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Sunday, February 16, 2014

Paul Krugman, "Barons of Broadband": When Will the Federal Trade Commission Emerge From Suspended Animation?

Can you remember the last time Paul Krugman and I agreed about anything? Well, it has finally happened. In his latest New York Times op-ed entitled "Barons of Broadband" (, Krugman complains about the deal by which Comcast will acquire Time Warner. Krugman writes:

"So let me ask two questions about the proposed deal. First, why would we even think about letting it go through? Second, when and why did we stop worrying about monopoly power?

. . . .

In fact, a number of experts — like Susan Crawford of Benjamin N. Cardozo School of Law, whose recent book 'Captive Audience' bears directly on this case — have argued that the power of giant telecommunication companies has stifled innovation, putting the United States increasingly behind other advanced countries.

And there are good reasons to believe that this isn’t a story about just telecommunications, that monopoly power has become a significant drag on the U.S. economy as a whole."

Yes, the absence of competition means that there is no reason to innovate in order to maintain or improve market share. Needless to say, the absence of competition also means that corporations need not trim prices in order to continue selling their product.

But perhaps most important, particularly today, an absence of competition deriving from consolidation means fewer jobs. Inevitably following a merger, there is an attempt to eliminate redundant positions, which often extends beyond administrative work to basic research and development. Back in 2009, I wrote regarding the pharma industry (

"Does antitrust law still exist? If so, does the U.S. Federal Trade Commission do anything whatsoever to enforce it?

In recent months we have seen a wave of giant mergers and acquisitions in the pharma industry: Pfizer merged with Wyeth, Merck merged with Schering-Plough, Roche merged with Genentech.

Although these mega-mergers might have been wonderful for the financial industry, did they benefit consumers? Will they be conducive to competition, which will result in new lifesaving drugs and diagnostics?

Or, were these mergers corporate palliatives intended to remedy many failed years of R&D by combining dwindling pipelines and cutting costs, without remedying failed R&D?

You know the answers to all of these questions, and let me predict that in a few short years, several once great pharma companies will devolve into little more than pill marketers."

I wish I had been wrong. Prior to Pfizer's merger with Wyeth, in a Time article entitled "Pfizer and Wyeth: A Merger as a Way to Fire People" (,8599,1873565,00.html), Douglas A. McIntyre correctly observed:

"Pfizer and Wyeth already have development teams working on drugs which may not even be tested for two or three years. Putting the two corporations together is not likely to make the combined operation grow faster. It is not like putting two search engine companies together because having more market share allows the new firm to raise prices as it delivers more customers than any of its competition.

M&A has become a tool for fighting the recession. Putting Fiat with Chrysler together is an excuse for letting tens of thousand of people go. The same would be true with a Pfizer deal to pick up Wyeth.These mergers do more to destroy the overall economy than they do to create new products and services which might help restart demand from customers and haul the economy out of its hole."

In the three years following its merger with Wyeth, Pfizer fired some 26,000 employees (see:

More recently, this past October, Merck, the second largest US drug manufacturer by sales following its 2009 merger with Schering-Plough, announced that it would "fire 8,500 workers and revamp its research and development after seeing new medicines delayed by U.S. regulators" (

Indeed, it is time for the Federal Trade Commission to emerge from suspended animation.

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