As a stockholder in Whole Foods -- and wannabe customer -- I am admittedly biased, but the FTC's decision to oppose the merger of Whole Foods and Wild Oats makes no sense to me. The FTC claims that Whole Foods and Wild Oats are both "premium natural and organic supermarkets." Whole Foods' CEO John Mackey responded to the FTC's complaint with a massive blogpost on the Whole Foods website. (How to win friends and influence regulators?) His main point is that Whole Foods competes with all supermarkets, not just with other "premium natural and organic supermarkets." With regard to that smaller market definition, Mackey observes:
Is there actually a separate category of "premium natural and organic supermarkets"? Let me state quite clearly up front that there absolutely is! However, that category actually consists of only one company-Whole Foods Market. We created the category and to-date we are the only company that actually belongs in it. Wild Oats, Earth Fare, and a few other companies have tried copying us in the past, but with very little historical success to actually show for it.
Ok, I am not sure that was very helpful to his cause, but you get the drift. In the end, the FTC's case seems to rest heavily on statements by Mackey about the purpose of the merger. In an email to his board of directors, Mackey listed as the top two reasons for the acquisition: "Elimination of an acquisition opportunity for a conventional supermarket" and "Elimination of a rival." So one big question in all of this is: how important is Whole Foods' intention?
In a white paper on the proposed merger, the American Antitrust Institute reasons:
An analysis of the merging parties' pricing data in relevant markets should be viewed as complementary to the parties' statements that the purpose of their merger is to avoid competition. Whole Foods' John Mackey has made a number of public statements regarding the motives for the merger. Some of these statements reflect legitimate objectives such as cost savings, but others reflect a clear desire to stifle competition. In light of this, "natural experiments" using price data to determine if existing or potential competition discipline pricing by the merging parties should be viewed as a complement to anticompetitive motives in developing evidence that the merger would tend substantially to lessen competition.
Over at TOTM, Geoff Manne bristles at the notion that pricing data is "complementary" to intent analysis:
If it is impossible to determine ex ante whether anticompetitive intent is just bluster, doesn't it rather more confuse than "focus" the likely effects of a merger? I get the presumption that "what one intends to happen, that is what is likely to happen." I just don't get why that presumption is ever actually warranted in a situation as complex as anticipating the likely effects of a merger.
For another interesting exchange about the relevance of Wild Oats' inability to obtain adequate financing, see the W$J letters from Arnie Celnicker (former FTC attorney) and Don Boudreaux (GMU economist). Good stuff.
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