Mavericks, Hot Documents And Beer : Planet Money How antitrust regulators decide whether to block a merger.
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Mavericks, Hot Documents And Beer

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Mavericks, Hot Documents And Beer

Mavericks, Hot Documents And Beer

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The boards of American Airlines and US Airways have approved a merger of the two airlines. The deal will need to be reviewed by antitrust regulators at the Justice Department. The same regulators, last month, filed suit to prevent a different merger - the marriage of two beer giants, Anheuser-Busch InBev, which brews Budweiser; and Grupo Modelo, which brews Corona.

Planet Money's Caitlin Kenney explains how the antitrust division decides which mergers are good for the USA and which should be stopped.

CAITLYN KENNEY, BYLINE: When you want to build a murder case, you get ballistic experts and medical examiners. If you're trying to determine whether an economic crime has been committed, you need economists. The antitrust division has about 50 of them on staff.

CARL SHAPIRO: We all believe in a competitive economy, I think. That requires a cop on the beat.

KENNEY: Carl Shapiro used to be one of them. He headed a team of economists there. Competition enforcers on the lookout for public enemy number one - monopolists, companies so large and powerful they can just jack up prices anytime they want.

Figuring out whether a merger would create a dangerous monopoly seems like an easy thing to do, but in practice, it's a lot more difficult. Carl Shapiro offers an example from the 1990s.

SHAPIRO: Boeing and McDonnell Douglas wanted to merge, and they were two of the only three companies that made large commercial aircraft, the other is Airbus.

KENNEY: So three companies shrinking out to two. That sounds bad. Less choices for consumers. Less competition. But authorities looking at this deal - in this case the Federal Trade Commission, another agency on the lookout for monopolies - they decided it wasn't that bad.

SHAPIRO: The FTC looked at it more closely and was convinced that McDonnell Douglas was not doing very well. They probably weren't going to keep investing. There would be some additional technology that could be usefully shared between the two companies.

KENNEY: The deal went through. The job of these economists and lawyers is to predict the future, to figure out what life will be like for consumers if a merger happens, to answer the question: Will the new merged raise prices. And the answer to that question sometimes lies in the company's own documents. The antitrust division can request that companies turn over millions of pieces of paper, emails, internal company memos, strategic plans, competitor reviews.

And occasionally, says Joseph Wayland who used to be head of the antitrust division, you turn up what they call a hot document.

JOSEPH WAYLAND: In a merger, a very hot document would be executives at a company analyzing a potential merger and say, if this happens, we'll be able to raise our prices 10 percent because our principal competitor has been eliminated. That would be very hot document, and we've seen documents like that in the government.

KENNEY: Antitrust enforcers look at more than just price when they're deciding whether to block a deal. Fiona Scott Morton is another former chief economist of the antitrust division. During her time there, the division stopped H&R Block's acquisition of a smaller rival, the makers of TaxACT. In the eyes of Fiona Scott Morton and the Justice Department, TaxACT was special.

FIONA SCOTT MORTON: This TaxACT story is really what we call a maverick story.

KENNEY: Like H&R Block and Intuit, TaxACT had free software you could use to file your federal tax return. Unlike H&R Block and Intuit, the Justice Department argued, TaxACT made a real effort to make their free version better, a product that consumers would really want to use.

Aggressively giving away something for free that other people are charging for, that makes you a maverick.

MORTON: The maverick is helping consumers by disrupting this tacit understanding and coordination among the big firms not to compete too hard. And the maverick is breaking that up and really benefiting consumers. And you don't want the maverick to be bought up by one of these big firms.

KENNEY: The Justice Department won't comment on the potential danger of mixing Budweiser and Corona's parent companies, ABI and Grupo Modelo, but the court complaint suggests that department may see Grupo Modelo as something of a maverick. It says Modelo has, quote, "disrupted ABI's pricing strategy by declining to match many of the price increases that were led by ABI and frequently joined by MillerCoors."

Caitlyn Kenney, NPR News.

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