WHEN: Today, Tuesday, June 4
WHERE: CNBC CEO Council Summit
Following is the unofficial transcript of a CNBC exclusive interview with United States Assistant Attorney General for the Antitrust Division Jonathan Kanter and Federal Trade Commission Chairperson Lina Khan with CNBC’s Andrew Ross Sorkin during the CNBC CEO Council Summit conference in DC today, Tuesday, June 4. Following is a link to video on CNBC.com:
Mandatory Credit: CNBC CEO Council Summit
ANDREW ROSS SORKIN: Good morning again. I’m so excited for this conversation because there are a lot of people in this room who love you. There are other people in this room who hate you. And there’s a lot of folks, I think, who are just looking, more than anything else for clarity to try to understand the way you think, why you think what you think, and what the rules of the road should be, what they are, and all of it. And I’m hoping we’re going to be able to really sort of dive into what’s going on in the antitrust world. I think there’s a lot of people in this room and around the country in the business world who think you two, if you can even imagine it, may very well be the most powerful people in the world of business today as it relates to where all of this is going from a regulatory perspective. So, I want to start with actually just a very basic philosophical question, Jonathan, and I will start with you, which is, when you think about the idea of what I think is a relatively bipartisan perspective about M&A and mergers and acquisitions, and whether they should be evaluated through the context of a consumer welfare standard, is that the way you think about it? And, if not, what are the other component parts to the discussion?
JONATHAN KANTER: Sure. So, I think I’m fond of saying that, if you ask five antitrust lawyers, what is a consumer welfare standard, you get six different answers. So, a standard is something that people agree on. If people can’t agree as to what it is, then it is no longer a standard. The purpose of the antitrust laws is to protect competition. Competition leads to better market outcomes and is essential for a market-based economy. Our mission is to protect competition. That might mean competition to the benefit of consumers. It might mean competition to the benefit of workers. It might mean competition to the benefit of entrepreneurs who are starting a new business to innovate and provide new products and services beyond our wildest dreams.
SORKIN: Can you see a transaction or a situation in which you would advocate for more competition, but it would ultimately hurt the consumer?
KANTER: I’m not aware of any case that either of our agencies have brought where the consumer was worse off as a result of our actions.
SORKIN: But you understand why I’m asking the question because if the consumer welfare standard is not the sort of ultimate benefactor, and competition is, how to think about that dynamic.
KANTER: Let me try to address this. Many transactions are B2B. There are companies that don’t sell directly to end consumers. There are companies that might sell to another business. We brought a case involving book publishers where the theory of the case was that the authors, the laborers would have earned less in terms of advances. And we won our case. And that was a cognizable antitrust harm. There have been antitrust cases involving college athletes.
SORKIN: Right.
KANTER: These are important stakeholders in our economy.
SORKIN: So, Chair Khan, I want to ask you about this. Jon Stewart recently interviewed you and asked you on “The Daily Show” what the metrics of measuring whether there’s a monopoly. And part of your answer was this. You said: “The most direct way is to look at how a company is behaving.” What do you mean by that?
LINA KHAN: First of all, it’s really great to be here. And this is a really important question. And it’s one that we grapple with day after day. And we want to make sure that the tools we’re using to figure out what does competition look like, do we have a monopoly are actually matching what you all think about, what business leaders think about. And I think one of the problems that both of our agencies have been looking to correct for is the fact that, over the last few decades, we’d seen a real gap emerge between how antitrust folks were analyzing markets and how businesspeople were analyzing markets. And so we’re trying to bring that closer together, that gap between theory and business reality. There are a whole bunch of ways in antitrust analysis that you can assess if a company is a monopoly. You look at the market share, define the relevant market. To my mind, one of the most probative ways is to look at whether a company is able to make things worse for its customers or its workers and get away with it, because, if you have a functioning, free, competitive market, the idea is that, if a company is being abusive towards its customers, those customers can go elsewhere. But if you see a persistent pattern of a company raising prices, degrading service, making it impossible to actually get somebody on the phone, all these big and small ways that the consumer experience is worse, and you don’t see defections, similarly, you can see the same thing on the worker side, that can be direct evidence of monopoly power, that companies are at a stage where they can make things worse without losing out in the market.
