal or what the purpose of the DOJ was that your impression
• 4:09
  was, which what got you excited is that it's that the government
• 4:12
  was there to protect, excuse me, protect consumers.
• 4:15
  So the, the, so the, the, IT looked like that the, the
• 4:18
  audience or the people that the, that the DOJ was looking to
• 4:21
  protect and defend are the, are the American people, not
• 4:24
  necessarily the corporations that in fact they'll be trying
• 4:27
  to prohibit them from growing. Is that correct?
• 4:30
  Yeah, so not necessarily prohibited from growing, but
• 4:33
  your your first part is absolutely correct.
• 4:35
  The goal of both the Department of Justice and the Federal Trade
• 4:38
  Commission is to make sure that firms don't acquire market power
• 4:42
  or use market power in ways that harm consumers.
• 4:47
  And so that is really their foundational focus.
• 4:50
  Now, obviously whenever there's an election, the the people who
• 4:53
  are in charge of the the divisions that there's sort of
• 4:56
  the career staff, the people who are there long term.
• 4:58
  And then there's political staff who come in and different
• 5:02
  political staff may have different views.
• 5:04
  And so one administration may be very focused on breaking up
• 5:07
  monopolies. One may be very focused on
• 5:11
  merger review. You know, it really depends on
• 5:13
  their specific orientation. And.
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  Some, yeah. And you know, the Federal Trade
• 5:20
  Commission, they actually typically now they currently
• 5:22
  they have two, but they usually have 5 commissioners, usually
• 5:25
  three from the majority party, 2 from the minority party.
• 5:28
  And what's interesting about that is when I moved from DOJ to
• 5:32
  FTCI, found out that commissioners don't always align
• 5:35
  the way you think. You might think there would be a
• 5:36
  lot of three to two votes where all the Republicans vote one way
• 5:40
  and all the Democrats the other. That does happen, for sure.
• 5:43
  But there's also times when all five of them vote together.
• 5:46
  And there's times when it's 4 to 1, and there's times when it's
• 5:48
  3:00 to 2:00. But it's not a predictable
• 5:50
  coalition. So, like, different people have
• 5:52
  different views at DOJ. There's really usually the one
• 5:56
  decision maker. Now, of course that person is
• 5:58
  responsible, ultimately the attorney general.
• 6:00
  But you know, it doesn't have quite that same structure.
• 6:04
  Right, right. It's, it's, I'm so happy that
• 6:06
  you made that point because I'm reading a book now called The
• 6:08
  Unstable Majorities by Morris Fioran.
• 6:11
  I believe it was his last name. And, and one thing that he was
• 6:14
  talking about was how the population is much more
• 6:18
  polarized perhaps than they need to be.
• 6:23
  And I was curious and, and, and a lot of social issues are kind
• 6:27
  of worked into the political parties now in order to help
• 6:31
  deviate, I think people from one another or radicalize the, the
• 6:35
  extremes from either party. And I was curious whether that
• 6:38
  kind of same environment exists within the government itself.
• 6:40
  Because like you did mention, there are people that come in
• 6:43
  every three, every 4-4 years or so from, with, with whatever
• 6:46
  respected parties in, in the position of power.
• 6:48
  And then there are people that just work there throughout, you
• 6:51
  know, the whole time one way or the other.
• 6:52
  And they say, OK, well, you'll be gone in four years and we'll
• 6:54
  still be here in 20s. So I'm curious.
• 6:57
  So, so, so, so it's very interesting when you say that
• 7:00
  they're often, you know, 4 to one or five.
• 7:01
  And OI guess it means that these individuals, these commissioners
• 7:05
  tend to have their own ideas. And then instead of judge going
• 7:11
  going partisan one way or the other, they kind of elaborate.
• 7:14
  They kind of take a look at what's going on around them and
• 7:16
  base what their decision is going to be on their own values
• 7:19
  as opposed to just going along with the party line.
• 7:20
  Yeah. So that that's a rich question
• 7:23
  and I'll unpack it a little bit if I can.
• 7:24
  So first of all, in your first point, yeah, I mean, there is
• 7:29
  this eternal battle between the civil servants and then the the
• 7:33
  politicals who have their own political goals, which may or
• 7:36
  may not be what the civil servants want.
• 7:38
  And I would say in general, the people at both that I worked
• 7:42
  with at the DOJ and the FTC, their focus usually is pretty
• 7:45
  heavily on protecting American consumers.
• 7:47
  Like they they they get paid a lot less than they would get
• 7:50
  paid in private practice. And they work really long hours.
• 7:53
  And so they in general, they're pretty motivated by the mission.
• 7:57
  Now, there are some people may or may not be so motivated, but
• 8:00
  there's a lot of people who are. And then yes, you do have
• 8:05
  there's a political overlay where a particular party may be
• 8:08
  more or against a certain thing. And sometimes the parties align.
• 8:11
  So one thing that's happened in the recent past, possibly for
• 8:15
  different reasons, but both of the major political parties have
• 8:19
  sort of had Amazon, Google, Facebook in the crosshairs,
• 8:24
  Apple and they've been very interested in large tech
• 8:27
  companies from the power that they have and a desire to
• 8:29
  regulate them or not regulate, sorry to investigate what
• 8:33
  they're doing. So that's true.
• 8:35
  And then there are other time periods when they have different
• 8:37
  views and they're sometimes you're in a period of consensus,
• 8:42
  sometimes you're in a period of discord.
• 8:44
  And at the moment, with respect to big tech, there is some
• 8:47
  consensus about they need to be investigated.
• 8:50
  The reasons why may vary. And so the prescriptions about
• 8:53
  what should be done may vary, but all of that's true.
• 8:56
  And then the the final overlay I just want to put on all of this
• 8:59
  is let's just I'll just give you a hypothetical situation.
• 9:02
  Let's say Coke said we're merging with Pepsi and there was
• 9:06
  a big investigation, like, would this hurt competition for soft
• 9:09
  drinks? And, you know, the depending on
• 9:13
  which party is in power, they may have their own view about
• 9:15
  whether that's true or not. But if the government, whether
• 9:18
  it's the Department of Justice or the Federal Trade Commission,
• 9:21
  says we want to block this merger, we think this is going
• 9:24
  to lead to higher prices for Colas.
• 9:26
  It's going to be the higher prices for lemon lining soft
• 9:29
  drinks. We think this needs to be
• 9:30
  blocked. They then have to go to court
• 9:33
  and they have to convince a court that this should be
• 9:36
  blocked. And so then there's this other
• 9:37
  overlay. Even if you have a big change in
• 9:40
  politics at the level of the political administration,
• 9:45
  ultimately the either agency has to typically convince a court.
• 9:49
  And so that's like a yet another layer, like some federal judge
• 9:52
  is going to review this case. My experience, I've testified, I
• 9:55
  think now I can't remember it's seven or eight times in front of
• 9:59
  federal courts that the judges are super smart.
• 10:02
  They ask a ton of questions, they're really engaged and it's
• 10:05
  really hard to win those kinds of cases.
• 10:07
  The, the judges are really going to dig in and try to understand
• 10:10
  it. And so all of these parties like
• 10:13
  the, the political parties, judiciary and then the civil
• 10:16
  servants are involved. And, and typically the way it
• 10:19
  works, if you have this Coke, Pepsi, the career staff would
• 10:22
  investigate. They would say, here's the fact
• 10:24
  pattern, here's what we recommend.
• 10:26
  And then the political leadership would make a
• 10:28
  decision, are we going to sue? Are we not going to sue and
• 10:31
  then, you know, you either move to court?
• 10:33
  Hey everyone real quick if you're enjoying the show, click
• 10:35
  subscribe and rate the show. 5 stars helps a time.
• 10:38
  Thanks so much. Or, or if the parties, if you
• 10:41
  sue the court parties and they say, OK, you're right, we're
• 10:43
  going to abandon the deal, then it doesn't move to the
• 10:46
  judiciary, but otherwise you would move into a trial.
• 10:50
  That's very interesting. Out of curiosity, I don't know
• 10:52
  if this is something that the DOJ or the FTC handles say, for
• 10:56
  example, and I want to talk about this too.
• 10:58
  We're going to get into Spirit Airlines a little bit.
• 11:01
  But part of what, you know, Spirit were made spirits so
• 11:03
  successful and they kind of did upend the whole flight industry.
• 11:06
  But I think either them or Frontier, I'm not sure which one
• 11:09
  of them came first, but I think they really radicalized and
• 11:11
  changed the way almost a similar way to the way that Netflix
• 11:14
  affected the streaming and movie business in a very, you know,
• 11:16
  they just kind of changed the whole grounds and the whole
• 11:19
  under the whole public perception of the way the
• 11:21
  business should be or is the way it works.
• 11:23
  And now that spirits gone, say hypothetically, and I've read
• 11:27
  this that airports that spirits were flying out of were
• 11:30
  generally, I think 15 to 20% cheaper than than airports that
• 11:34
  spirit would not fly out of. And one of the reasons why was
• 11:37
  because they were so competitive with their pricing, the other,
• 11:39
  the other organizations and other airlines had to lower
• 11:44
  their prices just to compete with them.
• 11:45
  But now that that's gone, there's no barrier to or there's
• 11:48
  nothing to stop necessarily these airlines from now marking
• 11:53
  up their flights to whatever it is.
• 11:54
  And in fact, we do know, of course, circumstantially due to
• 11:57
  the war right now, that air travel is extremely expensive
• 12:00
  because of the rising cost of fuel.
• 12:02
  So does DOJ get involved when a whole industry becomes too
• 12:06
  expensive for, you know, for people to be able to kind of
• 12:10
  participate in, or is that not up their Roadhouse?
• 12:13
  Yeah. So it could.
• 12:15
  So let me let me step back and I'll start with your point about
• 12:19
  airlines. So, and I'm not a, I've worked
• 12:23
  on the industry a number of times, including I worked on
• 12:25
  JetBlue, Spirit on behalf of JetBlue and Spirit.
• 12:28
  So, so let me just walk back there a little.
• 12:32
  So my understanding of the general industry trends, and
• 12:35
  some of this happened before I was involved, was that after
• 12:38
  deregulation, what sort of happened is airlines moved from,
• 12:43
  you could think of them as being high quality, high price.
• 12:46
  New people came in competing and saying like, look, I really
• 12:49
  don't care if it's luxury. I just want to get from New York
• 12:53
  to Washington or I want to get from Miami to Milwaukee.
• 12:56
  And I want to do it as cheaply as I can.
• 12:58
  And there's been a series of people who have entered and LED
• 13:01
  to lower fares. And the most famous probably,
• 13:04
  and there's been a lot of economic papers written about it
• 13:06
  is Southwest who entered flying from point to point.
• 13:11
  They didn't have the same structure as United or Delta or
• 13:14
  American, who often have networks.
• 13:16
  They just were flying place to place and they entered with low
• 13:19
  fares and lots of flights. And they really reshape the
• 13:22
  industry. There's, as I said, there's a
• 13:23
  ton of economic papers looking at that and finding that
• 13:26
  Southwest had a really important impact.
• 13:29
  And then over time, other people entered.
• 13:31
  There was AirTran and there's there's just been a whole long
• 13:34
  series of them. And so the what the way people
• 13:38
  often talk about the industry now is the legacy carriers, by
• 13:41
  which they mean often United, Delta and American.
• 13:44
  So they have these networks and hubs that fly.
• 13:47
  If you're in a small airport, you usually fly to a big airport
• 13:51
  and then you fly to where you're going.
• 13:52
  And then there's the point to point low cost carriers.
• 13:55
  So like Southwest was the classic example.
• 13:58
  JetBlue is often put into this category.
