While some critics say that Amazon.com Inc's bid for Whole Foods Market Inc should be blocked because it gives the online retailer a nearly unstoppable head start toward domination of online grocery delivery, there are other antitrust experts expect the deal to win regulatory approval.
The deal has potential grounds to be blocked for antitrust reasons, say the critics as it would give Amazon an unfair advantage over traditional grocers and new players that might emerge in the market after it acquires Whole Foods.
"As a matter of policy, should this be blocked? ...There should be a challenge to this because there should be a strong presumption against growth by acquisition and in fact there is supposed to be such a presumption in our law. It's what Congress intended," said Chris Sagers, a professor of antitrust law at Cleveland State University.
There were no comments from Amazon. Regulators are urged to prevent dominant firms from buying a major foothold in an adjacent industry by Sagers and other critics.
After it announced it planned to buy Whole Foods for $13.7 billion, Amazon sent grocery stocks into a tailspin Friday. The company sells everything from paper towels to designer clothing even though it started off as a bookseller in 1994.
Amazon would be able to dominate groceries as it did with bookselling given its strengths in logistics, its scale and leverage with suppliers, critics believe. The transaction will be approved because Amazon sells few groceries and Whole Foods is a minnow in the grocery market with 444 U.S. stores compared with 4,692 for Wal-Mart, said antitrust experts who represent deals being reviewed by the Justice Department and the Federal Trade Commission.
But Amazon supporters contend the deal will be good for consumers and deals that reduce consumer prices are generally looked at favorably by U.S. antitrust enforcement agencies.
The threat investors feel Amazon poses to traditional grocery chains is demonstrated by the drop in grocer share prices the day the deal was announced. There was a fall of more than 9 percent in No. 1 U.S. grocer Kroger.
"Competitors can be expected not to like a merger that puts more pressure on them. If their share price goes down, it's a sign they'll be under more competitive pressure," said Alden Abbott, antitrust expert at the Heritage Foundation.
In part through price cutting, Amazon was accused of crippling book retailers like Borders. 90 percent of all the stocks in the S&P 1500 food and staples index, which includes Walmart is equaled by Amazon's market value which stands at $480 billion.
Rather than leapfrog ahead through acquisition, it would be legal for Amazon to independently develop its grocery sales, Sagers argues.
Stopping Microsoft from using its dominance of the operating system market to also dominate browser software was the aim when the Justice Department sued Microsoft Corp in 1998.
Similarly, the government tried to ensure Comcast would not interfere with the development of cable's online competitors when it allowed Comcast Corp to buy NBC Universal Inc in 2011.
Companies that supply a combined Amazon and Whole Foods with organic flour, milk and other goods, could be harmed by the proposed transaction, some deal experts warn.
Darren Bush, a veteran of the Justice Department's Antitrust Division who teaches at the University of Houston's Law Center is worried by excessive "buyer power".
A business model that succeeds by pushing producer prices down is masked by Amazon's success in offering a massive array of products at low price, Bush said.
Amazon removed the "buy" button in 2010 from books sold by a publisher it was embroiled in a dispute with and food producers could soon face the sort of pressure that booksellers faced from Amazon.
(Source:www.reuters.com)
The deal has potential grounds to be blocked for antitrust reasons, say the critics as it would give Amazon an unfair advantage over traditional grocers and new players that might emerge in the market after it acquires Whole Foods.
"As a matter of policy, should this be blocked? ...There should be a challenge to this because there should be a strong presumption against growth by acquisition and in fact there is supposed to be such a presumption in our law. It's what Congress intended," said Chris Sagers, a professor of antitrust law at Cleveland State University.
There were no comments from Amazon. Regulators are urged to prevent dominant firms from buying a major foothold in an adjacent industry by Sagers and other critics.
After it announced it planned to buy Whole Foods for $13.7 billion, Amazon sent grocery stocks into a tailspin Friday. The company sells everything from paper towels to designer clothing even though it started off as a bookseller in 1994.
Amazon would be able to dominate groceries as it did with bookselling given its strengths in logistics, its scale and leverage with suppliers, critics believe. The transaction will be approved because Amazon sells few groceries and Whole Foods is a minnow in the grocery market with 444 U.S. stores compared with 4,692 for Wal-Mart, said antitrust experts who represent deals being reviewed by the Justice Department and the Federal Trade Commission.
But Amazon supporters contend the deal will be good for consumers and deals that reduce consumer prices are generally looked at favorably by U.S. antitrust enforcement agencies.
The threat investors feel Amazon poses to traditional grocery chains is demonstrated by the drop in grocer share prices the day the deal was announced. There was a fall of more than 9 percent in No. 1 U.S. grocer Kroger.
"Competitors can be expected not to like a merger that puts more pressure on them. If their share price goes down, it's a sign they'll be under more competitive pressure," said Alden Abbott, antitrust expert at the Heritage Foundation.
In part through price cutting, Amazon was accused of crippling book retailers like Borders. 90 percent of all the stocks in the S&P 1500 food and staples index, which includes Walmart is equaled by Amazon's market value which stands at $480 billion.
Rather than leapfrog ahead through acquisition, it would be legal for Amazon to independently develop its grocery sales, Sagers argues.
Stopping Microsoft from using its dominance of the operating system market to also dominate browser software was the aim when the Justice Department sued Microsoft Corp in 1998.
Similarly, the government tried to ensure Comcast would not interfere with the development of cable's online competitors when it allowed Comcast Corp to buy NBC Universal Inc in 2011.
Companies that supply a combined Amazon and Whole Foods with organic flour, milk and other goods, could be harmed by the proposed transaction, some deal experts warn.
Darren Bush, a veteran of the Justice Department's Antitrust Division who teaches at the University of Houston's Law Center is worried by excessive "buyer power".
A business model that succeeds by pushing producer prices down is masked by Amazon's success in offering a massive array of products at low price, Bush said.
Amazon removed the "buy" button in 2010 from books sold by a publisher it was embroiled in a dispute with and food producers could soon face the sort of pressure that booksellers faced from Amazon.
(Source:www.reuters.com)
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