On this episode of Ruled by Reason, AAI President, Diana Moss, and AAI Vice President for Legal Advocacy, Kathleen Bradish talk about competition and cloud technology markets. AAI recently issued the report: The Cloud Technology Market: Storm of Innovation or Rainy Days for Competition? Moss and Bradish unpack AAI’s analysis of a vitally important market in the digital economy, beginning with the explosive growth in cloud computing over the last two and a half decades. The report identifies the major cloud players and asks: What is the state of competition in the market? For example, is technological dynamism driving new entry? Are players jockeying for position by stealing share from each other? What does this all mean for how cloud providers compete with one another and are they any warning signs that competition may be flagging? Most important, how should antitrust enforcers and competition policymakers be thinking about promoting competition in cloud?
How Do We Fix the Competition Problem in Shipping? The Role for Private Actions under the Shipping Act
On this episode of Ruled by Reason, AAI Vice President for Legal Advocacy Kathleen Bradish hosts J. Wyatt Fore and David Golden of Constantine Cannon to discuss their work in private antitrust enforcement under the Shipping Act. They explain how consolidation in the shipping industry has led to a serious competition problem, one that came into full view when Covid-19 exposed a dangerous lack of resilience in the supply chain. The conversation covers the role of the Federal Maritime Commission in antitrust enforcement and the role for private enforcement in working alongside the FMC to encourage greater competition in shipping. Wyatt and David discuss their own experience litigating in front of the FMC and improvements that can be made to the process to make it easier for private plaintiffs to bring meritorious claims. This episode is for anyone interested in finding out more about competition in an industry that touches on nearly every aspect of our lives. After listening, head over to the AAI website to read Wyatt and Kathleen’s white paper “Competition Enforcement, Private Actions and the Shipping Act” for a deeper dive on the issues raised here.
David Golden is a partner in the Washington, DC office of Constantine Cannon. His practice focuses on antitrust litigation and counseling, especially in high-technology industries. He has represented both plaintiffs and defendants in various areas of antitrust law, including price fixing, tying, bundling, monopolization, and merger analyses, and he also represents clients before government agencies and in policy advocacy. David is widely published on antitrust especially with respect to IP and technology issues. Before practicing law, he was in the software industry.
Wyatt Fore is an attorney in the Washington, DC office of Constantine Cannon, where he concentrates his practice on antitrust litigation, government investigations, and merger and acquisition advocacy. He also provides counseling on a wide array of matters, including antitrust considerations for emerging technologies. Wyatt writes frequently on antitrust issues and co-edited the ABA Antitrust Section In addition to litigating the Intermodal Motor Carrier case, Wyatt writes frequently on antitrust issues, including co-editing the ABA Antitrust Section’s white paper on Competition Implications of Big Data and Artificial Intelligence / Machine Learning.
Busting the Live Nation-Ticketmaster Monopoly: What Would a Break-Up Remedy Look Like?
Monopolies and More Monopolies
Monopolies have gotten a lot of attention under the Biden administration. But that attention seems focused almost exclusively on digital platforms. At the same time, there is an urgent need for enforcement of monopolization law against anticompetitive practices by dominant firms in other sectors. Take Monsanto’s dominance in agricultural biotechnology, which has produced high fees for patented genetic crop technology—raising farmer’s costs and cutting their already slim margins. Also consider Autodesk, the mammoth purveyor of software for the building industry, which prompted architects to complain of the mismatch between price increases and stagnant product development. Yet Autodesk continues on an acquisition spree that seems to have gone undetected by antitrust enforcers.
Then there is Live Nation-Ticketmaster. In 2010, the U.S. Department of Justice (DOJ) gave the companies a “pass” to vertically integrate. This created a behemoth with a wingspan covering artist management, concert promotion, venue management, and primary ticketing—virtually the entire live events supply chain. At the time, Ticketmaster’s market share in primary ticketing was a whopping 80 percent. Instead of moving to block a patently illegal merger, the government settled for conditions that simply prohibited Live Nation from engaging in practices designed to stifle competition.
In 2020, a DOJ investigation revealed evidence of Live Nation practices that were in violation of “the plain language” of the 2010 merger consent decree. DOJ offered evidence that Live Nation had repeatedly conditioned, and threatened to condition, the provision of live concerts on a venue’s purchase of Ticketmaster ticketing services. Moreover, the evidence showed that Live Nation retaliated against venues that used competing ticketing services. DOJ’s solution to this problem was simply to extend the ineffective remedies in the original consent decree. This was a deal that Live Nation was compelled to agree to, since the likely alternative was a more thorough DOJ investigation that might uncover additional anticompetitive conduct.
