Sean Heather
Senior Vice President, International Regulatory Affairs & Antitrust, U.S. Chamber of Commerce
Published
March 25, 2024
On February 26, the Federal Trade Commission (FTC) filed a complaint to prevent the proposed merger between two large grocery chains, The Kroger Company and Albertsons Companies, Inc. (i.e., Kroger and Albertsons). However, in challenging Kroger’s acquisition of Albertsons, the FTC is relying on unsound legal theories that would jeopardize American free enterprise and, therefore, should remain on the shelf.
As expected, the FTC’s merger challenge relies on an extremely narrow market definition and artificial structural presumptions. However, this latest complaint introduces a new, troubling ingredient: the notion that a merger violates antitrust law because it could reduce the collective bargaining power of organized labor. If accepted by the courts, this theory would give American consumers a serious case of indigestion.
Defining the (Super)market
The FTC’s complaint defines the relevant market very narrowly, a gambit that has become common across its merger challenges. In the FTC’s view, Kroger and Albertsons are two “supermarkets,” and as "supermarkets," they compete in a different market than the large warehouse club stores, discount limited assortment stores, premium natural and organic stores, dollar stores, and e-commerce retailers.
For anyone who has ever pushed a shopping cart, this synthetic market definition borders on fanciful. Customers buy groceries from “supermarkets” and all other outlets based on price, quality, convenience, and other factors, irrespective of the outlet’s label as a supermarket or anything else.
Analyzing Artificial Additives: Antitrust Presumptions
Similarly, and in perhaps the first large case to rely on new merger guidelines issued in 2023, the FTC’s complaint embraces artificial presumptions against mergers. The revised merger guidelines assert that a merger is presumptively unlawful if it significantly increases market concentration. To be sure, this horizontal merger merits antitrust scrutiny; Kroger and Albertsons directly compete against each other in many parts of the country, which is why the stores have announced plans to divest a number of outlets.
The presumption, however, is grounded in neither law nor economics. The Supreme Court has made clear that antitrust presumptions “are generally disfavored” when they “rest on formalistic distinctions rather than actual market realities.” Therefore, rather than relying on synthetic presumptions against mergers, the agency should comprehensively examine the merger’s likely effect on competition and consumers, including the argument that the merger would benefit consumers by allowing the combined supermarket to compete more effectively with other outlets.
Miscalculated Monopsony Allegations
Perhaps most significantly, the complaint argues that the merger violates antitrust law because it might reduce the ability of organized labor to negotiate for more favorable contracts, including higher wages. This argument, which again relies on the new merger guidelines, is as misplaced as a pork chop in the vegetable aisle. In no way would the merger reduce competition for labor any more than a merger reduces the relative number of prospective employers. Kroger and Albertsons compete with thousands of other retailers, warehouses, and other companies for workers.
In other words, there is no “supermarket monopsony” for labor; the FTC’s notion that “union grocery labor is a relevant market” is simply a sop to one of the administration’s favored special interests, which, incidentally, is not itself subject to the antitrust laws.
Moreover, the FTC’s complaint contradicts itself by alleging that the merger would increase prices for consumers while also decreasing the price of labor. Perhaps the FTC should consult its own economists: labor costs are an input into the cost of food, and if the merger reduces labor costs, the combined company could offer lower prices to consumers. Regardless of the merger’s ultimate effect on labor costs, it is contradictory and dishonest for the FTC to complain that the merger would raise prices while supporting higher labor costs.
Finally, and most fundamentally, merger review is a poor tool for addressing workforce issues. Modern labor law sprang from the idea that antitrust was ill-suited to policing labor markets. Entire bodies of law and numerous state and federal institutions, including the National Labor Relations Act and minimum wage laws, address workforce concerns with greater authority and more surgical tools than antitrust laws. Indeed, the connection between corporate consolidation and labor-market power is, at best, disputed.
In The State of Labor Market Power, the Treasury Department noted that some research suggests that consolidation may contribute to labor market power. Still, other research shows that power more often stems from “inherent” conditions, such as job-search frictions and informational imbalances that can exist even in highly competitive markets. One cannot address these conditions through merger reviews.
Unfortunately, this merger challenge will only advance FTC Chair Lina Khan’s anti-competition agenda—a venture that comes at the detriment of consumers, capital flows, and healthy competition.
About the authors
Sean Heather
Sean Heather is Senior Vice President for International Regulatory Affairs and Antitrust.
