Why fighting Monopolies will not Benefit Consumers

A very wide range of business practices that were heretofore generally accepted as business practices could potentially be construed as violations of antitrust laws by the Federal Trade Commission under Lina Khan, who has adopted a similarly omnivorous jurisdictional appetite. The fact that Khan has abandoned the notion that the FTC should be concerned first and foremost with consumer welfare and prices has given her the freedom to pursue an overtly political agenda, which is abundantly obvious from a cursory examination of the industries placed in her crosshairs. It is worth noting that two issues, in particular, illustrate the extent to which the current FTC is pursuing an ideological agenda rather than attempting to improve consumer welfare as a whole.

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In the last year, the Federal Trade Commission made it quite clear that it intends to examine and reduce the role that Pharmacy Benefit Managers play in the prescription drug market. A few members of Congress appear to be eager to play populist and abet the FTC's actions. PBMs are going to be the subject of a hearing next week by the House Committee on Science, Space, and Technology, for instance.

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As part of its investigation announcement, the FTC labeled PBMs as "middlemen", implying that the role they are supposed to play in the healthcare industry is "dubious" in some way.

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Aside from the FTC's Leninist view that middlemen aren't adding any value to the system, there also seems to be a concern that PBMs are accumulating a modicum of market power, which is an indication that the FTC should take action.

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PBMs are successful precisely because of their ability to accumulate market power and negotiate lower drug prices on behalf of unions, large employers, insurance plans, and even governments on behalf of their members. As opposed to the drug companies (by virtue of their patents) dictating the best price for them, they have to negotiate with a handful of PBMs with enough patients that they would lose a great deal of money if they couldn't reach an agreement to sell to one of them, so they are forced to negotiate with them. In the absence of the PBMs' checks on their power, the other side of the drug pricing negotiating table referred to as pharmacy service administrative organizations (PSAOs) - controlled by three of the nation's largest drug wholesalers - would appear to have free rein to inflate costs on pharmacies and on the American public if they had free reign.

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The PBMs, on top of this, have pushed hard to implement the direct delivery of prescription drugs, which has proved to improve both adherence and health outcomes as a result, saving lives and billions of dollars as a result. The idea that they need to be restrained to protect consumers is simply incongruous with what we actually see in the real world.

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The FTC has also taken up the issue of what is known as the "Right to Repair" movement, which is a movement that seeks to pass legislation granting consumers the right to do any necessary repairs to their tractor, boat, or various other products they own, without the liability of the manufacturer. A new complaint made by the Federal Trade Commission alleges that manufacturers prevent consumers from having access to the central processor that controls the engine, which means that if this is the cause of the problem, the manufacturer or dealer has to make any necessary adjustments or fixes. As a result, they claim that they have a strong position in the repair market, and thus they have market power.

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There is a contention by the FTC that this requirement gives manufacturers a lot of leverage over consumers that they can exploit. However, in the case of gasoline-powered engines, the computer processor is also responsible for regulating the engine's performance to ensure that it is in compliance with the emissions regulations set forth by the Environmental Protection Agency. Consumers are mainly seeking access to the processor so that they can defeat the emissions regulator in order to obtain more speed or acceleration as a result of bypassing the emissions regulator.

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A survey conducted in 2019 of 770 equipment dealers found that one-third of those surveyed said that they had serviced equipment that had been illegally modified in some way and that almost half of those modifications resulted in changes that impaired or disabled emission control equipment.

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A substantial amount of evidence shows that equipment owners who modify their equipment may compromise safety in the attempt to improve performance-again in the pursuit of enhancing the equipment's performance. NHTSA has expressed its opposition to the proposed ballot initiative for 2019 that would have required manufacturers to provide owners and third-party repair facilities with access to vehicle systems, stating that this requirement would increase the risk of cybersecurity attacks and could potentially pose a serious threat to public safety.

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It has been suggested by former Treasury Secretary and Harvard economist Larry Summers that Lina Khan would receive praise from left-wing activists in her party if the FTC pushed to reduce the size and scope of big businesses just for the perceived sin of being too big. In the event that she succeeds in her efforts to reduce the size of these companies, the likely outcome will be higher consumer prices and further inflationary pressure on the economy if she succeeds in her attempts to achieve that.

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In fact, Khan's array of statements supporting her efforts to limit mergers and take on the big tech companies seem increasingly puzzling-her comment in 2022 that a greater number of mergers could result in a greater prevalence of monopsonistic labor markets suggests that she is unconcerned about economic reality as well as jurisdiction.

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A reduction of the power of PBMs simply because of their accumulated market power will not benefit consumers, and allowing consumers to tweak their equipment however they want does not align with her administration's ostensible priorities regarding carbon emissions, which include granting consumers their right to tweak their equipment however they wish.

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In a world where the FTC is more concerned with politics than economics, there are few winners.