What Really Is the Federal Trade Commission?
March 19, 2015
By Angie Tang, SAS’17
The Federal Trade Commission was founded in 1914 with the regulatory goal of preventing unfair competition. Initially, its focus was on “trust-busting” and taking on the large conglomerates that were perceived to hold excess economic and market power during the Progressive Era. Today, the FTC’s mission is bifurcated, focusing both on consumer protection as well as the elimination and prevention of anticompetitive business practices. This summer, I had the pleasure of interning in the Honors Paralegal program in the Bureau of Competition, and I was able to see first-hand how merger investigations are conducted and enforced.
In general, parties to mergers that are reportable under the Hart-Rodino-Scott Act of 1976 (generally when the size of the transaction exceeds $75.9 million) must file with the FTC and the Department of Justice before consummating the transaction. The official filing kicks off a waiting period (usually about 30 days) after which the FTC will issue a “Second Request” (a compulsory request for additional documents) if there continues to be anticompetitive concerns. Otherwise, the parties are free to merge. Once parties certify compliance with the Second Request (in that they have provided all requested documents), another 30-day clock begins after which the FTC can close the investigation if there are no longer any anticompetitive concerns. If not, the case will proceed to litigation. During this process, the parties can choose to negotiate “consent agreements” (modifications to the structure of the proposed merger in order to reduce anticompetitive effects) in order to close the deal. Of course, many mergers can have pro-competitive effects (think synergies and efficiencies of scale) or are competitively neutral; in fact, around 95% of mergers are not investigated beyond the required Hart-Rodino-Scott filing.
It can be difficult as a consumer to really conceptualize how the FTC plays a role in everyday life – the very lofty mission of preventing anticompetitive behavior can seem quite far removed from your typical weekend jaunt to a retailer or even a visit to the hospital. In some cases, however, companies might elect to merge product lines in order to form a duopoly or monopoly for additional profits, resulting in a reduction in the number of products you can choose from and/or increasing prices. In cases like these, the FTC (along with the Department of Justice’s Antitrust Division) keeps those options available for consumers.
Take the organic food market, for example. In the United States, the organic food industry has experienced double-digit annual growth, and may represent the fastest growing consumer and lifestyle trend in the past twenty-five years. Whole Foods, one of the largest organic grocery stores in the United States, is a common destination for many shoppers who wish to purchase organic or natural foods. In 2007, Whole Foods announced that they would acquire Wild Oats, another organic grocer. The FTC’s investigation showed that barring any action, Whole Foods would have the ability to raise prices and reduce quality in certain markets, a conclusion that was borne out by the D.C. Court of Appeal, which ruled that there was substantial evidence Whole Foods intended to raise prices post-merger. In the end, Whole Foods had to divest – sell assets to FTC-approved competitor or competitors – 32 Wild Oats stores and the Wild Oats brand so that there would continue to be adequate competition. Given the vast and growing number of consumers who are buying organic food products, the FTC had a direct impact on both everyday consumers’ wallets and the quality of food they had on their tables.
Another example of an area where the FTC directly affects everyday life is with hospital operations. In the current post-Affordable Care Act climate, hospitals are under pressure to be more cost-efficient while still providing a high quality of services. One way to accomplish this is through mergers, where hospitals can consolidate operating expenses and the like. However, hospital mergers in geographic markets that create a monopoly or oligopoly severely restrict patient choices, and may increase prices for certain services. With the added complexity of in and out of network plans plus the specific clinical circumstances of patients, it is easy to see how hospitals with excessive market power can harm patients, especially with the leverage involved with something as crucial as health. Renown Health in Reno, Nevada, for example, at one point potentially controlled as much as 88% of cardiology services in the area. By agreeing to suspend non-compete agreements and allowing cardiologists to be employed by competitors, this gave Reno consumers more choices for coronary healthcare.
The FTC will continue to have a role to play in ensuring markets are competitively fair, especially as industries such as healthcare evolve under different regulatory and market pressures. Next time you’re staring at a shelf of products or trying to choose between different service providers, who knows – maybe one or more of your options are there precisely because of the FTC!
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