By David Dayen, a lapsed blogger. Follow him on Twitter @ddayen
Over the past several months, I’ve come to the conclusion that so many problems in our politics and our economy results from our tolerance of monopoly capitalism. I did a super-long story for The American Prospect laying this out, and how we need a revival of antitrust policy at the grassroots level.
In the course of researching this, I learned quite a bit about the informal, curious bifurcation of antitrust enforcement. You have the Antitrust Division of the Justice Department, a high-profile, cabinet-level agency with at least some susceptibility to political pressure; just witness how desperately they’re trying to prove that they’ve utterly transformed their focus on prosecuting corporate crime. And then you have the Federal Trade Commission, introduced under the Clayton Act, with similar responsibilities on antitrust policy. The main difference is that FTC, which like DoJ can bring settlements or oppose mergers in federal court, can also pursue an administrative hearing.
What industries get oversight from what agency has little formal rationale. The FTC does health care and food distribution. The DoJ Antitrust Division handles airlines and intellectual property. In talking to experts, it appears that they take the industries they’ve always taken, after building up a level of expertise over the decades. But otherwise, it’s two agencies sharing the same basic function. And I’d argue FTC is less accountable by virtue of its obscurity.
So here’s a depressing case study that suggests maybe we should just relieve the FTC of its duties.
At the beginning of the year, Albertson’s and Safeway grocery stores merged, shrinking an already concentrated market. The fact that Albertson’s operated stores under the names Market Street, Amigos, United Supermarkets, Jewel-Osco, ACME, Shaw’s, and Star Market, and Safeway under the names Thumb, Randall’s, Pak ’n Save, The Market, Vons, Pavilions, and Genuardi’s – all brands they took over in recent years – speaks to the concentration.
Instead of blocking the merger in the name of competition, the FTC required the newly merged company to sell 168 stores to prevent “anticompetitive” local markets in Arizona, California, Montana, Nevada, Oregon, Texas, Washington, and Wyoming. After that condition, the merger went through. Problem solved, right?
Well, no. Albertson’s sold most of these stores, 146 of them, to a small chain called Haggen out of Washington state, which only had 18 stores at the time. I hadn’t heard of Haggen before until they moved into an Albertson’s down the block from me in Santa Monica. But within nine months, Haggen filed for bankruptcy, having taken on too much growth way too fast and struggling to find customers. The company clearly rushed into a hasty purchase and had no idea to serve markets outside of their core. In fact, they’re going to liquidate the core stores now too.
It’s part of the FTC’s job to ensure that the buyer of the divestiture actually has the ability to keep the lights on for more than nine months. This Q&A between the Santa Clarita Valley Signal and Deborah Feinstein, director of the FTC’s Bureau of Competition, is quite amazing:
SCVBJ: So does the FTC ever look at buyers before agreeing to the settlement?
Feinstein: Absolutely. We do a significant vetting process before recommending that the Commission accept a settlement. The Commission felt comfortable here that Haggen would be an acceptable buyer.
SCVBJ: What aspects might the vetting process entail?
Feinstein: In this case we would have brought Haggen in and looked at their business plan, their finances, their management plan, their future plans to invest in stores, plans for stores that aren’t performing as well, their distribution capabilities, marketing plans, their pro forma, etc. We do our due diligence before we recommend to the Commission that they accept the consent for public comment.
Dave here. If the FTC didn’t catch in their “significant vetting process” that Haggen might have problems increasing their staff five-fold and running logistics and management in seven states, what kind of expertise do they really have?
And then watch the evasiveness here:
SCVBJ: If a deal starts to falter badly what are the options?
Feinstein: When a settlement is agreed to, as part of the normal process, we appoint a monitor to help ensure the agreement is conducted according the settlement terms. If we see a problem we can’t order the merging parties to take a specific action, but, we can tell them we’ll withdraw the consent agreement unless they do something differently. But, we don’t have authority over Haggen’s to require that they conduct their business in a particular way. They are not part of the consent agreement.
SCVBJ: So how did the Haggen deal fall apart so quickly?
Feinstein: We’re not in position to answer. We’re aware of the concerns about whether Haggen was prepared to take over these stores, but we can’t comment at this time.
SCVBJ: Is the FTC investigating the issue?
Feinstein: The FTC will neither confirm nor deny that it has a pending investigation.
SCVBJ: Why isn’t the FTC able to comment?
Feinstein: Our investigations are non-public by law.
I should cut in at this point and mention that Feinstein is a serial user of the revolving door, having gone back and forth between the FTC and corporate law firm Arnold & Porter, where she became a partner and “specialized in representing clients before the FTC and DOJ.”
So here’s the punchline. Haggen had to liquidate its holdings in the bankruptcy. And guess who bought a big chunk of its stores?
Albertsons submitted the winning bids for 33 Haggen grocery stores that were put on the auction block this week as part of a bankruptcy proceeding.
According to documents filed Friday with the U.S. Bankruptcy Court, Albertsons — which only a year ago owned a number of the stores it is now trying to buy back — submitted successful bids for 33 of 55 Haggen stores in Oregon, Washington, California, Nevada and Arizona.
So 60 percent of the stores sold in this batch went right back into the hands of the conglomerate who was forced to divest them nine months earlier. Albertson’s appears to have made a sweetheart deal, too: Haggen bought the 146 stores for $1.4 billion, and sold these 55 stores, a little over a third, for just $47 million. Great work, FTC!
This little festival of incompetence ought to lead to some accountability, but I doubt any will arrive. Deborah Feinstein has plenty more to answer for here. And the whole philosophy of thinking that conditions like divestiture are enough to wave through significant market concentration needs a reboot. In my American Prospect piece I cite some research showing that the conditions-based remedies by the FTC and DoJ are worse than useless:
John Kwoka, an economics professor at Northeastern University, collected retrospective data on 46 closely studied mergers, and found that 38 of them resulted in higher prices, with an overall average increase of 7.29 percent. In cases where the Justice Department imposed some sort of condition for accepting a merger, like divestiture of some product lines or bans on retaliation against rivals, the price increases were even higher, ranging from 7.68 percent to 16.01 percent. By this analysis, consumers don’t benefit at all from merger activity, as market power overwhelms whatever efficiency gains.
The Albertson’s mess is only the most extreme example of this. The next Administration needs to take this stuff much more seriously.