WEBVTT - Amazon-Whole Foods Deal Raises Antitrust Flags (Audio)

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<v Speaker 1>Amazon's blockbuster thirteen point seven billion dollar deal to buy

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<v Speaker 1>Whole Foods is a step toward dominating every part of

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<v Speaker 1>the consumers shopping experience. It's by far the largest acquisition

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<v Speaker 1>in the company's history, and some say it may cause

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<v Speaker 1>a seismic shift in the seven hundred billion dollar grocery

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<v Speaker 1>store business. Amazon already competes in a broad range of retail,

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<v Speaker 1>from clothing and home goods to music and comic books.

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<v Speaker 1>So when does Amazon become so big and stifle so

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<v Speaker 1>much competition in the retail sector that it is subject

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<v Speaker 1>to antitrust scrutiny. Here to answer that question and many

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<v Speaker 1>more is Bloomberg Intelligence senior litigation analyst Jennifer ree Jen.

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<v Speaker 1>Is there an antitrust issue with the Amazon Whole Foods merger?

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<v Speaker 1>You know, it doesn't seem likely June. You know, I,

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<v Speaker 1>I know there's always a reaction when there's a really

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<v Speaker 1>big deal like this in a company like Amazon that's

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<v Speaker 1>that's dominated a lot of industries and is now moving

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<v Speaker 1>into another industry. But you know, at the end of

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<v Speaker 1>the day that there is a framework. We have a

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<v Speaker 1>framework and laws that have been interpreted by the court

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<v Speaker 1>over time that really just don't put this merger in

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<v Speaker 1>a place that seems like it might concern antitrust regulators.

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<v Speaker 1>You know, you don't have a major horizontal overlap. They

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<v Speaker 1>aren't competitors with each other. And to the extent there

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<v Speaker 1>even are vertical issues here, which is sort of like

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<v Speaker 1>two companies within a supply chain, one acquiring the other,

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<v Speaker 1>like like a manufacturer acquiring the input supplier. Um, you don't,

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<v Speaker 1>you don't have some of the harm they can often

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<v Speaker 1>come from vertical mergers in this merger, either because Whole

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<v Speaker 1>Foods isn't very dominant, particularly in grocery. But there are

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<v Speaker 1>some congressmen already calling for a look at this. Representative Rokana,

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<v Speaker 1>a Democrat representing California in the House of Representatives, said

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<v Speaker 1>the Justice Department and the Federal Trade Commission must undertake

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<v Speaker 1>a review that considers not just the merger's impact on prices,

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<v Speaker 1>but also the impact on jobs and wages. So people,

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<v Speaker 1>even congressmen, are saying, this is so big and it's

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<v Speaker 1>just getting bigger and bigger. That's right, And I think

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<v Speaker 1>that this goes back to kind of a debate that

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<v Speaker 1>is going on a little bit in the anti trust world. Now,

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<v Speaker 1>the law has developed over the last twenty years in

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<v Speaker 1>a certain way, you know, such that they're very specific

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<v Speaker 1>kind of harms and consumer welfare that's protected by the

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<v Speaker 1>antitrust laws. You know, they try to make sure that

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<v Speaker 1>we have a healthy competitive market such that consumer prices

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<v Speaker 1>stay low. But there are some that believe that this

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<v Speaker 1>has failed the American consumer, that over time that the

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<v Speaker 1>way antitrust has been enforced has created too much consolidation

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<v Speaker 1>and too much concentration in many industries that ultimately can

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<v Speaker 1>have affect consumer wages, can even affect you know, political concentration.

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<v Speaker 1>And so there is this this debate that's ongoing, and

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<v Speaker 1>I think that statement by by that representative sort of

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<v Speaker 1>is on that side of the debate that we need

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<v Speaker 1>to change per HAPs our approach, our our antitrust philosophy.

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<v Speaker 1>And now but putting aside that debate June, you know,

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<v Speaker 1>and whether or not we do need to change our

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<v Speaker 1>philosophy here in the United States or not, or how

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<v Speaker 1>we approach these things. The way the law developed has

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<v Speaker 1>developed today, and the tools we use traditionally today to

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<v Speaker 1>assess a merger's potential harmful effects in the market simply

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<v Speaker 1>are unlikely to find that this merger is anti competitive.

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<v Speaker 1>During the campaign, President Trump said that Jeff Bezos has

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<v Speaker 1>a huge anti trust problem because he's controlling too much,

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<v Speaker 1>and that it that went under his watch, he would

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<v Speaker 1>be looking at those problems. Might that impact what goes

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<v Speaker 1>on in terms of review of this deal. Well, I

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<v Speaker 1>think we have to look at think about two different

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<v Speaker 1>things now. The first thing is his statement about Amazon

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<v Speaker 1>controlling just too much and being too big under our

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<v Speaker 1>antitrust laws. Even right up in the Federal Trade Commission's website,

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<v Speaker 1>it says it is not unlawful for a company to

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<v Speaker 1>be big and to be powerful, and even to charge

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<v Speaker 1>high prices, as long as that position was obtained in

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<v Speaker 1>a fair manner, not through unfair or unreasonable acts to

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<v Speaker 1>harm their competitors and to prevent new entry. So the

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<v Speaker 1>fact of the matter is, if Amazon has gotten big

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<v Speaker 1>and powerful, um as President Trump has pointed out, through

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<v Speaker 1>fair methods of competition, that is what it is, and

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<v Speaker 1>it doesn't violate our antitrust laws. So that's on one side.