Correcting the Legacy of Failed Antitrust Enforcement Against Live Nation
Allowing the Live Nation-Ticketmaster merger in 2010, and extending the consent decree in 2020, are leading examples of failed antitrust enforcement. However, public reports indicate that DOJ is again investigating Live Nation’s practices, which presumably builds on existing evidence of illegal conduct. Perhaps the third time will be the charm, if an investigation culminates in a monopolization case against Live Nation. But time is running out. Any monopolization case under Section 2 of the Sherman Act could take years to litigate to resolution, and could be snagged in a transition to a different administration. This would be reminiscent of the government’s 2001 case against Microsoft when, in the hand-off from the Clinton to Bush II administrations, DOJ caved on the remedy and agreed to a handful of ineffective concessions.
Based on recent developments, a new monopolization case against Live Nation could open the door to antitrust enforcement of harmful conduct that goes beyond the focus of the 2010 consent decree and 2020 amended consent decree. For example, Live Nation’s “durable” monopoly in primary ticketing—which is the wellspring of its incentive to exercise market power—remains unchecked. The company also controls an estimated 60% of the concert promotion market and is estimated to have exclusive contracts with about 70% of venues.
Moreover, since 2010, Ticketmaster has set up shop in the resale market, where it has amassed market share and risen to dominance. With $4.5 billion in revenue from resale in 2022, more than double what it earned in 2019, Ticketmaster has eclipsed many of its rivals. This array of dominant market positions means that Live Nation has incentives to limit competition in markets beyond the sale of ticketing services to independent venues. A hypothetical monopolization case against Live Nation could, therefore, refocus the lens on the unsolved problem of throttling independent venues. But it could also target Ticketmaster’s practices that restrain competition in the resale market.
Harms From Live Nation’s “Durable” Monopoly
Ticketmaster’s monopoly in primary ticketing drives the company’s incentive to exercise its market power, across the live events supply chain. For example, Live Nation prioritizes the venues they own and operate, at the expense of Independent venues. These venues, which have little to no choice in primary ticketing and are threatened with the loss of events, are forced to comply with Ticketmaster’s restrictive contracts. This includes requirements to bundle sports and concert tickets. Moreover, Ticketmaster’s practices that limit competition in the resale market are a form of “self-preferencing.” Fans are frustrated and discouraged from shopping in the resale market and, therefore, forced back to Ticketmaster’s dominant primary and secondary ticketing platforms to buy their tickets.
These restrictive practices harm artists, teams, venues, and fans. Independent venues are compelled to pass on monopoly service fees to fans, resulting in inflated ticket prices. Fans face high, and often duplicative ticket fees when they are driven back to Ticketmaster’s ticketing platforms. There, they are subjected to poor service and the scraping and harvesting of their personal data on concert attendance and other preferences. Artists lack bargaining power vis-à-vis Live Nation, which forces them into lopsided revenue-sharing agreements with venues. They also face exorbitant fees and commissions imposed by Live Nation, significantly diminishing their earnings from ticket and merchandising sales.
Artists’ lack of bargaining power garnered significant attention at the recent Senate Judiciary Committee hearing where singer-songwriter Clyde Lawrence testified, “Due to Live Nation’s control across the industry, we have practically no leverage in negotiating.” Even blockbuster artists like Taylor Swift, who is managed by AEG, must deal with Live Nation. Live Nation’s control of the venues on Swift’s Eras Tour meant AEG, which has its own ticketing service, had no choice but to ticket through Ticketmaster.
Aside from adverse effects on ticket prices and fees, Live Nation’s practices hamper quality and innovation in the live events markets. As is evident from the many crashes and glitches on Ticketmaster’s platform, monopolies have little to no incentive to innovate to produce high quality service or better distribution technology. Moreover, the specter of dealing with a monopolistic provider of services in the live events market can chill incentives for innovation in the creative arts.
New Concerns Around Ticketmaster’s Incursion Into the Resale Market
Regardless of individual opinion on the merits of the secondary ticket market, the reality is that it is the only source of competition for fans when they wish to “shop” for tickets. Indeed, a well-functioning secondary market produces efficiency benefits because it brings together artists and fans that would not otherwise be able to connect after a sale has been made on the primary market. There is ample evidence of Ticketmaster’s harmful practices for limiting competition in the resale market, which the company continues to pretextually justify as necessary to prevent alleged scalping and to protect fans.
