The Ice Queen cometh: Margrethe Vestager
Answer:
Pricing below a competitor's costs occurs in many
competitive markets and generally does not violate the antitrust laws.
Sometimes the low-pricing firm is simply more efficient. Pricing below your own
costs is also not a violation of the law unless it is part of a strategy to
eliminate competitors, and when that strategy has a dangerous probability of
creating a monopoly for the discounting firm so that it can raise prices far
into the future and recoup its losses. In markets with a large number of
sellers, such as gasoline retailing, it is unlikely that one company could
price below cost long enough to drive out a significant number of rivals and
attain a dominant position.
By: J.M. Hamilton (7-4-2017)
This July 4th U.S.
democracy is under threat, perhaps as never before, but not from the usual
suspects – you know – Russian hacking, North Korea and its nukes, or Saudi
sponsored ISIS. No, Senator Sanders, and
POTUS Trump, both named the threat to U.S. democracy during the 2016
presidential campaign: the threat of a rigged system, where money controls both
political parties – Dems and Republicans – like puppets on a string.
And who are the puppeteers, who
control Dems & GOP politicians like marionettes? Well that would be the oligarchy: billionaires
and multinationals, the Apples & Googles of the world, Wall Street Banks,
Private Equity Barons, MIC Contractors, and Big Oil…. Just to name a few elite
members of Club Oligarchy.
Who will save democracy from
Club Oligarchy… well citizens in the West have already started pushing back
against the established order and establishment politicians. The examples are many. The rescue of democracy, and perhaps
capitalism – itself, will also have come from a handful of “brave leaders” (an
oxymoron, in today’s age).
But such a leader has already
stepped forth in the form of one, Ms. Margrethe Vestager. Who the hell is Margrethe Vestager?
Ms. Vestager is a European
politician – Danish – who heads up the EU’s Directorate General for Competition
(DGC). Before that, she played a key
role in Denmark’s Radikale Venstre Party (literally, “radical left”). Like many of the political parties in Europe,
don’t be fooled by the label. Before
heading up the EU’s DGC, Ms. Vestager’s claim to fame, as a “radical left”
politician, was gutting the social safety net in Denmark and imposing
austerity. Not a terribly popular move,
among the Danes.
In her role as head of
competition w/in Europe, and making sure markets are fair, and untrammeled by
cronyism, monopolies, greed, and oligarchy… Ms. Vestager appears to have hit
her stride.
What other politician has the cojones, or brass ovaries, to make
imperial CEOs howl w/ derision and scorn.
Per Bloomberg, Ms. Vestager
has driven investigations into a who’s who list of multinational royalty, among
them: Amazon; Fiat; Gazprom; Google; McDonalds; and Starbucks, et al.
When she ordered Apple - the world’s largest multinational, by
market cap - to pay $14 billion in back
taxes & interest (due to exploitation of a highly favored & utilized
Irish tax dodge), Ms. Vestager sent paroxysms of fear through the US corporate &
multinational community. The normally
charming Apple CEO., Mr. Tim Cook, called the ruling “total political
crap.”
Eloquent.
As a result of Vestager’s Apple
decision, no fewer than 185 U.S. CEOs complained directly to European heads of
state. Even the U.S. Treasury – fearful
of the impact Vestager’s decision would have upon future American tax revenues,
generated by the repatriation of US multinational profits – lodged a
complaint.
The DGC is perhaps, one of the
few agencies w/in the EU, at least under Vestager, that actually walks the
walk.
Bloomberg summed up Ms. Vestager’s portfolio best:
… Vestager
makes decisions related to cartelization and antitrust, approves or rejects
mergers, and investigates state aid cases, in which member countries single out
companies for unfair advantages such as tax breaks. In the U.S., state aid by
way of targeted tax incentives is a legitimate strategy to lure investment; in
Europe, it’s a forbidden tactic. That aside, the spirit of competition laws in
the EU and the U.S. is identical; in its reckoning of what will impair the free
market, though, the EU tends to exercise more caution than the U.S.
Ms. Vestager “reckoned” again
last week, and this time her target was Google.
Google was labeled a monopoly, and on top of a 2.4 billion euro
fine will probably spend hundreds of millions more defending itself against:
competitors in civil suits; stockholders; potentially clients; and against the
EU as well. Additionally, other nation
states may feel emboldened, by Ms. Vestager’s actions. Google has 90 days to respond to Ms. Vestager’s
allegations & change its behavior, or pay up. Moreover, unlike the U.S., w/in the EU,
it’s up to the multinational to come up w/ a solution to its antitrust conundrum. No bullshit cost-benefit
analysis here. (JMH would argue U.S. cartels and
monopolies should be forced, annually, to file a cost-benefit report that
justifies their monopolistic powers, or face break up.)
