A federal judge has denied the FTC’s request for an injunction to block the proposed merger between Whole Foods and Wild Oats. I was just telling co-c……

Lord Melchett points out for example that the artificial fertiliser used in conventional farming is made using natural gas, which is “completely unsustainable”….

After years of decline brought on by fighting Wal-Mart Stores Inc. on price, the nation’s grocery chains are on the mend.

The supermarkets are winning back shoppers by sharpening their differences with Wal-Mart’s price-obsessed supercenters, stressing less-hectic stores with exotic or difficult-to-match products and greater convenience. …

Earlier this decade, the hidebound supermarket business was expected to fall before Wal-Mart’s aggressive supercenter rollout and the rise of membership clubs like Costco Wholesale Corp. and high-end specialty chains like Whole Foods Market Inc. Many chains did collapse — 26 filed for bankruptcy earlier this decade, unable to match the falling prices of their better-run rivals — and a wave of consolidation swept the business. But the survivors rallied by redesigning stores, introducing a more relaxed shopping experience and marrying low-priced staples with higher-margin breads, meats and wine. Now, the stronger chains like Kroger Co. and SuperValu Inc. are taking market share from weaker, often regional, grocers. …

Many of the chains are still learning to sidestep Wal-Mart. They are cutting back on drugs and health and beauty products, which are Wal-Mart strengths, to stress fresh produce, higher-quality meat and easy-to-prepare foods. Subdued lighting and high-end selections buttress the nonsupercenter experience. Instead of the rows of aisles with commonplace brands, the supermarkets are adding tables providing ingredients for planned meals, luring the kind of customer who shops for dinner instead of stocking up on groceries once a week, says Paul Weitzel, managing partner at grocery consultants Willard Bishop LLC. Mr. Frondorf says he was pleasantly surprised recently to find Kroger carried the walnut oil he needed for a gourmet recipe.

Safeway Inc. has converted about half of its 1,755 stores into “Lifestyle” markets with wood floors, on-site bakeries and high-end private-label brands. The third largest food retailer after Wal-Mart and Kroger, it expects to convert all its stores by 2009.

Safeway has also invested in precise temperature controls for its produce and other perishable foods as they move from suppliers to stores. And it strives to find food its competitors don’t offer, says Steven A. Burd, Safeway’s chairman. For instance, it worked with growers to get individual-sized watermelons two years before others. It also works with a single meat supplier to offer its own brand of tenderness-tested beef. The business picked up, says Mr. Burd, when “we started behaving more like a consumer packaged-goods company.”

Supermarkets “have come to the understanding they can’t put cookie-cutter stores out there anymore,” says Sandra J. Skrovan, a senior vice president at TNS Retail Forward.

This article suggests two important things that are relevant to the FTC’s decision. First, the idea that other grocery stores don’t provide the Whole Foods/Wild Oats experience (assuming “the experience” is indeed a relevant consideration) is just silly. The trend for many national chains is in the WF/WO direction, as they realize they can’t beat Wal-Mart on price. Second, there are huge economies of scale in the grocery business. The chains that have failed have been regional chains that have had a more difficult time taking advantage of economies of scale.

In opposing this merger, the FTC is likely squandering real productive efficiencies in order to avoid allocative inefficiencies that are almost certain not to materialize. Long live Vons Grocery. Sigh.

I backtracked not at all from my original position. What I did was to try to address your questions on their face. You asked about relevant market analysis and I answered. My willingness to answer does not mean I endorse the relevant market analysis; only that I recognize that it is what we have and that I am able to converse about it even though I have problems with it. Let me add quickly–I don’t have a very good replacement for it; it may even be the best we have. I happen to think our best isn’t good enough. In the immortal words of Ronald Coase (paraphrasing), “sometimes ‘do nothing’ is the right answer.”

Bottom line on Whole Foods: If Whole Foods is able magically to raise the price post-merger and earn supra-competitive profits on naturally-filtered flaxseed oil, one cannot assume the competitive response of the rest of the retail world (meaning those in the “market” and folks outside the market now who could come in) will be to sit on their hands. Rivals will reposition their own images and brands to get a piece of the monopoly action. Our unilateral effects models do a horrible job accounting for repositioning. Plus, there is not a great deal of evidence that these models actually predict competitive effects well. I believe that the tools we have to assess the economic consequences of mergers ex ante are weak, and, on the basis of sound intuition and some armchair economics (I confess, I haven’t done the econometrics; I believe I don’t have to, most especially because this is a blog, not a refereed journal), I think it’s a mistake to bring just about any any retail merger challenge, and most especially this one. But, hey, if I’m wrong, I’ll eat my hat. With a nice fair-trade quinoa and hydroponically-grown nettle salad.