• 14:01
  You can get a flight for less and you'll fly place to place a
• 14:04
  Legion. Well, they're going to be in an
• 14:06
  entirely different category. But SW famously, they just gave
• 14:10
  you peanuts. Like look, if you're looking for
• 14:11
  a fancy dinner, that's not going to be us.
• 14:14
  And that attracted customers who just wanted to fly.
• 14:16
  Like I don't need a fancy dinner.
• 14:18
  I'll eat when I get to the other end.
• 14:19
  And then Spirit Allegiant Frontier Velo, there's a whole
• 14:26
  bunch of Velo. Sorry.
• 14:27
  There's a whole bunch of what are we then called ultra low
• 14:29
  cost carriers. Like they cut it down even
• 14:32
  further. Like do you want a pillow?
• 14:33
  If you do, you're going to have to pay for it.
• 14:35
  And do you want any kind of food or drink?
• 14:37
  You're going to pay for it. You want a blanket, you're
• 14:39
  paying for it. You want a bag, you pay for it.
• 14:41
  So it's like the ultimate. You can get a flight for like
• 14:44
  rock bottom and it just as an FYI, there was a company in
• 14:47
  Europe, I think, as far as I know, they're still around
• 14:50
  EasyJet who just flies. Really, really cheap prices.
• 14:54
  And that that that general idea was popular with a lot of
• 14:57
  consumers. Like if you don't have a lot of
• 14:59
  money, you don't pay a lot to fly, but you do want to get from
• 15:02
  point A to point B in just a couple hours.
• 15:04
  And so that that's sort of what happened in A in a very high
• 15:07
  sense. And then one thing that has
• 15:09
  happened is those ultra low cost carriers are usually the easiest
• 15:12
  to enter. Like if you wanted you and I
• 15:14
  wanted to start an airline, we just need to round up a couple
• 15:17
  of airplanes and we and some pilots and we'll fly back and
• 15:20
  forth between a couple of cities.
• 15:22
  And so it's pretty common that people enter there, that legacy
• 15:25
  airline space, the United, the Americans, the Deltas, the very
• 15:30
  large airlines. You know, I, I just named the
• 15:33
  three that people know about. I guess you could add Southwest
• 15:35
  now as a very large airline, but it's really hard to enter up
• 15:38
  there. And also ultra, as we found with
• 15:40
  Spirit, ultra low cost carriers run out of money, like they're
• 15:43
  operating on really tight margins.
• 15:45
  And if something goes wrong, like there's a shock to the cost
• 15:48
  of fuel, they can all fail. And so coming now finally all
• 15:52
  the way back to your question, like both of the agencies at a
• 15:55
  high level, they, they keep, they, they are interested in
• 15:59
  what's happening in industries and they typically specialize.
• 16:02
  So DOJ works on airlines, FEC generally does not.
• 16:05
  And if they heard like everyone is raising prices, they might
• 16:09
  launch an investigation to say is this, our price is high
• 16:12
  because fuel is high. So it's expensive for the
• 16:14
  airlines or are prices high for some other reason, some reason,
• 16:18
  like competitions being restrained in some way?
• 16:20
  And so that can happen. Like, for example, a lot of the
• 16:23
  investigations into, you know, there was a whole bunch of them
• 16:26
  into Amazon and Google, etcetera, The big tech
• 16:29
  companies, those came out of people saying these companies
• 16:32
  have too much power is leading to higher prices.
• 16:35
  We want to investigate. And when that happens, either
• 16:37
  the federal government could do it or some states do it.
• 16:39
  So, you know, New York has been active, California, Texas,
• 16:44
  sometimes states investigate those things.
• 16:46
  Yeah. And I want to I want to ask
• 16:48
  about that. I want to stick on the I want to
• 16:49
  actually definitely want to talk about that.
• 16:51
  I want to stick on the airline question the topic just a little
• 16:53
  bit more because I want to hear about your experience with the
• 16:56
  JetBlue case. I want to hear what the train of
• 17:00
  thought or what the, what the business plan was and why he was
• 17:04
  ultimately struck down. And one of those something
• 17:07
  curious. I don't, I don't believe in,
• 17:09
  correct me if I'm wrong. I remember when JetBlue started,
• 17:11
  everyone was enthralled by it. They had great snacks.
• 17:15
  They had the first cable television, you know, and the
• 17:17
  seats in front of you. And I think they had Wi-Fi in
• 17:20
  their flights and they were really considered premier
• 17:22
  airline. I remember I was jealous every
• 17:23
  time I I heard that my friends are flying JetBlue and I was
• 17:26
  flying American. And then somewhere along the
• 17:28
  line, you know, something, something happened.
• 17:30
  And you know, I, I, it's funny because I don't, I don't think I
• 17:33
  ever age until I talk to my high school students.
• 17:35
  And that's when I realized how, how much older I am than than I
• 17:38
  think I am. But you know, so, but so, so it
• 17:40
  looks like that, that that company kind of went from a flip
• 17:42
  to a premier airline to to a budget airline or an ultra
• 17:46
  budget, depending on I don't know how you're going to
• 17:47
  categorize it, but what is that? How does that happen?
• 17:50
  And then if you could maybe walk me through the case a little
• 17:52
  bit, I'd be really interested in hearing about.
• 17:53
  That sure, I'll look through both of those at a high level
• 17:56
  based on my experience. So JetBlue in some sense
• 17:59
  positioned itself as you get a little bit of the best of both
• 18:02
  worlds. You we're going to have, as you
• 18:04
  say, they had comfortable seats, extra leg room, other perks like
• 18:09
  free Wi-Fi, you know, look good in their snacks, all those kinds
• 18:13
  of things. And so they were sort of saying,
• 18:15
  look, you can get the high quality and we're also going to
• 18:19
  charge less than the larger carriers like American United
• 18:23
  and Delta and Southwest. So that was sort of their pitch
• 18:27
  that in between space spirit was we are flying, this is going to
• 18:31
  be a rock bottom fair. You're going to fly for cheap.
• 18:35
  And then at the other end, you have the legacy carriers who
• 18:37
  offer, you know, first class or business class, more high touch,
• 18:41
  you know, sort of experience and also like broader networks and
• 18:45
  like broader frequent Flyers. Like it's surprising how many
• 18:47
  people you run into are like, I only fly Delta or I only fly
• 18:51
  American. Yeah, United cause all my points
• 18:54
  and I love my points and I want them and that's why.
• 18:56
  And so they have those broad networks where as most of the
• 18:59
  other airlines just aren't big enough to do that.
• 19:01
  Southwest is also in that category.
• 19:04
  And so the, the genesis of the deal, the thesis for JetBlue was
• 19:08
  look, we when we enter a route and you know, we looked, we
• 19:11
  analyzed this and found this to be true.
• 19:13
  When we enter a route, prices come down from the large
• 19:16
  carriers. So United, American, Delta,
• 19:19
  Southwest, our quality is close enough to them that they respond
• 19:23
  and they lower prices, but we're really be struggling to get
• 19:27
  additional air airplanes and to enter into more routes.
• 19:30
  Like we'd love to be competing in more places, but we just
• 19:33
  don't have the aircraft. And so they in some sense saw
• 19:36
  this as an opportunity. And I, by the way, I'm just
• 19:39
  speaking for myself. The JetBlue people may tell you
• 19:41
  something completely different, but this was my perception, just
• 19:43
  working on behalf of them. We can get all these additional
• 19:47
  airplanes and we can put more pressure on the big, what I'll
• 19:51
  just call the big four just for the purpose of this discussion,
• 19:54
  United, American, Delta and Southwest.
• 19:58
  And something like 80% of all flights in the country are on
• 20:02
  those four major carriers. And so their thesis was if we
• 20:05
  could do this. We're going to take those
• 20:06
  planes. We're going to refit them to be
• 20:08
  like JetBlue planes, more legroom than you would have had
• 20:11
  on Spirit, free Wi-Fi, good snacks, you know, all that
• 20:14
  stuff. And so we analyzed this and we
• 20:17
  did find our work was consistent with JetBlue.
• 20:20
  When they entered, they put more pressure on the large, the four
• 20:23
  largest carriers than other carriers did.
• 20:26
  And so and then the the DOJ story though was wait a minute,
• 20:31
  that may all be true, but there are some routes today where
• 20:34
  Spirit competes with JetBlue. So I'll just take a made-up
• 20:38
  route. Let's just, and this is
• 20:39
  completely made-up because I don't remember, let's say Fort
• 20:42
  Myers to Cincinnati. They're the only two people
• 20:44
  flying that. And today they're competing
• 20:46
  customers on that route. And what's going to happen is
• 20:50
  now people flying from Cincinnati to Fort Myers are
• 20:52
  going to have to pay more. And our counter argument was,
• 20:56
  OK, but JetBlue is going to enter a whole bunch of new
• 20:58
  routes, put pressure on the airlines that most people
• 21:01
  actually fly with. So that's going to benefit a lot
• 21:03
  of consumers. And so, and then another part of
• 21:06
  it was, look, ultra low cost carriers, they're constantly
• 21:10
  breeze entering A Velo, entering a legion, entering, expanding.
• 21:14
  There's always new entrants there.
• 21:16
  And so you shouldn't be too worried about Spirit
• 21:19
  disappearing because it'll be replaced and we'll use Spirits
• 21:22
  planes. And Spirit had nice new planes,
• 21:25
  just FYI. So that was sort of the
• 21:27
  battleground DOJ saying we're going to lose this competition.
• 21:31
  We like this competition between JetBlue and Spirit.
• 21:33
  We were saying you may lose that competition, but you're going to
• 21:36
  gain additional competition. And the court eventually my
• 21:40
  reading of what the court said was I think it's true that you
• 21:42
  would get this additional competition.
• 21:44
  I think that's good. But I think that there are a lot
• 21:47
  of people who like flying on Spirit and they're going to lose
• 21:50
  their choice because the idea was to replace the Spirit planes
• 21:53
  and make them JetBlue planes. So they'd be a little more
• 21:55
  expensive, they'd be higher touch.
• 21:57
  And he the court was saying, but there are people who don't want
• 22:00
  that. And I'm not convinced that the
• 22:01
  smaller ultra low cost carriers could expand and replace that
• 22:05
  lost competition. And so that's essentially what
• 22:08
  happened. And then obviously in the since
• 22:10
  then Spirit went bankrupt, it's not clear where its planes are
• 22:13
  going to go. You know, there's been a lot of
• 22:15
  people who've lost access to that service, and so that didn't
• 22:19
  turn out very well. Retrospectively, you know the
• 22:21
  bankruptcy wasn't a thing. Not at all not at all.
• 22:26
  I, I that that the whole deliberation process is very
• 22:29
  interesting and it's really fascinating to hear how, what,
• 22:32
  what, what the arguments kind of came down to in the sense that
• 22:35
  also because if the federal government was really concerned
• 22:39
  about losing that route to all to that, that, that customers
• 22:43
  wouldn't have the opportunity to take an economically feasible
• 22:47
  flight, you know, from Cincinnati to Fort Myers.
• 22:49
  Hypothetically, we do have airlines like Frontier and
• 22:53
  Allegiant. And there I, I mean, I, I would
• 22:55
  imagine that the natural, the natural nature of competition is
• 23:00
  that someone will emerge or something will emerge to fill in
• 23:03
  that spot. Don't we, don't we believe that
• 23:06
  or wouldn't you argue or make, I guess you did right representing
• 23:08
  JetBlue that, that, that, that someone else would just step in
• 23:12
  and, and, and take that over. Yeah.
• 23:13
  So there was testimony on this point of the trial and in
• 23:17
  general, I would say characterizing it at a high
• 23:19
  level from when I was sitting in the courtroom.
