26 June 2007

Whole Foods: Slicing up the natural foods market

Via Cafe Hayek, Chicago Tribune columnist Steve Chapman comes out with the same argument Whole Foods CEO John Mackey makes:

Organic food consumers would not be the suffering captives of this new company. Every grocery store has a raft of organic offerings, and chains from Wal-Mart to Trader Joe's are fighting to get their share of sales. If the bigger Whole Foods tries price-gouging, customers can easily find other sources for what they want - from farmers markets to online suppliers.

The key government error is defining the market as a narrow sector isolated from other sectors that provide reasonable substitutes.

Yup. For virtually any company, one can define its market so narrowly that any merger would sharply inhibit competition (FTC's position here), or so broadly that no merger could meaningfully decrease competition (Mackey's position). As a libertarian, I tend to default to the latter position except in cases of genuine -- often government-induced -- monopoly (and its equally mischievous but oft-overlooked cousin, monopsony). I realize there are somewhat persuasive arguments for FTC intervention in markets that, for one reason or another, closely approximate these two conditions, but the booming natural foods industry just doesn't seem like a good candidate.