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<v Speaker 1>And on the other side, you know, we do have

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<v Speaker 1>a Federal Trade Commission and Department of Justice that are

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<v Speaker 1>meant to operate independently and and even if the President

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<v Speaker 1>tries to influence what they do here. They assess these

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<v Speaker 1>deals using a set a set of guidelines that they've

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<v Speaker 1>used that have developed over time, that are ingrained. They

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<v Speaker 1>use economic analysis to apply to these deals to ask

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<v Speaker 1>whether they have the potential to cause harm or whether

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<v Speaker 1>there could be an incentive to cause harm. And they're

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<v Speaker 1>really only going to take one of these deals to

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<v Speaker 1>court where they have evidence to back them up. Suppose

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<v Speaker 1>this deal goes through and and we find at the

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<v Speaker 1>grocery competitors are struggling or going out of business. Is

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<v Speaker 1>there anything that can be done at that point legally, Well,

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<v Speaker 1>it will depend on what it is that's causing them

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<v Speaker 1>to struggle and go out of business. If they simply

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<v Speaker 1>just are not as efficient and are struggling because they

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<v Speaker 1>can't meet lower prices, their prices are too high, they're

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<v Speaker 1>losing customers, they can't gain internal efficiencies that allow them

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<v Speaker 1>to lower those prices. They're just struggling against greater competition.

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<v Speaker 1>You know that perhaps there isn't recourse under the antitrust law. However,

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<v Speaker 1>if after the merger there is some allegation that that

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<v Speaker 1>Amazon and Whole Foods, it's it's subsidiary. Let's say, Whole

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<v Speaker 1>Foods have done engaged in unfair competition to try to

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<v Speaker 1>prevent new entrants in delivering delivering groceries or new entrants

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<v Speaker 1>in grocery. You know, there might be a legal case there,

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<v Speaker 1>you know, such as entering let's say exclusive deals that

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<v Speaker 1>that keep a source of supply from competitors. Things like that. Now,

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<v Speaker 1>a different deal, Draft Kings merger with fan Duel, is

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<v Speaker 1>facing a challenge by the US according to Federal Trade Commission.

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<v Speaker 1>Tell us a little bit about that. Well that Now, see,

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<v Speaker 1>if I had been a betting person, I think I

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<v Speaker 1>would have bet against this deal going through back when

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<v Speaker 1>it was announced in November two thousand sixteen, because you know,

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<v Speaker 1>we have these two companies and what they do are

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<v Speaker 1>they are you know, online gaming. They are daily sports

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<v Speaker 1>fantasy league. So people can pick go in and pick

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<v Speaker 1>a player and create a team, and they game by

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<v Speaker 1>game look at how their players do, and they can

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<v Speaker 1>win prizes in money on that basis. And what the

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<v Speaker 1>FTC said is, hey, you're the only two pretty much

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<v Speaker 1>of the market controlled by the two of you, and

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<v Speaker 1>that's really a clear case of monopolization. Um so I

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<v Speaker 1>think it's not a surprise that the FDC chose to

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<v Speaker 1>go and it was two to zero vote by the commissioners,

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<v Speaker 1>one Democrat and one Republican to go after this deal.

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<v Speaker 1>So is there any response that the two can give

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<v Speaker 1>to save the deal? You know, I think they probably

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<v Speaker 1>believe they have a good argument that the market should

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<v Speaker 1>have been defined the competitive market should have been defined

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<v Speaker 1>more broadly, because they may say, well, hey, we also

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<v Speaker 1>compete against online gaming entities that allow you to bet

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<v Speaker 1>for the season. Let's say pick a game, pick a

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<v Speaker 1>team with players, see how they do for the season,

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<v Speaker 1>and perhaps even other kinds of sports fantasy leagues and

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<v Speaker 1>betting and things like fantasy teams. And if you go

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<v Speaker 1>broader and you define that market more broadly, their combined

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<v Speaker 1>shares probably much lower and might not trigger this sort

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<v Speaker 1>of Hey, this has the harm to potential to harm competition.

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<v Speaker 1>But obviously the FDC didn't buy that. Jennifer, it's always

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<v Speaker 1>a pleasure to have you on. You break down antitrust

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<v Speaker 1>into the simplest, most understandable terms. Thank you, and we

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<v Speaker 1>appreciate it. And for more of Jennifer's analysis, go to

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<v Speaker 1>VI I go on the Bloomberg terminal that's Jennifer Ree.

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<v Speaker 1>She's a senior litigation analyst at Bloomberg Intelligence