Whole Foods? Seriously? Why Are We Talking About Whole Foods?
Christopher L. Sagers is a Distinguished Professor of Law at the Cleveland-Marshall College of Law
It is a useful thing sometimes to be a token liberal at a conservative academic conference. More than once I’ve found myself on a panel at which I wanted to talk about issues that I thought were at the heart of the event-sponsors’ views, but they then wanted to talk about different things entirely, things I wouldn’t expect to be on anyone’s agenda. Maybe that sort of thing reflects our siloed popular debate generally. When we actually talk to each other once in a while, we’re often surprised that we’ve been off in our corners talking about completely different things. Anyway, today again I’m interested in why this website’s editors chose this particular merger as a topic, much more so than I am in the merger itself.
I obviously don’t know anybody’s real motives, but it seems to me the point isn’t to talk about the merger itself. Asking whether it caused harm is essentially a rhetorical question, an exercise in attacking people who said that it would. So what I want to know is, who really said it would? What serious participant in antitrust debate—not a journalist or a professional opinionator—made any meaningful effort to oppose this deal or get the government to challenge it? If it was anybody, as the blurb announcing the symposium implies, it was only new antitrust “progressive” movement, that group of mostly very young journalists, activists, and think-tank personnel loosely organized around the Open Markets Institute. So the real question I want to talk about is not whether this merger was bad—I definitely think it might have been, and might prove to be still, but for reasons I will explain I hardly even care. Instead, I want to ask why antitrust conservatives seem so interested in this little group, and whether they really deserve this much attention. As a matter of intellectual substance, I think they do not.
In the deal, an online logistics and e-commerce firm proposed to buy a brick-and-mortar grocer, though it had no serious prior business in grocery. There might be dynamic concerns or some minor market-definition issues, but in its present effects most anyone would describe the deal as “conglomerate.” And that is to say that most anyone would acknowledge the deep unlikelihood of challenge to the deal, under any plausible administration of either party, or success before the current judiciary.
Mainly for that reason, I was never especially interested in it. It was “big” in some sense, and it inevitably generated a bunch of popular discussion for a few weeks. I got a bunch of calls from the press, which usually happens when the shiny object du jour is some big antitrust thing, so I talked to them. Otherwise, I thought it was kind of a side-show.
On the one hand, I think Amazon itself poses serious competitive risks that we are fools to ignore. I’ve said that, and we’ll all likely be saying more about it as the next few years unfold. And in principle, I think there could have been intellectually plausible theories of harm against this particular merger. I think one of those theories in particular should be taken more seriously, especially in Silicon Valley deals, and I said that too. More on that in a sec. I could even imagine a world in which deals like this are routinely blocked, because I believe in a strong, prophylactic merger policy. I believe it should be and explicitly was Congress’s policy to encourage internal growth over growth by acquisition. The former is literally “competition,” whereas the latter is just getting control over things that consumers already have. But I never expected a challenge in this case.
I think the real challenge to Amazon, if there ever is one, will ripen as a monopsony case or something like it, in which the very interesting issues will be market definition—if some §2 case is ever to occur, it would have to involve some humdinger of a creative, ground-breaking, Microsoft-style market definition—and a careful analysis of an exclusionary history. Maybe too there will be some sort of challenge to Amazon’s vertical practices, as to which it’s apparently had pretty sharp elbows, or to its dealings in the “Amazon Marketplace,” or to its apparent designs on private-label products. But such a case probably won’t much involve this particular merger. So, I told anyone who asked that, whatever the concerns might be, government action was very unlikely. And even were I Queen for a Day, I definitely would not have picked this hill to die on. While I long for a return of Thurman-Arnold-style antitrust leadership, who will work to expand the law in directions I like, challenging this merger now would have been a big, embarrassing waste of government resources that would have given the policy a black eye. And indeed no action was taken, and FTC gave very early termination of the HSR review.
So why this deal, in this symposium, and why now? The best substantive reason I could think of is admittedly one that I personally find important. As I said, I think we should take it much more seriously as a general matter, especially in highly dynamic contexts like Silicon Valley. There has been a history of arguably pre-emptive, market-occupying vertical and conglomerate acquisitions, by big firms of smaller ones that are technologically or otherwise disruptive.
The idea is that the big firms sit back and wait as some new market develops in some adjacent sector. When that new market ripens to the point of real promise, the big firm buys some significant incumbent player. The aim is not just to facilitate its own benevolent, wholesome entry, but to set up hopefully prohibitive challenges to other de novo entrants. Love it or leave it, that theory plausibly characterizes lots and lots of acquisitions in recent decades that secured easy antitrust approval, precisely because they weren’t obviously, presently horizontal. Many people think that is true of some of Amazon’s many acquisitions, like its notoriously aggressive, near-hostile takeover of Diapers.com.
As for whether this theory could meaningfully explain the Whole Foods deal, probably every participant in this symposium except me would scoff. But let us observe that if this was a genuine conglomeration of otherwise unrelated businesses, which I take to be the main defense of it, then one must wonder how Amazon could have thought it was strategically desirable. While the company makes mistakes and some of its initiatives fail, it is run by an almost uniquely astute and aggressive leadership. According to Brad Stone’s famous book about the company, Jeff Bezos learned hard lessons about incautious acquisitions during the dot-bomb bust of 2001, and has been much more carefully strategic ever since. But true conglomeration historically has proven to be a pretty bad idea. The major wave of it that consumed Wall Street and corporate America during the 1960s turned out to be among the biggest wastes of time and shareholder wealth in American history. So I imagine that this uniquely competent firm did not mindlessly repeat those mistakes, and rather has in mind some strategic advantage. I would imagine it will be in some market that as yet is small or nascent, and it is probably online grocery. That’s a little market now, it’s potentially a big one, and if Amazon quickly owns it, you’re simply high on drugs if you think it will face very meaningful challenge.
