{"id":9848,"date":"2017-08-27T04:27:35","date_gmt":"2017-08-27T04:27:35","guid":{"rendered":"http:\/\/www.lifeandnews.com\/articles\/?p=9848"},"modified":"2017-08-28T04:29:25","modified_gmt":"2017-08-28T04:29:25","slug":"amazons-whole-foods-deal-could-still-be-reversed-thanks-to-forgotten-antitrust-case","status":"publish","type":"post","link":"https:\/\/www.lifeandnews.com\/articles\/amazons-whole-foods-deal-could-still-be-reversed-thanks-to-forgotten-antitrust-case\/","title":{"rendered":"Amazon’s Whole Foods deal could still be reversed thanks to forgotten antitrust case"},"content":{"rendered":"

Ramsi Woodcock<\/a>, Georgia State University<\/a><\/em><\/span><\/p>\n

Amazon formally takes ownership of Whole Foods after the Federal Trade Commission signaled<\/a> on August 23 that it wouldn\u2019t stop the deal<\/a>. <\/p>\n

The online retailer isn\u2019t wasting any time remaking the high-end grocery chain in its low-price image. Its first act involved cutting prices<\/a> on dozens of items, from avocados to tilapia. But that is not what is sending shivers<\/a> down the aisles of rival food retailers like Walmart, which now controls 20 percent of the grocery market<\/a> by pursuing just such a low-price strategy<\/a>.<\/p>\n

The reason, which the FTC ignored in providing its imprimatur, is that Amazon gives Whole Foods access to an online marketing platform<\/a> that no other grocery company, even a behemoth like Walmart, can hope to reproduce. <\/p>\n

My research suggests that only a few decades ago the FTC would have used antitrust law to block the deal \u2013 and it still has the power to do so. <\/p>\n

\n \"\"
\n Amazon will give Whole Foods a marketing platform for its products that few rival grocery stores can compete with.<\/span>
\n AP Photo\/Gene J. Puskar<\/span><\/span>
\n <\/figcaption><\/figure>\n

Predatory promotion<\/h2>\n

Everyone knows that Amazon is the biggest online retailer. The company handles 43 percent of all internet purchases<\/a> in the U.S., attracting so much business that its website is actually the country\u2019s fifth-most trafficked<\/a>. <\/p>\n

But not everyone realizes that Amazon is also the king of online product search. By offering a huge range of products \u2013 almost 400 million<\/a> \u2013 Amazon entices more than half of online shoppers to bypass the usual search gatekeepers<\/a> and start their product hunt directly on its website.<\/p>\n

Whole Foods will now have exclusive access among grocery retailers to this enormously valuable search engine. And it will be near impossible to compete with a company whose products and grocery delivery services can be ordered directly through a website<\/a> that America already uses for nearly half of its online shopping. <\/p>\n

That is bad for consumers because it means that Whole Foods may come to dominate the grocery world not by offering better products for the best prices, as you\u2019d find in a well-functioning market, but because of the promotional advantage that comes from its tie-up with Amazon.<\/p>\n

Congress passed the Clayton Act<\/a> in 1914 to handle just this situation. The act tasks<\/a> antitrust regulators with blocking acquisitions for which \u201cthe effect \u2026 may be substantially to lessen competition.\u201d You might therefore have expected the FTC, which reviews mergers in the grocery industry, to take a special interest in this deal. <\/p>\n

You\u2019d be wrong, of course, because since the early 1980s antitrust regulators at the FTC and Justice Department have taken a narrow approach to merger enforcement, generally treating only large deals between direct competitors<\/a> as a potential threat to competition. <\/p>\n

That explains why the FTC approved the Whole Foods deal with lightning speed<\/a>. Since Amazon had almost no presence<\/a> in the grocery industry when it inked the agreement, it didn\u2019t qualify as a direct competitor.<\/p>\n

In the 1960s and \u201870\u2019s, however, things were different, as I show in a recent paper<\/a>. During that time, the FTC fought a remarkable campaign to prevent companies from using promotional advantages to colonize new markets. Among the FTC\u2019s victories in its battle against such \u201cpredatory promotion<\/a>\u201d were its reversals of household products giant Procter & Gamble\u2019s acquisition of Clorox bleach<\/a> and General Foods\u2019 purchase of S.O.S.<\/a>, the scrub pad maker.<\/p>\n

Like Amazon, both P&G and General Foods acquired companies in markets in which they were not yet direct competitors. Like Amazon, both could leverage their vast product lines to offer their new acquisitions a massive promotional advantage. The difference is that back then P&G and General Foods had a sizable advantage in television advertising, rather than online search traffic, because their extensive product portfolios allowed the companies to negotiate bulk discounts from the major networks<\/a>.<\/p>\n

