Michael C. Stumo
General Counsel
Organization for Competitive Markets
P.O. Box 6486
Lincoln, Nebraska 68506

Dear Mr. Stumo:

Thank you for your comment on behalf of the Organization for Competitive Markets and the Puerto Rico Farm Bureau regarding the Federal Trade Commission=s proposed consent agreement relating to the acquisition of Supermercados Amigo, Inc. ("Amigo") by Wal-Mart Stores, Inc. ("Wal-Mart"). The Federal Trade Commission ("Commission") has concluded that there is reason to believe that Wal-Mart's acquisition of Amigo would violate Section 7 of the Clayton Act and Section 5 of the Federal Trade Commission Act. The agreement requires Wal-Mart's divestiture of all of the acquired Amigo stores in three geographic markets, the areas of Puerto Rico in and near Cayey and Cidra (the "Cayey" market), Ponce and Juana Diaz (the "Ponce" market), and Barceloneta, Manati, and Vega Baja (the "Manati" market), to Supermercados Maximo, Inc. ("Maximo"). The Commission believes that the required divestiture eliminates the anticompetitive effects that otherwise would have resulted from the acquisition.

In your comment, you express concern that Wal-Mart's acquisition of Amigo will increase Wal-Mart's alleged monopsony power in Puerto Rico with no countervailing efficiency gains. You urge the Commission to reevaluate the transaction "to address the competitive issues affecting Puerto Rico farmers, other agricultural producers and the food distribution industry in Puerto Rico." You also express concern regarding the viability of the proposed purchaser of the assets to be divested by Wal-Mart and, therefore, the adequacy of the proposed remedy. We are placing our responses to your comment, as well as to all other public comments, on our website to provide further insight into our investigative process.

Monopsony Power

As you note, the Commission and its staff analyze the impact of acquisitions on potential creation or abuse of monopsony power in appropriate cases. Based on the information and opinion provided by numerous persons with diverse interests, as well as our own fact-gathering and analysis, we did not find a credible threat that the acquisition of Amigo by Wal-Mart would increase the risk of monopsony power, and as a result, we did not include a discussion of monopsonization in our Analysis of the Complaint and Proposed Decision and Order to Aid Public Comment ("Analysis"). However, given your concerns, we explain below why, based on the available evidence (that we can publicly disclose), the acquisition does not threaten to create, enhance, or facilitate the exercise of monopsony power in a relevant antitrust market.

Monopsony power is market power of a buyer that, unlike the competitive buyer, can profitably reduce the purchase price below competitive levels by scaling back purchases in a relevant antitrust market. The exercise of monopsony power causes competitive harm because the monopsonist will either shift some of its purchases to a less efficient source or supply too little output to the downstream market (or both). A shift in purchases from an existing source to a lower-cost, more efficient source is not an exercise of monopsony power.

You raise a concern about possible monopsonization based on the threatened shift of control of Amigo's purchasing to an owner--Wal-Mart--that may "obtain lower prices" from producers in Puerto Rico through superior "buying power."⁽¹⁾ However, even if one were to assume that the sale of agricultural products by Puerto Rico producers is a relevant antitrust market, for at least two reasons there is no credible threat that Wal-Mart's acquisition of Amigo would create or enhance the potential for the exercise of monopsony power.

First, your letter suggests that Wal-Mart has not in the past purchased large volumes of goods in Puerto Rico, suggesting that your "monopsony" concern derives, not from increased concentration of purchasing power resulting from the combination of Wal-Mart and Amigo, but rather from Wal-Mart's ability to shift some portion of the combined entity's purchases to lower-cost suppliers. Under such a scenario, Puerto Rico producers' sales to Wal-Mart/Amigo may be reduced, but this would reflect competition, not monopsony.

