Market Definition in Grocery Retailing: The Whole Foods Case

Posted by D. Daniel Sokol

Jordi Gual of the University of Navarra - IESE Business School and Sandra Jódar-Rosell University of Toulouse Economics (grad student) provide a European view on Market Definition in Grocery Retailing: The Whole Foods Case.

ABSTRACT: As in many other antitrust cases, the delineation of the relevant product market was the critical issue in the Whole Foods and Wild Oats merger. Setting the market boundaries containing the set of products in direct competition with those of the merging parties is a very difficult task in the presence of product differentiation. The varieties produced by each of the firms differ in several dimensions.

Two varieties at the opposite extremes of the differentiation dimension may end up as poor substitutes for each other. In practice, it is very difficult to draw a line in the middle of these two extremes that objectively separates the two product markets.

In an attempt to offer an objective criterion for market definition, the Horizontal Merger Guidelines issued by the U.S. Department of Justice and the Federal Trade Commission (“Guidelines”) state that the antitrust agencies must delineate the product market as a group of products such that, if produced by a hypothetical profit-maximizing monopolist, would be able to profitably impose at least a small but significant and nontransitory increase in price. This approach has been known as the SSNIP test. Although theoretically appealing, in practice a proper assessment of the SSNIP test would be equivalent to a full quantitative evaluation of the merger.