For example, take ticket holdbacks and slow ticketing—the policies of releasing limited ticket inventory or releasing it slowly. This creates artificial scarcity and drives up ticket prices. How about restricted paperless ticketing, or Ticketmaster’s “SafeTix” service? This means tickets are only available on Ticketmaster’s smartphone app where the QR code changes frequently, making it harder for fans to use tickets purchased from other fans or from resellers who use competing marketplaces. Needless to say, rendering invalid a ticket that was initially sold by Ticketmaster and later resold by a marketplace is an abusive practice.
Then there is delayed ticket delivery, where fans do not receive their tickets until hours before an event, discouraging them from using competing resale services. Many fans have expressed frustration that their orders through a ticket reseller were “busted,” or cancelled, because Ticketmaster made the process of transferring tickets within the company’s proprietary app excessively difficult.
Finally, Ticketmaster requires resale ticket customers to disclose personal information to use tickets originally purchased from Ticketmaster. This expands Ticketmaster’s vast trove of consumer data, which the company can leverage via data analytics technology to steer fans to Ticketmaster services. All these restrictive policies have the effect of limiting competition in resale and driving fans back to Ticketmaster’s primary and secondary ticketing platforms. As fans lose confidence, they will eventually stop comparison shopping in the resale market and shop only with Ticketmaster.
Break Up What? Why Effective Remedies Target Incentives to Wield Market Power
If and when DOJ files a monopolization case, we will know what Live Nation practices the government alleges to be illegal. Only then can a serious discussion about specific remedies begin. But we do know a few things right now. First, more conduct remedies are unlikely. Rules that constrain how a monopoly runs its business do nothing to eliminate powerful economic incentives to exercise market power. Moreover, smaller competitors and customers, who are often the best source of intel about potential violations of the consent decree, fear retaliation. So, they keep quiet. Ticketmaster’s historical conduct shows why behavioral remedies do not work. Indeed, as DOJ’s 2020 investigation revealed, Live Nation proved its willingness to breach its commitments and found ways to work around the rules.
Most important, Live Nation may not even have to violate the restrictions in the consent decree to exercise its market power. It is so dominant that smaller rivals simply “fall in line.” This silent threat is perhaps the most pernicious result of Live Nation’s monopolization, and was thoroughly explored by lawmakers and witnesses at the Senate Judiciary Committee hearing on Ticketmaster.
Second, we know enough about Live Nation’s practices and policies to suggest what types of antitrust remedies would be most effective in restoring competition in the live events markets. There have been amorphous calls for breaking up Live Nation, but no specifics. Specifics are important in antitrust enforcement because remedies directly target a firm’s incentive to exercise market power. To answer this critical question, we look again to the major source of Live Nation’s market power—Ticketmaster’s dominance in the primary ticketing market.
Break-Up Remedy #1: Taking Another Run at Live Nation’s Efforts to Throttle Independent Venues
For example, Ticketmaster’s control of primary ticketing creates the ability and strong incentive for Live Nation to disadvantage independent venues. Forcing independent venues into purchasing Ticketmaster’s ticketing services is easy because venues have few alternatives. Threatening independent venues is also profitable because any revenue Live Nation loses by denying independent venues events is more than regained by monopoly markups on service and ticket fees.
Only a complete divestiture of Ticketmaster would eliminate Live Nation’s ability and incentive to throttle independent venues. Post-divestiture, independent venues could choose a ticketing platform that meets their needs, without the threats of retaliation that DOJ’s most recent investigation exposed. Entry into the ticketing market by competitors would also be easier and new entrants that offer better ticketing platforms could become viable challengers.
Break-Up Remedy #2: Dismantling Ticketmaster’s Efforts to Stifle Resale
What about antitrust remedies to restore competition in the resale market? With almost complete control of the primary ticketing market and now also a dominant position in resale, Ticketmaster has powerful incentives to frustrate competition from resellers and drive fans back to its own ticketing platforms. Squeezing out rival resellers is profitable, as demonstrated Ticketmaster’s myriad practices for shutting down competition.
For example, Ticketmaster has little to lose from cutting off resellers that buy primary tickets from Ticketmaster. Any losses would be more than made up on higher fees on primary tickets purchased directly by fans, who have few alternatives to Ticketmaster. For tickets that are sold by fans on resale platforms, Ticketmaster’s efforts to stifle competition are essentially costless because the original ticket has already been sold. So, forcing fans back to Ticketmaster’s primary and secondary ticketing platforms, with high and often duplicative fees, is lucrative indeed.
