# Presentation: 305859

## Historical Review of FTC Supermarket Merger Enforcement: 1997 - 2001

**James A. Fishkin**
**FTC Conference on Grocery Store Antitrust**
**May 24, 2007**

## FTC Enforcement Actions:  1997 - 2001

- 1997
*Jitney-Jungle/Delchamps*
- 1998
*Albertson’s/Buttrey*
*Ahold/Giant Food*
- 1999
*Kroger/Fred Meyer*
*Albertson’s/American Stores*
*Shaw’s/Star Markets*
*Kroger/Groub*
*Ahold/Pathmark**

- 2000
*Kroger/Winn-Dixie (Texas Division)**
*Delhaize/Hannaford Bros.*
- 2001
*Winn-Dixie/Jitney-Jungle*
*Ahold/Bruno’s*
*	*
*	*
*	**	**	**           *** *terminated deals

## Joint FTC-State Supermarket Merger Investigations 

*Albertson’s/Buttrey*
- Montana
*Albertson’s/American Stores*
- California, New Mexico and Nevada
*Ahold/Pathmark*
- New York and New Jersey
*Safeway/Carr-Gottstein*
- Alaska (FTC did not obtain enforcement)
*Shaw’s/Star*
- Massachusetts

## Primary Issues in the FTC Investigations

- _Product Market_ – Are “supermarkets” a relevant market?
- _Market Participants_ – Which retailers should be counted in the product market?
- _Geographic Market_ – How big is the market?
- _Market Shares and Concentration_ – How large are the merging firms and how many significant competitors will remain?
- _Competitive Effects_ – Can the merged firm unilaterally raise prices/reduce services; can the merged firm and the remaining firms coordinate to raise prices or reduce services?
- _Entry_ – Are firms planning entry that would have a market impact?  Will firms enter in response to a price increase?  Will entry be timely and sufficient?

## Evidence Relied Upon to Support a Supermarket Product Market

- “Retail sale of food and grocery items at supermarkets”
***this definition always**** ****included the “supermarket” section of supercenters***
- Unique characteristics of *supermarkets*
- distinct set of products and services for consumers who desire to one-stop shop for food and grocery products
- large variety and depth of products -- typically 30,000+ skus
- typically 20,000+ square feet
- Documents and testimony showed that supermarkets viewed each other as primary competitors and other retailers as secondary competitors

## Evidence Regarding Pricing By Supermarkets

- Supermarkets set prices based on each other’s prices, not the prices of other food stores
- supermarkets regularly price-checked each other; rarely price-checked anyone else
- supermarkets changed prices in response to other supermarkets; rarely changed prices in response to other food stores
- supermarkets used price zones to charge different prices based on the presence of competing supermarkets, not other food stores

## Geographic Markets Consisted of Local Areas

- Customers primarily shopped close to where they lived
- limited consumer drive time
- limited driving distances due to perishable products
- Store overlaps identified by customer draw areas
- Size and shape of markets defined in part by:
- demographics and driving patterns
- natural and man-made barriers
- low population density breaks between areas

## Market Concentration Data for the 129 Divestiture Markets (FY 1996 to FY 2003)

- post-merger HHI below 2,000:	  0
- post-merger HHI 2,000 to 2,399:	12
- post-merger HHI 2,400 to 2,999:	31
- post-merger HHI 3,000 to 3,999:	34
- post-merger HHI 4,000 to 4,999:	25
- post-merger HHI 5,000 to 6,999:	17
- post-merger HHI 7,000+: 		10
- source:  	*Horizontal Merger Investigation Data, Fiscal Years 1996 – 2003* (Feb. 2, 2004; revised        	Aug. 31, 2004) (Table 3.2)

## Number of “Significant” Competitors for the 129 Divestiture Markets (FY 1996 to FY 2003)

- 2 to 1:	15
- 3 to 2:	40
- 4 to 3:	54
- 5 to 4:	16
- 6 to 5:	  3
- 7 to 6:	  1

- 85% of the markets with divestitures had 3 or fewer remaining competitors

- source:  	*Horizontal Merger Investigation Data, Fiscal Years 1996 – 2003* (Feb. 2, 	2004; revised Aug. 31, 2004) (Table 4.2)

## Competitive Effects:  Unilateral Effects Analysis

- Merger of direct, head-to-head competitors
- Company documents and testimony relied upon to establish unilateral harm based on closeness between merging firms
- similar store formats competing for the same customers (first and second choices for a significant number of customers)
- stores in close proximity to each other serving the same customer base (based on customer draw data)
- Closeness based on format and proximity sometimes supported company plans to close competing stores or raise prices post-acquisition

## Competitive Effects:  Coordinated Behavior

- Unilateral and coordinated theories were typically both alleged
- Coordination on prices and service levels (e.g., store hours, etc.)
- Basis for coordinated effects allegation:
- few remaining competitors, with merging firm often emerging as the largest firm
- relatively inelastic demand
- relatively stable market conditions and demand levels
- publicly posted prices and mutual price-checking enabled firms to signal price changes and to detect and punish cheaters
- recognition of mutual interdependence
- substantial benefits from higher prices

## Questions Regarding Timeliness and Sufficiency of New Entry

- Timely – how long does it take to plan, build and open a new supermarket?
- time to find suitable sites / availability of sites (urban vs. rural areas)
- internal company approval process
- negotiate terms
- regulatory approval (zoning issues, etc.)
- construction time
- Likely – will a competitor enter in response to a price increase?
- Sufficiency – was new entry likely to attain sufficient scale to defeat a price increase?
- Competitor entry and new store plans – FTC primarily relied on CID responses