• 23:21
  The ultra low cost Carrier said, if, if there is an opportunity,
• 23:25
  you know, if Spirit exits are because of the merger and prices
• 23:29
  go up, we're always looking for routes we can enter and compete
• 23:32
  and we are definitely going to take advantage of that.
• 23:37
  The the, the counter argument from DOJ was lipid Spirit is the
• 23:40
  largest and most influential of these.
• 23:43
  It would be hard to replace them.
• 23:45
  And so that's sort of and the court was persuaded by that.
• 23:48
  And that was, I think, I mean, I think that I'm, again, I'm
• 23:51
  reading between the lines in the court's opinion.
• 23:53
  And so the court said this would be a really serious loss.
• 23:55
  I don't know that I I don't know that the court appreciated the
• 24:00
  OR understood the because it wasn't super clear at the time
• 24:03
  concluding to me that how much at risk Spirit was of bankruptcy
• 24:08
  and it they started running into financial problems pretty
• 24:11
  quickly afterwards. And also just context, I don't
• 24:15
  know if you know, but there was also prior to the merger deal
• 24:17
  between JetBlue and Spirit, Spirit had a, an agreement with
• 24:23
  or was being coordinated by Frontier and there was an idea
• 24:26
  to Frontier and Spirit merge. And so there was a big tussle
• 24:30
  between who would try to merge and eventually Spirit and jet
• 24:32
  flow emerge. The Spirit and Frontier would
• 24:35
  have also been interesting. I didn't personally work on that
• 24:38
  or analyze that. That would have been the two
• 24:40
  largest ultra low cost carrier purging.
• 24:43
  And, you know, there are problems.
• 24:46
  It would certainly have gotten a hard look from the agency to
• 24:49
  say, wait a minute, you've got the two biggest now.
• 24:52
  Maybe they would have cleared it.
• 24:53
  I don't know. I, I didn't work on that.
• 24:54
  I didn't analyze it. But they're also pretty similar.
• 24:57
  And whereas JetBlue and Spirit, at least, were relatively
• 25:00
  different from each other. So when you're getting called
• 25:02
  to, to testify on this on, on the, on this stuff, or you're
• 25:05
  called to represent a company like JetBlue, how, what's,
• 25:11
  what's your process for learning the argument?
• 25:13
  What's your process for defending them?
• 25:15
  What's the process for your homework?
• 25:16
  How do you go about preparing yourself for this?
• 25:18
  Because I mean, you're going, you're, you're kind of getting
• 25:22
  brought into a whole world. And I mean, you know, there's so
• 25:24
  many different universes you could talk about supermarkets
• 25:26
  and airlines and, and studios and tickets and everything like
• 25:29
  that. And you got to learn about all
• 25:32
  these worlds. And these are complicated worlds
• 25:33
  that you have to dive into. How much time do you generally
• 25:35
  have to prepare? How do you go about that?
• 25:37
  What's that like? Yeah.
• 25:38
  So that, that is 1 reason why I love working on antitrust and it
• 25:43
  keeps it fresh. Like each new case you work on
• 25:46
  is like some new industry where they compete in a different way
• 25:49
  and you have to figure out who's competing with whom.
• 25:52
  How does this business work? What are they really selling?
• 25:55
  Who's supplying them? You have to understand all of
• 25:58
  those details. And that is just, it's both
• 26:00
  sometimes extremely complicated and it's also it's almost always
• 26:04
  really worthwhile to learn and exciting to you.
• 26:09
  So you do it a lot of ways. You read documents, you read
• 26:12
  about the industry generally you talk to people in the industry.
• 26:15
  And so, you know, I should just say also stepping back a tiny
• 26:19
  bit, I work both for firms. So, for example, on JetBlue
• 26:22
  Spirit, I worked on behalf of the parties.
• 26:26
  I also worked on the Kroger, Albertson's merger, which is
• 26:28
  where the FTC challenged that merger and they won in court.
• 26:32
  The court ended up blocking that merger there.
• 26:34
  I testified on behalf of the FTC.
• 26:36
  So I was testifying on behalf of the government.
• 26:38
  And so I've, I've testified throughout my career pretty
• 26:41
  evenly for both sides. And that that's a key point.
• 26:44
  And it goes to your question. Like, the first thing I try to
• 26:46
  do is look at the data, look at the documents, look at the facts
• 26:50
  and try to determine would this merger, say, have an impact on
• 26:54
  competition? Would it make consumers worse
• 26:56
  off? Or, you know, is this one where
• 26:59
  there's already plenty of competitors present in the
• 27:01
  industry, it's not likely to have a big effect.
• 27:04
  And so that's because, you know, unlike the lawyers whose job is
• 27:08
  to advocate for their client, as an economic expert, your job is
• 27:11
  to tell the truth like you are under oath and everything you
• 27:14
  say in court has to be the truth and the whole truth.
• 27:17
  And so if you don't believe, whichever side you're with, you
• 27:21
  tell them as soon as you can. Like I by the way, I don't
• 27:23
  think, I think if you're talking to the parties, I think your
• 27:26
  deal is anti competitive, you should find a different expert.
• 27:29
  Or if you're talking to the government, I don't think this
• 27:31
  deal's a problem. So probably find somebody else.
• 27:34
  Those are always awkward conversations to have.
• 27:36
  But ultimately you have to tell the truth.
• 27:38
  So you know, that's that's the first part.
• 27:41
  And but it is you're right, it's fascinating.
• 27:44
  You end up becoming, for a while, an expert in a part of
• 27:47
  the world that sometimes, you know, the very first case I ever
• 27:50
  testified on involved this chemical called titanium
• 27:53
  dioxide. It's used in paints to make them
• 27:56
  brighter, for example, like white make it really white.
• 27:59
  Sometimes it's used in other things, you know, to make the
• 28:02
  like the the different kind, different kinds are used for
• 28:05
  different products, but it's sometimes used in toothpaste to
• 28:07
  make toothpaste look very white and bright.
• 28:10
  I didn't know this product existed before I worked on it.
• 28:13
  I had not the slightest clue what it was.
• 28:15
  And it turns out there are different ways of making it.
• 28:18
  Different people compete to make it.
• 28:21
  And so that whole process of learning and then you then you
• 28:24
  have to understand how does the economics of the industry work?
• 28:27
  It's just fascinating and you just learn something new every
• 28:29
  day and you interact with a lot of people, which is fun.
• 28:33
  I bet it sounds incredible. It really sounds very cool.
• 28:35
  And as someone that you know, loves doing this just, you know,
• 28:38
  just for fun, just because I think this is valuable and I
• 28:40
  think that people, I think these are important things for people
• 28:43
  to learn. I think the pursuit of
• 28:44
  information in general is awesome.
• 28:46
  If you could do that as as, As for a living, then then all the
• 28:49
  credit to you for sure. Do do people make decisions as
• 28:54
  to whether or not how they're going to conduct business moves
• 28:58
  or attempt to make business choices based on the political
• 29:02
  parties that are in charge at the time?
• 29:04
  So, for example, Netflix and I'm not sorry any I'm not saying
• 29:07
  spared JetBlue. Again, I don't know.
• 29:09
  We can stick with stick with the same example.
• 29:10
  Would they be inclined in the same way to try to make the deal
• 29:14
  with a left or right candidate in, you know, in the executive
• 29:19
  office or would they typically it doesn't make a difference.
• 29:22
  The DOJ is pretty objective or at least representatives that
• 29:25
  are working there full time like yourself that are that are going
• 29:28
  to be the the real life of most of the operations are are they
• 29:32
  objective enough that people are comfortable just doing that?
• 29:35
  Yeah, it the answer is they can be.
• 29:38
  So it, it, it mostly shows, I think it shows up probably most
• 29:42
  in mergers. And typically stereotypically
• 29:47
  Republican administrations are more likely to approve mergers
• 29:51
  than Democratic administrations. Now the opposite definitely
• 29:54
  happens. There may be a deal that a
• 29:56
  Democratic administration would block and a Republican one would
• 29:59
  not. And then and vice versa, one
• 30:00
  that a Republican administration would block and a Democratic one
• 30:03
  would not. And so it still comes down to
• 30:06
  the individual. But I think the way people
• 30:08
  usually perceive it as you're more likely to have a challenge
• 30:11
  under a Democratic administration of two firms are
• 30:13
  thinking about merging and they think this one's a little more
• 30:17
  challenging, like the facts aren't quite as strongly in our
• 30:19
  favor. The general perception would be
• 30:22
  that's more likely to happen under a Republican
• 30:24
  administration, that it is under a Democratic one.
• 30:27
  And that brings up a separate issue.
• 30:29
  Oh, sorry, go ahead. No.
• 30:30
  I'm just going to say I'm sure that changes with time because
• 30:32
  because party, because party standards shift over as time
• 30:35
  goes on too. So I'm sure we're just talking
• 30:37
  about the moment, you know, the present relatively modern
• 30:40
  history. Yeah, that's absolutely true.
• 30:43
  And one of the areas where it sometimes comes up is there's
• 30:46
  this idea in mergers where you might have a remedy.
• 30:50
  So suppose you have some merger that causes a problem in some
• 30:54
  particular area but doesn't in another part of the country.
• 30:59
  Imagine you have two firms that are making some product, and the
• 31:03
  product doesn't go very far. So if you've got a factory,
• 31:05
  you're serving 100 miles, 150 miles, something like milk, you
• 31:08
  know, just can't travel that far.
• 31:10
  If you and I both own dairies and we want to merge, let's say
• 31:13
  you have a bunch of dairies on the West Coast.
• 31:15
  I have some dairies up in the upper Midwest.
• 31:17
  And then we both have one dairy in Florida that are right next
• 31:20
  to each other and there's nobody else nearby.
• 31:22
  So you might, if we want to merge, we might say to the
• 31:25
  government and hey, look, you're right, we compete pretty heavily
• 31:28
  in Florida. But look, there are all these
• 31:29
  other places we don't compete and we think there are benefits
• 31:32
  for us joining. So how about this, We will merge
• 31:35
  in all those other areas in the West Coast, in the upper Midwest
• 31:38
  and in Florida, we'll sell, we'll sell my dairy.
• 31:41
  So we'll sell it to some third party who'll compete.
• 31:44
  And that way going forward, you have the same competition
• 31:47
  because today you and I compete. So that's a typical remedy.
• 31:51
  It's what's known as a structural remedy, like we're
• 31:53
  just getting rid of some productive assets somewhere,
• 31:55
  giving them to somewhere else. That can surprisingly run into
• 31:58
  problems because it's sometimes the case that it's pretty hard
• 32:02
  to do whatever the business is, and you might worry that it
• 32:05
  wouldn't work very well afterwards.
• 32:07
  So, for example, I worked on the Kroger Albertson's merger, and
• 32:11
  there the parties were proposing to divest a bunch of stores.
• 32:14
  They said, look, OK, these stores are close to the other
• 32:17
  side store. We'll sell one of the stores,
• 32:19
  and that should resolve the problem.
• 32:21
  And an issue they ran into is that there had been past mergers
• 32:25
  where grocery stores got together and they divested
• 32:28
  stores. And what happened in a few of
• 32:30
  those is any of those stores failed.
• 32:33
  And so the competition didn't get maintained.
• 32:36
  It would be like in my dairy example, you and I merged, we
• 32:39
  sell my dairy in Florida. The new person can't quite
• 32:42
  figure it out. It goes out of business.
• 32:44
  And now customers in Florida, in this example, they just have
• 32:47
  your dairy to buy from and they can't play it off against mine
• 32:50
  anymore. And so with those remedy
• 32:53
  questions, you know, one thing, the previous administration, the
• 32:57
  Biden administration, they were very strident about, consumers
• 33:01
  shouldn't take the risk that a divestiture is going to fail.