Ticketmaster’s strategy to leverage its primary market dominance into the secondary market has been a success. And while some have suggested a prohibition on Ticketmaster engaging in resale, this would do nothing to eliminate its incentive to use its dominance in primary ticketing to restrain competition in resale. A remedy that would fully restore competition is breaking up Ticketmaster into a number of smaller entities, just as AT&T was broken up into “baby Bells” in the 1984 consent decree.
Breaking up Ticketmaster would loosen its monopoly grip on primary ticketing and reduce the market share held by any one entity to competitive levels. Without the power of a monopoly, post-breakup competitors in primary ticketing would lack the ability to force use of their own ticketing platforms because they would risk losing substantial sales to other primary ticketing options that do not impose such restrictions. As a result, a larger number of smaller competitors would have incentives to compete, on the merits, in both primary and secondary ticketing.
Bootstrapping Antitrust with Good Legislation
To recap, a hypothetical antitrust remedy that fully restores competition lost because of Live Nation’s known anticompetitive practices would require two major divestments. One is to break off, or separate, Ticketmaster from Live Nation and the second is to reduce Ticketmaster’s dominance by breaking it up into smaller, standalone companies. A major part of any such structural remedy would be identifying viable buyers for divested Ticketmaster assets. Looking to existing resellers or other live events market participants as potential buyers would be a critical part of this process.
What do these developments mean for tackling the Live Nation monopoly? An immediate implication is that effective antitrust remedies should be the first stop on the pathway to restoring competition lost by Live Nation’s restrictive practices. Legislative proposals to limit ticket transferability or regulate resale prices are no substitute for restructuring Live Nation. And they could have detrimental effects on the operation of resale markets that are designed to increase accessibility by fans, artists, and teams.
While structural antitrust remedies should be the tip of the spear in re-injecting competition in the live events markets that have been debilitated by Live Nation, some legislative proposals could serve to bootstrap them. For example, California SB829 would prohibit the ticketing provider’s use of exclusive contracts with venues, a favored tactic of Live Nation’s. The bill would allow, though not require, venues to contract with more than one ticketing company.
A test case for this type of policy is the Los Angeles venue, Crypto.com Arena—home to both the Lakers, ticketed by Ticketmaster, and the Clippers, ticketed by AXS. A recent survey revealed that Ticketmaster’s fees on primary tickets for NBA Lakers games are higher than AXS’s fees on Clippers tickets. But they are not as high as Ticketmaster’s average fees for other NBA tickets—supporting the idea that non-exclusive contracting can help discipline competition.
Other bills that have been proposed, like Colorado’s SB23-060, would have had the opposite effect. Under current law, Colorado protects ticket transferability and, therefore, competition in resale markets. In its original form, SB23-060 would have largely granted primary ticketing companies the power to enforce whatever terms and conditions they applied to tickets, including prohibiting transferability. Prohibitions on ticket transferability, of course, would effectively shut down the resale markets and the benefits it offers to artists and fans alike. The bill was rightly vetoed by Colorado’s governor at the urging of consumer advocacy organizations, citing potential competitive harms.
There are also several proposals at the federal level. Some would be helpful to competition while other would be harmful. Take the Better Oversight of Stub Sales (BOSS) and Strengthening Well Informed and Fair Transactions for Audiences of Concert Ticketing (SWIFT) Act (H.R. 3360), and the Unlock Ticketing Markets Act (S. 1321). Among other things, BOSS and SWIFT would protect ticket transferability and, therefore, the viability of the secondary market. These bills also rein in practices such as opaque pricing and ticket inventory strategies that harm consumers. S. 1321 seeks to eliminate exclusive contracts, albeit through different means than the California proposals. Other federal proposals seek to enshrine terms and conditions into law that give artists, venues, or the ticketer the ability to limit competition through transferability restrictions, price controls, or other means. Such proposals would ultimately further consolidate market power in the supply chain, to the detriment of fans.
Revitalizing Structural Remedies for Monopolies
A breakup remedy in a successful government monopolization case against Live Nation would revitalize the use of structural remedies to prevent dominant firms from using their market power to limit competition. Structural remedies in Section 2 cases have rarely been used. But their success in restoring competition in the wake of cases like U.S. v. AT&T demonstrate their value. In an era of intense non-bipartisanship, it will be important to generate unified political support for a monopolization case against Live Nation and a carefully crafted structural remedy that re-injects competition into the live events markets. A successful structural remedy here would also pave the way in the courts for similar remedies, when needed, in future Section 2 cases.
