A federal judge has denied the FTC’s request for an injunction to block the proposed merger between Whole Foods and Wild Oats. I was just telling co-c……

Lord Melchett points out for example that the artificial fertiliser used in conventional farming is made using natural gas, which is “completely unsustainable”….

After years of decline brought on by fighting Wal-Mart Stores Inc. on price, the nation’s grocery chains are on the mend.

The supermarkets are winning back shoppers by sharpening their differences with Wal-Mart’s price-obsessed supercenters, stressing less-hectic stores with exotic or difficult-to-match products and greater convenience. …

Earlier this decade, the hidebound supermarket business was expected to fall before Wal-Mart’s aggressive supercenter rollout and the rise of membership clubs like Costco Wholesale Corp. and high-end specialty chains like Whole Foods Market Inc. Many chains did collapse — 26 filed for bankruptcy earlier this decade, unable to match the falling prices of their better-run rivals — and a wave of consolidation swept the business. But the survivors rallied by redesigning stores, introducing a more relaxed shopping experience and marrying low-priced staples with higher-margin breads, meats and wine. Now, the stronger chains like Kroger Co. and SuperValu Inc. are taking market share from weaker, often regional, grocers. …

Many of the chains are still learning to sidestep Wal-Mart. They are cutting back on drugs and health and beauty products, which are Wal-Mart strengths, to stress fresh produce, higher-quality meat and easy-to-prepare foods. Subdued lighting and high-end selections buttress the nonsupercenter experience. Instead of the rows of aisles with commonplace brands, the supermarkets are adding tables providing ingredients for planned meals, luring the kind of customer who shops for dinner instead of stocking up on groceries once a week, says Paul Weitzel, managing partner at grocery consultants Willard Bishop LLC. Mr. Frondorf says he was pleasantly surprised recently to find Kroger carried the walnut oil he needed for a gourmet recipe.

Safeway Inc. has converted about half of its 1,755 stores into “Lifestyle” markets with wood floors, on-site bakeries and high-end private-label brands. The third largest food retailer after Wal-Mart and Kroger, it expects to convert all its stores by 2009.

Safeway has also invested in precise temperature controls for its produce and other perishable foods as they move from suppliers to stores. And it strives to find food its competitors don’t offer, says Steven A. Burd, Safeway’s chairman. For instance, it worked with growers to get individual-sized watermelons two years before others. It also works with a single meat supplier to offer its own brand of tenderness-tested beef. The business picked up, says Mr. Burd, when “we started behaving more like a consumer packaged-goods company.”

Supermarkets “have come to the understanding they can’t put cookie-cutter stores out there anymore,” says Sandra J. Skrovan, a senior vice president at TNS Retail Forward.

This article suggests two important things that are relevant to the FTC’s decision. First, the idea that other grocery stores don’t provide the Whole Foods/Wild Oats experience (assuming “the experience” is indeed a relevant consideration) is just silly. The trend for many national chains is in the WF/WO direction, as they realize they can’t beat Wal-Mart on price. Second, there are huge economies of scale in the grocery business. The chains that have failed have been regional chains that have had a more difficult time taking advantage of economies of scale.

In opposing this merger, the FTC is likely squandering real productive efficiencies in order to avoid allocative inefficiencies that are almost certain not to materialize. Long live Vons Grocery. Sigh.

I backtracked not at all from my original position. What I did was to try to address your questions on their face. You asked about relevant market analysis and I answered. My willingness to answer does not mean I endorse the relevant market analysis; only that I recognize that it is what we have and that I am able to converse about it even though I have problems with it. Let me add quickly–I don’t have a very good replacement for it; it may even be the best we have. I happen to think our best isn’t good enough. In the immortal words of Ronald Coase (paraphrasing), “sometimes ‘do nothing’ is the right answer.”

