What is the reasoning behind the FTC's decision to block the Albertsons and Kroger merger?
The proposed merger between Kroger and Albertsons is a very large transaction, valued at $24.6 billion. The FTC believes the merger will result in higher prices, lower quality, and harm to workers at these two companies.
Are there reasons why the general public might be especially interested in how this merger proposal and its challenge develop?
The merger comes against a backdrop in which post-pandemic grocery prices have risen rapidly and, in some cases, package sizes have shrunk โ the so-called inflationary squeeze that has drawn the ire of President Biden. This has made consumers especially sensitive to the possibility of further undue price increases in the future.
Is there anything new in this fusion challenge?
The traditional focus of antitrust authorities has been solely on ensuring that consumers are not harmed by anticompetitive mergers. In this case, the FTC is adding a new criterion that it believes is appropriate for blocking a merger: namely, that employees of the merged company may face lower wages.
If the courts accept this argument, it would potentially pit consumer interests against employee interests. For example, an easy way for Kroger and Albertsons to ensure that employees are not harmed and appease the FTC would be to ensure that the post-merger company will increase the wages of its employees. But this would raise the company's costs and put upward pressure on post-merger prices; precisely what antitrust enforcement has traditionally sought to prevent.
Is there reason to believe that the merger will increase the price of food for Americans?
This will be a key point of contention if this case goes to trial. Economic theory indicates that mergers in highly concentrated industries can lead to higher prices. This same theory suggests that mergers in less concentrated industries are usually harmless and can lead to lower prices. Empirical evidence specifically examining the grocery industry has found exactly this: Grocery mergers in local markets that have few competitors dominating the local market often lead to post-merger price increases, while mergers in deconcentrated grocery markets have experienced price decreases. For example, in large cities such as New York, Philadelphia, and San Francisco, which have abundant competitors, grocery store mergers have been found to reduce prices, while in smaller communities such as Fort Smith, Arkansas, Muskogee, Oklahoma, and Topeka, Kansas, with a concentration of fewer competitors, grocery mergers have led to higher prices.
How do you think the merger will affect the competitive landscape?
The grocery industry has seen considerable changes in recent years with the entry and massive growth of Walmart, Costco, and Amazon. The Kroger-Albertsons merger would create the potential for the combined company to reduce both its distribution costs and the prices it pays wholesalers to purchase its products. If this were to happen, the Kroger-Albertson combination, with its reduced costs, could become a more formidable competitor to these larger competitors. That said, in some local markets where Kroger and Albertsons are the dominant competitors today, there is reason to worry that if the merger is not restructured, the competitive landscape could deteriorate.
Is there a way, besides blocking the proposed merger, to restructure the deal so that consumers can benefit?
This can be possible. Kroger and Albertsons have proposed selling hundreds of their stores in local markets where the two companies are the only, or among a few, competitors to another grocery company, C&S. C&S is a large grocery wholesaler currently serving several thousand retail grocery establishments. C&S would use the sale of the Kroger and Albertsons stores to improve its retail presence. Although the FTC is skeptical about C&S's ability to compete at the retail level, the divestiture and subsequent C&S retail operations have the potential to mitigate the feared loss of competition resulting from the merger and would allow any cost reductions made by the merged company will stimulate competition. in the grocery industry.
Aside from the FTC's efforts, are there other tools the Biden administration could use to help keep grocery prices down?
The supply chain in the food industry is characterized by a hodgepodge of policies that affect the prices of a number of common foods. For example, decades-old government price support policies act to artificially raise the prices of common dairy products, including cheese, nonfat dry milk, and butter. Similarly, Depression-era statutes actually exempt agricultural and fishing cooperatives from what would otherwise be the formation of illegal cartels that act to raise the prices of agricultural and fishing products. At a time when Americans are especially concerned about high grocery prices, eliminating these government policies that raise prices can represent a โlow-hanging fruitโ to help ensure that grocery products are affordably priced.