• 33:04
  And so if you have a divestiture that we're pretty sure is not
• 33:06
  going to fail, that's fine. We'll consider that and we might
• 33:09
  accept it. But we're not super interested
• 33:12
  in divestitures where there's any kind of risk and we don't
• 33:15
  think consumers should bear that risk.
• 33:16
  Another administration might say, yeah, look, maybe it'll
• 33:19
  fail, maybe it won't. And but we're we're pretty
• 33:22
  confident that it's likely not to and so we'll be happy to go
• 33:25
  ahead. So that's another thing that
• 33:27
  comes up, and it's not uncommon to be arguing in court, like, is
• 33:30
  this divestiture enough to resolve the competitive problem?
• 33:34
  And does that happen often in the case that companies will
• 33:38
  merge and then and then they just won't be able to conduct a
• 33:42
  business? I mean, I guess the one of the
• 33:44
  most famous case was the was it the AOL case in the early 2000s?
• 33:48
  Where would they, would they buy?
• 33:50
  It was a Verizon AOL? I don't remember what it was.
• 33:52
  I remember that there was a spectacular failure in the early
• 33:55
  2000s with with a with a tech company.
• 33:58
  Yes. And and so that one I'm not
• 34:01
  familiar with, but in general both agencies do what are called
• 34:04
  retrospective studies from time to time.
• 34:06
  So they look back and say we made a divestiture, did it work?
• 34:09
  Did it not work? And often the answer is it
• 34:13
  worked. So I worked on a beer merger
• 34:15
  when I was at DOJ and we divested a brand.
• 34:18
  So it it was Labatt's in sort of upper upper New York's upper in
• 34:25
  New York, let's just say. And it was divested to a buyer.
• 34:29
  The buyer got a Brewer, a brewery, they continue to make
• 34:33
  it, they continue to compete. It all went fine.
• 34:36
  And then there are other ones where, you know, for example, in
• 34:38
  Kroger, Albertson's, in one of the previous deal, which is
• 34:40
  being between Albertson's and Safeway, some of the grocery
• 34:43
  stores went out of business. And part of the reason was if
• 34:46
  you think about wherever you buy your groceries, the name of that
• 34:50
  is what's called in the industry the banner.
• 34:52
  So if it's Safeway, Safeway is the banner.
• 34:55
  Consumers are attached to that. Like I know when I go to a
• 34:57
  Safeway, what I'm going to find if I rebranded his Hills.
• 35:00
  And people may be like, I don't know about this hill guy, I
• 35:03
  don't know about his stores. And now I lose a bunch of my
• 35:06
  customers and now I'm out of business.
• 35:08
  You know, something like that happened with Whole Foods.
• 35:10
  Whole Foods had an earlier merger with Wild Oats and a
• 35:13
  couple of the divested stores just completely failed.
• 35:16
  Once you lose that brand, that can be really challenging.
• 35:19
  Phasingly there's a lot of sort of things that look like a
• 35:23
  remedy that might work, and yet there's a there's nevertheless
• 35:27
  there's a challenge in court. That's really cool.
• 35:29
  It's really, it's a really fascinating, it's really
• 35:31
  fascinating examples as to how, because, you know, you could
• 35:34
  just take two books and compare them with one another and say,
• 35:36
  Hey, it should work out. But there's a lot of factors, I
• 35:38
  guess that we don't that we that we wouldn't naturally think
• 35:41
  about like like brands and and stuff like that.
• 35:43
  And you're and you're completely right.
• 35:44
  I mean, it's the reason why people like to buy Rice Krispies
• 35:47
  instead of crispy rice, all these or something like that,
• 35:50
  you know, or it's we, we have a, we have an attachment and I love
• 35:54
  to get sold. So I'm certainly, I'm certainly
• 35:56
  guilty of being one of these participants.
• 35:59
  But I think that there is something, I think that there is
• 36:01
  a value to, to brands. And I think that you're right,
• 36:03
  people do have attachments and it's really, it's really cool.
• 36:07
  I would love to touch a little bit on the state's versus the,
• 36:09
  the state's versus federal application of antitrust and
• 36:14
  monopolies and stuff, because I didn't even really realize that
• 36:19
  this was, that this could have been, it could be a state issue.
• 36:22
  When would this be? When would this come up that a
• 36:24
  state would hypothetically have an issue with a merger but a
• 36:28
  government wouldn't or vice versa?
• 36:30
  And what is and how does that get resolved between the state
• 36:33
  and the government? Yeah.
• 36:34
  So the federal government has the DOJ and the FTC.
• 36:38
  Let's just say that those are the two biggest antitrust
• 36:40
  agencies. But then most states of Florida,
• 36:43
  for example, will have, as part of its attorney general's office
• 36:47
  will have someone who's looking at antitrust issues in Florida.
• 36:50
  And so an earlier example, if we just have a merger in Florida
• 36:54
  between your dairy and my dairy and people are concerned about
• 36:57
  it, Florida might move in and look at that.
• 36:59
  Or if it's in the, you know, whatever state you want to pick
• 37:03
  could be in Minnesota there, there's two dairies there.
• 37:06
  That state may look at it if all the merging parties are located
• 37:10
  in that state or if they think for some reason their consumers
• 37:14
  are vulnerable under the merger and the federal government, for
• 37:18
  whatever reason, doesn't. And so an early example of this
• 37:22
  and, and was the Sprint, T-Mobile merger and their Sprint
• 37:26
  and T-Mobile were merging. And at a high level, you could
• 37:29
  say there were four at the time, large cell phone providers,
• 37:32
  Verizon AT AT&T, Sprint and T-Mobile.
• 37:36
  Sprint and T-Mobile where I think it's fair to say #3 and #4
• 37:40
  And so they were merging and the federal government worked out a,
• 37:46
  a remedy, certain, some agreement with the Sprint and
• 37:50
  T-Mobile will make certain you'll do certain things, you'll
• 37:53
  take certain actions. And if you do that, we think
• 37:55
  that the transaction is OK. But a bunch of states led by New
• 37:59
  York said even with those remedies, we still think this is
• 38:02
  going to hurt consumers in New York.
• 38:04
  And so they brought, they brought a lawsuit in New York
• 38:06
  and they actually ended up losing that.
• 38:08
  You know, it is a challenging position for the state sometimes
• 38:12
  because in that case, the federal government had reached
• 38:15
  an agreement saying we don't think this transaction is going
• 38:18
  to harm consumers in the United States.
• 38:19
  And then New York says what we think it does.
• 38:22
  And so that can be that can be a challenge, You know, in the the
• 38:26
  dynamics in the courtroom is New York because now the judge may
• 38:29
  be thinking, but wait, you guys say it's not, but the federal
• 38:32
  government said it was. Why do you have different
• 38:34
  positions? And you sort of have to work
• 38:36
  through that. But you can also have cases
• 38:38
  where, let's say 2 hospitals merge in Wyoming and the Wyoming
• 38:42
  attorneys general is interested, but the federal government just
• 38:45
  says, you know what, Wyoming, you can deal with this.
• 38:48
  Traditionally, many of the cases have been done by the FTC and
• 38:51
  the DOJ. They've typically had larger
• 38:54
  resources. These antitrust cases can be
• 38:57
  pretty expensive, time consuming.
• 38:59
  But yeah, one thing that's happened over the last, I would
• 39:01
  say four years, the the states have really become very active
• 39:06
  in bringing antitrust cases on their own groups of states or
• 39:09
  individual States and has really changed things a lot.
• 39:12
  Like there's a whole new set of people.
• 39:14
  If you're thinking about doing a deal, you don't need to just get
• 39:17
  approval from the federal government.
• 39:19
  You need to make sure that the states are also on board with
• 39:21
  your merger. I don't know, lose.
• 39:23
  Each other. Hang on.
• 39:24
  I think, OK, sorry about that. We had an extended break longer
• 39:28
  than I wanted. But my question was, I'm sorry
• 39:31
  about that. Was is there a precedent for
• 39:33
  states being more involved now in antitrust?
• 39:36
  Is this, do you think, temporary thing because of a cultural or
• 39:40
  social phenomenon that's going on or do you or what do you
• 39:44
  think is the reason why so many states are getting involved as
• 39:46
  opposed to the federal government?
• 39:48
  Yeah, it's an interesting question.
• 39:50
  I definitely think they have become more involved and I don't
• 39:53
  think it's as simple as, I mean, antitrust has now become in some
• 39:59
  ways a more popular political issue.
• 40:01
  There used to be something of a sort of a consensus of consensus
• 40:05
  view of antitrust and there's been attacks on that in various
• 40:09
  ways. And so now there's maybe more
• 40:12
  diverse opinions. And so different states just see
• 40:15
  things differently, and they're moving forward with cases that
• 40:19
  in the past, you know, at the beginning of my career,
• 40:21
  certainly. It was not uncommon for states
• 40:24
  to be involved. So the federal government filed
• 40:27
  A lawsuit. Some states would join, but
• 40:30
  usually the federal government was doing most of the actual
• 40:34
  litigating. And now you have states doing
• 40:36
  cases that have never involved the federal government.
• 40:38
  And you know, in the Live Nation case, for example, the federal
• 40:42
  government settled and then the states went ahead and, and there
• 40:46
  are, there are definitely other examples.
• 40:47
  And you know, a little while, it was a little while ago, but
• 40:52
  there's also the Sprint T-Mobile case.
• 40:53
  So you know, now the, the states are in there also bringing these
• 40:57
  cases. And it's just a, it's a real
• 40:59
  shift. And I, I don't know how long it
• 41:01
  will last. It'll be interesting to see.
• 41:03
  I mean, antitrust cases are expensive.
• 41:05
  And so, you know, if if the people in the states feel like
• 41:09
  they don't want their representatives spending money
• 41:11
  that way, then maybe that'll change.
• 41:13
  But for now, that's definitely seems to be a major shift and it
• 41:17
  doesn't seem to be going away. And I would venture a guess and
• 41:22
  say that the public sentiment at the moment has shifted from
• 41:26
  issues of left to right, that a federal government could at
• 41:29
  least put say, you know, say that they're, that they're
• 41:33
  participating in. And I feel, and I think a lot of
• 41:36
  people feel that big corporations are more of an
• 41:40
  issue for for everyday Americans than a left or right party
• 41:43
  member. And so I think that the general
• 41:45
  sentiment at right now, they're just my, it's just my feeling of
• 41:48
  the zeitgeist at the moment that that there's just more of a,
• 41:51
  there's a political blame going towards big corporations.
• 41:56
  And perhaps rightfully so, I'm not sure exactly.
• 41:58
  I don't know enough the details, but you know, I could imagine
• 42:01
  that that is what would popularize such such a movement.
• 42:04
  Yeah, no, I mean, it's it kind of in some ways it took a lot of
• 42:09
  people by surprise, you know, the the building of this
• 42:12
  momentum for looking into the big tech companies and for
• 42:16
  investigating them closely. I think prior to all those
• 42:19
  investigations. And I'm not intending to pick on
• 42:22
  Google at least at all. It's just that their cases have
• 42:24
  been out there and have been the most public.
• 42:27
  I think most people probably had a positive view of Google.
• 42:30
  And then there were, you know, from both the left and the
• 42:33
  right, people said we need to look into Google.
• 42:35
  There was an investigation. There were these cases.
• 42:37
  They lost two of them, which are now they're trying to decide how
• 42:41
  they're going to remedy the the harm.
• 42:44
  And, you know, that's a real shift.
• 42:46
  I mean, I think 10 years ago, Google would have been pretty
• 42:48
  popular with the average consumer.
• 42:51
  And so it is a fascinating development.