The good news is that, unlike other antitrust cases, breaking up Live Nation has overwhelming bipartisan support. This was abundantly clear at the Senate Judiciary Committee’s recent hearing. Bipartisan support was also evident in letters to DOJ from the Subcommittee on Competition Policy, Antitrust, & Consumer Rights leadership, Chairwoman Senator Amy Klobuchar and Ranking Member Senator Mike Lee. To borrow a sports metaphor, DOJ has a slam dunk of a case to break up Live Nation and Ticketmaster, and the fans are on their side.
For more information, please contact:
Diana Moss, President, American Antitrust Institute at: (202) 828-1226 or dmoss@antitrustinstitute.org
New Report by AAI, UC Berkeley and Equitable Growth Calls Attention to Private Equity’s Voracious Acquisition of Physician Practices
The American Antitrust Institute (AAI), in collaboration with the University of California at Berkeley (UCB) Petris Center on Health Care Markets and Consumer Welfare, and the Washington Center for Equitable Growth (Equitable Growth), announced the release of a new report on private equity ownership in healthcare.
The report, Monetizing Medicine: Private Equity and Competition in Physician Practice Markets, highlights private equity’s voracious acquisition of physician practices over the last several years. The analysis evaluates market penetration across 10 physician practice specialties within markets across the U.S., the impact on market shares and concentration, and on prices and expenditures.
Lead author on the report, Professor Richard Scheffler, Distinguished Professor of Health Economics and Public Policy, and Director of the Petris Center at UCB, noted “This report provides convincing evidence that incentives to put profits before patients have grown stronger with an increase in private equity ownership of physician practices. This will fundamentally change the way medicine is practiced.”
The report’s findings should draw significant attention by competition enforcers and healthcare policymakers. For example, the number of private equity acquisitions of physician practices has grown six-fold between 2012 and 2021. Some markets have been highly penetrated by private equity, with a single private equity firm holding more than 30% in one or more physician specialties. The study compares price increases in those markets to all markets and finds they are almost 1.5 to over 3 times higher. This is true for key areas of medicine, including: gastroenterology, dermatology and obstetrics & gynecology. Results for price increases across other physician practices featuring private equity ownership can be found in the full report.
The policy implications surrounding the report’s analysis of private equity ownership of physician practices are significant. Report co-author, Laura Alexander, Director of Markets and Competition Policy at Equitable Growth explained: “Our findings underline the vast implications that rapid, stealth consolidation of physician markets by private equity funds have had for competition, patients, and anyone who pays for healthcare practices. It’s clear that there is a need for attention and action from competition enforcers and policymakers to address these accelerating acquisitions.”
The report clearly frames a set of immediate policy steps that would strengthen competition enforcement and healthcare policy in physician practice markets. For example, reporting and scrutiny of small healthcare provider acquisitions, particularly by private equity funds. Key adjustments to the Hart Scott Rodino (HSR) Act reporting requirements would support stronger antitrust enforcement. Mandatory reporting to increase transparency of ownership of physician practices is also critical. Other policy implications include closing regulatory loopholes that distort competition in healthcare and expanding liability to private equity funds for misconduct by portfolio companies.
Finally, the analysis in the report should draw needed attention to lowering barriers to entry in concentrated physician markets and developing additional funding sources for capital investments. Diana Moss, President of AAI, noted “The report makes clear that physicians need more options for restructuring their practices so they can continue to do what they do best–practice medicine. Selling out to private equity or other large corporate entities shouldn’t be the only options on the table.”
Funding for the project was generously provided by Arnold Ventures. The report was authored by: Richard M. Scheffler, PhD, Distinguished Professor of Health Economics and Public Policy; Director of the Nicholas C. Petris Center on Health Care Markets and Consumer Welfare, University of California, Berkeley; Laura Alexander, JD, Director of Markets and Competition, Washington Center for Equitable Growth; Brent D. Fulton, PhD, MBA, Associate Research Professor of Health Economics and Policy; Associate Director of the Petris Center; Daniel R. Arnold, PhD, Assistant Research Economist; Research Director of the Petris Center; and Ola A. Abdelhadi, PhD, Post-doctoral Scholar, Petris Center.
Resources:
Read the full report
Read the addenda
Read the full report and addenda
AAI Files Comments with FTC on Business Practices of Cloud Computing Providers
(Washington, DC). AAI filed comments today with the Federal Trade Commission (FTC) in response to its Solicitation for Public Comments on the Business Practices of Cloud Computing Providers in docket No. FTC-2023-0028-0001. The AAI report issued today — The Cloud Technology Market: Storm of Innovation or Rainy Days for Competition? — is appended to AAI’s comment in the FTC’s solicitation. It provides expert economic and policy analysis of the structure and evolution of the cloud market. The empirical analysis and observations from the findings have important implications for the questions regarding the business practices and conduct of cloud providers that the FTC seeks response to in the Solicitation. Read the full report here.
