Amazon-Whole Foods Deal Poses Consumer, Antitrust Paradox

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By Alexei Alexis

Major consumer groups that typically push for aggressive antitrust enforcement are so far quiet about Amazon.com Inc.’s bid to acquire Whole Foods Market Inc.

They see it as a deal that could benefit shoppers through lower prices and better access to quality food. The $13.7 billion merger has raised antitrust questions from other advocacy groups about Amazon’s dominance.

U.S. antitrust regulators view consumer-friendly transactions that lower prices as a plus, but they also look at whether the deals concentrate the market. Antitrust lawyers say the Amazon-Whole Foods merger shouldn’t raise eyebrows with regulators because it isn’t a tie-up of direct competitors. Amazon’s critics say the company’s planned Whole Foods acquisition is more problematic than it appears on the surface, citing Amazon’s extraordinary online dominance.

“The concerns are legitimate, but you have to acknowledge that Amazon is a remarkable player in the digital revolution and the consumer has benefited mightily,” Mark Cooper, research director for the Consumer Federation of America, told Bloomberg BNA. CFA hasn’t taken a stance on the merger.

‘Very Pro-Competitive’

Gene Kimmelman, president of the internet and communications advocacy group Public Knowledge, said the deal, on its face, looks “very pro-competitive” in some ways.

“I don’t see a basis for alarm bells to go off, but I do see a rationale for a careful look,” he told Bloomberg BNA.

A recent survey conducted by ChargeItSpot, a provider of cell phone charging stations, found more than 80 percent of shoppers said they had positive feelings about the proposed Amazon-Whole Foods merger. When asked about changes they were hoping to see at Whole Foods if the merger is completed, the top three responses were: cashier-free checkout, lower prices, and in-store pickup for Amazon purchases.

ChargeItSpot collected the responses from over 900 shoppers at malls across the country.

“I think what we’re seeing is that consumers are giving the deal the benefit of the doubt,” ChargeItSpot CEO Douglas Baldasare told Bloomberg BNA. “I think it’s now up to the two companies to deliver against those positive expectations.”

But the United Food and Commercial Workers International Union says regulators should conduct a thorough review of the merger, based on a number of factors beyond whether it will lower prices. In a July 17 letter to the Federal Trade Commission, the UFCW said thousands of Whole Foods workers could be adversely affected, among other potential harms.

CFA’s Cooper said the merger, like all large deals, should certainly get a hard look from regulators. But he said the government’s review should focus on a “real-world analysis” of how the combination might affect consumers. “To the extent that you can show that it will increase consumer prices or decrease innovation in distribution, then that is what antitrust is for,” he said. “To the extent you want to fix wages, you’re going to have to look elsewhere.”

A Small Fish

Kimmelman said it’s unclear on the surface how combining Whole Foods and Amazon would harm competition. He noted that Whole Foods is currently a small participant in the much larger grocery sector, trailing far behind players like Walmart Stores Inc.

Amazon could help the struggling Whole Foods to better innovate and compete, which could ultimately be good for consumers, he said. He also acknowledged that Amazon’s enormous size as a distribution platform could raise questions about how the company might use the deal to gain an unfair advantage in the grocery market.

Both Public Knowledge and CFA have come out strongly against other mega-mergers, including AT&T Inc.’s pending deal with Time Warner Inc. Public Knowledge, like CFA, has been silent on the Amazon-Whole Foods tie-up because that deal is grocery-related and not in the group’s “sweet spot.” However, Kimmelman said the group is generally watching Amazon, especially how it’s affecting online video.

A consumer advocate from another organization said it’s difficult to tell how the deal will impact consumers or competition. “There could be some benefits, but there’s not enough information for a conclusion,” said the advocate, who wished to remain anonymous because his group hasn’t taken a formal position on the matter.

Long-Term Worries

Other advocates are urging regulators to conduct a rigorous review of Amazon-Whole Foods that goes beyond the limits of traditional antitrust analysis because of its online dominance. New America Foundation fellow Lina Khan said the deal could harm competition in ways that are unrelated to predictions about short-term consumer benefits. Her organization is critical of the proposed merger.

“At a very basic level, this will give Amazon more integrated control over delivery as well as allow it to have a foothold in the grocery sector,” she told Bloomberg BNA. “There are also worries about questions such as leverage — how Amazon might use its exiting power in online markets to give itself additional advantage as it expands into the physical grocery and delivery market. I think these cross-sector advantages are worth considering when it comes to anticipating future competition.”

In a legal paper titled “Amazon’s Antitrust Paradox,” Khan called for antitrust regulators to replace their “consumer welfare framework” with an approach that takes into account factors such as whether a company’s structure will create “anticompetitive conflicts of interests” or whether it can cross-leverage market advantages across lines of business.

To contact the reporter on this story: Alexei Alexis in Washington at aalexis@bna.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bna.com

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