Whole Foods, Continued

Whole Foods, Continued

The veil of secrecy was lifted last week on Judge Paul Friedman's decision allowing Whole Foods to buy up its only real competitor, and it turns out I was wrong. It was even worse than I had imagined. More the pity, then, that such an unfortunate piece of jurisprudence was allowed to stand by the D.C. Circuit Court of Appeals, which gave the final green light to the arugula-and-granola monopoly.

Friedman's first mistake was forgetting that he was a lawyer and not an economist, and allowing himself to get sucked into the microeconomic details of the dueling theoretical studies of how Whole Foods would behave after the merger. In fact, he had all the evidence he needed right there before him, in plain English, in the plans and statements of Whole Foods' top executives.

"By buying [Wild Oats] we will . . . avoid nasty price wars in Portland (both Oregon and Maine), Boulder, Nashville, and several other cities, which will harm [our] gross margins and profitability," chief executive John Mackey wrote his board of directors. Even better, he added, the acquisition would "eliminate forever the possibility of Kroger, Super Value or Safeway" buying Wild Oats and using it to "launch a competing national natural/organic food chain to rival us."

Yes, but now that traditional grocers like Safeway had begun to offer fresher fruit, better displays and a wider range of organic foods, wouldn't that be enough competition to keep the Whole Foods-Wild Oats combo in check?

Not according to Mackey. He was on record as saying that grocers like Safeway would lose "90 percent of their business" if they really tried to compete for Whole Foods' core customers.

Until just recently, Whole Foods execs had a name for places where there was no head-to-head competition between Wild Oats and Whole Foods. They called them "monopoly" markets.

But hey, why rely on the views of some of the industry's most successful executives when you have the expert testimony of David T. Scheffman, professor of business strategy and marketing at Vanderbilt? Scheffman convinced the judge that what matters are marginal customers, not core customers, and if Whole Foods were to close Wild Oats stores in the markets where they compete, those marginal customers would take their business somewhere other than Whole Foods. Somehow it never occurred to the judge to question why, if that were true, Whole Foods was preparing to close down 30 Wild Oats stores once the merger was approved. Or why Whole Foods was so anxious to buy Wild Oats in the first place.

In this decision, Friedman revealed a stunning naivete about how consumers behave, how businesses compete and how markets really operate. And with the concurrence of the appeals court, he has now laid down a pernicious legal precedent that badly undermines the common-sense approach to antitrust enforcement that Congress had always intended.

Ticketmaster vs. Live Nation

Speaking of monopolies, Ticketmaster acknowledged that it might lose its biggest client. Talks between Ticketmaster and Live Nation, the biggest chain of music venues, have broken down over Live Nation's desire to sell most of its ticket through its own Web site.

But don't get your hopes up that cutting out the middleman will allow you to avoid famously generous Ticketmaster service fees the next time you want tickets to the Nissan Pavilion or the Warner Theater. Turns out a portion of those charges are often kicked back to the venues. If Live Nation decides to go it alone on ticket sales, it won't give up the higher ticket charges, but it will give up the ability to raise ticket prices and have customers blame it on someone else.