Some might say Ms. Vestager’s
actions smack of sour grapes, and a strike against U.S. dominance on the World
Wide Web, but the reality is the DGC prosecutes far more actions against
European firms than American. The EU has received a great deal of backlash as of late, as being an elitist body
pandering to the Davos crowd… Ms. Vestager and the DGC appear to be an
exception to that rule.
So why is Ms. Vestager’s
actions against monopoly and cartels (groups of companies w/in a market, who
exercise collectively monopoly powers), so welcome and so favorable to
democracy?
Here, it’s instructive to
revisit why cartels and monopolies are so insidious:
1) First monopolies are a threat to
capitalism. Don’t confuse privately
held, or publicly traded companies, with capitalism. If an industry is
dominated by one company, or a handful of players – who collude to set price -
their dominance has a debilitating impact upon consumers and, if demand is
inelastic enough, a crushing impact upon the economy, itself.
2) Monopolies not only harm consumers,
but they exercise their market dominance against suppliers, labor, and other
businesses – which engage w/ said monopoly.
In this instance they are said to exercise monopsony powers. In short, monopolies are bad for business and
bad for capitalism; and monopsony powers are bad for labor.
3) Labor in particular, may see their
wages stagnate, or not keep pace w/ the rising cost of living, when they work
for an industry that is dominated by cartel and monopoly. This crushes aggregate demand and top line
growth for industries, and often sets off rounds of M&A. What ensues is a downward fugue of industry
consolidation and self-fulfilling prophecy…. That is to say, the cartelization
of an entire economy.
4) As monopolies – again depending upon
the product or service – they often make obscene profits. These profits – as there is no check via
competitors & competition – are a tax upon society, in which the citizens of a country have
no say or representation. In short, the
citizens of a country are totally dependent upon the only countervailing force
to protect against the predations of monopolies, the government.
5) In countries w/ no checks upon
campaign finance law, or the duration of political campaigning – such as the
U.S. – cartels and monopolies exercise exceptional influence over the three
branches of government, and capture the regulatory bodies. In short, these oligarchical institutions own
the government, and even “democracy.”
Effectively exercising a money dictatorship.
6) Ironically, as pointed out in a recent Huffington Post piece, the Democratic
Party – under POTUS Obama – was a particularly useful monopolist’ resource and assisted in the furtherance of industry consolidation, especially in Silicon
Valley. In short, it’s not just the GOP
that is at fault here, but the Clintonian/Obama wing, or establishment wing of the
Democratic Party, has aided the formation of economy crippling cartels &
monopolies.
7) The rise of M&A and industry consolidation (aka the formation of monopolies & cartels) over the last 35
years has coincided w/ rising wage & wealth inequality and also wage
stagnation. Monopolies are known to restrain both growth & innovation, in order to maintain preeminence in their respective market and achieve monopolistic outcomes. Cartels & monopolies abhor change, variability, and volatility (particularly to earnings).
8) The rise of the U.S. monopoly
economy, indeed the multinational world economy, has led to supranational courts – staffed by multinational cronies; attacks upon national sovereignty;
sluggish economic growth; and rising political instability.
9) Cartels & monopolies often
interact w/ sympathetic host countries: dictatorships, despots, totalitarians, and
assorted sordid elements (often to exploit indigenous labor, all in the drive
for monopolist returns).
10)
Monopolies
are often thought to engage in pricing characterized by high prices; but on
their way to achieving dynastic & monopolistic power, a business entity may
engage in a practice as old as time, called predatory pricing. In this
maneuver, a biz sets price below cost – to squeeze out competition, only raise prices at a later date (see allegations leveled against Amazon) – so as to achieve market
dominance/monopolistic power.
11)
Interestingly,
both the Keynesian and Neo-classical schools of economics, liberals and libertarians, find cartels and
monopolies to be equally abhorrent, and a threat to true capitalism. That is to say, capitalism driven by competition.
12) Monopolies pose another threat. That is, if an entire industry loses its particular
expertise, but for a single player (or group of players), that monopolistic entity – depending upon the importance
of the product or service – can blackmail the government & the public into doing its bidding. Said cartel or monopoly can also exhibit extraordinary power over both the economy & the government.
Margrethe Vestager, Lady Liberty?
That is why to see David – Ms. Vestager – push back against
Goliath(s) – U.S. multinationals, such as Google & Facebook (that control
85% of the Internet’s ad revenue) - is so entirely refreshing. Notice, it’s not a man showing leadership
against the immorality & perversion of cartels & monopolies. (Note too, this special brand of monopoly
driven greed & perversion are a threat to capitalism, democracy, and global
political stability.)
But rather, a woman.
This Fourth of July, as your heart stirs and you wax
patriotic over the local fireworks display…. Take a closer look at Lady Liberty,
who will undoubtedly, at some point, appear on your computer or television
screen.
In Lady Liberty’s visage… one just might see Ms. Vestager’s
face. Presently, Ms. Vestager is the
closest thing we have to a government official stepping up to be, the Leader of
the Free World.
Copyright JM Hamilton Publishing 2017
