You're Probably Getting Screwed by Price Fixing
Why we don't have to settle for being ripped off by corporate monopolies.
Welcome to You’re Probably Getting Screwed, a weekly newsletter and video series from J.D. Scholten and Justin Stofferahn about the Second Gilded Age and the ways economic concentration is putting politics and profits over working people.
Ahead of Tonight’s State of the Union Address during a meeting of the Competition Council on Tuesday, President Biden announced formation of a new Strike Force on Unfair and Illegal Pricing. Leading that strike force will be Federal Trade Commission (FTC) Chair Lina Khan and Assistant Attorney General for Antitrust Jonathan Kanter at the Department of Justice (DOJ). The group will be tasked with working across the executive branch to prevent Americans from being ripped off by powerful corporations.
We’ve written about ‘greedflation’ in this newsletter before as studies continue to roll out on the link between record corporate profits and record price hikes. That term is often a short-hand for a more structural dynamic, which is that consolidation makes it easier for firms to raise prices on consumers and one tool for doing so is price fixing. This is when companies selling the same product or service collude to set prices, establish limits on prices, or fix price-related terms of sale. Recent lawsuits have revealed that price fixing is pervasive across industries and our economy is currently built to allow corporate monopolies to screw our wallets.
Last year saw the conclusion of two important price fixing cases. In one, a jury found the nation’s two largest egg producers, Cal-Maine and Rose Acre Farms, along with egg industry trade groups guilty of a long-running price fixing scheme that had raised the cost of eggs for consumers. In the other, a jury found that the National Association of Realtors and several large brokerages had used a price fixing scheme to artificially hike commissions for real estate agents, increasing housing costs.
However, despite these important court victories, price fixing cases can be hard to prove because you need direct evidence of an actual agreement. Think of CEOs meeting in a smoke-filled room and agreeing on price levels. Price fixing can happen informally though at trade association meetings or on earnings calls as groups like Groundwork Collaborative have highlighted. But beyond that, big data and technology are transforming the way price fixing can be done and the way it looks, eliminating the need for that smoke-filled room.
Take for example the DOJ’s lawsuit against Agri Stats, which was filed last year in Minnesota. Agri Stats is an analytics firm that collects massive amounts of data on farmers and ranchers and then provides that detailed data to major meat processors (just four companies dominate the markets for beef, pork and poultry) enabling them to fix the price of meat. Companies like Agri Stats eliminate the need for CEOs to meet and establish formal agreements.
Agri Stats is just the tip of the iceberg as data collection can be combined with algorithms to supercharge price fixing efforts. Just in the last couple of weeks we have highlighted algorithmic price fixing by Real Page that is allowing landlords to drive up rental rates and by GoodRx which is enabling pharmacy benefit managers to further drive down reimbursements for struggling independent pharmacists. The FTC’s landmark lawsuit against Amazon highlights the company’s use of “Project Nessie” which is an algorithm the company used to generate over $1.4 billion in excess profits by enabling price increases on its marketplace that lead to increases across various shopping sites. This new front in the fight against monopoly price-gouging has not gone unnoticed by antitrust enforcers (see below in our roundup for more details).
While enforcers work to fit existing law to these new tactics, legislative reforms are needed that will shift the burden of proof away from those being harmed by price-fixing and onto the companies engaged in the conduct. That model is the basis for the Stop Price Fixing Act introduced in Pennsylvania. In Colorado legislators have introduced legislation that would specifically prohibit algorithmic price-fixing in housing, which could serve as the start of broader legislative efforts to prohibit that type of price fixing. It will also be important to watch the outcomes of lawsuits like the one against Agri Stats or the one against RealPage in Arizona. It is also worth noting that something I haven’t covered here (a topic for a future newsletter) is that corporate monopolies can not only fix prices, they can fix wages as well.
Price fixing might have moved out of secrete locales and onto the digital realm, but anticompetitive conduct is anticompetitive regardless of the technology involved and policymakers can do something to keep us from being screwed by price fixing.
YOU’RE PROBABLY (ALSO) GETTING SCREWED BY:
Shrinkflation
Cookie Monster said it best…
More Shrinkflation
The Patriotic Millionaires are letting us know we’re not going crazy… but, your favorite snacks and household products really are diminishing in both size and quality. The new phenomena of “shrinkflation” and “skimpflation” are very real, and they are becoming huge problems for millions of working Americans.
Congress Budget - Cutting Antitrust Funding
From Matt Stoller’s BIG: “Over the past few months, Congressional appropriators have been negotiating over the government budget, and the first slate of details came out [on Sunday]. Negotiations over specific departments get handled by different members, and New Hampshire Senator Jeanne Shaheen is in charge of the appropriations bill that funds the Antitrust Division. Unfortunately, Senator Shaheen cut a deal proposing eliminating $45 million from the Antitrust Division 2024’s budget. That would reduce it from $278 million to $233 million, which is roughly 20% less than what enforcers were going to get.”
And from The American Prospect: Just as the White House begins to lean on competition policy, Congress’s government funding bill cuts the Antitrust Division’s budget by 20 percent.
Price-Fixing (More details on algorithmic price-fixing)
This past week, the FTC and Department of Justice took action to fight algorithmic collusion in the residential housing market. The agencies filed a joint legal brief explaining that price fixing through an algorithm is still price fixing. The brief highlights key aspects of competition law important for businesses in every industry: (1) you can’t use an algorithm to evade the law banning price-fixing agreements, and (2) an agreement to use shared pricing recommendations, lists, calculations, or algorithms can still be unlawful even where co-conspirators retain some pricing discretion or cheat on the agreement.
More Greedflation
Corporate greed is pushing prices up even as the main drivers of inflation keep falling, Fundstrat's Tom Lee says.
"The arching reality is that inflation is falling ... A lot of companies raise prices in the month of January and it doesn't get captured," Lee said.
Corporations
The American Economic Liberties Project came out with a tracker of corporate lawsuits challenging the Biden Administration’s rulemaking and enforcement actions that improve the lives of everyday Americans.
The cases brought by corporate America are designed to lower wages, hike prices for medicines, undermine product safety standards, spread junk fees, exploit children for profit, and enable big business to cheat Americans.
When corporate interests are this intent on undermining the government, it’s a sure sign that the government is acting on behalf of the American public. It’s also a sobering reminder that consolidated corporate power threatens democracy itself.
Good News
President Biden announces new actions to lower costs for Americans by fighting corporate rip-offs!
Here are the highlights:
Ending excessive credit card late fees.
Saving consumers more than $20 billion in junk fees.
Cracking down on bulk billing junk fees to lower costs and promote competition.
Promoting competitive agricultural markets and ensuring fairness for farmers and ranchers.
Things to follow
Tonight, President Biden will be giving the State of the Union and plans to challenge GOP on lowering costs in State of the Union address.
Dartmouth men’s basketball team votes to unionize, though steps remain before forming labor union.
The Coalition for Patient-Centered Care was launched this week representing a diverse group of health care industry stakeholders, including over 5,000 physicians from all across the country.
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Break Em Up!
Justin Stofferahn
Thank you for writing about this. More people need to understand how we are indeed being screwed by the consolidation of food companies.I heard of shrinkflation, but not greedflation. I love this content and hope to learn more from you. I just subscribed!