Federal Trade Commission (FTC) Chair Lina Khan and Justice Department Antitrust Division Head Jonathan Kanter, the dynamic duo of the “neo-Brandeisian” movement that seeks to restore the old “big is bad” approach to antitrust, are seeking help in identifying their next targets. On May 24, the FTC and the Justice Department’s Antitrust Division issued a Request for Information (RFI), asking “consumers, workers, businesses, advocacy organizations, professional and trade associations, elected officials, and academics or other experts” to help identify “serial acquirers.”
Serial acquirers are businesses with a pattern of acquiring or merging with other businesses in the same industry. These acquisitions are often not large enough to require approval by federal antitrust enforcers, but according to Khan, Kanter, and their allies, the combined effects of these acquisitions could make the acquiring firm large enough to exercise monopoly power. Therefore, the FTC and Antitrust Division must be vigilant to identify and stop serial acquisitions.
Ironically, the crusade against the acquisitions may actually make markets less competitive. This is because combining with other small companies in the same or similar industry gives the small companies the ability to take advantage of economies of scale, as well as to attract capital investments they can use to improve their business, enabling them to more effectively compete with their larger rivals.
For example, the FTC is challenging the merger between handbag manufacturers Tapestry (owner of Coach, Kate Spade, and Stuart Weitzman) and Capri (owner of Michael Kors, Versace, and Jimmy Choo). The FTC says Tapestry is a serial acquirer that must be stopped before it achieves total dominance over the “affordable” luxury market. But there is no such thing as the “affordable” luxury market for handbags. “Affordable” luxury is a marketing term coined by Tapestry to help it better compete with the major European handbag manufacturers like Louis Vuitton and Gucci. The Tapestry-Capri merger will strengthen competition by enabling the company to better compete with both the luxury handbag lines and the “mass market” handbags.
The merger will be valuable to Capri, whose only profitable division last year was Jimmy Choo. But the FTC is ignoring the competitive benefits of this merger because of its myopic focus on stopping serial acquirer Tapestry. No wonder Tapestry CEO Joanne Crevoiserat said that “they [the FTC] don’t understand how consumers shop today, and they don’t understand the dynamics of a marketplace with no barriers to entry, constant influx of new competitors.”
Another example of the FTC helping large companies by preventing smaller companies from combining is the agency’s efforts to block the merger of grocery store chains Kroger (which among other brands owns Harris Teeter, Fry’s, and King Soopers) and Albertsons (whose current holdings include Safeway, Carrs, and Randalls). The FTC disregards the fact that if the merger goes through the new company would only control 13% of the grocery market, while Wal-Mart would still control 22% of the market.
The FTC is also ignoring how the merger will enable the grocery stores operating under the Kroger and Albertsons umbrella to better compete with these big box stores in terms of price, quality, and service. So once again the FTC is ignoring how a merger will enhance competitiveness because the parties to the transaction are “serial acquirers.” Big Tech companies’ propensity for serial acquisitions is one reason they are the neo-Brandeisians’ top targets—even though these serial acquisitions help spur innovation in the tech industry. Many small tech companies attract capital because investors hope that these companies will become successful enough to be acquired by a larger firm, thus giving the investors a large payoff.
If the FTC and the Justice Department stop big tech companies from acquiring small innovative startups, it will make it more difficult for new tech companies to attract capital, making the tech market less innovative and less competitive. The animosity toward the tech industry’s serial acquirers is so extreme that it actually led the FTC to try to induce Meta (parent company of Facebook) to sell off What’s App and Instagram.
Serial acquirers help small companies take advantage of economies of scale, thus enabling them to more effectively compete with their larger rivals. Lina Khan and Jonathan Kanter should celebrate serial acquirers for helping preserve competitive markets to the benefit of workers, consumers, and investors in small companies.
