Antitrust enforcement has increasingly moved its focus away from the consumer and divorced itself from economic analysis. New leadership represents an opportunity to change course.
The change in priorities regarding antitrust under the Biden administration was on full display after the Kroger-Albertsons merger was blocked by courts. Even a cursory examination of the complaint — specifically the changes in relevant markets — shows the Federal Trade Commission was unconcerned with the realities of competition and increasingly preoccupied with non-consumer effects.
Kroger has been the repeat recipient of antitrust complaints. In 2000, the FTC filed a complaint against its proposed acquisition of the grocery chain Winn-Dixie, followed by a complaint filed in 2002 against its proposed acquisition of select Raley’s supermarkets. Apart from a defendant, these complaints have in common the cases defined the relevant market as “retail sale of food and grocery items in supermarkets.”
In the most recent complaint against Kroger, the agency broke from tradition and a consumer focus by including three relevant markets.
One of the markets in the current complaint is defined as “the retail sale of food and other grocery products in traditional supermarkets and supercenters,” which largely mirrors the previous definitions except for the clarification of traditional and the added categorization of supercenters.
At first glance, such language expands the market scope. However, additional stipulations clarify that the market has narrowed, not expanded. In the context of the complaint, supermarkets exclude membership stores like Costco, stores with limited assortments like Aldi, premium stores like Whole Foods, dollar stores or similar stores with discount offerings, and online retailers like Amazon.
This market definition ignores how consumers shop in the real world and, therefore, the real and tangible competition faced by Kroger and Albertsons. The reality is that Kroger is trying to compete in a computer-centric 21st century.
Kroger faces a declining share of the grocery store market. According to Kroger, the acquisition was driven by the need to better compete against retailers like Amazon, as online grocers are becoming an increasingly important component of the grocery market. Those competitors were arbitrarily defined outside of the market — a mistake permeating the nationwide legal system.
In December, a Washington judge used this narrow definition of supermarkets in his ruling on the case, stating the merger was unlawful and could not go forward. Another federal judge in Oregon acknowledged the consumer benefits of increased efficiency but ruled to block the merger, citing less competition among traditional supermarkets. In the end, antitrust enforcers narrowed the market definition until they got a win.
Adequately portraying market competition should be a goal of antitrust enforcement. If the Kroger ruling is any indication, relevant markets are increasingly being used to make enforcement easier, not to make enforcement better.
Beyond narrowing the retail market, the agency added two additional markets that are strictly focused on labor and reflect concerns that enforcement is no longer focused on the consumer.
The agency embraced a non-consumer focus in 2021, with the agency revoking the 2015 Statement of Enforcement Principles Regarding “Unfair Methods of Competition,” and replacing it with an updated version in 2022. The notable difference between the two is that the 2015 statement explicitly stated enforcement will be guided by “the promotion of consumer welfare,” and the 2022 version omits this principle.
However, the 2022 statement does have something that 2015 does not, and that is a focus on workers. This expanded focus is demonstrated clearly by adding the relevant market of union grocer labor and local collective bargaining agreement areas to the latest complaint against Kroger.
Unfortunately, the agency’s approach to labor markets ignored Kroger’s commitments to honor all existing collective bargaining agreements as part of the blocked merger agreement, and changing marketplace conditions.
Restricting the possible labor pool to union workers first ignores non-union workers and secondly ignores how changing market dynamics allow for worker mobility. As more grocery retail takes place online, grocery and meal kits delivery has reported labor shortages. After the pandemic, even traditional grocery stores reported challenges in attracting and retaining talent. Labor shortages incentivize companies to provide a more attractive workplace, but the FTC did not acknowledge this reality.
Relevant markets in the Kroger case exemplify concerns with current antitrust enforcement. Not only do they show a disproportionate concern with labor effect, but they ignore the competitive realities in labor and the grocery market more generally. Under new leadership, the FTC should return its focus to protecting market competition, which means rightly defining competition in the market to reflect the true competitive landscape.