Amazon.com, Inc. (NASDAQ: AMZN)
announced Friday it will acquire Whole Foods Market, Inc. (NASDAQ: WFM) for $13.7 billion dollars, but while both stocks shot up on the news, other
major grocers dropped
like a stone.
It’s just the latest move in Amazon’s seemingly unstoppable growth — which stretches to entertainment, cloud services,
artificial intelligence, pharmacy, bookstores and publishing — a trend which is causing analysts
to rethink how to even properly evaluate the company.
Its massive reach begs the question as to whether the Federal Trade Commission will consider subjecting the nearly $500 billion
market-cap company to antitrust investigations.
When The FTC Gets Involved
The FTC will act
in response to any action by business that “could hurt consumers by resulting in higher prices, lower quality, or fewer goods or
services.”
Investigations are guided by
three laws, which have been revised over time: the Sherman Antitrust Act, the Federal Trade Commission Act and the Clayton
Antitrust Act.
While the Sherman Act originally made illegal “every” contract, combination or conspiracy that would restrain trade, U.S. courts
later interpreted the law to only apply to unreasonable acts — some business actions that restrain trade actually benefit
consumers.
The Federal Trade Commission Act bans unfair or deceptive practices and created the FTC to enforce these laws.
The Clayton Act fills gaps in the Sherman Act, making illegal specific practices such as price discrimination and mergers that
would substantially lessen competition.
Is Amazon In Violation?
U.S. antitrust laws are geared toward ensuring consumers benefit from business activities — primarily considered in terms of
price level and access to products, not level of competition.
It seems likely that this will be the case. Amazon’s logistics capabilities could bring down the cost of products sold at Whole
Foods by allowing for greater purchase orders and efficient delivery. Listing Whole Foods products on Amazon would also increase
access for more people.
Furthermore, the deal is unlikely to decrease competition in a significant way. Whole Foods will continue to operate under its
own name and Amazon’s expansion into groceries is not especially large, yet.
“I would say right now the retail in the grocery space is remarkably competitive,” Bankrate’s Washington Bureau Chief Mark
Hamrick told Benzinga.
Also, despite Amazon’s existing interest in grocery, the Amazon–Whole Foods deal could be considered a vertical integration
rather than horizontal, which the e-commerce supply chain logistics serving as a middle step between food producers and Whole Foods
the seller.
Related Link: Comparing Walmart And Amazon's
Recent Acquisitions
The FTC’s website
reads, “In general, the law views most vertical arrangements as beneficial overall because they reduce costs and promote
efficient distribution of products.”
“Amazon is going to want to mindful that the antitrust risk is always going to be looming on the horizon,” said Hamrick. “But to
the extent that it really does not have an extended brick and mortar space, you cannot say that that is an imminent threat.”
Future Risk
The diversity of Amazon’s ventures suggests that despite its growth, the company is far from a monopoly in any sector but
perhaps e-commerce, and consumers are left better off.
That could become a moot point though, if government regulators were to become concerned Amazon plays too vital a role in
businesses overall.
Amazon serves as a key infrastructure to many businesses and many consumers have come to depend on it for their day-to-day
shopping. As such, it wields enormous power.
In a Fox News interview last year, then-presidential candidate Donald
Trump said “[Jeff Bezos has] got a huge antitrust problem because he's controlling so much. Amazon is controlling so much of what
they are doing.”
As president, Trump could steer the FTC to investigate the company for severely reducing competition rather than the consumer
impact, although he has said nothing on the matter since.
Amazon Could Change The Antitrust Landscape
Amazon is very strategic in show how its deal-making and growth benefits consumers in the short-term, so if [consumer
well-being] is really your only framework I think it’s difficult to imagine seeing any serious antitrust actions against the
company.
“We’ve been living for 30 years under this one, consumer welfare approach [to antitrust laws] and we are living in a political
economy that is highly concentrated and consolidated across sectors seeing competition diminished, and so there is a real
conversation going on within the antitrust community about what is the right framework,” said Lina Khan, a fellow with the Open
Markets Project at New America, to Benzinga.
Khan proposed that the U.S. may need to move beyond short-term well-being of consumer and look at market dominance in a more
sophisticated way.
“I think there’s real reason to think that we could see a shift in antitrust philosophy and under this new legal environment I
think that Amazon would immediately raise a lot of red flags,” said Khan.
Wedbush Analyst Michael Pachter isn’t concerned though, telling
Benzinga, “They [Amazon] can do as much M&A as they wish.”
Related Links:
Speculating Grocer Consolidation Amid Amazon–Whole Foods Deal
What's
Next For Amazon? Maybe Lululemon
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