AAI Issues New Report — The Cloud Technology Market: Storm of Innovation or Rainy Days for Competition?
(Washington, DC). The American Antitrust Institute has released a new report: The Cloud Technology Market: Storm of Innovation or Rainy Days for Competition? The rise of cloud technology has been meteoric. Within a relatively short period of time, spanning the early 2000s to mid-2010s, major providers of cloud technology built out massive capabilities. This cloud buildout occurred largely through acquisitions of smaller rivals and startups, but organic growth also played a role. Today’s cloud market features two fundamentally different types of participants. One is the large “digital ecosystem.” Cloud technology is one of three fundamental components of the digital ecosystem that also includes a platform and constellation of applications. These players include Amazon’s Web Services (AWS), Microsoft Azure, and Google Cloud. But there are also other players in the cloud market that are not digital ecosystems that specialize in cloud technology, including IBM, Oracle, Salesforce, and Tencent.
The evolution of the broader cloud market is marked by distinctive features. First, three providers—all digital ecosystems—collectively account for 65% of the market. A small fringe of other providers account for the remainder. Despite a trajectory of rapid acquisition and expansion of cloud capability, the positioning of the top three firms, AWS, Microsoft Azure, and Google Cloud, has not materially changed over time. Nor is it evident that the smaller fringe players have gained enough market share to even come close to displacing the market leaders. Whether the economic downturn, which has slowed cloud growth, shifts these dynamics remains uncertain, especially since cloud adoption is still at an early stage.
Second, as previous AAI research reveals, the digital sector—in which the cloud market is situated—is home to extraordinarily weak merger enforcement. This record of enforcement has actually deteriorated over time, with the rate of merger challenges in the digital sector falling increasingly below the average across all sectors. This enforcement record is highly relevant to the explosive and rapid trajectory of cloud acquisitions by many of the top cloud providers, which account for 45% of their total acquisitions over the last two and a half decades.
The features of the cloud market raise pressing questions about the nature of competition in cloud and the role of antitrust enforcement and competition policy in promoting it. Structural “stagnation” in the cloud market, coupled with ongoing weak merger enforcement, is seemingly at odds with the technological dynamism and potential for continued innovation in the sector. As cloud providers undoubtedly turn their attention to strategic competition to protect market positions, enforcers should do the same. However, this report explains why it is crucial to continue to focus on consolidation, rising concentration, and the emergence of dominant firms. As revealed time and again, non-competitive market structures potentially beget anticompetitive incentives, conduct designed to limit competition, and poor market performance.
The report unpacks the structure of the cloud market and its implications for competition. It examines the top players and their business models, areas of cloud where acquisition and investment are particularly focused, and markets shares and concentration. This provides an important reference point for understanding the strategic incentives facing cloud providers. These include how firms make decisions about expanding—organically through internal innovation and growth, or through acquisition; maintaining or extending their market positions; bundling and pricing cloud services; promoting customer switching; and competing on quality (i.e., security); and innovation.
The report lays the groundwork for assessing the competitive evolution of the cloud market. It tees up fundamental questions. For example, do the structural characteristics of the cloud market raise concerns about the trajectory of competition and how much weight should be given to the role of technological dynamism and innovation to ensure that critical cloud services are delivered competitively? How aggressively should enforcers monitor consolidation and the structure of the cloud market? At the same time, how can they get ahead of the ball on strategic firm conduct that could be designed to limit competition? Major takeaways from the analysis include:
• The cloud market has grown exponentially, with cloud-related acquisitions accounting for 45% of total acquisitions by the top cloud providers. Market structure is stagnant across the largest providers and smaller fringe players, despite the underlying dynamism inherent in cloud technology. Incentives to defend market positions could shape entry moving forward and foster practices designed to entrench market power and limit competition.
• Expansion of cloud capability by the top cloud providers occurs, acquisition, investment, and organic growth. How firms deploy these strategies is becoming clearer. The roles of economic control of cloud assets and the competitive incentives resulting from different types of firm integration are important for how firms position themselves to grow and the types of competitive strategies they employ.
• The buildout of cloud technology that occurred from the early 2000s to mid-2010s appears to be maturing. It bears little resemblance to broader M&A cycles. This is likely a function of explosive growth in the digital sector and the drive to catch up with rivals that rely more on organic, versus acquisitive, growth. The dynamics of growth are likely to continue to affect how firms compete in the cloud market.