Bottom line on Whole Foods: If Whole Foods is able magically to raise the price post-merger and earn supra-competitive profits on naturally-filtered flaxseed oil, one cannot assume the competitive response of the rest of the retail world (meaning those in the “market” and folks outside the market now who could come in) will be to sit on their hands. Rivals will reposition their own images and brands to get a piece of the monopoly action. Our unilateral effects models do a horrible job accounting for repositioning. Plus, there is not a great deal of evidence that these models actually predict competitive effects well. I believe that the tools we have to assess the economic consequences of mergers ex ante are weak, and, on the basis of sound intuition and some armchair economics (I confess, I haven’t done the econometrics; I believe I don’t have to, most especially because this is a blog, not a refereed journal), I think it’s a mistake to bring just about any any retail merger challenge, and most especially this one. But, hey, if I’m wrong, I’ll eat my hat. With a nice fair-trade quinoa and hydroponically-grown nettle salad.

You also seem to backtrack from your initial position. It appears that you acknowledge that the relevant product (as well as geographic market) are important components of an antitrust analysis but fault the FTC for improperly using those analyses in deciding whether to challenge a particualr merger.

What I did say is that supply and demand elasticities are both essential to determining the relevant market (despite what the Merger Guidelines might have you believe). Although Mr. Market Failure adduces an alluring set of facts to describe a situation where top and front loaders might not be perfectly interchangeable, his example is worthless. The two types need not be interchangeable in every situation and for every person ex post for the two to be in the same economically-relevant market. Ex ante, even in his example, the type of available washing machine could factor into the apartment purchase decision, even if ex post only one type would be available in a given apartment.

But regardless, and to answer your question: Yes, a Cadillac and a Cavalier are probably in the same market. That they are does help to demonstrate the limitations of market share analysis. In that particular case, while Cavalier probably exerts little demand-side pressure on the price of a Cadlillac (although the opposite is much more likely), the potential availability of Cavalier manufacturing resources exerts significant pressure.

On the point about throwing up our hands–yes, that’s my point. Just because you want to intervene doesn’t mean you should. If we don’t have enough information to get the analysis right, then we shouldn’t intervene. Why is this so hard to accept? Maybe someday we’ll have the werewithal to make accurate and efficient assessments of merger effects. Then by all means, let’s release the hounds. But if we don’t have the tools available now, we should refrain. See my comments on Type I errors, above.

I do wish that in our current situation the relevant market analysis were really the starting point. Unfortunately, as a practical matter (and this is especially true in the case of the peculiar mechanics of FTC merger enforcement), the product and geographic market analyses are often enough on their own to end the analysis and the proposed merger. I would be a lot less concerned about the limitations of our ability to do relevant market analysis if this weren’t true. See, again, my point about Type I errors, above.

Just to put your cards on the table a little more explicitly, would you care to confirm that, in your opinion, the world would be better off if we: 1) abolished the FTC and removed antitrust enforcement authority from DOJ; 2) decriminalized price fixing and bid rigging; and 3) repealed the Sherman Act, Clayton Act, and FTC Act?

Is it that you think the market always takes care of itself, or just that we lack sufficient information to adequately distinguish anticompetitive from procompetitive behavior?

With me at the helm, all FTC emplyees would have permanent time off; yes they would have lots of free time (even Josh–sorry, Josh). I guess you meant that as a hyperbolic criticism, but it’s probably the one characterization of my position that you actually got correct.

Oh–the point about Type II errors: If you think the background rule is that most behavior is anticompetitive, then perhaps you are right. But that is an unrealistic and unwarranted assumption. The reality, as even the staunchest of interventionists would probably tell you, is that most behavior is procompetitive. Given that background and imperfect information, I’m quite confident that Type II errors are more likely than Type I errors. Now, I also think that because of the systematic exclusion of dynamic effects from most merger and other antitrust analysis, and because of high litigation and enforcement costs, the costs of Type II errors are also much greater than the costs of Type I errors. So we should worry a lot more about the one than the other.

If those two things hold, wouldn’t it tend to look like they’re distinct markets? I have no idea whether they are in fact true, it’s just that I think it’s your simple reliance on functionality that’s “crude,” not carefully considered market delination in the merger guidelines.