• 42:54
  And yes, it's not entirely clear what's driving.
• 42:58
  You, you could almost imagine by the way, I and I was, I was
• 43:01
  curious about this while I was thinking about this in the MO,
• 43:03
  while we're thinking about our conversation was there's an
• 43:05
  enormous amount of competition in the AI world, which seemingly
• 43:09
  strouted from the enormous tech world of Google and Amazon and
• 43:14
  Meta. But, and, and you have kind of
• 43:17
  this company open AI with that was the real forefront of the AI
• 43:21
  world and almost did feel like they were unanimous with the,
• 43:24
  with the AI movement, at least in the from the consumer level
• 43:27
  or from a very superficial level.
• 43:29
  And all of a sudden with and, and perhaps it coincides as far
• 43:34
  as time goes with the scrutiny on the big tech companies, but
• 43:38
  there was an explosion of, of a variety of, of very successful
• 43:42
  AI companies, including Anthropic and Claude, which are
• 43:45
  which just got the trillion, almost a trillion dollar
• 43:48
  valuation after just five years of existence.
• 43:50
  And so you that that that market seems extremely competitive, but
• 43:54
  it's funny that they comes out of such a out of a market that
• 43:57
  only had a few player. Yeah, no, it is very
• 44:00
  interesting. And you know, I think something
• 44:04
  similar. Well, a couple of thoughts.
• 44:07
  One early in my career, I worked on a case that involved like
• 44:10
  text to speech. You know, when you used to call
• 44:12
  the airline and say, hey, I want a flight and it would say please
• 44:15
  enter the first 3 digits of your city name.
• 44:18
  And then you never understood what you're talking about and
• 44:20
  you ended up just an operator operator.
• 44:23
  And like those early, there was an early case about like, you
• 44:26
  know, a couple people had that tech were like merging and it
• 44:28
  was like the type is so terrible.
• 44:30
  Will anyone notice or not? And now AI is so, so much better
• 44:34
  at that. You know, the other day I got an
• 44:35
  e-mail and it's we dropped a response for you.
• 44:38
  It wasn't perfect, but it was not just coherent.
• 44:41
  It was like using turns of phrase that I use in my very
• 44:45
  idiosyncratic punctuation, like the way I always write my last
• 44:48
  name and H just because it's quicker, like I don't have to
• 44:50
  write Nicholas or Ridiculous Hill.
• 44:52
  And it did that. And, you know, obviously it's
• 44:54
  drawing all this data in and trying to make things come out
• 44:57
  and that, you know, that is coming.
• 44:59
  Look, this is one of those things I've observed over my
• 45:01
  career that new technologies create a lot of anxiety.
• 45:05
  Like, what is it going to do? How is it going to affect me?
• 45:08
  And the more powerful a technology seems, the more
• 45:11
  threatening it is. Like we don't know what the end
• 45:13
  game is going to be. We don't know who it's going to
• 45:16
  replace, whose jobs are going to disappear or how your day-to-day
• 45:20
  life will change. And that creates anxiety and
• 45:22
  people worry about it. And then to your point, you
• 45:25
  know, it's a little bit like, you know, was it 20 years ago,
• 45:28
  30 years ago, Microsoft was in a very strong position with
• 45:32
  operating systems on computers. It seemed like they had the
• 45:34
  whole world locked up. And then here came the
• 45:37
  smartphone and Apple had the first really interconnected, You
• 45:43
  know, the iPhone came out and people like this, this is
• 45:45
  amazing. And then rivals appeared.
• 45:47
  Microsoft tried to get into that game.
• 45:49
  They had their own operating system for a while, and nobody
• 45:51
  really liked it. And so it kind of disappeared
• 45:53
  from the market. And now it's kind of Samsung and
• 45:57
  Apple. And then, you know, there's
• 45:59
  other players, like I have a Pixel phone and that world is
• 46:02
  kind of it's your point, like you might have guessed,
• 46:05
  Microsoft will definitely be the next person.
• 46:08
  They'll dominate the cellular thing because they know how to
• 46:09
  do operating systems and yet it didn't happen.
• 46:12
  And you're right, IAI, it seems like there's hundreds of people
• 46:15
  out there fighting to be on the top and who's going to be there?
• 46:18
  And the royal for antitrust eventually will be, you know, if
• 46:21
  someone gets into a strong position, are they using their
• 46:25
  strong position to exclude rivals like antitrust?
• 46:28
  People are happy when firms compete with each other because
• 46:31
  that competing with each other makes consumers better off.
• 46:34
  They don't like it when you do. You find some way, potentially
• 46:38
  underhanded way to present prevent people from competing
• 46:42
  with you. And as of now, I agree with you.
• 46:44
  It just seems like the wild, Wild West.
• 46:46
  There's just lots of people out there doing it.
• 46:48
  So who knows where it'll end up. But it is a fascinating and
• 46:51
  anxiety inducing, you know, development.
• 46:54
  It's it certainly is. It certainly is.
• 46:56
  It's funny. I just did I think actually my
• 46:58
  last podcast episode that I recorded was with former CFO of
• 47:02
  Pixar when he took the company public.
• 47:04
  He was selected by Steve Jobs to to do it ordinarily sweet and
• 47:08
  intelligent guy. And one thing that he was
• 47:11
  describing to me, one of the challenges that he would that he
• 47:13
  describes was when it was Pixar was in a Pixar also started by
• 47:17
  Steve Jobs had $50 million invested into the privately by
• 47:21
  himself into the company to fund it at a low point in his career
• 47:24
  after he was already tossed out from Apple.
• 47:26
  And they and he says, you know, I I started Pixar has had four
• 47:31
  main businesses. Three of them were awful and the
• 47:33
  only one that was left was motion pictures and there and
• 47:37
  you're stuck dealing with Disney, you know, who's the
• 47:39
  absolute behemoth and he's like, and we had, and then Steve Jobs
• 47:44
  calls me and he goes, we need to negotiate with Disney.
• 47:47
  We have like a 10 year contract with them and they get 8090% of
• 47:50
  the money, you know, of the revenue and, and all the, and
• 47:54
  then any kind of, I think any, the second, any sequel to any
• 47:58
  movie did not count as original IP that was going to the
• 48:01
  contract. And it felt like, and he said
• 48:04
  you, you were just fighting this enormous, enormous behemoth.
• 48:07
  And somehow we did it. Somehow we kind of just poked
• 48:09
  this little hole in it. And we had this, you know, we
• 48:11
  had this enormous overnight success with Toy Story.
• 48:13
  And all of a sudden, overnight, despite how enormous Disney was,
• 48:18
  Pixar became a legitimate enough player that we were able to go
• 48:21
  to the the biggest names and the most powerful names in industry
• 48:25
  and say, Hey, we want to see it at the table.
• 48:27
  We're going to read, we're going to, we're going to renegotiate
• 48:29
  our contract and we're going to change the terms and, and make a
• 48:32
  little more favorable to us. So it shows that this kind of
• 48:35
  could be done without even needing any kind of government
• 48:38
  or formal intervention. It shows that if you kind of
• 48:40
  leave the market by itself and you have individuals like the
• 48:43
  Steve Jobs or the Apples or the Pixar's of the world, that that,
• 48:47
  that, that, that that they could really shake things up.
• 48:49
  It's similar, like you said, with microphone, Microsoft and
• 48:51
  the phones that, that, that, that, that that can really
• 48:53
  happen. And it's really, really
• 48:55
  wonderful. And one thing that might make it
• 49:00
  a little bit more difficult, and I would love to kind of branch
• 49:02
  this into the next part of our conversation, although you can
• 49:06
  obviously respond to that first if you'd like, is the difference
• 49:09
  between a monopoly and a conglomeration?
• 49:11
  Because I think that that's kind of the direction that we're
• 49:13
  heading towards. And maybe you could just give me
• 49:15
  some thoughts on what, you know, what, if you have any?
• 49:17
  If not, we could just jump into that conglomeration idea.
• 49:20
  Yeah, Yeah, I'll give you, I'll give you thoughts on that.
• 49:23
  First one that that actually you've identified what's a key
• 49:25
  issue in antitrust. Like, for example, if you're
• 49:28
  thinking about a merger, so you and I are thinking of merging
• 49:31
  our lemonade stands and we are the only two lemonade stands in
• 49:36
  Washington, DC or Florida, wherever you want.
• 49:40
  It's not that hard to make a lemonade stand.
• 49:42
  So like if you and I merge and we raise prices, somebody else
• 49:46
  is going to just set up a lemonade stand.
• 49:48
  And then there are other businesses where it's a lot more
• 49:50
  challenging. Like, for example, I was just
• 49:53
  talking about this with a colleague this morning.
• 49:55
  Microsoft Word and Microsoft Excel are in a really, really
• 49:58
  strong market position. And it's just hard today sitting
• 50:02
  here to imagine who is going to replace those products and ever
• 50:06
  displace them. And so when you're thinking
• 50:08
  about a merger, you often think about it and one of the things
• 50:11
  you think about is, could somebody just start a business
• 50:14
  and enter this and compete? If so, then maybe I'm not so
• 50:17
  concerned about mergers. If though it's really hard to
• 50:21
  enter or really unlikely to enter, then maybe I do care.
• 50:24
  And mergers can really reduce competition.
• 50:26
  And so one area where you often see this is like hospitals, like
• 50:29
  people don't tend to build a lot of hospitals.
• 50:32
  And so if all the hospitals in an area were to be owned by one
• 50:35
  person, you could imagine they might have some market power.
• 50:37
  And, but if we owned all the lemonade stands, you know, you
• 50:42
  just buy some lemons, you buy some sugar, you buy some water
• 50:44
  in a blender and you're ready to go.
• 50:46
  And maybe you might want something to filter it so you
• 50:49
  get rid of the lemon rind, but it's not that hard.
• 50:51
  And so that is what you're saying is really a key issue.
• 50:54
  And then you, you touched on something else that does come up
• 50:56
  too, which is, and you can also connect to hospitals.
• 51:00
  And I'll, I'll do that in a SEC. But generally, this idea of a
• 51:03
  conglomerate, I own, you know, a potato chip business, and I also
• 51:07
  own a bunch of soft drinks. Like, is that problematic?
• 51:12
  Do those compete? Like usually if I'm thinking
• 51:13
  about potato chips, I'm like, you know what?
• 51:15
  I'm not going to have a potato chip.
• 51:16
  I'm going to have a Pepsi instead.
• 51:18
  Like, that's not. You don't think about those.
• 51:20
  In antitrust, we often think about what would consumer
• 51:22
  substitute to. Those aren't really direct
• 51:24
  substitutes for each other. But in some settings, it might
• 51:26
  be the case that if you own products that don't seem to be
• 51:30
  related, they can affect each other and they can reduce
• 51:33
  competition. And so that's where theories of
• 51:35
  conglomeration start to come in. And one area that's been a
• 51:39
  pretty hot area of discussion and people are still trying to
• 51:42
  figure out how does it work, how does it not work is hospital
• 51:45
  cases. So traditionally it was remind
• 51:49
  me what city you're in, in Florida.
• 51:50
  I'm in Hollywood. The big system here is memorial.
• 51:53
  Memorial. Healthcare is huge here.
• 51:54
  Yeah. And so you just take your local
• 51:56
  hospital and the largest local system.
• 51:58
  And if they were buying the second largest system, you might
• 52:01
  say, wow, that's a lot of, you know, hospitals that are under 1
• 52:04
  owner. That could be a problem.
• 52:06
  I don't know, maybe not. I don't know the local market.
• 52:08
  But now suppose they said, you know what we're going to do?
