Mergers and Concentration in Food Retailing: Implications for Performance and Merger Policy

Ronald Cotterill ()

No 2, Food Marketing Policy Center Research Reports from University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy

Abstract: This research report is based upon the author's testimony before the Subcommittee on Monopolies and Commercial Law, Committee of the Judiciary, U.S. House of Representatives, on May 11, 1988. Tabulated data from the Bureau of Census and industry publications indicate that seller concentration for grocery stores and supermarkets in local Standard Metropolitan Areas (SMA) markets is increasing. Unless merger enforcement policy is tightened, horizontal mergers will accelerate this trend. This conclusion is based upon two facts: the F.T.C. finds market shares in excess of 50 percent acceptable; and very few of the nations' more than 250 SMA's are now served by such dominant firms. Research on entry barriers and seller concentration-price relationships in grocery retailing, summarized in this report suggest, from the perspective of performance, that federal merger enforcement policy is lax. Recent horizontal mergers affecting 16 SMA markets have produced leading firms with market shares in excess of 50 percent in some markets. Resulting increases in market power, the author estimates, will increase prices in these 16 SMA markets forcing consumers to pay 469 million dollars more for food each year. Policy changes called for include: returning to enforcement policy based upon empirical assessment of industrial organization; eschewing the de facto monopolization standard applied to recent mergers and returning to the incipiency standard of Section 7 of the Clayton Act; and contrary to the recent Monfort decision, allowing competitors, including targets of hostile takeovers, more access to the courts to sue on antitrust grounds to stop mergers.

Keywords: Agribusiness; Industrial Organization (search for similar items in EconPapers)
Date: 1989
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