Whole Foods Defeats FTC
Amazing as it sounds, when the government tries to violate your rights, you don't have to sit back and take it. Whole Foods stood up to the Federal Trade Commission's bullying and prevailed today when a federal judge rejected the antitrust regulator's demands to stop Whole Foods acquisition of Wild Oats Markets. The judge's opinion remains under seal until at least Monday, but there's no question that this was a total defeat of the FTC and its economist sycophants (including a member of the vaunted Chicago faculty!)
Technically the U.S. District Court in Washington did not decide the FTC's antitrust challenge on the merits, only a motion for a preliminary injunction that would prevent the merger's consummation pending an administrative hearing before an FTC Star Chamber. The FTC could still go ahead with its internal proceeding and try to break up Whole Foods and Wild Oats after they merge, but even antitrust regulators tend to find that approach wasteful.
Many antitrust moderates criticized the FTC's decision to narrowly define a market for premium organic foods, but it seems to me this was a case of Commission members pandering to the hardcore base, as it were. Despite a steady diet of anti-free market activities, the Bush-era FTC lacks a signature battlefield victory a la the Clinton-era FTC's destruction of the Staples-Office Depot merger or even the limited (and Pyrrhic) victory by the Clinton DOJ over Microsoft. The current FTC's biggest target to date has been its five-year crusade against Rambus, a small California memory developer, and that case appears headed for a Titanic-like sinking before the D.C. Circuit Court of Appeals sometime next year. Whole Foods likely provided the Republican-led FTC its last chance to publicly humiliate a well-known company while expanding the scope of existing antitrust dogma.
Antitrust remains a threat, of course. Whole Foods falls into a less-than-five-percent category of companies that mount a defense against FTC (and DOJ) attacks. Will Whole Foods' victory encourage more firms to fight? I'm skeptical. In many respects, antitrust is a corporate governance problem. Executives take a conservative approach and employ expensive antitrust lawyers--often ex-regulators themselves--who preach tolerance of the state's violent attacks. Antitrust is a cost of doing business, the lawyers say, so it's better to "negotiate" and make any concessions demanded by regulators. This appeals to risk-averse executives, particularly when the press and public accept the mythology of antitrust without question.
On the other side, there's Whole Foods CEO John Mackey, who didn't just reject conventional wisdom; he went out of his way to explain every flaw in the FTC's argument and expose the abusive tactics employed by regulators. His masterful blog treatise on the FTC should be required reading for every businessman and MBA student in America. It's a template on how to successfully oppose antitrust.
Comments (17)
John Mackey also anonymously spread false rumors about Wild Oats to try and lower it's share price before the acquisition. I'd hardly consider him a hero.
Published: August 17, 2007 12:20 AM
If false, that would only hurt those shareholders stupid enough to believe the rumors and sell lower.
Published: August 17, 2007 1:05 AM
"John Mackey also anonymously spread false rumors about Wild Oats to try and lower it's share price before the acquisition."
It's called free speech, something the FTC violently opposes. Mackey's actions constituted neither force nor fraud, so I have no problem with what he said, anonymously or otherwise.
Published: August 17, 2007 6:39 AM
I believe it was the FTC (though it may have been the FCC) that stopped the merger of Dish and DirectTV a while back. That was in the name of anti-trust issues.
Published: August 17, 2007 9:47 AM
If someone is spreading false rumors about a company, that is not free speech, it is fraud.
Of course the right of free speech is sacrosanct, and he can say whatever he wants-- but he must accept the consequences of those words if they cause demonstrable harm to another through force or fraud-- and lying is a misrepresentation of the facts...i.e., FRAUD
Published: August 17, 2007 11:18 AM
sorry, did not mean to post more than once... :-(
Published: August 17, 2007 11:45 AM
"If someone is spreading false rumors about a company, that is not free speech, it is fraud."
Fraud requires theft. A person spreading false rumors about a company does not involve theft, and thus cannot constitute fraud.
Published: August 17, 2007 1:46 PM
It seems that libertarians are often quite strong and principled in opposition to force and very weak when it comes to fraud. I don't know the specifics of who was told what in this specific case, but telling a lie in order to get someone to part with something of value is the very definition of fraud, not free speech.
See Skip's post: "Fraud requires theft". No, theft is the taking of another's property by force. Fraud is depriving another of their property by intentionally spreading false information.
Published: August 17, 2007 2:38 PM
"Fraud is depriving another of their property by intentionally spreading false information."
It's difficult, if not impossible, to prove causation between a pseudonymous internet posting and one or more persons selling their stock at a particular price. It's certainly not fraud when there's no fiduciary or contractual relationship between the speaker and listener.