• 52:10
  We're going to buy a bunch of hospitals in Hollywood, CA and
• 52:14
  there's no way that you are saying, gosh, I just
• 52:17
  accidentally cut off part of my finger with my weed wacker.
• 52:20
  I need to go to the emergency room.
• 52:22
  I'm either going to go to the Hollywood hospital or I'm going
• 52:25
  to drive to California and go there.
• 52:26
  You're not, that's not happening.
• 52:27
  And he's similarly, but maybe maybe there's some way in which
• 52:32
  owning those hospitals in a bunch of states could give them
• 52:35
  market power in a way that we haven't thought about before.
• 52:38
  And so people really are trying to think about this in the
• 52:41
  context of hospitals and figure out is there an effect.
• 52:44
  Now that's not quite the conglomerate because at least
• 52:46
  it's all just hospitals, but people will also think about if
• 52:50
  you what's called a vertical antitrust case.
• 52:53
  So an easy way to think about it, I find is milk.
• 52:56
  So the cows produce raw milk and that's you can't, you can drink
• 53:00
  it, but that's not what's sold at the grocery store.
• 53:02
  That milk is then processed at a processing plant and then that
• 53:05
  goes to the grocery store. If you had a vertical merger
• 53:09
  where somebody who owned all the cows bought a lot of processing
• 53:14
  plants and said we're not going to let other people have their
• 53:17
  milk at our processing plant, maybe they would cut off access.
• 53:21
  Now there's been a bunch of cases on that and I think it's
• 53:24
  really fact dependent. So that may or may not be true,
• 53:27
  but if you own an input into somebody else's business and you
• 53:30
  won't let them have it or vice versa, you commit to not buying
• 53:34
  someone else's input, you could really damage someone else's
• 53:36
  business even if you don't compete head to head.
• 53:39
  And so those kinds of theories do exist and they're out there a
• 53:42
  lot and people are thinking about them and they're just
• 53:45
  finally, very briefly, I think you're right.
• 53:46
  I mean, something of what made people get interested in these
• 53:51
  tech cases was Google and Facebook and Ale and Amazon and
• 53:57
  others, They do play an outsized role in people's lives.
• 54:00
  And so people were thinking, these people do have a lot of
• 54:03
  market power. We really love them.
• 54:05
  Is there something they're doing that is reducing competition?
• 54:08
  Because we're using their products all the time.
• 54:09
  And if they are, then we really want to know about it.
• 54:12
  Right. Does the DOJ or FTC ever step in
• 54:15
  if, and this kind of happens not necessarily through merger and
• 54:18
  acquisitions, but say Amazon is a great example where Amazon
• 54:22
  starts as a book business and then gets into data and gets
• 54:25
  into servers and gets into the, you know, storage and then they
• 54:30
  get into the film studios and stuff like that.
• 54:33
  And like you said, all of a sudden this company has an
• 54:36
  outsized proportional relevance or impact on, on, on really
• 54:40
  everyone's lives. And they might make the
• 54:42
  argument, hey, we just kind of developed this in house in their
• 54:45
  own business and this is America and aren't we allowed to do
• 54:47
  that? And you know, this is, this is
• 54:49
  just free business, isn't this? Yeah.
• 54:51
  And you're hitting what's a really tricky issue for
• 54:53
  antitrust, which is we want companies competing as hard as
• 54:57
  they can. And when you compete as hard as
• 54:59
  you can, that sometimes means you get really big because
• 55:03
  you're really good at what you do and you become really
• 55:05
  successful. And the line is usually it's
• 55:08
  fine for you to become big through growth.
• 55:12
  You know, you just do a great job, you serve your customers
• 55:14
  well. People really want your
• 55:16
  products. Most antitrust people would say
• 55:18
  that's great. That's exactly what we want you
• 55:20
  to do, get out there and try to give the consumer a better deal
• 55:23
  and win customers in that way. What antitrust gets upset about
• 55:27
  is if you say, you know what, it's a lot of hard work figuring
• 55:30
  out what customers want, I tell you what we're going to do.
• 55:32
  We're going to buy our rival instead.
• 55:34
  And that way we can get rid of that competition and we can just
• 55:36
  take it a little easy here because we're really tired of
• 55:38
  running at full speed. Or you say, you know, we're
• 55:41
  going to do something, we're going to tell our suppliers.
• 55:43
  Just making up an example. Hey, you can do what you want,
• 55:46
  but if I find out that you're supplying your products with our
• 55:49
  rival, we're not going to buy from you anymore.
• 55:52
  And if you're the bigger company, and I'm just making up
• 55:54
  an example here, you might be able to drive a rival out of
• 55:57
  business or raise their costs enough that you can just have a
• 56:00
  little bit of your breathing space and now you're not
• 56:02
  competing for your customers in the way you would.
• 56:04
  And that hurts American consumers.
• 56:06
  And so then, yes, the FTC and the DOJ, there are the various
• 56:12
  groups there are keeping an eye on industries.
• 56:14
  And if it comes to their attention, you know, usually the
• 56:17
  way it works is somebody complaints.
• 56:19
  So a customer says, I used to have competition for my
• 56:22
  business, but now somebody is doing this thing that makes it
• 56:25
  hard for me to compete. Another source of complaints is
• 56:28
  a rival might say, hey, I used to compete with Nicholas's
• 56:33
  business, but now he's been like threatening my suppliers and I
• 56:36
  can't compete with this guy anymore.
• 56:37
  You got to do something here. And the, the both agencies will,
• 56:42
  if they get that kind of complaint and the complaint is
• 56:44
  credible, they'll look into it. And they may or may not bring a
• 56:46
  lawsuit. They may send a letter saying,
• 56:49
  Nicholas, stop threatening your rival's suppliers or whatever it
• 56:52
  is. Or if you know whatever I'm
• 56:54
  doing, I just keep doing. They might bring a lawsuit and
• 56:57
  challenge me in court. Right, right, right.
• 57:00
  And so that lawsuit would hypothetically prevent the
• 57:03
  business from expanding into other businesses where the,
• 57:06
  where the government will say, hey, Amazon, you got, you have
• 57:09
  too much of A market share. You can't, you can't also get
• 57:11
  into the movie studio business. You can't also buy a 21st
• 57:14
  century or whatever 21st century or Lionsgate or whatever,
• 57:16
  whatever it was they bought. But that would only have to it
• 57:19
  would only be the case if it was brought to their attention
• 57:21
  actively by the consumers and they were and and and they were
• 57:24
  actually having an impact on people.
• 57:25
  I think, I think they they bought MGM.
• 57:27
  So, yeah, I think so, right. It's a nuanced dancer generally
• 57:32
  expanding into new businesses. They will generally think, hey,
• 57:36
  that might be pro competitive. So today we have a bunch of
• 57:39
  people competing to sell coffee to us and Amazon says we're
• 57:44
  launching Amazon coffee. We're going to buy a bunch of
• 57:46
  beans super cheap. It's going to be like the spirit
• 57:49
  of coffee. It's going to be cheap and it
• 57:52
  may not be the very highest quality, but boy is it going to
• 57:54
  be affordable. And you know that they might say
• 57:58
  that, well, that seems like competition now that's going to
• 58:00
  put pressure on pizza and Starbucks and whoever else you
• 58:03
  buy your coffee from. And so they might like that If
• 58:06
  Amazon said, and I'm just using this as a purely hypothetical, I
• 58:09
  don't think there's any plans to enter the coffee business.
• 58:12
  But if they took some kind of action to enter coffee and
• 58:16
  restrict the ability of others to compete, then they might have
• 58:19
  an investigation. And so that's really the key
• 58:22
  thing, like the generally you're OK if you enter an industry and
• 58:27
  you just compete. If you take some kind of action
• 58:30
  that makes it harder for others to compete, other than the fact
• 58:33
  that you're competing with them, that's when you're at risk of
• 58:36
  getting an antitrust investigation.
• 58:38
  Both DOJ and FTC, they'll certainly respond if they're
• 58:41
  complaints. But just in the ordinary course,
• 58:43
  if they learn about something, you know, then their own life,
• 58:45
  they see, hey, there used to be different coffee on every
• 58:48
  corner. And now Hill's coffee has driven
• 58:50
  them all out of business. Someone may say we should take a
• 58:52
  look at Hill's coffee. How did how did this happen?
• 58:54
  Yeah. But I would imagine and I would
• 58:56
  imagine though, that this would probably, for example, let's say
• 59:00
  again, I'm sorry with the with the studio, with the film
• 59:03
  studio, with Amazon, right? And you know, this had really
• 59:06
  happened. They got the Lord of the Rings
• 59:07
  franchise and they got the rights to it.
• 59:09
  And they developed a script and they made, I believe it's a
• 59:11
  series. I don't think I believe it's a
• 59:13
  series. And they already had the
• 59:18
  tracking, they had the operations at the marketing
• 59:20
  power, they had the ability to take a piece of tape on every
• 59:23
  single Amazon Prime box that anyone was buying and, and, and
• 59:27
  stick their Lord of the Rings logo and marketing and
• 59:30
  advertising on it. And they're entering an industry
• 59:35
  with a whole nother level of power that and, you know, I'm
• 59:38
  not talking about Amazon in particular because there are a
• 59:40
  lot of studios that are doing this.
• 59:41
  Apple does this too. I'm I'm sure, you know, Apple
• 59:44
  has no problem throwing money at a lot of, you know, they have
• 59:47
  more cash than they want to do with.
• 59:48
  And they have no problem throwing money at Martin
• 59:50
  Scorsese or, or any big director, any big actor's name
• 59:54
  to be able to develop a movie for $500 million.
• 59:57
  And you know what? But that's because we're Apple.
• 59:59
  And normally no one would have made this, you know, whatever
• 1:00:01
  you know, the, the, the studios wouldn't have necessarily even.
• 1:00:03
  And created this and now because we are in another business or
• 1:00:07
  other businesses and we have other forms of backing and we
• 1:00:10
  have, we, we now have, we therefore have I guess more
• 1:00:13
  effective means or a better, a much bigger advantage than
• 1:00:19
  anyone else. And we're just getting started
• 1:00:20
  in the game. Does that is that, does that
• 1:00:22
  ever come into consideration or not really?
• 1:00:23
  Yeah, so nuanced answer. It's a very interesting question
• 1:00:27
  and I'll just give you some anecdotes to to talk about it.
• 1:00:30
  So I, I testified on the, the Penguin Random House's attempt
• 1:00:35
  to require Simon and Schuster and I testified for the
• 1:00:37
  government and we eventually prevailed in court and the
• 1:00:40
  merger was blocked. And what is 1 issue there that
• 1:00:43
  we said, hey, look, there's going to be a reduction in
• 1:00:45
  competition like authors today can play off the members of the
• 1:00:48
  big 5 and that this is going to lead to lower reimbursement for
• 1:00:53
  authors. So they'll get paid less.
• 1:00:55
  And that's that. And the, the defense said, hey,
• 1:00:58
  but look, there's entry and expansion here.
• 1:01:01
  And you could look, if we reduce competition, some other student,
• 1:01:05
  some other publisher will come in and compete.
• 1:01:07
  So you and they had other arguments as well.
• 1:01:09
  I don't mean to short give him short shrift, but the the key
• 1:01:12
  issue there was this one key issue was this entry question.
• 1:01:15
  And there it ties back to your question, because Amazon at one
• 1:01:18
  time tried to enter publishing. And you know, you could say
• 1:01:22
  Amazon has a lot of money. They're a very large company.
• 1:01:26
  And you might say if, well, if they try to enter publishing,
• 1:01:28
  they're going to be successful. They weren't successful and
• 1:01:31
  they're not today playing any material role, as far as I know
• 1:01:34
  in publishing. It's been a while since I looked
• 1:01:35
  at it, but they're not a major publisher.