SORKIN: How much do you think about, you bring very specific cases, but a lot of those cases have had what might be described as a deterrent effect for more transactions. Some data for everybody, in 2021, the year that both of you took office, there were $2.79 trillion in dealmaking in this country. In 2023, there was effectively half of that number, $1.48 trillion. Now, some of that, you may want to ascribe to economic forces and other things. But I would imagine, if you took, we polled this room, many people would say that they have held off on doing deals or have looked at deals differently as a function of the work that you two are doing. Do you look at that as a success?
KHAN: So, my job is to enforce the laws that Congress has written. And I’m very sympathetic to the idea that, you know, when you go from decades of more lax enforcement to now an approach that is being more rigorous, that that can be disorienting for the business community. And that’s why our agencies have really taken a lot of care to put out notices, to put out new merger guidelines explaining how we do the analysis. But I do think we were previously living in a regime where there were deals making it out of the boardroom that were facially unlawful. And, practically, that means that we then have to spend public resources going to court. And so when we see senior dealmakers on your show saying, years ago, we wouldn’t think about antitrust risk until the very end, if at all, and now antitrust risk is part of the conversation on day one, for us, as enforcers, that’s a really good thing. We want that legal consideration to be part of the analysis because illegal deals should not be pursued.
SORKIN: How do you both think about the issue of creating efficiencies, creating productivity? I ask because even if you look in the tech world and we can have a debate about this you might say, Google has helped small publishers, you know, with their adtech. You may disagree with this, but I’m just suggesting. You could argue that Apple, for a relatively, for free, at least the way it looks, has — offers free security products and development — developer things. Amazon, to some degree, again, I think you will disagree with this, but has offered logistics services, if you will, that allows a small business who wants to just focus on their business to do that. And the question is, all those things, arguably, are supposed to create more efficiency. But I also — clearly, both of you, I think, think that, when they’re doing those things, you either don’t think they’re doing them properly or you don’t think they should be doing them at all. And that’s, I think, one of the big questions.
KANTER: So I think it’s important to distinguish between good old-fashioned competition, companies, businesses trying to deliver better products and services to their customer base. We have no problem with that at all. It’s when companies engage in illegal behavior in order to maintain their position, that’s when we have a problem. And so I don’t think it is a choice between the two. If anything, competition makes companies work harder.
SORKIN: Right. But do you think that — do you think that those type of companies that I just mentioned — you don’t need to speak to them specifically, because I know you’re involved in litigation. But do you think that companies like that should even be offering those types of services, or, by default, once you start to offer those types of additional services — I’m thinking of Amazon, for example — that there’s no way to do it without creating a bigger barrier around your business, and that ultimately itself is illegal? Do you see what I’m saying?
KANTER: Well, when you have a very large market share and a big moat around the business, it changes the dynamics, and that’s why the law treats those companies differently. But let’s think about this for a moment. So, if you’re a business, and you’re worried about a competitive threat and you want to build out that moat in order to keep rivals away, that could be a problem. The other phenomenon that we’re seeing and I think this is really important in a lot of our cases across both agencies that we’re dealing with intermediaries, intermediaries who are operating at multiple levels of the chain—
SORKIN: Right.
KANTER: And often negotiating with themselves or have conflicts of interest. And so a lot of the cases, not all—
SORKIN: Right.
KANTER: But a lot of the cases that we’re bringing really relate to these conflicts of interest that exist. And when you have a conflict of interest and you have a lot of market power, that creates obvious issues.
