By: Brian Albrecht (City Journal)
President Joe Biden’s antitrust enforcers were desperate for a win. While claiming to be tough on antitrust, their track record has been far from impressive. The Federal Trade Commission and the Justice Department have challenged fewer mergers than they did during the Trump administration, and their challenges have rarely been successful. Now, the DOJ’s antitrust division has succeeded in blocking the merger of two publishing houses: Penguin–Random House and Simon & Schuster. Three weeks after the U.S. District Court in Washington, D.C., handed down an order halting the deal, Penguin’s corporate owner Bertelsmann made it official: the $2.2 billion merger has been scrapped.
Both supporters and critics of the decision see it as a landmark case. Barry C. Lynn, executive director of the left-leaning Open Markets Institute—the former employer of current FTC chairwoman Lina Khan—called the case “a huge reversal” and “a foundation on which we can build cases.” At the opposite end of the political spectrum, Tad Lipsky, a former DOJ and FTC official who now leads the Competition Advocacy Program at George Mason University’s Global Antitrust Institute, told the Washington Post: “The thing that I object to in Biden’s antitrust is that it is not based on sound legal analysis or sound economics.”
Both sides are wrong. This was a standard monopsony case, not a rejection of the economic foundations of antitrust, the consumer-welfare standard, or the rule of reason. The arguments, and the court’s opinion, were in many ways mundane.
The court’s reasoning followed the burden shifting of the so-called “Baker Hughes test.” First, the government established that the merger would generate high concentration in a relevant market. In this case, the market was for the narrow category of book contracts with “top-selling authors,” defined as those receiving advances of $250,000 or more. Some of the advances described in the DOJ complaint were in the millions of dollars. That submarket comprises just 2 percent of all book contracts, and Penguin–Random House and Simon & Schuster have nearly 50 percent of those contracts between them…