• 1:01:38
  And this is one of those interesting things.
• 1:01:41
  You pick almost any industry, you could say, well, Apple has
• 1:01:44
  enough money to enter that if they want to.
• 1:01:46
  But from Apple's perspective, the question is, OK, I'm going
• 1:01:49
  to have to spend a bunch of money to do this.
• 1:01:51
  Is it worth my while to do it? Or should I invest in making an
• 1:01:54
  even better iPhone or an even better iPad or something like
• 1:01:58
  that? And so, you know, you can always
• 1:02:00
  think somebody could do it and an antitrust.
• 1:02:03
  The question is, would they actually do it?
• 1:02:06
  Like, would it be profitable for them to do that?
• 1:02:09
  And so in general, if firms are trying to enter new markets,
• 1:02:14
  they'll get a reasonable amount of leeway.
• 1:02:16
  You know, if to tomorrow pick your favorite tech company,
• 1:02:20
  let's say Google said we are launching Google Airways and
• 1:02:23
  we're going to fly from place to place, people would say, OK,
• 1:02:26
  well we'll see where this goes. Maybe this will be great, maybe
• 1:02:28
  it won't. But they would generally I would
• 1:02:30
  think the attitude of the FTC or DOJ does airlines and I think
• 1:02:34
  they would say let's see what happens.
• 1:02:36
  Like this could be new valuable competition.
• 1:02:38
  The way it would cause a problem is if you know, whoever the new
• 1:02:42
  entrant was took some kind of actions to restrict the ability
• 1:02:46
  of others to compete. Like it's fine to compete on the
• 1:02:49
  merits. You can go in there and say we
• 1:02:51
  are going to offer a better deal to customers and that's why
• 1:02:53
  we're going to win. And if you do that, that's
• 1:02:56
  great. What they're what's going to get
• 1:02:58
  you in hot water is if you say, you know what, it's hard to do
• 1:03:01
  that, we don't like doing that. We're going to make it hard for
• 1:03:05
  Efron to compete because right now he's got a really big market
• 1:03:07
  share. We're going to cut off his
• 1:03:09
  supply or we're going to do something else.
• 1:03:11
  That's what gets you in trouble. But if you just go in and say
• 1:03:14
  we're going to out compete in by offering a higher quality and a
• 1:03:16
  lower price, generally people will be saying that's fine,
• 1:03:19
  there's no antitrust problem now.
• 1:03:21
  That's it. That's cool.
• 1:03:22
  That's very interesting. I am curious though, you would
• 1:03:26
  again, you know, back just to the Hollywood example and this
• 1:03:29
  could apply this to any industry you want, but it does make a
• 1:03:31
  difference when you know, obviously you're correct.
• 1:03:34
  Zon is not guaranteed success in the, you know, in the in the
• 1:03:37
  film, in the movie, in the movie space.
• 1:03:38
  And neither is it and neither is Amazon.
• 1:03:40
  I mean, historically, I don't even think they have been
• 1:03:41
  particularly, you know, they're there as far as the Nielsen
• 1:03:44
  charts and as far as the eyes on the screen, you know, they're,
• 1:03:47
  they're, they're far from the top, but they do affect the
• 1:03:51
  competition chain and the actual mark and the ability to get
• 1:03:54
  movies made. If, and I think Netflix even
• 1:03:56
  started this practice where they say, hey, Adam Sandler, your
• 1:03:59
  typical rate for a movie is $100 million.
• 1:04:01
  We'll give you $300 million. And all of a sudden you're just
• 1:04:03
  completely changing the entire scape of, of what the, of what
• 1:04:07
  the industry is. Do you say that that's just
• 1:04:09
  natural, That's natural part for the course competition.
• 1:04:11
  We'll see what comes out of it. Or do you say, Hey, you're too
• 1:04:14
  busy changing the game And, and, and you're, you're causing a
• 1:04:17
  real rapid change in a lot of this stuff.
• 1:04:19
  And, and, and right now, and by the way, consumers do suffer
• 1:04:22
  from that. And, and I'm and, you know, and
• 1:04:23
  I'm sure that people say that, that, hey, we're not necessarily
• 1:04:27
  thrilled with the fact that we have to that, that, that XY and
• 1:04:30
  Z contents not great. And we're paying a lot of money
• 1:04:32
  for it. Or, you know, their excuse that
• 1:04:34
  why, why our membership costs are going up twice or three
• 1:04:38
  times a year is because they're putting out more content.
• 1:04:40
  But, you know, I mean, no one's asking you to put bid $500
• 1:04:44
  million for a movie that, that could have been made for 120,
• 1:04:47
  you know, a couple years ago. So I, I, I am curious that is
• 1:04:52
  this just deliberation in court? Is this just nuance and battling
• 1:04:56
  this out intellectually? Is that is that really what a
• 1:04:58
  lot of this comes down to? Yeah.
• 1:05:00
  So backing up, I'll take your Amazon purchase of MGM.
• 1:05:06
  So what the the review process there?
• 1:05:08
  I think one way you could think about it is to switch the
• 1:05:11
  context and think about airlines.
• 1:05:14
  So suppose American was for sale and United said we want to buy
• 1:05:19
  American. This was this was rumored in the
• 1:05:22
  press. I have no idea if there's any
• 1:05:23
  truth to it or not, whether they're considering it or not.
• 1:05:25
  But if that did happen, then I think what DOJ would say is,
• 1:05:28
  well, today you guys overlap and compete on a bunch of routes.
• 1:05:32
  Like today there are routes where customers are choosing or
• 1:05:36
  considering between American and United and potentially other
• 1:05:39
  competitors. And so they would take a look at
• 1:05:42
  that if Apple came in and said we are buying Puja Savers for
• 1:05:48
  sale American, we're buying American then or we're buying
• 1:05:50
  United, whichever one DOJ would certainly be entrusted and say,
• 1:05:53
  OK, what are the effects here? But they would probably say,
• 1:05:57
  well, you don't today compete to fly people from place to place.
• 1:06:01
  So I guess this could reduce competition, but I don't really
• 1:06:04
  see the issue. And so in all of these things,
• 1:06:08
  when somebody buys somebody else, it comes sort of down to
• 1:06:11
  if you're both competing to serve the same customers today.
• 1:06:14
  So you're competing with each other head to head every day.
• 1:06:17
  The more you do that, the more if you try to merge, the
• 1:06:20
  government's going to say wait a minute for a lot of customers,
• 1:06:23
  you 2 are among their best options and you're saying you're
• 1:06:25
  going to merge and not compete for them anymore.
• 1:06:27
  We want to know whether what's going to make them worse off?
• 1:06:30
  Is that going to reduce their options?
• 1:06:31
  So the same thing with Amazon and MGM.
• 1:06:34
  Are you both making a lot of movies?
• 1:06:35
  If so, are there other competitors?
• 1:06:37
  Is this going to reduce competition?
• 1:06:39
  What does that all look like in that big picture?
• 1:06:42
  And I. Didn't look at industry
• 1:06:43
  disruption as a whole. Sorry, I'd say, yeah, sorry.
• 1:06:47
  So an industry disruption, really.
• 1:06:49
  Again, I would call the price of going up triple the price.
• 1:06:52
  I would call that a disruption in the industry, wouldn't you?
• 1:06:56
  Yeah. So it would depend like remember
• 1:06:58
  in an antitrust merger, well, there's two kinds of antitrust
• 1:07:02
  mergers. One reviews 1 is before the deal
• 1:07:05
  happens. So United says we're buying
• 1:07:07
  American or Apple says we're buying American.
• 1:07:10
  The, the, the DOJ and the court have to make a decision where
• 1:07:14
  the states have to make a decision before they know what's
• 1:07:17
  going to happen. So it's a really, if you think
• 1:07:19
  about a normal crime and this, I mean, I'm, you know, it's not a,
• 1:07:24
  it's a different kind of issue. But if you think about theft,
• 1:07:27
  like you asked the question, did Nicholas steal money from FM or
• 1:07:30
  not? And if I did, if I stole that
• 1:07:32
  picture that's on the wall behind you, it's like, OK, he's
• 1:07:35
  got it. He did it or he didn't.
• 1:07:36
  You wouldn't be able to go to court and say, I think Nicholas
• 1:07:38
  is planning to steal my poster. People would say, OK, well,
• 1:07:41
  that's great, but let us know when he does and then we'll take
• 1:07:44
  action. In antitrust mergers, you have
• 1:07:46
  to make a decision before it happens.
• 1:07:48
  That said, there are cases in antitrust where people have gone
• 1:07:52
  back and said, hey, by the way, we didn't think there was a
• 1:07:55
  problem here, but you guys merged and then you raised price
• 1:07:58
  500%. So it looks like we got
• 1:08:01
  something wrong. So we need to look at this
• 1:08:03
  there. Were cases of.
• 1:08:04
  That yeah, yeah. There's a famous hospital case
• 1:08:07
  called the Evanston case where two hospital systems merged.
• 1:08:11
  And afterwards the FTC said, we can't help but notice that you
• 1:08:14
  guys have raised price since you merged and you raised price more
• 1:08:18
  than other people. And it seems like maybe that
• 1:08:20
  merger is anti competitive. And then the FTC won and they
• 1:08:23
  ended up, I can't remember what the exact remedy was.
• 1:08:26
  But so to your point, if you merge, let's say you and I merge
• 1:08:31
  and we raise our lemonade prices 500% and the government comes in
• 1:08:34
  and says, well, guys, you know what?
• 1:08:36
  I think I see a problem here. We might be in trouble.
• 1:08:39
  Or here's where we might not be if we said, hey, we did raise
• 1:08:43
  price 500%. But here's what you should know.
• 1:08:45
  The price of lemons and sugar went up 500%.
• 1:08:48
  That's why we raise price because otherwise we'd be
• 1:08:51
  selling all this stuff for a loss.
• 1:08:52
  And by the way, go down the street from us and we're not
• 1:08:55
  making any money like we're making.
• 1:08:57
  In fact, our margin amount we make on a glass of lemonade is
• 1:09:01
  exactly the same as before we merge.
• 1:09:03
  If those were the facts, then we'd have a good story.
• 1:09:06
  If it was the case that lemons and sugar didn't change price
• 1:09:09
  and water didn't change price, and you and I just jacked up the
• 1:09:12
  price 500% after the burger, we'd probably be in pretty hot
• 1:09:15
  water. So I hope so.
• 1:09:17
  I would hope so. Yeah, Exactly.
• 1:09:19
  That's that's how it's supposed to work.
• 1:09:22
  I would love to and now I want to talk about this.
• 1:09:25
  And you know, obviously as objectively as possible is
• 1:09:30
  there, you know, there's always, I emailed you about this
• 1:09:32
  beforehand. There's always the, in a lot of
• 1:09:35
  big industries or anything that has regulation, quote, UN quote,
• 1:09:38
  revolving door, the revolving door phenomenon where people go
• 1:09:42
  from private to public sectors and they take with them a lot of
• 1:09:45
  times relationships, trade secrets, different perspectives
• 1:09:48
  or insider knowledge that they may have to put them in a
• 1:09:51
  uniquely and unique position within the company.
• 1:09:54
  You know, so for example, when Purdue Pharma would hire people
• 1:09:57
  from the FDA to, after their careers, the FDA or after people
• 1:10:01
  at the DEA would, you know, would, would, would get hired by
• 1:10:04
  a pharmaceutical company. Part of their role was to be
• 1:10:07
  almost advisory in how, hey, how, how do we, how do we, how
• 1:10:11
  do we kind of avoid the regulation?
• 1:10:13
  How do we, how do we get around this and, and, and succeed and
• 1:10:16
  be as successful as a corporation as it could be?
