Thom kicked off discussion of the FTC and Whole Foods’ settlement on a critical note:
It’s pretty impressive that the Commissioners were willing to stand their ground in the face of evidence that Whole Foods wasn’t earning monopoly profits, that numerous grocery retailers are moving toward the Whole Foods format, that there are obvious economies of scale in grocery retailing (so that the combined Whole Foods/Wild Oats would have lower per unit costs), and that Whole Foods’ customers typically cross-shop at conventional grocery stores and could thus easily respond to any merger-induced increase in Whole Foods’ prices. (See here.) Why bother with real-world facts when you’ve got a handful of inflammatory emails?
So congrats on the victory, guys (and Ms. Jones Harbour). On behalf of the nation’s grocery shoppers, I’d like to thank you for protecting us from a premium natural and organic monopolist (and we just won’t worry about any economies of scale Whole Foods will sacrifice in order to comply with this consent decree).
Geoff hasn’t pulled many punches either. But what about the settlement itself?
Marc Schildkraut (Howrey) is quoted with some interesting comments on the WSJ Law Blog highlighting some interesting features of the settlement and concluding that “neither side really had a complete victory”:
For starters, he says, the structure of the deal doesn’t guarantee that a Wild Oats-type competitor to Whole Foods will emerge. The deal doesn’t require the trustee in charge of selling the earmarked stores to sell to a single buyer. “The FTC didn’t insist that the trustee sell to a chain,” he says. “That could mean that a lot of the stores go to single-store operators, which isn’t always the best way to guarantee competition.”
Secondly, while Whole Foods has to give up its intellectual property rights in Wild Oats, there’s no guarantee that the buyer of the IP rights won’t be a smaller operator than Wild Oats. So the value of the Wild Oats name could ultimately fall quite a bit.
Lastly, Schildkraut questions whether the trustee will even find buyers for the stores, especially those that are already closed. “And they won’t necessarily come cheap,” he adds. “The new buyers will in most cases have to pick up existing leases. These aren’t pennies-on-the dollar deals.”
So does Schildkraut think it was a total win for Whole Foods? Not necessarily. “I’m sure they would have preferred not to go through two years of litigation and preferred not to divest the stores and the Wild Oats name and preferred not to have the competition that the FTC will try to generate,” he says. “But it could have been a lot worse.”
Interesting. The critique brings to mind Elzinga’s classic study, The Antimerger Law: Pyrrhic Victories? 12 J. LAW & ECON. 43 (1969), concluding that pre-HSR were not effective in restoring pre-merger competition. But see the FTC’s own Divestiture Study in the late 1990’s (in which I participated one summer as a Bureau of Economics intern in 1995!) concluding that the FTC had become more effective in designing divestitures by 1990 or so. Perhaps in the spirit of the Commission’s recent interesting self-study, it will do a rigorous evaluation of post-merger competition resulting from this settlement.
