CONCENTRATION AND MERGERS IN U.S. WHOLESALE GROCERY MARKETS

This report analyzes a large sample of U.S. grocery warehouse operators in 54 well defined grocery marketing areas. Almost all grocer retail chains with more than 40 supermarkets and $500 million in retail sales in 1990 are vertically integrated into wholesaling. More than four-fifths of the market areas display high levels of sales concentration (four-firm concentration greater than 60 percent). The 1992 merger between Super Value and Wetterau violated federal merger enforcement guidelines in at least four market areas, and several more horizontal mergers between merchant grocery wholesalers have been consummated since then.Grocery wholesale trade, food retail trade, market concentration, mergers and acquisitions, vertical integration, antitrust policy, food distribution, geographic market definition.

COMMENTS ON THE STRUCTURAL CONVERGENCE HYPOTHESIS

Market convergence, food systems, North America, European Union, Agribusiness,

Comment on Crandall and Winston

In a paper published in the Journal of Economic Perspectives in the fall of 2003, Robert Crandall and Clifford Winston all but call for the repeal of the Nation’s antitrust laws. Their qualifications to make such a radical proposal are in doubt, but more importantly their purported review of empirical studies of overt price-fixing effects is shallow, biased, and naïve. Crandall and Winston’s assertion that the direct benefits of convicting pricefixers are slight is central to their paper’s thesis. Their review is shallow because the five studies that they examine comprise less than 2% of the economic literature that quantitatively estimates the price effects of explicit price-fixing schemes; it is biased because the chosen studies find no or weak price effects, whereas the vast majority of such studies find significant positive effects on price during the collusive period; it is naïve because the selected studies are either severely flawed or irrelevant.antitrust, price-fixing

Extraterritoriality of the Sherman Act and Deterrence of Private International Cartels

This paper presents two major economic arguments relevant to a decision facing the U.S. Supreme Court in early 2004. In Empagran v. F. Hoffmann-LaRoche the Court must decide whether companies like Empagran, an Ecuadorian animal-feed manufacturer, ought to be permitted to sue for treble damages under the 1890 Sherman Act, even though Empagran bought vitamins from a convicted global cartel wholly outside U.S. territory. Because of ineffective antitrust enforcement in its home country, Empagran and similarly situated buyers favor having this right, whereas Roche and 19 other members of the vitamins cartel oppose it. The first argument in favor of extraterritorial expansion concerns the effects on U.S. consumers and the competitiveness of U.S. markets. I argue that in the context of international price-fixing conspiracies, conduct relating to "wholly foreign" purchases necessarily affects domestic commerce. This is because international cartels must prevent international geographic arbitrage in order to succeed in controlling prices in any targeted national market. Second, this paper assembles empirical evidence that, should non-U.S. transactions be excluded from U.S. antitrust protection, the global aspirations of contemporary cartels offer an insuperable challenge to a core aim of the antitrust laws: Deterrence. The broad geographic harm generated by the scores of modern global price-fixing conspiracies has overwhelmed the ability of current laws about corporate antitrust sanctions to provide enough financial disincentives to discourage the formation of similar cartels in the future. Permitting foreign buyers who purchased the products of international cartels abroad to pursue civil antitrust damages actions in U.S. courts is necessary to yield the level of legal punishment needed to protect the U.S. economy and its consumers from future cartel injuries. Territorial expansion will also increase the probability of discovery of clandestine cartels by multiplying the number of jurisdictions in which private parties have an incentive to investigate collusive behavior.International Relations/Trade,

