Democrats Need To Oppose Amazon/Whole Foods Merger On Strong Antitrust Grounds
Amazon announced today that it has agreed to buy Whole Foods for $13.4 billion as Jeff Bezos’ retail monopolistic predator moves into the grocery business in the biggest way. Whole Foods stock rose by around 25% at one point in the day, essentially meaning that Amazon was buying it for virtually nothing and implying that the price of this deal may have to rise.
In addition to merging Amazon’s delivery capabilities with a large grocer, the Whole Foods acquisition provides Amazon with nearly 500 brick-and-mortar outlets for its other retail products. The announcement of this deal also drove the stock of other competing grocery chains and retail outlets down by anywhere from 5%-10%.
This is almost a perfect merger for Democrats to vociferously oppose on antitrust grounds and use it as a teaching moment to explain the inadequacies of our current antitrust law and lay the groundwork for reforming those laws in the future. I am under no illusion that the Trump administration will do anything to stop this merger. But fighting this admittedly losing battle is important if we are to win the war in the future.
One reason that makes this the perfect case to oppose is that Whole Foods is known for its pricey merchandise and the idea that this merger will somehow bring down those prices significantly seems not only hard to prove but largely irrelevant to most Americans other than the urbanites and suburbanites in relatively wealthy areas.
In addition, Lina Kahn in the Yale Law Journal has laid out the reasons that Amazon’s rise is a perfect example of how current antitrust law is totally inadequate for today’s economic environment, even before this takeover of Whole Foods. Current antitrust law focuses on whether the resulting merger will result in lower prices to consumers and virtually ignores market concentration and monopoly power. In addition, studies have shown that subsequent prices end up even higher over the longer term than they would have had the merger not taken place.
According to Kahn, “Specifically, current doctrine underappreciates the risk of predatory pricing and how integration across distinct business lines may prove anticompetitive. These concerns are heightened in the context of online platforms for two reasons. First, the economics of platform markets create incentives for a company to pursue growth over profits, a strategy that investors have rewarded. Under these conditions, predatory pricing becomes highly rational—even as existing doctrine treats it as irrational and therefore implausible. Second, because online platforms serve as critical intermediaries, integrating across business lines positions these platforms to control the essential infrastructure on which their rivals depend. This dual role also enables a platform to exploit information collected on companies using its services to undermine them as competitors.”
Amazon has spent well over a decade focusing on growth over profits and driving retail competitors out of business in multiple industries, starting with retail bookstores. It has been able to do so because the supposed “free-market” and the company’s shareholders have not demanded profits and prefer to see the company gain its monopoly positions with the intention of bigger profits down the road. In addition, the build-out of its online infrastructure creates even greater advantages for Amazon and enhances its abilities to undercut its rivals.
Kahn lays out a couple of changes in antitrust law to deal with the problems that Amazon and other platform-based monopolies such as Google, Facebook or even Uber create. Where companies are engaged in a pattern of below-cost pricing due to virtually unlimited investor funding, the assumption should be that they are engaging in predatory pricing, what the author describes as “the presumption of predation”. Kahn continues, “Several reasons militate in favor of a presumption of predation in such cases. First, firms may raise prices years after the original predation, or raise prices on unrelated goods, in ways difficult to prove at trial. Second, firms may raise prices through personalized pricing or price discrimination, in ways not easily detectable. Third, predation can lead to a host of market harms even if the firm does not raise consumer prices. Within a consumer welfare framework, these harms include degradation of product quality and sapping diversity of choice.”
Along with the presumption of predation, Kahn also recommends restricting the power of vertically integrated platforms such as Amazon by looking at the data that may be exchanged in a potential merger. Kahn says, “Thus, it could make sense for the agencies to automatically review any deal that involves exchange of certain forms (or a certain quantity) of data. Data that gave a player deep and direct insight into a competitor’s business operations, for example, might trigger [antitrust] review.”
Another option would be to simply regulate these platforms in same way we deal with deal with utilities, essentially recognizing their monopoly position and regulating them accordingly. Kahn calls these “prophylactic limits”, saying, “This would recognize that a platform’s involvement across multiple related lines of business can give rise to conflicts of interest by creating circumstances in which a platform has an incentive to privilege its own business and disadvantage other companies. Seeking to prevent the industry structures that create these conflicts of interest may prove more effective than policing these conflicts. Adopting this prophylactic approach would mean banning a dominant firm from entering any market that it already serves as a platform—in other words, from competing directly with the businesses that depend on it.”
Both Elizabeth Warren and Bernie Sanders have been railing against the lack of antitrust enforcement for years and how the resulting enormous market concentration has worked to the detriment of consumers and workers. Warren has pointed out that most major industries in the US are now dominated by oligopolies, including airlines, health care, drug stores, beef and pork, tech, internet and cable, and banking industries.
These oligopolies create enormous barriers to entry for any potential competitors in those markets, enable price fixing, and actually restrict real competition. Breaking these oligopolies up will not only create real competition, hopefully resulting in more choices, better service, and perhaps even reduced prices. Breaking them up will create an enormous number of new jobs and some true competition for workers, hopefully resulting in rising wages.
Hillary Clinton tepidly endorsed increased antitrust enforcement in her campaign last fall. For Democratic candidates running in 2018 and 2020, it should become a major talking point and a campaign position that needs to be harped on. Taking on the airlines, banks, and cable companies may be costly for your campaign’s finances but it will certainly be popular with virtually all voters. And opposing this Amazon/Whole Foods merger is a perfect starting point for Democrats to position themselves for those upcoming campaigns by taking a strong antitrust stance.