SORKIN: So, we were all before we started, got up here, we were talking about Taylor Swift, who is and there’s obviously this big case with Live Nation, an intermediary, if you will. I mean, they are, in some cases, the ultimate intermediary. And I was saying to you that it’s unclear to me, at least in the case of Taylor Swift, whether there’s not market powers working. For some reason, in the United States, people are, love Taylor Swift not for some reason. She’s a brilliant talent. And for reasons that I can’t fully explain, in Europe, you can get a cheaper ticket there, and, in other parts of the world, you get a cheaper ticket there. But I think it may very well be that she’s just, she is so popular in the United States that people are pay, willing to pay crazy amounts of money for her, and, in other places, she may not be as popular. Is that even possible?
KANTER: Well, certainly, a popular artist like Taylor Swift, who I love, by the way — just want to be very clear to all the Swifties out there. I, mad respect. I’m one of you. But the—
SORKIN: Do you have the friendship bracelet on?
KANTER: I do — no, have no friendship — I do not have a friendship bracelet on — bracelet on, but I would gladly wear one if someone gave it to me. The fact of the matter is, competition for the intermediary services that bring a concert to a fan, that’s what we care about. And so, if someone’s paying a convenience fee that they view as excessive or they’re not getting the customer service they want, or an artist or a venue doesn’t have the choice if they’re unhappy with the level of service that’s being provided to the fans, those intermediaries are supposed to compete hard to deliver better products and services and to make people happy. And if there’s harm to competition as a result of anticompetitive behavior, then that’s exactly in the strike zone of what we should be focused on.
SORKIN: Chair Khan, I want to ask you about the Capri-Tapestry case, if I could, if you would indulge me. So, The Wall Street Journal wrote an editorial. Did you read this? I’m sure you have read this. But it — for those who are in the handbag world, here it goes. “Anyone who” — and, now, they brought a case against this merger. “Anyone who’s bought a handbag knows there is no shortage of brands with a variety of price points. Many brands like Kate Spade and Coach have loyal customer bases for reasons unrelated to price. This may be why the FTC makes the fallback argument that the deal would harm labor competition. “Post-acquisition, the combined Tapestry and Capri would employ roughly 30,000, three — 33,000 employees worldwide, the FTC says. Hourly workers stand to lose the benefits of higher wages and more favorable workplace conditions. The agency, they say, is redefining antitrust law to include employment, when its legal justification as interpreted by courts is consumer benefit. “In any case, as the FTC notes, most Tapestry and Capri handbags are made in Asia. Is the agency trying to raise the wages of Asian textile workers? This would raise the prices of purses.” What do you think of all of that?
KHAN: As you noted, this matter is in litigation, so I’m more limited in what I can say about it specifically. I’ll say, as a general matter, we follow the facts where they take us. And there are certainly matters, when they first hit my desk sometimes, they might not stand out as, this is definitely something we should do. But as our teams do the investigation and surface evidence, sometimes, evidence is so glaring that there’s a real cost of not bringing certain cases in terms of the signal it’s sending to the market, to the dealmakers. We also look at the degree of harm. We look at whether there are certain trends happening in terms of a whole series of acquisitions that could be rolling up the market. We look at, what are the different sides of the market that might be impacted?
SORKIN: Right.
KHAN: And so it’s a holistic inquiry. I also just want to pick up on something that you were mentioning earlier, which is, you know, how do we assess whether certain business practices are good or bad? And I would say another theme across a whole bunch of our cases is that there is coercion happening in the marketplace, right? Oftentimes, you see, once these intermediaries have become gatekeepers such that they’re effectively controlling access to markets, the businesses that are dependent on them to get to market have to effectively accept whatever term or condition ends up landing. And so, a lot of times, what we hear from the business community is that they are being coerced into accepting certain terms or having to do business a certain way, where, if there was more competition in the market, they would do it a different way, and that would actually benefit not just them, but their customers. And so we want free enterprise. We want open markets, rather than a lack of competition resulting in coercion.