Second, there are numerous other purchasers (actual and potential) of Puerto Rico agricultural products--both in and beyond a "supermarket" product market⁽²⁾ and in and beyond Puerto Rico--to which Puerto Rico suppliers could turn if Wal-Mart attempted to exercise monopsony power. In other words, the market for sales of Puerto Rico products is not highly concentrated, and (as your comment implies) the Wal-Mart/Amigo transaction does not significantly increase concentration in any such market or endow the merged firm with monopsony power. Thus, the fundamental condition for any viable monopsony theory is not present.

It is important to note that the purpose of antitrust laws is to protect competition, not particular competitors. This issue is often highlighted by incumbent firms' complaints that an acquisition is likely to harm them. Such complaints are aimed at protecting the incumbent firms' own interests, which frequently do not equate to protecting consumers. These complaints also often ignore or understate the ability of firms to respond to competition, and treat pro-competitive efficiencies as threats. To the extent that complaints such as those in your letter are true--that is, that as a result of the acquisition, the combined Wal-Mart/Amigo lowers costs by purchasing products at a lower price or employing a more efficient distribution system--the acquisition will provide incentives to other suppliers and distributors to adapt and to become more efficient, resulting in increased output and reduced prices to consumers. On balance, whether in production, distribution, or retail sale, competition--mandated adaptations can be expected to ensure that efficiencies are realized and flow to consumers.

Buyer Approval

The Commission's consent order requires that the stores to be divested be sold to Maximo. Viability of the purchaser of divested assets is always of paramount concern to the Commission. As is customary, in this investigation the Commission's experienced staff carefully reviewed and assessed the background, capital resources, commercial relationships, business plan, and other relevant information and determined that Maximo has the capacity and incentive to operate the divested stores in a manner that will maintain competition in the relevant markets. Indeed, as a new entrant being established by some of the very people responsible for the founding and growth of the Amigo chain, Maximo may be expected to enhance competition not only in the divestiture markets, but in other markets to which it may expand in future years. We understand that you would have preferred that the Analysis include more information to enable you to assess independently Maximo's viability. Our ability to disclose confidential business information, including much of what you seek, is constrained by statute.⁽³⁾ In addition, we are constrained by our wish to ensure the effectiveness of the divestiture remedy itself. For example, even if we could divulge Maximo's business resources and plans, any such disclosure could well be used by Maximo's competitors to impair that company's competitive viability. Thus, we have sought to provide the public as much information as is permissible and practicable without harming the very remedy on which we, and the public, depend.

Conclusion

While we have attempted to address your concerns in this response, we observe that Commission Rule 2.34(c), 16 C.F.R. §2.34(c), provides that, when the Commission publishes a proposed consent agreement for public comment, it will provide "an explanation of the provisions of the order and the relief to be obtained thereby and any other information that it believes may help interested persons understand the order." The Analysis in this matter satisfied these requirements. It explained the order provisions and the relief to be obtained and it published all other information that the Commission believed would help interested persons understand the order. The rule does not require that the Commission publish a synopsis of its investigation or a discussion of any or all approaches that were considered and rejected during the investigation.

The public comment period is for the Commission's benefit. The primary purpose of the public comment period and of the Analysis is to invite the submission of comments that will assist the Commission in assessing the proposed consent agreement. The question, therefore, is whether the Commission has enough information to make a correct decision. The information available to the Commission includes not only the public comments but also, of course, the factual information and analyses developed by the staff during the course of the investigation. The Commission is satisfied that the information received in response to the invitation for public comment, together with all of the other information available to the Commission, is adequate for it to evaluate the proposed agreement.

We appreciate your concerns and the time you took to comment in this matter. After careful consideration of your comment and other materials, the Commission has determined to accord final approval to the consent order in this matter, without modification. Please let us know whenever we can be of assistance.

By direction of the Commission, Commissioner Anthony recused.

Donald S. Clark
Secretary

1. Your letter refers interchangeably to "buying power" and monopsony power. However, as the above discussion indicates, "buying power" does not necessarily equate to monopsony power and is often pro-competitive and beneficial to consumers.

2. The use of the word "supermarket" in this case includes club stores.

3. See, e.g., 15 U.S.C. §18a(h).