• The cloud market contains a mix of dominant, digital ecosystem cloud providers and non-digital ecosystem fringe players. Different business models and degrees of integration will affect how firms compete in selling cloud services. These include the digital ecosystems’ strategies for maintaining their positions in platform and applications markets. Other types of cloud players may not have these same incentives, which will complicate analysis of merger and monopolization cases.
• Weak merger control remains a serious competition concern for the digital sector. Without more scrutiny of cloud consolidation, including acquisitions of smaller and nascent rivals, any competition enforcement program will increasingly lag behind. The first line of defense to anticompetitive conduct resulting from higher concentration and dominant firms is strong merger enforcement.
Private Equity’s Impact on Physician Practices: Unpacking Markets, Competition, and Prices
On this episode of Ruled by Reason, AAI President Diana Moss hosts two leading healthcare competition experts. Laura Alexander is Director of Markets and Competition Policy at the Washington Center for Equitable Growth and Brent Fulton is Associate Research Professor of Health Economics and Policy at the University of California at Berkeley and Associate Director of the Petris Center on Health Care Markets and Consumer Welfare. They take up an increasingly troubling issue in healthcare competition: growing private equity ownership of physician practices. The conversation previews major takeaways from a soon to be released study between AAI, UC Berkeley, and WCEG, funded by a grant from the Arnold Foundation. Moss, Alexander, and Fulton discuss the penetration of private equity ownership in the U.S. across a variety of physician practice areas, growth in market share and concentration, and effects on prices. This episode is a must-listen for those following consolidation in critical healthcare markets and its implications for prices, healthcare costs, antitrust enforcement and healthcare policy.
Laura Alexander is the director of markets and competition policy at the Washington Center for Equitable Growth. Her primary areas of research include healthcare markets, private equity, residential real estate sales, privacy policy, and labor market monopsony. Previously, she was the vice president of policy at the American Antitrust Institute. Alexander also is an experienced litigator, having represented plaintiffs and defendants in antitrust and other cases through trial and appeals. Alexander is also Adjunct Professor of Law at Georgetown University.
Brent D. Fulton is Associate Research Professor of Health Economics and Policy in the School of Public Health at the University of California at Berkeley and Associate Director of the Petris Center on Health Care Markets and Consumer Welfare His research examines how markets and regulation can improve the delivery of healthcare, including its cost, quality, and access. He has analyzed healthcare mergers and acquisitions, healthcare payment and delivery system reforms, accountable care organizations, health workforce, and cost analysis.
AAI Urges the Northern District of California in Google Play Store Case Not to Exclude Harms To Innovation and Consumer Choice from Recovery in Private Suits
On May 26, 2023, AAI filed for leave to submit an amicus brief in the Northern District of California supporting Plaintiff States’ and Consumer’s Opposition to Google’s Motion to exclude certain expert merits opinions. Google attempts to exclude the expert testimony of Dr. Mark Rysman on the grounds that loss of “variety” is allegedly a personal injury and not an injury to “property” that is compensable in private actions under Section 4 of the Clayton Act.
AAI’s brief points out that harms to variety, innovation and consumer choice at issue in Dr. Rysman’s damage models are not, as Google argues, the kind of personal injuries that have been excluded as compensable antitrust damages. Instead, these are core values that the antitrust laws are intended to protect. As a result, AAI argues, it is vital to antitrust enforcement efforts that private enforcers can seek redress for such injuries. This is particularly important for future antitrust enforcement because innovation is a primary aspect of digital competition. AAI bases its arguments on the Supreme Court’s previous readings of Section 4 and the long-established recognition by antitrust agencies and courts of harm to variety, innovation and consumer choice as an antitrust injury.
The brief was written by AAI Vice President of Legal Advocacy Kathleen Bradish, with assistance from AAI Summer Intern Oscar Rodas-Falla.
New Study by AAI and AFREF Calls Attention to the Growth of Private Equity Ownership in Home Healthcare
Washington, D.C. – Today the American Antitrust Institute (AAI) and Americans for Financial Reform Education Fund (AFREF) issued a new report: The Growth of Private Equity Ownership in the Home Healthcare Market. The report takes a close look at the incursion of private equity into a critical healthcare market – home healthcare. Home health companies, working like employment agencies, hire aides to provide a range of medical services to patients, primarily the elderly or disabled, directly in their homes.
