Fred Smith, founder and president of the Competitive Enterprise Institute, explains — in today’s edition of the Washington Times — one of principal problems with the antitrust theory that still motivates bureaucrats such as those at the Federal Trade Commission (FTC). Here’s a key paragraph:
Antitrust theory ignores the permeability of the boundaries of all
markets. True, the first company to break into a market can charge
higher prices and realize higher profits. After all, it takes time for
established competitors to adapt to meet a newcomer’s challenge. And
the changes are obvious even to a casual observer — witness traditional
supermarkets’ adoption of organic foods. But potential new competitors
are always waiting in the wings.
Elsewhere in his op-ed, Fred correctly reasons that the FTC’s attempt to block the merger of Whole Foods with Wild Oats was preposterous.
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"…True, the first company to break into a market can charge higher prices and realize higher profits…"
Only to the extent that the 'higher prices' are not so high that no consumer is willing to buy their product.
Regards, Don
Historically, it is governments that have caused monopolies and enforced their existence. It is the market that has distributed economic power and which has dissolved monopolies.
Even a pure-bred Marxist wouldn't suggest that the Whole Foods merger is monopolistic. I mean, even if someone did have a monopoly in the organic food store (not the food itself) business, who cares? Its preposterous, but as long as the public thinks economic satisfaction is a zero-sum game, it'll keep happening.
DOESN'T SMITH DISCREDIT HIS ARGUMENT AFTER NOTING THE BROADENING OF THE MARKET TO INCLUDE SAFEWAYS, KROGERS, ETC. THE UNDERSERVED ARE BEING SERVED AND DO NOT NEED WHOLE FOODS,OR THERE JACKED UP PRICES, IN THEIR NEIGHBORHOODS. I AGREE THAT THE FTC IS A LITTLE NARROW MINDED IN THEIR OUTLOOK ON THE MARKETS;HOWEVER, THE INTEREST OF THE CONSUMER SHOULD ALWAYS PREVAIL.
The only institution which can protect the interests of the consumer is the marketplace. No one but the consumer knows what the interests of the consumer are.
Whole Foods isn't going to move into neighborhoods which don't have consumers who want to buy their stuff. They didn't become a successful business by being stupid. In some cases of course the market will fail individuals who have to drive farther to get cheap food, but no one is saying its perfect.
"As another economist noted long ago, the hope for extraordinary profits lures the entrepreneur along the risky paths to the future. If fewer stores in an area mean higher profits, the rate of the stores' diffusion may well increase."
It seems to me that he is justifying his stance based partially on the notion that the consumer will be better served as the alpha profits and takes over the market by expanding its market (the underserved) through diffusion. The underserved are being served. The only ones that stand to be worse off from this merger are the "affluent urban professionals." Thanks to Safeway, the market is no longer a niche. Competition needs and is being encouraged, nonetheless, the FTC feels the need to interfere.
Not that Wal-mart was a monopoly but we can see part of this happening with them. Their competitors are learning to cope with them. They've improved their distribution systems, found that low pricing on certain goods (really what Wal-Mart does) has stemmed the losses if not started to earn back customers, that more than price matters, et al. It just takes a bit of time for them to shift geaers and start getting it done.
When Whole Foods sells goods for more than Wal Mart, Whole Foods is selling at "jacked up prices". When Wal Mart sells for less than Target, it's "undercutting". If they all sell at the same level they're "price fixing". Some people just believe corporations are baaaaad.
My biggest problem with antitrust is the fact that things companies do to compete, like find better technology, enact economies of scale, reorganize production more efficiently, train employees to be more productive, and such, are often considered "anticompetetive".
Back in the early 90's I was told by a Senator that the reason there were no private space companies, though it was legal for there to be one, was that antitrust laws would not allow for a company to create the first private launchpad because if they did, then they would be in violation of antitrust laws. It took me a while to get him to admit this, I had to call him out on every b.s. answer he gave until he finally admitted the truth — but he did eventually admit the truth. Which is why the U.S. still only has a government space program, and why private companies are busy trying to create space planes.