• 1:10:19
  And by the way, I, I hear, I hear where that game plan comes
• 1:10:22
  from. I, you know, I, I can't say I
• 1:10:24
  like the idea, but as a, as a consumer, but whatever, I can
• 1:10:27
  understand where they're coming from.
• 1:10:29
  Does, does this, does this happen with the DOJ and the FTC?
• 1:10:32
  How would this manifest? Does this happen based on
• 1:10:35
  industry exclusively? And it's like the DOJ and the
• 1:10:37
  FTC, because there's so many different cases that you're
• 1:10:40
  taking on, you're not necessarily inclined to be drawn
• 1:10:44
  into one particular privatized industry.
• 1:10:46
  How does it, how exactly would that or doesn't?
• 1:10:48
  Does it or does it not work? Yeah, So it's interesting.
• 1:10:51
  It doesn't. Vary a little bit by agency.
• 1:10:53
  I would say the DOJ, traditionally a lot of its
• 1:10:56
  recruiting came from what was known, I think is still known as
• 1:11:00
  its honors program. So it would hire attorneys
• 1:11:03
  straight out of law school. And so they and then they were
• 1:11:06
  just trained and I don't know what the percentages were, but
• 1:11:09
  my observation was a lot of DOJ attorneys came through that
• 1:11:13
  route. So DOJ was sort of recruiting
• 1:11:15
  people fresh. FTC definitely does that too.
• 1:11:18
  The FTC would also say, here's someone who's been in private
• 1:11:22
  practice for five years. They're good at what they do,
• 1:11:25
  they're credible and they present to us.
• 1:11:26
  We want that person to work for us.
• 1:11:28
  Like they know how things look on the other side and they can
• 1:11:31
  give us a perspective we otherwise wouldn't have.
• 1:11:34
  And so the two eight, I'm not one approach or the other is
• 1:11:36
  better, but they they both certainly I would say DOJ tended
• 1:11:40
  to be more the honors and FTC tended to be a mix of hiring
• 1:11:44
  people out of it from law firms or hiring people fresh out of
• 1:11:49
  law school. And then people will work at the
• 1:11:51
  agencies and they will leave and they will go to work at a law
• 1:11:56
  firm. Or in my case, they'll go from
• 1:11:57
  working in the agency as an economist and go to work for a
• 1:12:02
  consulting firm. And a couple thoughts on that
• 1:12:05
  one. There isn't.
• 1:12:07
  If you think about the revolving door, like going back and forth
• 1:12:10
  frequently, that really doesn't happen that much.
• 1:12:13
  Like what happens a lot is someone works for the agency,
• 1:12:16
  they do it for like say 10-15 years, and then they think, I'd
• 1:12:19
  like to try private sector and they do that.
• 1:12:21
  Or vice versa. They go to the law firm, they
• 1:12:23
  build a career, and then they say, I'd like to see what it's
• 1:12:26
  like being at the government. Multiple spins through that door
• 1:12:29
  are relatively uncommon, at least in my experience.
• 1:12:32
  Usually you start one place, you might go the other.
• 1:12:34
  Some people do there, there and back, but that's relatively
• 1:12:38
  rare. And then I would say from my
• 1:12:41
  experience at both agencies, if you're an ex agency alumni, so I
• 1:12:46
  worked with you, I know you. I'm usually a little more polite
• 1:12:49
  in my questions, but it doesn't change the analysis.
• 1:12:52
  Ultimately, if you come in with a dumb story, you know, you and
• 1:12:56
  I have done our 500% deal and you know, an ex agency person
• 1:13:01
  comes in and says, oh, you shouldn't worry about it because
• 1:13:03
  look, I mean, lemonade, whatever, it's not that
• 1:13:05
  important. They come up with some really
• 1:13:07
  reason why we shouldn't care. The staff are going to say the
• 1:13:10
  exact same thing. They're going to say, yeah, this
• 1:13:12
  isn't a credible story. Like we still like Bob, great
• 1:13:15
  guy. We really enjoyed working with
• 1:13:17
  him, but on this one, his story doesn't make a lot of sense.
• 1:13:20
  And then on top of that, you have two other layers. 1 is the
• 1:13:23
  political layer. Those people generally are not,
• 1:13:26
  don't have those past relationships with works.
• 1:13:28
  And then ultimately in our US system, things end up in court
• 1:13:33
  and for sure the judge has no idea who these people are and
• 1:13:36
  the judge is just going to look at the merits.
• 1:13:38
  Like in all these cases, you work backwards from what would
• 1:13:41
  happen in court. Like if you and I do our merger,
• 1:13:43
  we raise price 500% and we know we're going to lose in court.
• 1:13:47
  Then when we're dealing with the agency, we're really in a
• 1:13:49
  posture where we're saying, let's try to figure out if
• 1:13:51
  there's a solution or we just have to go back to competing
• 1:13:54
  independently. And so those because of those
• 1:13:56
  various layers, I, at least in my time in the agencies, I
• 1:13:59
  really didn't see any example where it was, well, we kind of
• 1:14:03
  like, you know, Janet, because she was here and we worked with
• 1:14:07
  her. So we're going to say yes to our
• 1:14:08
  client when we had otherwise said no.
• 1:14:10
  Ultimately, especially the agencies, the people tend to be
• 1:14:14
  really mission focused. Like they do work for a lot less
• 1:14:17
  money. They work really long hours.
• 1:14:19
  They're doing it because they care about US consumers.
• 1:14:23
  And that sort of Trump's any we worked together once or Taos and
• 1:14:29
  you know that at least that's been my experience.
• 1:14:31
  Others may have had a different experience.
• 1:14:33
  Sure. And I I I totally get that.
• 1:14:36
  And I, you know, that that makes a lot of sense.
• 1:14:39
  I, I was actually thinking a little bit more along the lines
• 1:14:41
  and to take it back to our lemonade stands that you and I
• 1:14:44
  have our lemonade stands. And I know that if we Jack up
• 1:14:46
  our prices 500%, the federal government's going to come after
• 1:14:49
  us. But I do know that having spent
• 1:14:51
  three years, you know, if I spent three years at the DOJ or
• 1:14:55
  the FTC and I know that jacking up to 100%, you know, will
• 1:15:00
  probably fly under the radar. And so, you know, I say, hey,
• 1:15:02
  you know, Nicholas, you know, I, I, I had a couple of, you know,
• 1:15:06
  I spent a couple of years there. And I do know that we don't want
• 1:15:08
  them coming after us. So why don't we, why don't we
• 1:15:11
  just stick it to what I know is 202 hundred 50%.
• 1:15:14
  And then anything above that is it's already getting greedy, but
• 1:15:17
  that's also going to attract attention.
• 1:15:19
  I know that their XY and Z. Yeah, I see.
• 1:15:24
  I got. I got you.
• 1:15:25
  Yeah. Yeah, that makes sense.
• 1:15:26
  So I think, yeah. So from the perspective of, so
• 1:15:29
  usually, let's say our, our joint lemonade company, we're
• 1:15:33
  hiring an antitrust lawyer and we say, look, if you looked at
• 1:15:36
  the agencies, because we want to, we want to know what you
• 1:15:39
  know, and it's that experience of working at the agencies can
• 1:15:43
  be very helpful for understanding how the process is
• 1:15:46
  going to work. They'll say to us, look, here's
• 1:15:48
  how it's going to work. You guys want to merge, you're
• 1:15:50
  going to have to file your HSR form.
• 1:15:52
  That's a form you have to file to merge.
• 1:15:54
  Then they'll probably review it. We might have some calls, you
• 1:15:56
  know, like they can walk you through the steps and tell you
• 1:15:59
  how it's going to work. And so that direct experience of
• 1:16:01
  the process can be really valuable.
• 1:16:05
  I'm, I'm not an attorney, so I don't really see them counseling
• 1:16:08
  outside of, you know, when I'm on the phone.
• 1:16:11
  What I will say is on the phone, what they will typically say is,
• 1:16:15
  look, I can't tell you what to do.
• 1:16:17
  I'm, I'm just a lawyer here. But I can tell you here are the
• 1:16:20
  things that are likely going to get you into, we are going to
• 1:16:23
  present risk for you on the antitrust side.
• 1:16:25
  And if you and Nicholas merge and F1 Hill Lemonade now is 500%
• 1:16:31
  more, that's very likely to attract attention and you
• 1:16:34
  probably shouldn't be thinking about doing that.
• 1:16:36
  And, you know, I think there's this risk of somebody noticing
• 1:16:40
  and coming after you. So in a sense, that's the way
• 1:16:43
  I've usually seen that play out. They give that kind of
• 1:16:45
  assessment. And if, and people ask, which
• 1:16:48
  they rarely do because I'm an economist, they usually want to
• 1:16:50
  know what the lawyers think. I will say, look, if I was
• 1:16:53
  sitting in my hat at the DOJ and I saw this case fax, then this
• 1:16:58
  is probably the way I would think about it.
• 1:17:00
  And that can be value for them to understand.
• 1:17:02
  Look, if I saw your merger, I'd probably tell you, I think this
• 1:17:05
  was this one's going to get you into trouble.
• 1:17:07
  Like if I was the person of the agency reviewing this, I would
• 1:17:09
  say I've got real concerns and it's going to take a while.
• 1:17:13
  You're going to have to work with the agency and go through
• 1:17:14
  their whole process. Or I can say, look, if this had
• 1:17:17
  come to me when I was a DOJI would have said, I don't think
• 1:17:19
  it's a problem. This merger is fine.
• 1:17:21
  It doesn't reduce competition, is not going to harm consumers.
• 1:17:24
  And so that's usually how that counseling process works.
• 1:17:27
  I've not really seen the, hey, I've been at the agency and I
• 1:17:30
  can tell you guys, you're in your new brand of lemonade.
• 1:17:33
  You could raise price 313%, but if you go to 314, that's going
• 1:17:38
  to be bad news. So go up to 313 and stop there.
• 1:17:41
  That's not usually how it plays out like the businesses.
• 1:17:43
  And I just want to emphasize that when I do work directly
• 1:17:46
  with the clients, they're almost invariably really nice people.
• 1:17:49
  Often in these mergers, they're not thinking about it in the way
• 1:17:52
  the antitrust is. But anyway, they're usually
• 1:17:55
  thinking about the deal for reasons that are sort of
• 1:17:57
  unrelated to antitrust concerns. And often they'll say, hey, we
• 1:18:01
  know this area is a problem, could we fix that problem
• 1:18:05
  because the rest of the deal we think is good, right.
• 1:18:08
  OK, that sounds. Great.
• 1:18:10
  Well, I I want to thank you so much for your time.
• 1:18:13
  This was such a first of all this hour and a half slip by
• 1:18:17
  real quickly, but I want to say I really enjoyed this.
• 1:18:19
  I this was very clear, a lot of fun and gave me a lot of insight
• 1:18:24
  and is giving me a lot to think about.
• 1:18:26
  So thank you so much for your time and for your patience and
• 1:18:28
  your generosity with your time and information.
• 1:18:32
  I really, I think this is really, really wonderful and I
• 1:18:36
  think that this hopefully will serve as a really good
• 1:18:39
  educational tool for people to have a general idea as to how a
• 1:18:42
  lot of this stuff works, what the government's role is.
• 1:18:45
  And hopefully you and I covered a lot of information that could
• 1:18:48
  be very useful for people down the line.
• 1:18:49
  Thank you. I hope so.
• 1:18:50
  I really appreciate it. Thank you.
• 1:18:51
  And I had a lot of fun. Good.
• 1:18:53
  I'm happy to hear. Have a great day.
• 1:18:54
  Take care. You too.
• 1:18:55
  Hello. Thanks.