The legal precedents created by those cases give the FTC a basis for unwinding the Amazon Whole Foods deal but have been ignored for decades by federal antitrust enforcers.<\/p>\n

\n \"\"
\n The FTC convinced the Supreme Court that Procter & Gamble\u2019s purchase of Clorox in the 1950s violated antitrust law.<\/span>
\n AP Photo\/Mary Altaffer<\/span><\/span>
\n <\/figcaption><\/figure>\n

Lessons from the case against P&G<\/h2>\n

The FTC\u2019s case against P&G<\/a> is particularly relevant today. Filed in 1957 shortly after the Clorox purchase closed, it established for the first time that, as the Supreme Court put it, an acquisition that creates \u201chuge assets and advertising advantages<\/a>\u201d can violate antitrust law. <\/p>\n

P&G\u2019s product line was so large<\/a>, extending from Ivory soap to Duncan Hines cake mix, that it was already the nation\u2019s largest national TV advertiser. This allowed P&G to negotiate bulk discounts on advertising time that it could pass on to Clorox. <\/p>\n

The FTC feared that those discounts would give Clorox privileged access to the dominant marketing platform of the era. When Americans tuned in to the Big Three television networks<\/a>, they would see Clorox, and only Clorox, for sale, much as when Americans use Amazon to search for groceries online, they will see only Whole Foods groceries available for delivery.<\/p>\n

The FTC filed suit to unwind the deal, arguing that P&G would drive competitors from the market, not because those competitors offered an inferior product \u2013 all bleach is chemically identical \u2013 but because P&G had a promotional advantage. Similarly, Whole Foods will be able to use Amazon\u2019s website to swallow up market share, even though its rivals also offer similar services and products, such as organic produce<\/a> and online ordering<\/a>. <\/p>\n

After an initial setback<\/a>, the FTC won its case<\/a> in the Supreme Court in 1967, establishing a precedent for the first time that mergers that create massive promotional advantages can violate the law, even when there is no direct competition between the target and acquiring companies. <\/p>\n

\n \"\"
\n After his election victory in 1980, President Reagan remade the FTC, ending its campaign against predatory promotion.<\/span>
\n AP Photo\/Rusty Kennedy<\/span><\/span>
\n <\/figcaption><\/figure>\n

Reversing course<\/h2>\n

President Ronald Reagan cut short<\/a> this campaign against predatory promotion in the early 1980s by appointing new officials to the FTC<\/a> who argued that promotion is good for consumers, regardless of whether it confers an advantage on a particular competitor, because it provides consumers with useful product information<\/a>. The idea has proven immune to subsequent changes in administration.<\/p>\n

In my paper<\/a> I counter that this argument rings hollow in the information age, because consumers can now get all the product information they need from myriad sources online. Making Whole Foods\u2019 groceries searchable on Amazon\u2019s website doesn\u2019t increase the internet\u2019s cache of product information \u2013 consumers can already get that on the grocer\u2019s website<\/a> \u2013 but it will steer consumers squarely toward Whole Foods\u2019 products.<\/p>\n

The FTC can still reverse course and block the deal after it closes<\/a>, as it did in the forgotten P&G case. <\/p>\n

\"TheIf it doesn\u2019t, then your only option for buying anything could one day be Amazon. And if that happens, textbook economics teaches<\/a> that those avocados won\u2019t stay cheap for long.<\/p>\n

Ramsi Woodcock<\/a>, Professor of Legal Studies, Georgia State University<\/a><\/em><\/span><\/p>\n

This article was originally published on The Conversation<\/a>. Read the original article<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Ramsi Woodcock, Georgia State University Amazon formally takes ownership of Whole Foods after the Federal Trade Commission signaled on August 23 that it wouldn\u2019t stop the deal. The online retailer isn\u2019t wasting any time remaking the high-end grocery chain in its low-price image. Its first act involved cutting prices on dozens of items, from avocados […]<\/p>\n","protected":false},"author":44,"featured_media":9849,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[5,277],"tags":[650,900,901,582,3017,3016,3019,3018],"_links":{"self":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/9848"}],"collection":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/users\/44"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/comments?post=9848"}],"version-history":[{"count":1,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/9848\/revisions"}],"predecessor-version":[{"id":9850,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/9848\/revisions\/9850"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media\/9849"}],"wp:attachment":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media?parent=9848"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/categories?post=9848"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/tags?post=9848"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}