Monday, July 9, 2007
Posted by D. Daniel Sokol
● The legality of the proposed merger turns on product market definition. The Commission defines a relevant product market centered on the category of “premium natural and organic supermarkets.” In such a highly concentrated market in 28 geographic regions across the U.S., the merger would eliminate the second largest competitor or a potential competitor. The merging parties make statements that support this market definition. But they also make statements that the relevant market is centered on full-line supermarkets and mass merchandisers selling natural and organic products, in which case the effect of the merger is de minimis. Given this controversy, the appropriate scope of the relevant market will undoubtedly attract significant attention.
● 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.
● The merger’s effect on eliminating a potential competitor deserves equal attention to the elimination of an existing rival in the relevant market. Whole Foods’ John Mackey clearly acknowledges that one motive for the merger is to eliminate the single competitor which has the scale and brand identity that could serve as a “toe hold” for entry or expansion by a Whole Foods’ rival. This possible effect of the merger deserves significant scrutiny.