The DOJ approves the CVS-Aetna merger, radically altering the landscape of US health care; Sheldon Adelson pumps millions into GOP races; Silicon Valley’s Saudi Arabia problem; and who has the right to compete in America?



Photo by Chris Potter, via Flickr [CC BY 2.0]


  • Big week in US health care: The Justice Department approved the $69 billion merger between CVS and Aetna. The approval will surely have radical implications for US health care, not least because much of CVS’s revenues are derived from its ownership of Caremark, one of the major pharmacy benefit managers (PBMs) in the US. The deal also comes less than a month after the approval of Cigna’s purchase of Express Scripts deal, yet another merger between an insurance company and a PBM, and as federal and state legislators attempt to crack down on the PBM industry. “This merger should absolutely not have been approved,” writes David Dayen about the CVS-Aetna deal in The American Prospect. “If Aetna and CVS had incentive to use their market power to crush rivals before, they really have it now, after state and federal governments hollowed out one of CVS’s main profit centers.”


Also, read Craig Garthwaite’s and Fiona Scott Morton’s excellent analysis of the PBM industry and its role in driving high prices for prescription drugs.


  • President Donald Trump published an op-ed in USA Today attacking Democrats over Medicare for All, which, Trump wrote, “would establish a government-run, single-payer health care system that eliminates all private and employer-based health care plans and would cost an astonishing $32.6 trillion during its first 10 years.” The Washington Post, PolitiFact and USA Today itself have fact-checked Trump’s piece and found it to be mostly filled with misstatements and outright falsehoods.


  • Sen. Chuck Grassley (R-IA) asks the FTC to look into secret contracts between hospitals and insurers that allow hospitals to hide prices from consumers and avoid competition with cheaper rivals, citing a Wall Street Journal report on the subject.


  • With the midterms rapidly approaching, casino mogul Sheldon Adelson is reportedly pumping tens of millions of dollars more into GOP super PACs, almost certainly making him the biggest Republican donor of this year’s election cycle, according to Politico. ProPublica’s Justin Elliott profiles Adelson and his rising political profile, tracing both Adelson’s contributions to GOP-related functions and the ways in which the Trump administration has helped advance some of Adelson’s financial interests.


  • A New York Times investigation by Jesse Drucker and Emily Flitter found that Jared Kushner, President Trump’s son-in-law and adviser, probably paid little or no income tax between 2009 and 2016, even though his net worth “has quintupled to almost $324 million” over the same period. 


  • From The Intercept: private equity giant Blackstone Group, which is also the world’s largest real estate management firm, has pumped nearly $7 million to fight a ballot measure in California that would allow cities to restore rent control.


  • Google shut down its failed social media venture Google+ after the Wall Street Journal revealed that the company failed to disclose to users that it discovered a security bug in March that exposed the private data of up to 500,000 users. Up to 438 third-party apps may have had access to personal user data such as user names, email addresses, occupation, gender and age, according to the New York Times. According to the reports, Google decided not to disclose the breach to users because it feared getting embroiled in Facebook’s Cambridge Analytica scandal. “Google’s lawyers were well aware of the risks of admitting to their own bug in the midst of the Cambridge Analytica furor. Disclosing it, they wrote, could invite ‘immediate regulatory interest,’ and lead to Google ‘coming into the spotlight alongside or even instead of Facebook,’” writes The Economist in a piece excoriating the company over its handling of the scandal. An independent audit by the accounting giant Ernst and Young, conducted after Google had discovered the bug, concluded that Google’s privacy protections were sufficient and that the company was in compliance with its 2011 privacy settlement with the FTC, reports The Hill’s Harper Neidig.


  • Meanwhile, Google is appealing the record €4.3 billion antitrust fine that the European Commission imposed on it in July. Sky News reported that Google approached advertising agencies and encouraged them to build comparison shopping sites in order to circumvent the EC’s 2017 decision regarding Google’s online shopping service, which leveled a €2.4 billion fine against the company and ordered it to give shopping competitors “equal treatment”. The sites, according to the report, were meant to “give the impression of a thriving comparison shopping marketplace,” though operators said their sites were not designed to be used for shopping.


  • In a spectacular bit of bad timing, both Google and Facebook launched new smart home devices this week. The Portal, a smart screen meant for video-calling, drew particular ire, given that it was launched within days of discovering what is quite possibly the worst data breach in Facebook’s history. Also this week, privacy advocates spoke before the Senate Committee on Commerce, Science and Transportation and called for a federal privacy law that works in tandem with state privacy laws instead of overwriting them, which is what tech platforms are lobbying for.


  • Reports that missing Saudi journalist Jamal Khashoggi has been murdered inside the Saudi consulate in Turkey shocked the world this week, casting a spotlight on President Trump’s business ties with the Saudi kingdom and its massive weapons purchases, as well as Saudi Arabia’s ties to the rest of the world’s business and media elites. In the New York Times, Mark Landler and Kate Kelly write about Crown Prince Mohammed bin Salman’s ritzy forthcoming Future Investment Initiative (aka “Davos in the Desert”) which is now “in tatters.”


  • Also in the Times, Anand Giridharadas reminds readers that Silicon Valley has its own Saudi Arabia problem: Saudi Arabia’s Public Investment Fund is now one of Silicon Valley’s biggest investors, raising various ethical questions and concerns. “As Saudi Arabia establishes its new role as one of Silicon Valley’s most prominent investors, the risk grows that its investments will purchase silence,” he writes. “Companies that pride themselves on openness and freedom may find themselves unable to speak ill of one of their largest investors.”


