Whole Foods Fiasco
The FTC's antitrust double jeopardy.
WSJ.COM
It isn't every day that a company under antitrust scrutiny turns a gimlet eye back on its tormenter. Yet that's what's happening in Washington, where the Federal Trade Commission and lawyers for Whole Foods are at it again over the organic grocer's acquisition of Wild Oats.
It's been 18 months since the FTC first sued to block the two chains from merging, and 16 months since it lost in court. The agency continues to harass Whole Foods, however, and the grocer has now launched its own counteroffensive against the regulator it says is too biased to know when to cease and desist. "Instead of concentrating on our business," says Whole Foods Chairman John Mackey, "we are forced to focus on dealing with regulators in Washington at a time when business is declining."
The FTC continues to claim that Whole Foods is Goliath the grocery marketplace. Rather than considering Whole Foods a chain that competes with other food sellers and makes up only a tiny fraction of the market, the Commission has defined the circle of competition as other "premium natural and organic supermarkets." By this logic, any niche retailer can be conjured into a monopolist if the niche is defined narrowly enough. The market for natural and organic produce has exploded, with every discount outlet from Wal-Mart to Wegmans now offering organic products. Chicago's Jewel Osco launched its own Wild Harvest brand this year with 200 products.
In any case, the merger between the two chains is already a fact. Many Wild Oats locations have been rebranded, while headquarters and operations have been combined. The question now is what "remedies" the FTC can impose to disentangle the merger. A ruling against Whole Foods could force it to sell certain locations into a distressed market. But the problem, says Mr. Mackey, is not merely this outcome but the fact that the FTC process is a "rigged game."
By "rigged," he means the antitrust double jeopardy faced by companies falling under the FTC's jurisdiction, as opposed to those regulated by the Justice Department's Antitrust Division. The acquisition closed a year ago, when a federal judge allowed the combo to proceed. Undeterred, the FTC appealed to the D.C. Circuit Court of Appeals while beginning a parallel proceeding through its own internal administrative process.
That wouldn't happen to acquisitions scrutinized by Justice. If Justice files suit to oppose a merger and loses, its lawyers typically roll up their notebooks and go home. The two agencies divide the world between them, with FTC handling retailing and Justice overseeing telecom and banks. The effect is two systems of merger enforcement, a division that can generate inconsistency and unpredictability in the marketplace. In industries where enforcement is shared, such as hospitals, the fate of a merger can depend on which agency handles it.
The Whole Foods fiasco is an embarrassment for the Bush Administration's antitrust policy. This month, eight Senators on the Judiciary Committee sounded a note of caution about the FTC's actions, and no less than Democratic antitrust scourge John Conyers has said he would like to hold hearings on abolishing the FTC's administrative proceedings. When antitrust enforcement becomes a law unto itself, it's time for some organic changes for regulators.
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