The press is abuzz with news about the Federal Trade Commission’s (FTC) Feb. 26 announcement that it would challenge the proposed Kroger/Albertsons mega-supermarket merger, which had been in the works since the fall of 2022. If the FTC succeeds in obtaining a temporary restraining order and preliminary injunction in Oregon federal district court (a big if), it plans to review the transaction in an administrative hearing beginning in late July.
The FTC’s administrative process could drag on for an extended period of time, assuming an administrative judge’s decision, an appeal to the FTC, and a possible appeal of the FTC’s determination to a federal court of appeals. The threat of this prolonged review period could cause the parties to drop the deal or, in the alternative, impose substantial delay-related costs on the companies (and also consumers).
The FTC alleges likely harm to consumers in a “supermarket market” that excludes club stores (such as BJ’s and Costco), specialty grocery stores (Trader Joe’s and Aldi), and online retailers (Amazon and others). The merging parties argue, to the contrary, that the transaction will enhance their offerings and make them more effective competitors against other mega-retailers.
Based on a nontraditional FTC Act Section 5 theory, the commission also claims harm to unionized Kroger and Albertsons workers in the form of reduced bargaining power. The FTC neglects to mention that this posited bargaining power shift could benefit consumers in the form of lower prices. Moreover, the exercise of additional bargaining power, which often is output-enhancing, is generally far different from the exercise of additional market power, which reduces output.
A reviewing court would likely find the FTC’s labor story hard to square with the sort of monopsony-power theory that is cognizable under federal antitrust law (see here). (Relatedly, for a brief critique of claims that there is substantial monopsony power in U.S. labor markets, see here.) Moreover, the notion that there should be a separate market of unionized labor suppliers in this field is peculiar to say the least. As Geoff Manne stated in a Feb. 28 tweet:
I believe most grocery workers come from/move to non-grocery jobs, to say nothing of non-union jobs. (Union jobs are only something like 4% of wholesale/retail jobs nationwide). The notion that non-union jobs don’t compete for labor with union jobs is virtually impossible.
— Geoffrey Manne (@geoffmanne) February 28, 2024
In short, mark me unconvinced by this latest FTC foray into mergerland. The labor-market theory appears to be a nonstarter. The non-labor supermarket consumer-harm theory conceivably might be plausible, but we need hard facts, and I am very skeptical. (In particular, note that a California federal court judge “twice agreed to dismiss . . . [a private] [consumers] lawsuit [challenging the merger], ruling in December [2023] that the consumers did not show how they would be harmed by the merger.”)
I am not skeptical, however, about the reality that FTC administrative litigation and its attendant delays, if they occur as proposed, will impose major costs, including likely harm to business efficiency and, quite possibly, to consumer welfare. Kroger’s response to the FTC’s announcement it would challenge the Kroger/Albertsons merger is credible:
Contrary to the FTC’s statements, blocking Kroger’s merger with Albertsons Companies will actually harm the very people the FTC purports to serve America’s consumers and workers.
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