An excerpt from Concentration and Power in the Food System by Dr. Phil Howard
Retailing is the closest link in the food chain to consumers. This structural position gives these firms a gatekeeper role, and thereby the potential to wield enormous power over both consumers and suppliers. Rigorous enforcement of US antitrust laws encouraged supermarket chains to exercise dominance at a more limited regional level through the 1970s. Changes in judicial interpretation and enforcement since then, however, have allowed firms to become increasingly national and global in scope.
The Shifting Landscape of Antitrust Regulation
Antitrust regulation has a long and complicated history. As long ago as the late 1800s, the negative impacts of industry concentration led to social movements opposing mergers and acquisitions. Many of these movements were led by farmers, who were exploited by powerful banks, railroads, and meat processors (Goodwyn 1978). The radical Populist Movement in the US and Canada pressured national governments to enact antitrust laws, such as the Anti-Combines Act in Canada in 1889, and the Sherman Antitrust Act in the US in 1890 (Scherer and Ross 1990). The reformist Progressive Movement in the US also worked to counter the growing power of trusts, and successfully lobbied in favor of legislation, including the Clayton Antitrust Act of 1914, the Federal Trade Commission Act of 1914, the Packers and Stockyards Act of 1921, and the Robinson- Patman Act of 1936.
The Robinson-Patman Act was particularly relevant to retailers, as it was also known as the “Anti-A&P Act” (Lynn 2006). The Great Atlantic & Pacific Tea Company, or A&P, was the first supermarket chain in the US, and it was the Walmart of its day, operating 16,000 stores by 1930, and controlling 12 percent of the national grocery market (Wrigley 2001). The firm used its size to negotiate discounts based on volume from suppliers. Smaller competitors were unable to obtain these cost reductions, and their higher retail prices led consumers to shift their purchases to A&P. The Robinson-Patman Act prohibited these price breaks, due to their anti-competitive impacts and the potential for A&P to become even more dominant in the grocery industry. A sponsor of the legislation, Wright Patton, stated its purpose was “to protect the independent merchant, the public whom he serves and the manufacturer from whom he buys, from exploitation by unfair competitors” (Lynn 2006, 114).
By the 1970s, however, dominant firms in numerous industries were chafing against the limits imposed by antitrust laws, particularly in their efforts to increase their power faster than competitors. They employed numerous strategies to overcome these limits, but one that was quite successful was contributing financially to politicians who campaigned on platforms of deregulation. In 1980, Ronald Reagan was elected president. He directed regulatory agencies to reduce their enforcement of antitrust laws, with the rationale that large firms were now competing in a global market. Deals that would not have been allowed previously were swiftly approved at the national level. In addition, the burden of proof on those potentially harmed by concentration was raised (Potts 2011).
Another very effective strategy was to influence judges in order to change the way they interpreted antitrust laws. Beginning in the late 1970s, large corporations funded public and private think tanks, which in turn arranged for judges to go on all-expenses-paid junkets. These were typically held at resorts in warm weather states, where the judges could play golf. While there, they would also attend seminars presented by Chicago School economists suggesting that mergers and acquisitions would increase efficiency and should not be opposed unless there was clear evidence of harm to consumers. This was a dramatic change from the intent of legislation noted above, and most prominently advocated by University of Chicago graduate Robert Bork, who was a law professor at Yale (Olson 2014). By the early 1990s, an estimated two-thirds of all federal judges had participated in at least one of these programs, which was affiliated with George Mason University (Aron, Moulton, and Owens 1994). A judge even stated in this program’s promotional literature that “as a result of my better understanding of marginal costs, I have recently set aside a $15 million antitrust verdict” (Aron, Moulton, and Owens 1994).
Despite strong criticism from nonprofit organizations and unflattering media coverage, such as an ABC News television report in 2001, these judicial junkets have continued (Banks 2019). In addition, a small number of economists with Chicago School perspectives frequently serve as expert witnesses for corporations seeking approval for mergers and acquisitions. They may charge more than $1,000 an hour to develop complicated mathematical models that optimistically predict competition will not be harmed by these ownership changes, although no one checks later to see if these forecasts turned out to be accurate (Eisinger and Elliott 2016). Ruling against the plaintiffs in antitrust suits is increasingly the norm, and while the laws still technically exist, they have essentially been repealed by judicial interpretation. Although retailers were far from the only firms to play an active role in reshaping the regulatory landscape, they were able to take advantage of these changes.
Copyright © Philip H. Howard, 2021, Concentration and Power in the Food System: Who Controls What We Eat?, Bloomsbury Academic, an imprint of Bloomsbury Publishing Plc.
Aron, Nan, Barbara Moulton, and Chris Owens. 1994. “Judicial Seminars:Economics, Academia, and Corporate Money in America.” Antitrust Law & Economics Review, 25 (2): 1–33.
Banks, Jasmine D. 2019. UnKoch Our Courts: Uncovering Corporate Infiltration of the U.S. Judicial System. Washington, DC: UnKoch My Campus.
Eisinger, Jesse, and Justin Elliott. 2016. “These Professors Make More Than a Thousand Bucks an Hour Peddling Mega-Mergers.” ProPublica, November 16. https://bit.ly/2YBaVVU
Goodwyn, Lawrence. 1978. The Populist Moment: A Short History of the Agrarian Revolt in America. Oxford: Oxford University Press.
Lynn, Barry C. 2006. “Breaking the Chain.” Harper’s Magazine, July. http://harpers.org/archive/2006/07/breaking-the-chain/
Olson, R. Dennis. 2014. “Lessons from the Food System: Borkian Paradoxes, Plutocracy, and the Rise of Walmart’s Buyer Power.” In The Global Food System: Issues and Solutions, edited by William D. Schanbacher, 83–114. Santa Barbara, CA: ABC-CLIO.
Potts, Monica. 2011. “The Serfs of Arkansas.” The American Prospect, March 5. http://prospect.org/article/serfs-arkansas
Scherer, Frederic M., and David Ross. 1990. Industrial Market Structure and Economic Performance. 3rd ed. Boston, MA: Houghton Mifflin Company.
Wrigley, Neil. 2002. “Transforming the Corporate Landscape of US Food Retailing: Market Power, Financial Re-engineering and Regulation.” Tijdschrift Voor Economische En Sociale Geografie, 93 (1): 62–82.