Published: August 17, 2007 3:29 PM
It is good that John Mackey puts out the information for all to see. Government actions should all be open and transparent for all to see the abuse of power that takes place behind closed doors. The fact is John Mackey obviously irritated someone - competitors, stockholders or lenders opposing the take over, or someone else with political connections. They in turn through there DC lobbyist/lawyers approached the FTC and sought to have the FTC intervene on their behalf. This is a very low cost way for the client of the FTC to obtain his/her ends. Look to see who benefits from stopping the merger and you will find the client of the FTC for whom it is doing the bidding. Were this in Asia or Latin America everyone would know this but in the USA most people still believe government operates for good purposes which allows the immoral activities of the FTC and tens of thousands of other federal, state, local governments and regulators to get away with their immoral activities.
Published: August 17, 2007 6:53 PM
Fraud does entail theft. Fraud occurs when a conditional transfer of property has taken place, and the condition turns out not to hold. If I sell you what I say is a new computer, your payment to me is conditional on it really being a new computer. If it turns out the computer is used instead of new, then I have stolen (there's the theft) the difference in value between the used computer and the new computer.
What Mackey did does not fit this template.
Published: August 17, 2007 8:58 PM
Maybe that kind of action doesnt fal exactly into the definition of fraud. I don't know the exact legal word that describes it. I do know one that describes it for me. WRONG. He, by telling lies, saying things he knew to be false, caused others to lose $$$. He also gained. IF you agree with these tactics, I hope to never have dealings with you. These are the kind of people who would walk into a store & shop thru their inventory until they find what they like, not the maker, size & style, then go online to buy it! They wouldnt even KNOW what they were doing was wrong. Not exactly their fault. They have been raised in a corrupt society. Ubiquitous behavior is considered acceptable & those in Soddom & Gamorah considered themselves as OKAY in the eyes of God. They were wrong, too.
Published: August 17, 2007 9:44 PM
Yes, the morality of the action is questionable; an entirely different question though as to whether it should be legal.
Published: August 17, 2007 9:55 PM
An anonymous posting does not constitute fraud because has no value as information on which to base a decision. We base our decisions not only on anonymous words that are written but on their credibility. If we don't know the person posting them and have no outside corroboration for them no decision is made and therefore no fraud has been committed.
If instead of evidence we make our decisions based on feelings we can not later declare that we have been defrauded because we did not make our decisions based on their words but on our feelings.
Published: August 18, 2007 3:30 PM
I think it just encourages and creates more monopolies. I believe both sides are monsters. And prices will only continue to go up!
Published: August 20, 2007 3:04 AM
Go on to the Yahoo finance board and actually read what I said about Wild Oats instead of forming your opinions from biased media which also hasn't bothered to carefully read what I actually said under the screen name rahodeb. I offered my opinions about Whole Foods, Wild Oats, Trader Joe's, Safeway, food co-ops, and other food retailers and I told the truth from my perspective. I certainly didn't tell any lies about Wild Oats or try to harm them or anyone else. It seems to me that the First Amendment gives me just as much right to express my opinions as anyone else.
Published: August 20, 2007 8:51 AM
I'm surprised to see many illogical arguments here on Mises, but I suppose even this board is suspect to those that are economically ignorant.
Anti-trust regulations are not only unconstitutional, they are horrible for the economy. For those who post that the FTC prevents monopolies, that is a completely illogical argument. Successful monopolies can only exist with the help of government. Think utilities, cable companies, etc. These mergers are nothing more than trades between a buyer and seller, and for the government to come in and have to give their thumbs up costs a lot of additional money, which ends up on the prices of the goods we buy. Remember a trade in a free market only occurs if both parties (buyer and seller) agree that what they are giving up is less valuable than what they are getting in the exchange. If both parties do not agree to this (for various reasons, including price, quality, need), then the exchange doesn't happen. That is the basis of free-trade.
For those who argue that after Whole Foods merges with Wild Oats that prices will rise are also not grasping basic economics. If Whole Foods starts charging $1000 for cheese, will anyone buy it? Is anyone forced to buy anything from Whole Foods? Of course not, the only way they can (and have been) successful is for them to provide goods and services that consumers are willing to trade their labor (and money) for.
The FTC is another one of those ridiculous government bodies that continues to grow and wield it's power, when it should be disbanded. There is one guy running for president that would make that happen, and that is Ron Paul.
I've been out of the corporate world for a while now, having run my own ad agency for the past 10 years. However, if I were to go back, it would have to be for a guy like Mackey, who actually understands economics. It was eye-opening and very discouraging for me to see in the business world and when earning my MBA so many people completely ignorant of the dismal science, and who believed this government intervention in trades necessary.
Published: August 27, 2007 9:44 AM