NEW YORK -- The food industry is unlikely to see any dramatic changes in the way antitrust laws are interpreted over the four years of the Bush Administration, a Republican member of the Federal Trade Commission said here last week.
"I could be wrong, but my prediction is there will be no dramatic changes in the thrust of antitrust enforcement over the next four years," Thomas Leary, one of five FTC commissioners, told an audience at last week's Food & Drug Retailing Conference sponsored by Credit Suisse First Boston here.
The FTC currently has three Democratic members and two Republican members, Leary said, with the term of one of the Democratic commissioners due to expire in September. But although President Bush is expected to appoint a Republican to fill the vacancy, "the confirmation process can take awhile, even up to a year, and there may not be a Republican majority on the commission until 2002, so don't expect any immediate change."
But even with a Republican majority, the food industry shouldn't count on a reconstituted FTC to be more lax in antitrust enforcement, Leary said.
"If you're hoping we'll be more restrained and abandon enforcement in a particular area, then think twice," Leary warned, "because when the commission was perceived as being more lax in the 1980's, that had an immense stimulating effect on enforcement at the state level and ultimately led to a more detrimental situation for business."
While significant changes in the way the FTC interprets antitrust law may not change, Leary said the FTC is already becoming more flexible and willing to listen to industry suggestions on how enforcement could be changed.
"Our interpretation of the law is not locked in concrete, and our views will change as the world changes," he said.
"We will continue to focus on horizontal mergers between direct competitors, and we will continue to look at how each marketplace is defined and at what kinds of stores are in a market, which is the more controversial aspect.
"Our view until now has been to look at stores with one-stop shopping as the relevant stores to consider in antitrust, and that's an approach we got from reading retailer documents and how they identify their competition, as well as from what investors write. So if a supermarket responds to price changes at one kind of store in Market A but not at a different kind of store in Market B, that affects our view of the competitive dynamic.
When the FTC considers competitive concentration in a market, "it makes a difference if the market is going from five competitors to four or four to three. But none of us [on the FTC] has a closed mind, and we're willing to be persuaded otherwise."
Another issue the FTC considers is how close together competing retail outlets are to each other. "A market is not like a walled city but more of a spectrum, and in a merger between two stores that are perceived as substantial players, those stores may be treated differently from another pair of stores because we try to judge each deal on its merits."
Leary also said some companies try to convince the FTC that a merger will result in changes that will transform the industry, "but the problem we have is, there's not always universal agreement on how much change will occur or how quickly. Our arbitrary rule of thumb is to consider changes that are expected within two years and not to consider changes beyond that, so you need to give us some kind of general guidance on what is and is not likely to happen based on your plan.
"Is our two-year rule inflexible? No, though at this moment, we think it's reasonable."
Another issue the FTC considers is efficiencies that will result from a merger, Leary said. "The FTC used to consider competitive advantages resulting from mergers as a negative. But if you can argue that a merger will generate efficiencies and economies of scale, that could be a plus in getting FTC approval.
"Efficiencies can be good or bad, with bad efficiencies defined as those that could be achieved in a less restrictive way, leading to the question, could you gain those efficiencies without a merger? With the laws on joint ventures more liberal than they used to be, it makes it a little harder to get approval for a merger based on efficiencies alone."
The use of some terms in seeking merger approvals are more ambiguous and should be avoided, Leary said, including "greater buying power," "leverage," "price stability" and "market dominance."
Leary said the job of FTC commissioners is to apply the law to mergers. "But it's not our job or responsibility to try to second-guess businesses, nor is it our job to prevent people from doing mergers because we think they are dumb. We're not a paternalistic body.
"But when we're asked to evaluate a merger, it's legitimate to reflect on whether or not it is part of a sea change or just a fad."
Of 150 supermarket mergers in the last five years, Leary said the FTC cleared 135 without any interference; approved 13 "with some modifications," and abandoned only two -- Kroger's attempt to acquire the Winn-Dixie stores in Texas and Ahold's attempt to acquire Pathmark.
"What we have to determine is whether the tail is wagging the dog -- whether too many stores would have to be divested to approval a deal. In the case of Kroger and Winn-Dixie, the feeling of the commission was there was too much overlap."
Leary, who was appointed to the FTC in November 1999, said he wasn't part of the decision-making process in the Ahold-Pathmark deal.