  • A dozen journalists working for news outlets “known for anti-establishment content” have been repeatedly locked out of Facebook, reports the Indian newspaper The Telegraph. “Facebook is a company that has lost control—not of its business, which has suffered remarkably little from its series of unfortunate events since the 2016 election, but of its consequences,” asserts Jacob Weisberg in the New York Review of Books.


  • “China is exploiting the laissez-faire model of industrial organization Washington has enabled for decades,” contends Matt Stoller in Foreign Policy about how corporate short-termism and excessive focus on shareholder value leave US companies vulnerable to Chinese attempts to use them to lobby the US government.The only way to organize a system resilient to Chinese intrusions is to make it clear that the era of big government is back, and that Wall Street is no longer able to force companies to think short-term,” he adds.


  • “Who has the right to compete in America? Is it just special interest groups and large consolidated corporations? Or is this a nation of freedom where everyone can compete?” asked Sen. Cory Booker (D-NJ) this week during a conference on monopolies and entrepreneurship organized by the Open Markets Institute. Watch the whole speech here.


  • In The Atlantic, Franklin Foer interviews Sen. Mark Warner (D-VA), who has emerged in recent months as one of Silicon Valley’s most incisive critics. In the interview, Warner criticizes Obama administration’s “infatuation” with Silicon Valley, discusses Congress’s “reluctance” to take on Big Tech and explains why the market power of tech platforms is so problematic. “With Amazon, you have a company that’s less about product; it’s more just incredibly successful execution skills. Plus a lot of data. Compare that to Facebook and Google: Is there ever an ability to really break up their market dominance? Even if you’ve got a better app, you can never match them on data. Look at the number of companies that are going public within technology right now. It has dramatically declined. If you look at the app world, your whole plan is an exit to Facebook and Google. I’m not sure that’s the healthiest ecosystem,” says Warner.


  • The DOJ’s top antitrust official, Assistant Attorney General Makan Delrahim, claimed Time Warner’s general counsel threatened to “employ personal attacks” against him if the DOJ attempted to block its merger with AT&T, reports Reuters, citing court filings made public as part of the government’s appeal against the merger’s court approval. During a Nov. 8, 2017 meeting, claimed Delrahim according to the report, “[Time Warner’s general counsel Paul Cappuccio] wagged his finger at me, and said that if the Antitrust Division goes through with this, the case will be ‘a sh*tshow like you’ve never seen,’ and that it would be like ‘Jimmy Hoffa and the firing of Jim Comey.’” Delrahim added that he “interpreted Mr. Cappuccio’s comments to mean that if we brought this enforcement action, defendants would employ personal attacks to denigrate the integrity of the Antitrust Division and myself.”


  • AT&T, meanwhile, announced plans to launch a digital streaming service featuring WarnerMedia’s films and TV shows by the end of 2019.


  • Former FTC chairman Robert Pitofsky died this week at the age of 88, following a long battle with Alzheimer’s disease. Pitofsky, a giant of antitrust scholarship, was an activist antitrust enforcer who advocated for greater consumer protections and scrutiny of mergers. He “sought to call attention to the growing threat of corporate consolidation, particularly with the rise of technology,” wrote Cecilia Kang in the New York Times. “Antitrust has swung left, right and center. We went from being the most vigorous of countries in enforcement in the ’60s to one of the least aggressive in the ’80s. My goal was to find a middle between the extremes,”Pitofsky himself explained in an interview with the Times in 2000. If you have never read it, Pitofsky’s seminal 1979 paper “The Political Content of Antitrust” is a must-read.


  • The Competition Commission of India (CCI) raided the offices of three top beer companies—India’s United Breweries, Denmark’s Carlsberg and Anheuser-Busch InBev (AB InBev)—in at least two Indian cities, reports Reuters. The raids were reportedly part of an antitrust investigation into the three companies that was launched last year.


  • “America’s insider trading laws are hopelessly out of date. As a result, fraudsters have evaded law enforcement scrutiny, and honest market participants are sometimes confused about the rules of the road,” write former US attorney Preet Bharara and SEC commissioner Robert J. Jackson, Jr. in an op-ed calling for significant reforms in American insider trading law.


  • The Wall Street Journal’s editorial board shocked many this week by endorsing populist authoritarian Jair Bolsonaro, who won the first round of Brazil’s presidential election last week. The editorial portrays Bolsonaro, who rose to international prominence on the back of an extremely racist, homophobic agenda and who regularly waxes nostalgic about Brazil’s past military dictatorship, as a “swamp drainer.” In the New York Review of Books, Vincent Bevins offers a more accurate account of Bolsonaro’s record and his dictatorial tendencies. “Bolsonaro is not merely nostalgic for that era; he would reintroduce the dictatorship’s political ethos, preserved and intact, into modern Brazil,” he writes.


Chatter from the Ivory Tower


William D. Nordhaus and Paul M. Romer are the receipients of this year’s Nobel Memorial Prize in Economic Sciences. “In addition to honoring two scholars whose contributions have deeply influenced their field, the award points to a crucially important issue that the world is beginning to give short shrift — economic growth,” writes Bloomberg’s Noah Smith.


Stigler Center Goings-On


In the third and final episode of the Capitalisn’t series on the 2008 financial crisis, Kate Waldock and Luigi Zingales look at recent volatility in the markets and try to predict the cause of the next financial crash with help from prominent economists Robert Shiller and Lawrence Summers.


Disclaimer: The ProMarket blog is dedicated to discussing how competition tends to be subverted by special interests. The posts represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty. For more information, please visit ProMarket Blog Policy