SORKIN: How do you think about balancing what you do with the idea of inflation? Meaning, arguably — and we can debate this, in the short term, the work you do has to be considered, I would imagine, inflationary. We can describe — we can decide that, long term, if you then have more competition, you should probably be able to lower prices. We can hope that if that’s the consumer benefit. But, in the short term, when certain things don’t happen or can’t happen, and it’s possible that costs could be — I’m sorry. If you create more — I apologize — if you create more competition in the initial stage, that you actually, oddly, may create inflation. Do you know where I’m going with this?
KANTER: No.
SORKIN: You’re looking at me like I’m crazy.
KANTER: Yes. So, that’s not right. We block a merger, for example, involving — we did one involving lettuce, where two companies would increase — had the potential to increase the prices of lettuce if they merged.
SORKIN: Right.
KANTER: What is one area that people are really concerned about inflationary pressure and prices going up? It’s the cost of products and food at the grocery store. And so the — you talked earlier about consumer welfare. If there’s one thing that the antitrust lawyers on all ends of the continuum agree on, it’s that competition can lower prices.
SORKIN: Should, right, on the long term. The question is, given that you’re part of an administration that’s dealing with inflation today, how do you think about that?
KANTER: Well, I think we think about it as, if companies want to merge to raise prices in an inflationary environment, that’s a problem, and we’re going to stop it.
KHAN: It’s also pretty standard we acknowledge that the fewer companies you have in a market, the easier it is for them to coordinate. And I think some of the research that we have seen where prices shot up during the pandemic, in part because there were such significant supply issues, even as those supply issues have eased, some of those prices are still high. Some of those margins are still high. I think there’s a lot of concern about whether some of those inflationary pressures have been used as cover to keep prices high. Both of our agencies have also seen instances where some of these algorithmic price-fixing tools may be used to basically enable coordination, be it between hotels, be it between airlines, basically to raise prices for Americans. And so I would say all of our tools are squarely taking on the very problem of corporations using their power to hike prices.
SORKIN: I wanted to open it up to questions, because I know there are many out there. And I’m just going to — we’re going to go to them in just one second. We are in an election year. And it is unclear what the end of — how this is all going to end. We’re having that discussion here a lot at the moment. I’m curious, if, in fact, the Biden administration does not win a second term, what you think happens to all of these cases.
KHAN: So, one of — the most striking thing about antitrust and anti-monopoly is the strong bipartisan support for taking on unchecked monopoly power. We see a lot of concern on both sides of the aisle with monopolies in health care, with monopolies that affects whether people can be heard or seen. I get a lot of questions from both sides about how corporate consolidation is hollowing out parts of rural America, leading to food deserts, leading to health care deserts. And so I have confidence that, whatever happens in the future, the commitment to strong, robust, vigorous antitrust should remain, in part also because the public is connecting the dots much more freely between these pain points in their day-to-day lives—
SORKIN: Right.
KHAN: And what people in our seats do about it.
SORKIN: So, you, even in a — you think a Trump administration would appoint somebody who has similar views that you do about dealmaking?
KHAN: Look, I can’t predict what’s going to happen. What I can say is that there is strong bipartisan support for vigorous antitrust enforcement. And we see that — you know, a whole bunch of the lawsuits that we have brought, we partnered up with state A.G.s from blue states, but also from red states. Some of those red states have actually pioneered really far-reaching legislative efforts to check the power of some of these large firms. And so I think we do have a strange bedfellow situation, where there is, across the aisle, a recognition—
SORKIN: Right.
KHAN: Of how competition is good for the public.
KANTER: Just to add, I mean, and build on what Lina was saying, which I very much agree with, the current movement about corporate power and antitrust, it’s not coming from us. It’s coming from people, right? And so we are being responsive to the demands of the people. We are enforcing the law based on the facts, wherever it leads us. But I think what we have experienced in our travels, our discussions with people throughout the country, whether it’s a rural farmer, an entrepreneur in Silicon Valley, a newspaper owner in the Midwest, people are trying to compete. People want the benefit of competition. People want choice, and they want opportunity. And they feel like that has been taken away from them. And that is why we are seeing this resurgence in antitrust.
