This week, a federal judge in Washington DC blocked the world’s largest publisher, Penguin Random House, from buying its rival Simon & Schuster for $2.2 billion. The court sided with the US Department of Justice (DOJ), which argued the merger would substantially lessen competition in the market.
What’s unusual about the move to block the deal is the DOJ’s focus on protecting authors’ earnings—rather than on the potential harm to consumers, signaling a new interpretive effort on antitrust law from the agency.
“The proposed merger would have reduced competition, decreased author compensation, diminished the breadth, depth, and diversity of our stories and ideas, and ultimately impoverished our democracy,” said Jonathan Kanter, the assistant attorney general for the DOJ’s antitrust division, in a statement.
What will this broader interpretation mean for future antitrust cases?
We might look toward Kroger’s plans to buy its rival Albertson’s for $24.6 billion as the next test. The proposed combination of two of the biggest grocers in the US, which was announced in September, has already drawn regulatory scrutiny. But that deal has features that make it unlike Penguin’s bid for Simon & Schuster. So while the blocked merger between two big publishers is a win for the DOJ, antitrust experts say there is little overlap with how regulators will be eyeing the grocery tie-up.
Buyer side versus seller side
Most antitrust cases deal with the potential impact on seller’s markets, or downstream markets, where the concern is about high prices. The Kroger and Albertson’s merger presents a seller’s market case, in which two companies come together and have the freedom to charge higher prices to consumers.
The blocked Penguin merger, on the other hand, was meant to protect the buyer’s market, or upstream market. Seller’s market cases concern suppliers or workers and focus on price suppression. In this case, having one fewer major publisher makes the market a lot more concentrated—meaning publishers might ultimately pay writers less money.
The US’s Clayton Antitrust Act, which prevents unfair methods of competition, applies equally to buyers and sellers. But in the entire history of the law—which has been around since 1914—there has only been one or two cases involving buyers of any kind, said Herbert Hovenkamp, a law professor at the University of Pennsylvania who focuses on antitrust issues.
It’s possible the Kroger-Albertson’s deal will be examined for its potential effects on other parts of the business beyond consumers. “To the extent it is, the Penguin merger is very relevant, because this is an example of showing that there can be violations because of consolidation that squeezes the suppliers,” said Eleanor Fox, a professor at New York University School of Law.
But Fox said she hasn’t seen any indication of concern about price suppression for Kroger’s suppliers. So far, the antitrust concern over the Kroger-Albertson’s merger has been focused on the potential for higher prices for consumers and on stores in overlapping regions during a period of soaring inflation. To appease regulators, Kroger and Albertson’s said they will sell up to 375 stores in these areas.
Highly consolidated market versus not
Unlike America’s grocery industry, the US publishing market is extremely concentrated. The number of big-name authors—which includes Stephen King, who testified that the merger would harm writers—is a small group, so the merger could have a major impact on them.
While Kroger and Albertson’s are two of the five biggest US grocers, the companies comprise only 13% of the US grocery market, according to estimates from analysts at JPMorgan.
“People sometimes confuse bigness with competitiveness,” said Hovenkamp. “But [the grocery industry is] a huge industry and it has a lot of big players.”
Federal Trade Commission versus the Department of Justice
Finally, the decision to block the publishing industry deal came down to the DOJ’s interpretation of antitrust law, not the Federal Trade Commission’s. And it’s the latter that will likely take up the Kroger deal.