The federal government has initiated an anti-trust action against the Whole Foods grocery company to prevent it from merging with Wild Oats. A “trust’ is an organization that can be treated as a legal person; big corporations used to be called “trusts.” Anti-trust policy seeks to break up big monopolies or to limit their power in the market. In this case, the Federal Trade Commission has filed a lawsuit to block the merger, which will be decided in court.

Previous anti-trust actions were taken against IBM and Microsoft, and now the government is going against the natural-grocery company Whole Foods. This action against Whole Foods could be very costly, as the FTC can demand to see millions of documents and peer into every detail of the company’s operations.

The FTC claims that Whole Foods dominates the natural foods industry, and its domination would increase if it merges with Wild Oats. Whole Foods is small compared with giants such as Safeway, but the FTC claims that the relevant industry is the organic foods industry rather than all groceries. But even there, Whole Foods and Wild Oats only have about 15 percent of that market. The price of the shares of Whole Foods has dropped substantially during the past year due to the cost of opening new stores and to competition, hardly a picture of monopoly power.

In my judgment, it is absurd to claim that Whole Foods does not compete much with other grocery stores. People shop for groceries based on the quality of the food, the prices, and the locations. Where I live, the Whole Foods store is two miles away. I usually buy food in the nearby stores, and occasionally at Whole Foods. There is a natural grocery store near my house that I buy from more often than from Whole Foods. I don’t think that I am untypical in this pattern.

As more people buy organic foods, the mainstream grocery are increasingly offering organic products, produced without pesticides, hormones, and artificial chemicals. Safeway, Wal-Mart, Trader Joe's and other large chain stores do compete with Whole Foods. Conventional stores sell most of the natural foods in the USA. They have locational advantages as well as lower prices. There are also many small natural grocery stores that compete with Whole Foods. People buy from Whole Foods not just for the organic goods but also to get fresh produce and fish, supplements, and goods that most other stores don’t have, such as coconut juice that does not have added sugar.

The production of natural foods is dominated by large corporations. Big companies such as Dole, Kraft, and General Mills sell natural foods, often under special brand names for the organic.

A merger with Wild Oats would close some Wild Oats stores that are near Whole Foods, but Whole Foods would still have constraints on its pricing power, since it is already more expensive than other stores. If Whole Foods were to reduce the quality of its goods, sales would surely suffer as well.

I have heard Whole Foods CEO John Mackey speak at several libertarian conferences. He is the rare executive who favors a free market while also caring about the natural environment, animal welfare, the well being of the company’s employees, and the benefits to customers. In an unusual reaction, Mackey has written a large argument against the Antitrust complaint in his blog.

This anti-trust action is odd especially as much larger mergers have been approved by this administration. Whole Foods and Wild Oats together have only about two percent of the overall food retail market. One reason why Whole Foods seeks to merge with Wild Oats is that it is probable that a conventional grocery company would otherwise buy Wild Oats. Many organic food buyers would prefer to have another organic food seller nearby than another conventional store.

I am admittedly biased in favor of Whole Foods as a shopper and as a libertarian who admires the philosophy of CEO John Mackey as a truly compassionate libertarian. But as an economist this seems to me to be the most illogical case ever made for antitrust action. It makes me wonder if the real reason for this action is to protect its major competitors. We can see in the Open Secrets web site the campaign money given by the big food companies to both Democrats and Republicans. According to that site, Whole Foods has not contributed any money to the major parties, its only donations being to a minor party in 1999 and 2000.

The historian Gabriel Kolko in books such as The Triumph of Conservatism has argued that governmental regulation of business was mainly aimed at limiting competition rather than protecting the public. It seems that Kolko’s argument applies to this antitrust case. If this is what antitrust comes to, it would be best to entire eliminate this antiquated policy and stop punishing firms for attempting or gaining success.