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Price Check on Antitrust
[January 14, 2003]

By S. M. Oliva

A battle is looming in London as three companies prepare to vie for control of Safeway PLC, a major British supermarket chain unrelated to the U.S. company of the same name. Last week, Safeway agreed to a $4.6 billion buyout from William Morrison Supermarkets. That news attracted two additional suitors, a $5.1 billion offer from Sainsbury PLC and $4.8 billion from U.S.-based Wal-Mart Stores, which operates their ADSA subsidiary in Britain.

You would expect the highest final bidder would win. But that may not be the case after British antitrust regulators interfere. Concern over consolidation in Britain's small supermarket industry has prompted the Labour government to consider forcing Safeway to take the Morrison bid, even though that company won't be able to win a price war with the two larger competitors. In the eyes of Britain's Competition Commission, better to screw over stockholders—who only own the company—that take the risk that British consumers may pay a couple Pounds more each week at the grocer.

Supermarket consolidation scares British and U.S. antitrust regulators alike. Just last month, Wal-Mart came under extensive attack for their purchase of a small Puerto-Rican supermarket chain. While the Federal Trade Commission quickly settled with Wal-Mart, permitting the acquisition in exchange for some token divestitures, Puerto Rican authorities are now attempting to use local law to stop Wal-Mart's purchase.

Obviously, supermarkets are a popular target for antitrust regulators because they tend to affect a great number of consumers. Everyone buys food, hence everyone's sensitive to food prices. The British Government goes so far as to state Britons are "unfairly" paying higher prices for food. Higher than whom? Other countries, they say. But that's hardly a cause for alarm. Food costs in Britain and the U.S. are substantially lower than the overwhelming majority of other countries. The existence of large supermarket chains with broad distribution networks is a key reason for this. Bigger is better, not just for stockholders, but for customers as well.

But if the industry is not creating anticompetitive problems for Britain, than what is? The government itself. A major reason the Brits fear supermarket consolidation is that it's next to impossible to actually build new supermarkets in the UK. National and local planning regulations causes years of delay in construction. Since the Brits won't even think about abandoning archaic land rules, their only alternative is to artificially prevent consolidation. In other words, we made a mistake, so let's scapegoat the supermarkets and blame the problem on them.

In the U.S., we've all heard about the grief Wal-Mart takes in many regulation-happy communities. Many places do everything in their coercive (yet legal) power to stop Wal-Mart from coming to their towns. By doing so, they preserve higher-priced local competition. Yet somehow the antitrust authorities never stop that kind of anticompetitive behavior. If local governments restrain trade by violating private property rights, it's called "zoning." But when a company expands for their own economic self-interest, they're slapped with an antitrust complaint.

Like most antitrust matters, the attack on supermarkets benefits nobody but the power-brokers. Businessmen certainly don't benefit. Stockholders are forced to accept inferior returns. Consumers are denied the benefits of larger, more efficient retailers. On the other side, antitrust lawyers and government regulators not only profit, but get a certain kind of fake self-esteem that only comes from initiating force against others—and getting away with it.


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