Whole Foods/Wild Oats merger
 

WSJ is reporting that the FTC plans to oppose this merger. Anti-trust concerns. If true, this will be one of the worst decisions in recent memory. The only way to extract monopoly rents in the grocery industry is to have a sweet location. Any by sweet location I mean protection from competition through zoning regulations. A merger of these two companies will do nothing to prevent this kind of localized monopoly. There is however a somewhat convincing history of economies of scale in the grocery industry. Meaning a merger of Whole Foods and Wild Oats could actually reduce prices for consumers, which is a good thing.

Re: Whole Foods/Wild Oats merger
 

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Meaning a merger of Whole Foods and Wild Oats could actually reduce prices for consumers, which is a good thing.

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Hahahahaha. No.

The only thing that would lower prices at Whole Foods would be if Walmart started carrying organic. Of course, then all the Whole Foods customers would have to start shopping at Walmart at 2 AM is disguise, because we all know that no loyal Whole Foods customer would be caught dead shopping at Walmart.

Re: Whole Foods/Wild Oats merger
 

Mr. Mon,

Walmart doesn't have to carry organic to keep prices lower at Whole Foods.

Re: Whole Foods/Wild Oats merger
 

. . . it's going to be call FedUP

(oops, i thought this was the punchlines only thread)

Re: Whole Foods/Wild Oats merger
 

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There is however a somewhat convincing history of economies of scale in the grocery industry. Meaning a merger of Whole Foods and Wild Oats could actually reduce prices for consumers, which is a good thing.


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scale economies mean that the average unit cost to producers will decrease as the company gets bigger. whethere those savings are passed along to the customer depends on the market structure. and you're right to point out that location is the main source of market power for grocery stores (and many other retailers).

Re: Whole Foods/Wild Oats merger
 

econ - If the industry is competitive then the lower per unit costs will be passed on to consumers. Of course in the real world not ALL of the benefits of a lower cost structure will be passed on to consumers. My point in the OP is that this merger will not lead to higher prices and could lead to lower prices. Therefore why not let it go through? If the merger is allowed and we all of sudden start seeing Wild Oats or Whole Foods stores being shut down, I'll admit I was wrong.

Re: Whole Foods/Wild Oats merger
 

econophile,

if the average cost to the producer goes down in a competitive economy, shouldnt the average cost to the consumer also go down? this argument would seem like the foundation for the point Boris is making wrt prices falling.

all i care about is that they get their [censored] odwalla prices down a bit. 3.99 for a 16 ounce thing of juice? boooooo.

Re: Whole Foods/Wild Oats merger
 

I assume Whole Foods and Wild Oats are the 2 biggest players in the "natural foods" market? Who are their competitors? Is TJ's considered one? Why is Walmart or another huge national grocer, not in the natural foods space, an issue here?

-Al

Re: Whole Foods/Wild Oats merger
 

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econophile,

if the average cost to the producer goes down in a competitive economy, shouldnt the average cost to the consumer also go down? this argument would seem like the foundation for the point Boris is making wrt prices falling.

all i care about is that they get their [censored] odwalla prices down a bit. 3.99 for a 16 ounce thing of juice? boooooo.

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i don't want to derail this thread, but your and boris's argument is based on a perfectly competitive output market. since most output markets are not perfectly competitive, a better working model is that of monopolistic competition (where there are many producers and each has some market power).

in a monopolistically competitive industry with scale economies, a merger will have two effect. first, it will decrease the average cost of producing the good since the merged firm will generally produce more than either firm did separately (note that mergers could result in less output, e.g. if two firms merge and become a monopoly). second, the merger will increase the firm's market power. the first effect pushes the equilibrium price down, while the second effect drives it up, so the end result could be an increase or a decrease in the prices charged to customers.

to predict whether the merger will make prices go up or down, one would have to estimate the firms production function (how much it costs to produce different quantities) and the consumers' price elasticity of demand (how sensitive the quantity that people buy is to changes in price). in mergers like this, the firm usually hires a team of economists to estimate this stuff and present their results to the department of justice or the federal trade commission, who might then approve the merger or recommend actions that the firms can take to make the merger less harmful to consumers.

Re: Whole Foods/Wild Oats merger
 

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I assume Whole Foods and Wild Oats are the 2 biggest players in the "natural foods" market? Who are their competitors? Is TJ's considered one? Why is Walmart or another huge national grocer, not in the natural foods space, an issue here?

-Al

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Oh ok, I see:

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The agency is concerned that the combined company will control too much of the U.S. natural-foods market, Whole Foods said. The FTC should instead consider the merger's effect on the overall supermarket industry as Safeway Inc., Wal-Mart Stores Inc. and other grocers expand their natural and organic departments, Whole Foods said.

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From this latest Bloomberg update.

Is that a fair stance from Whole Foods?

-Al