A few mergers have been in the news recently, including the Whole Foods/Wild Oats merger that the U.S.
Department of Justice Federal Trade Commission has decided it will challenge. In February I commented that I thought the appropriate market in which both firms compete includes options like Trader Joe’s and community agriculture. Apparently the FTC folks disagree with me, which is no great surprise, as I don’t set much stock in the use of antitrust policy to “protect competition”. Similarly, the FCC may not approve the XM/Sirius satellite radio merger.
Steve Chapman made similar points to mine recently in a commentary in the Chicago Tribune, here reprinted in the Baltimore Sun:
But consumers who want what these firms provide have more options than the Milky Way has stars.
Organic food consumers would not be the suffering captives of this new company. Every grocery store has a raft of organic offerings, and chains from Wal-Mart to Trader Joe’s are fighting to get their share of sales. If the bigger Whole Foods tries price-gouging, customers can easily find other sources for what they want – from farmers markets to online suppliers.
The key government error is defining the market as a narrow sector isolated from other sectors that provide reasonable substitutes. That same mistake explains the FCC chairman’s aversion to the satellite radio deal.
As it happens, the alternative to one satellite radio company may not be two companies but none. The existing ones have accumulated some $7 billion in losses between them. The merger may allow them to reduce costs, so they can eke out a profit and stay in business. Raising prices would not be easy, because consumers have plenty of affordable options. Music fans can listen to terrestrial radio, pop in a CD, find an Internet feed, turn on an iPod, flip to the cable TV music station or check out unknown talents on YouTube.
I think this is the big question facing antitrust policy: given the number and variety of options available to consumers, what is the remaining justification for antitrust merger policy? To what extent does competition “need protection” in such a dynamic world? And how does a central authority, with incomplete information and facing uncertainty and the knowledge problem, figure out the correct policy?
UPDATE: Got the wrong antitrust enforcement agency (thanks Di!). My bad.