F***ed-up antitrust policy
First came the move against Whole Foods. The FTC announced last week it would proceed against natural food supermarket chain Whole Foods in its planned purchase of rival Wild Oats Markets. The FTC says it wants to stop the $650 million deal because it will reduce competition and raise prices. (As if Whole Foods prices have been kept down by competition with Wild Oats! Have these guys ever shopped there?)
As usual with antitrust, this is a matter of categories. Is there a distinct organic/natural foods industry, or is it just a small part of the overall grocery segment, in which Whole Foods is a mere pygmy compared to giants like Wal-Mart and Safeway?
And even if it is a separate market for antitrust purposes, the combined forces of Wild Oats and Whole foods is a minority player. According to the Wall Street Journal ("FTC to Move Against Whole Foods", 6/6/07):
The natural-foods market is estimated at $46 billion, according to J.P. Morgan Securities. Based on their annual revenue, Whole Foods and Wild Oats together account for about 15% of that segment." Hardly a dominant position.
There's no question that the big food chains have added more fresh and natural foods in order to compete for well-off customers with Whole Foods. That includes Wal-Mart, with its seemingly waning attempt to sell organic food. There are also competitors like Wegman's and Trader Joe that go after the same high-end consumer.
The FTC move is all the more astonishing in that has had a laissez-faire attitude to other major mergers, even the combination of market dominating Maytag and Whirlpool, a far more questionable deal in which the two principles sold a truly dominant chare of washers and dryers in the US,
A similar kind of objection is being raised against the Sirius-XM merger, where everything hangs on whether satellite radio is in itself a business category, as opposed to radio in general.
But here's the killer. Just this week, the US Department of Justice announced that it would support Microsoft in a claim made against Google. Google says that Microsoft's new Vista operating system, in contraction to earlier consent decrees, is making it difficult for users to install and use Google instead of its own MSN search engine. Google was petitioning state regulatory committees, and in contrast to usual FTC practice, the DoJ came down on the side of the near-monopoly. As a Reuters story in the Washington Post ("U.S. backs Microsoft against Google complaint: report", 7/11/07) has it:
"the memo was sent to state attorneys general around the United States and alarmed many of them, with some state officials saying they believed Google's complaint had merit." Now Google; is hardly a little guy petitioner, but this move is generally seen as an about face by the FTC.
The Antitrust Review quotes one expert as saying about this move that " The generous and noncynical view is that there has been a fundamental change in philosophy about the degree to which antitrust should be used to regulate business activity ." Tell hat to Whoel Foods.
Likewise this week, the DoJ approved the merger of the Chicago Mercantile Exchange and the Chicago Board of Trade, placing no conditions of the CME-CBOT deal without any conditions, As a Financial Times article "CME-CBOT merger gets antitrust approval". 6/1/07) states:
While the two Chicago groups dominate exchange-based trading and clearing of futures and options on futures in the US, the DoJ accepted their argument that the relevant market for competition purposes was the global derivatives sector, including the much larger over-the-counter segment of bilateral deals between banks and other participants.
The proposed CME-CBOT tie-up attracted criticism from many parts of the futures industry, notably from brokers and intermediaries who fear it would provide an enlarged CME with greater pricing power, notably in clearing services for the most commonly-traded products.
What's behind all this inconsistency? It's hard not to think that there's some political motive, as everything in the current Justice Department and administration seems to be based on politics. That's the opinion of Daniel Gross, the business writer for Slate.com writes ("Bush's War on Whole Foods", 6/7/2007)
We're in the midst of a merger mania, and the Federal Trade Commission and the Justice Department's antitrust division-the agencies tasked with assuring that mergers don't harm consumers by reducing competition-have approved almost every deal.
But when Whole Foods, the extremely successful, bobo-friendly, high-end, blue-state organic grocery chain and Wild Oats, the less successful, bobo-friendly, high-end, blue-state organic grocery chain, say they want to merge, the answer is no.
One problem with this theory is that while Whole Foods may be on the ecological cutting edge (a big wind-power user) and may be patronized by a lot of Blue State liberals and tree-huggers, its owner John Mackay is a major Republican Donor. So it's not just politics in this case. Is the DoJ doing this at the bidding of Wal-Mart? Who knows?
What is evident is a perversely contradictory policy that can ignore some big, competition-reducing deals and fixates on others. No question, antitrust policy in this government is pathetically off-base.