EXTRATERRITORIALITY OF THE SHERMAN ACT AND DETERRENCE OF PRIVATE INTERNATIONAL CARTELS

This paper presents two major economic arguments relevant to a decision facing the U.S. Supreme Court in early 2004. In Empagran v. F. Hoffmann-LaRoche the Court must decide whether companies like Empagran, an Ecuadorian animal-feed manufacturer, ought to be permitted to sue for treble damages under the 1890 Sherman Act, even though Empagran bought vitamins from a convicted global cartel wholly outside U.S. territory. Because of ineffective antitrust enforcement in its home country, Empagran and similarly situated buyers favor having this right, whereas Roche and 19 other members of the vitamins cartel oppose it. The first argument in favor of extraterritorial expansion concerns the effects on U.S. consumers and the competitiveness of U.S. markets. I argue that in the context of international price-fixing conspiracies, conduct relating to “wholly foreign” purchases necessarily affects domestic commerce. This is because international cartels must prevent international geographic arbitrage in order to succeed in controlling prices in any targeted national market. Second, this paper assembles empirical evidence that, should non-U.S. transactions be excluded from U.S. antitrust protection, the global aspirations of contemporary cartels offer an insuperable challenge to a core aim of the antitrust laws: Deterrence. The broad geographic harm generated by the scores of modern global price-fixing conspiracies has overwhelmed the ability of current laws about corporate antitrust sanctions to provide enough financial disincentives to discourage the formation of similar cartels in the future. Permitting foreign buyers who purchased the products of international cartels abroad to pursue civil antitrust damages actions in U.S. courts is necessary to yield the level of legal punishment needed to protect the U.S. economy and its consumers from future cartel injuries. Territorial expansion will also increase the probability of discovery of clandestine cartels by multiplying the number of jurisdictions in which private parties have an incentive to investigate collusive behavior.extraterritoriality, antitrust, cartel, price fixing, deterrence

EVOLVING RESEARCH ON PRICE COMPETITION IN THE GROCERY RETAILING INDUSTRY: AN APPRAISAL

With the end of the Supermarket Revolution in the 1970s, new forms of horizontal, vertical, and geographic competition have appeared to challenge the supremacy of the supermarket format. New retail formats like warehouse stores, supercenters, and fast-food outlets appear to affect local retail supermarket prices. Slotting allowances, coupons, and electronic data gathering have intensified retailer-manufacturing rivalry. Foreign direct investment offers the promise of new European-style management styles in U.S. grocery retailing.Agribusiness, Demand and Price Analysis,

COUPONING AS A HORIZONTAL AND VERTICAL STRATEGY: THEORY AND EFFECTS

This paper surveys developments in analytical models and empirical findings concerning the strategic use of manufacturers' coupons for U.S. grocery products. Traditional theories examine the horizontal effects of coupons as a strategy to charge various classes of consumers different prices. Recent developments focus on the use of coupons in manufacturer-retailer vertical competition. The paper provides data on trends in couponing: numbers, face values, redemption rates, total promotional costs, and international usage. The paper further analyses the effective price discounts provided by coupons across brands and segments of ready-to-eat cereals during 1992-1995.Coupons, sales strategies, vertical competition, food products, ready-to-eat cereals., Industrial Organization, Marketing,

COLLUSION AND PRICE DISPERSION

While there are suggestions in applied cartel studies that price dispersion changes when cartelization of a market occurs, there are few theoretical or empirical analyses of this effect. This paper surveys the thin economic literature on the link between overt collusion and price dispersion. Formal theories and observation of cartel behavior suggest that during successfully collusive periods prices become less variable and more negatively skewed compared to relatively competitive periods. Four empirical studies of cartels verify these predictions.collusion, cartel, price dispersion

ECONOMIC FORCES INFLUENCING VALUE-ADDED FOOD INDUSTRIES: IMPLICATIONS FOR SOUTHERN AGRICULTURE

Agribusiness,

A RE-EXAMINATION OF EVENT STUDIES APPLIED TO CHALLENGED HORIZONTAL MERGERS

A growing body of empirical studies have been interpreted as support for a laissez-faire policy towards mergers. These "event studies" examine the reaction of stock market prices of firms that announce an agreement to merge. The type ~f reaction reveals whether a merger is motivated by a desire for market power or purely to improve market efficiency. In this paper, a version of the capital asset pricing model (CAPM) is applied to determine if abnormal returns are earned by rivals of 22 pairs of firms whose attempted horizontal mergers were challenged by the federal antitrust agencies. At most eight, and possibly only five, of the cases were found to be motivated by efficiency in seeking merger, and at most six, and possibly only one, were motivated by market power; the rest were inconclusive. The event-study technique is highly flawed for the study of business-regulation effects. Numerous unrealistic assumptions, inappropriate data constraints, and questionable interpretations hamper .the application of this technique to policy analysis.Industrial Organization,