Via Matt Stoller
I didn’t do a round-up last week because there was so much political news, so there’s a lot to catch up on. Today’s round-up includes an FTC investigation of surveillance pricing and McKinsey, an update on economic termites, a major set of attacks on pharmacy benefit managers, and the good and bad news of the week.
Let’s start with the Federal Trade Commission investigating McKinsey, and more broadly, the problem of surveillance pricing, which means corporations setting different prices for different consumers based on big data algorithms.
Why is the FTC looking at McKinsey? The reason is that this consulting giant is a ringleader of pricing in the economy. McKinsey’s main strength is that it is trusted by corporate America to gather large troves of sensitive business data, and then share insights about that data. To give you a sense of how this system works, here’s an email from a BIG reader on how important McKinsey is to his corporation.
I was working as an engineer for [large oil company] in 2018. After a wave of resignations and a lot of complaints about pay versus competitors, the corporate headquarters i sent the head of remuneration to speak to the engineering staff about how "competitive" the [large oil company]’s pay was.
All the engineers and engineering managers, roughly 200 people or so, were invited into a large auditorium and provided a presentation on how we were paid versus competitors. The presentation relied on McKinsey's data. It showed [large oil company]’s pay for given engineering disciplines (i.e. mechanical or chemical, among others) distributed across bell curves, with [large oil company] and a few dozen major and minor competitors placed along each curve.
Other slides featured a matrix that showed which competitors paid bonuses, pensions, additional money for high COL areas, and the portions of compensation that were salary versus benefits. Then we were told that [large oil company] targeted to be 50th percentile among most criteria. Basically, McKinsey had furnished [large oil company] and, presumably, its interested competitors with a breakdown of compensation data that would not otherwise be shared so freely and in such detail. I venture that without all this data that compensation would be tied to the value of our work instead of leveraging peer data to keep pay clustered tightly to industry averages. [Large oil company] uses McKinsey extensively, from adopting its recommended Org structure revision in the 2020 layoffs to performing biannual employee morale surveys every six months.
In other words, McKinsey is setting pay in a significant portion of the oil industry. Is that cross-firm price-setting legal? Probably not. But here’s the legal rationale, such as it is. In 1993, the Clinton administration’s antitrust enforcers announced a safe harbor for the exchange of wage information among health care providers like hospitals, who could share sensitive information so long as they did it through third party consultants. There were a few other minor caveats, but that’s the gist. These ‘safety zones’ were expanded in 1996 and 2011. There was no actual change in statute; these were simply statements from enforcers saying they would ignore the law to benefit employers.
In 2023, both the Antitrust Division and the Federal Trade Commission withdrew these safe harbors, with Assistant Attorney General Doha Mekki explaining in a widely cited speech that consolidation and algorithms had changed the game.. The corporate legal world freaked out, because it turns out that large corporations in every sector of the economy - not just health care - have been using consultants to share and set wages. It’s a pretty insane under-the-radar story, and it’s also the reason that McKinsey is running wage policy for large oil corporations.
Anyway, that’s the backstory to this surveillance pricing study, that there is pervasive wage fixing across the economy. Unsurprisingly, these intermediaries also help corporations set consumer prices. Every major consulting firm has a pricing practice, and there are lots of specialized pricing consultants for specific industries. In the age of big data and algorithms, some consultants help firms change pricing down to the individual transaction level.
And now, the FTC announced it is looking into eight intermediaries - McKinsey & Co, Mastercard, JPMorgan Chase, Accenture, Revionics, Bloomreach, Task Software, and PROS - who help to use “algorithms, artificial intelligence and other technologies, along with personal information about consumers—such as their location, demographics, credit history, and browsing or shopping history—to categorize individuals and set a targeted price for a product or service.” According to the Wall Street Journal, their clients are in the “retail, restaurant, grocery, travel, finance and hospitality industries.”
The prospect of data-driven surveillance pricing horrifies most people and generated wide attention. Even CNBC’s Jim Cramer condemned it, and said that he couldn’t believe he agrees with Lina Khan on it.
Ok, and now some news on the ‘economic termite’ front. Economic termites are companies that monopolize and drive up prices in a space you wouldn’t notice. Cumulatively, these have a big impact on society. First, some good news. One of the ones termites I highlighted, Verisign, which handles the .COM root domain registry, is getting scrutiny from top House Republicans, who are demanding a crack down on its government-granted monopoly.
But there are so many more of these. Below I’ll note price-fixing and monopolization in pianos, PVC pipes, frozen french fries, and portable office space.
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