A different reason to talk about the merger might just be to revisit traditional theoretical perspectives on non-horizontal integration, which are pretty much conservative bread-and-butter. I doubt that’s really the point, though, since no one that I’m aware of stated any formal economic argument about this particular merger. I could be wrong, but I just don’t think that played any real role in discussion of it.
So that leaves what I think is probably the real motivation. This is hardly the only place at which antitrust conservatives have seemed oddly preoccupied with the new progressives, seeming to care about them more than really anybody else in antitrust. Right after the election, Josh Wright took part in a Hannity-and-Colmes-type piece in the New York Times with Open Markets lieutenant and part-time Twitter thug Matt Stoller. Josh Wright also seems mainly responsible for popularizing the “#hipsterantitrust” nomenclature, and has engaged them a lot in other ways. He’s hardly alone. Again, I’ve personally sat on a panel at a conservative conference at which it’s all anybody wanted to talk about. And this symposium seems to be about this group, because Amazon is their most particular bête noire. It’s the firm that best captures their confidence that present antitrust has been rendered unfit for its task, and indeed many of them harshly criticized the Whole Foods merger.
But why should they be so interesting? Is it because they have meaningfully new ideas, No. They surely have ideas, and their ideas have had influence, but they are anything but new. They have had influence of a different kind, for sure, but it has been much more by their capacity for public relations and for working with abettors in the press, who have perhaps been a little too eager to buy what the new progressives have to sell. Admittedly, they have been influential in practical respects in getting antitrust back on the agenda, and they’ve done it in a way that no mere academic like myself was ever likely to have done. But even those successes don’t seem very likely to translate into lasting policy correction.
For example, their greatest real-world success so far was having a hand, at least in the messaging, of the congressional Democrats’ “Better Deal” platform. But that thing has already been utterly forgotten. It had a manifestation in a set of bills introduced by Senator Klobuchar, but those bills will themselves surely never be law. I don’t mean any of that in itself as a criticism, and again, I am very genuinely grateful that this movement exists to do key things at which my own movement has completely failed. But none of that is any good reason for conservative academics to engage this movement for its ideas, or to hold conferences like this one.
So, I think the real reason for the preoccupation may not actually be that wholesome. I think that #hipsterantitrust makes a convenient straw man, an easier punching bag than opponents who are generating real ideas. They also are useful in that they are so very visible. Arguing with the person every journalist is currently interested in might be a way to get keep a spotlight on yourself, too.
There are better things to talk about. Why not have an argument with John Kwoka and his new empirical evidence? Except for a couple of pissy takes by agency economists, who presumably reacted mainly because it was their own work performance under attack (e.g., this and this), there has hardly been any real talk about it. Or why not have an argument with Dennis Mueller, or the other economists of his ilk who have demonstrated in a large empirical literature that growth by acquisition may do very little real good—in fact, may do net harm on average, to the firms’ own shareholders, at least among public firms? Why not argue with the authors of this remarkable new study, which, if it holds up in the forthcoming period of critique and effort at duplication, could establish some of the most influential evidence of anticompetitive harm from consolidation in decades?
Or talk to me, about my ideas. I think you guys are wrong a lot, have often failed to acknowledge how ideologically motivated your movement is and how often ideology has been more important than anything that could be called science, and I think the real world bad consequences of your views are so serious they’re beginning to border on the absurd. I’ve suggested alternative ideas, like that we seriously need to reconsider our accursedly broken merger policy. We absolutely must have at least one meaningful rule of prospective, no-fault concentration control, or antitrust won’t work. I’ve said it, it’s very different than your views, and I’d love it if you read it and told me why you disagree.
Let’s talk about that stuff instead.
 Yes, yes, I know. Some people who seem to me “conservative” don’t like to be called that, and want to be called “libertarian” or other things. I don’t mean any offense, although it does tickle me to tease friends a bit, and try to get them to own things that I think they ought to own. All I mean is that I take this blog to be devoted to a vision of market operation and its relation to government action that to me is “conservative,” in that it defers to private institutions and automatic processes, and opposes affirmative policy action by public bodies. None of that seems to me to especially driven by individual “liberty,” so I don’t call it libertarian.
 I don’t know if I’m a “progressive” or not, because I don’t know what the word means. Herbert Hovenkamp has a great new paper on its meaning throughout antitrust history. But whatever it means, and despite the confusion with which pundits sometimes greet me, I am not one of the new movement loosely associated with the Open Markets Initiative. I just happen to think that, mirabile dictu, plaintiffs ought to win sometimes.
 At least sometimes, the goal is also to stave off disruptive challenge to the big firm’s own current business. For example, that seemed pretty obviously like a risk when Avis bought ZipCar.
 I wondered too if there was something delicious to conservatives about liberal opposition to this particular merger, as it involved an expensive, bougie organic market, just the sort of place where liberals fail to grasp the irony of their own love for expensive luxuries. That’s probably a story for a different day.