Former FTC Chief economist on Whole Foods merger

In earlier posts (Economics of the Whole Foods Merger Case), we have talked about the evidence that influenced the FTC to bring the case, including the high estimated diversion ratio between the two stores (when Wild Oats goes out of business, 50% of its customers go to Whole Foods).

Now, Michael Salinger, former chief economist of the FTC, comments publicly on the evidence in a reply to a Wall St. Journal editorial criticizing the case.

First, the value of antitrust enforcement is that it substitutes for more onerous sectoral regulation. In the same article, he criticized the FCC's interest in open access to the Internet. Under Chairman Deborah Majoras's leadership, the FTC has urged caution in approaches to regulating the internet. Both in principle and as a matter of political reality, the argument for light-handed sectoral regulation is more persuasive if vigilant antitrust enforcement keeps markets competitive.

Second, in merger review, parties settle the easy cases, so the cases that go to court are necessarily the close calls. One can debate whether the agencies are currently drawing the line in exactly the right place, but these debates should not obscure the more general value of merger review. Allowing merger to monopoly would be a mistake, and simply banning merger to monopoly is probably not the right place to draw the line.

Third, the challenge to the Whole Foods/Wild Oats merger was the result of heightened requirements that merger challenges be based on facts and economic analysis. Mr. Jenkins ridicules the Staples/Home Depot challenge, but the facts were that prices were lower in cities where those companies competed directly against each other than in cities where they did not. Similarly, the FTC challenge to the Whole Foods/Wild Oats merger was based on more than Whole Foods CEO John Mackey's ill-considered statements.

Fourth, the FTC can approve mergers but cannot block them without court review. Because of this asymmetry, there are good reasons for the agency to make its best case when it has economic evidence to indicate that a merger might harm competition. Inevitably, there will be cases like the Whole Foods/Wild Oats merger when it does not convince a court that the evidence is sufficient. That is how the system is supposed to work.