Private equity’s rapidly growing presence in the home healthcare sector has contributed to the consolidation of hundreds of providers across the country into three dozen flagship parent brands. This weakens incentives to deliver high-quality services at affordable prices, according to the AAI-AFREF report. Private equity now profits from a consolidated marketplace for home healthcare, a trend that is particularly pronounced at the local level.
“This report is a red flag for competition enforcers and policymakers. It shows concentrated home healthcare markets, rapid incursion by private equity, and the presence of large players,” said Diana Moss, AAI President and economist. “This should serve as an early warning that these markets should be carefully monitored and consolidation scrutinized.”
The report highlights the incompatibility of the private equity investment model with the delivery of high quality healthcare services and the stability of healthcare markets. The analysis is based on a novel dataset that finds that private equity firms currently own more than 500 home healthcare providers. These companies collectively receive $1.4 billion in public funding through Medicare payments each year.
Private equity is a Wall Street creation that uses money raised from pension funds, endowments, insurance companies, and wealthy individuals to buy companies, with the intention of maximizing profits and selling them on a 3-5 year time horizon. Extensive research has documented the negative impact on employment and product and service quality under private equity ownership, but information is often hard to come by because the ownership structure is very opaque.
“The presence of private equity in home healthcare is undoubtedly larger, but without meaningful disclosures, regulators and the public are left in the dark about the full impact of private equity ownership on competition and patient well-being,” said Oscar Valdes Viera, research manager at AFREF. “Private equity’s own-to-plunder business model is incompatible with delivering health care in general, as the evidence from hospitals and other sectors shows. Concentration in home health care can only exacerbate these harms.”
Major takeaways from the report include:
- Home healthcare is a rapidly-growing and high return on equity market in the healthcare sector that is attracting significant interest and potential disruption from private equity investment.
- The private equity investment model raises concerns over its compatibility with promoting competition, affordable and high-quality healthcare, and stable and resilient healthcare markets.
- Private equity accounts for a relatively small proportion of ownership but its rate of acquisition is far greater than other ownership types and only a few private equity players control a large proportion of Medicare payments.
- MSA-level home healthcare markets display higher levels of concentration overall and private equity owned or backed firms have made significant and rapid incursions, now operating in over 50% of all markets.
- High market concentration, the role of large home healthcare firms, and the potential for further incursions by private equity emphasizes the need for antitrust enforcers and regulators to engage early.
- The data collection process for this report emphasizes that significant reforms are needed to ensure that the private equity industry discloses full and meaningful data that can be used to evaluate the impact of private equity ownership on competition.
The report was authored by Diana Moss, President at AAI, and Oscar Valdes Viera, Research Manager at AFREF. This joint project between AAI and AFREF was made possible by a grant from the Antimonopoly Fund of the Economic Security Project.
AAI Asks Third Circuit to Apply Practical Approach to Ascertainability Requirement for Class Cert.
On May 15, 2023, AAI filed an amicus brief in the Third Circuit in support of Appellants’ request for reconsideration or rehearing en banc in a case alleging brand and generic manufacturers of Niaspan, a lipid disorder treatment, engaged in an illegal pay-for-delay agreement. After a district court decision denied certification of a proposed class of health insurers and health plans, a Third Circuit panel affirmed. The panel cited the Third Circuit’s heightened “ascertainability” requirement, which requires an “administratively feasible mechanism” for identifying class members as well as an objective class definition. The Third Circuit’s administrative feasibility test is controversial and arguably grafts extra-legal requirements for class certification onto the requirements set forth in Rule 23. The Third Circuit test is at odds with several other Circuits that have rejected any “ascertainability” requirement.
In the brief, AAI identifies two grounds for reconsideration. First, the brief argues the Third Circuit panel erred by deviating from the practical approach to the “administrability” requirement that other Third Circuit decisions apply. Second, the brief notes that the Third Circuit failed to give due weight to the extensiveness of prescription drug data in considering whether a person or entity meets the class definition.
On the first issue, AAI identified that the Third Circuit panel incorrectly required a “systematic” approach that meant that Plaintiffs would need to identify a single set of data could “feasibly identify and filter out” entities that appear in the data and were not class members. AAI argued that this additional requirement created a bright line that does not exist in Third Circuit precedent, and the panel’s failure to apply the less demanding practical approach necessitates panel reconsideration or rehearing en banc.
Second, AAI argued that the Third Circuit panel failed to give sufficient weight to the extraordinary amount of data in the prescription drug industry and the ways that data could be used to identify class members in conjunction with the practical aims of the administrative feasibility requirement.
The brief was written by an AAI Board of Director Joshua Davis, with assistance from Scott Grzenczyk.