FTC likely to approve Whole Foods deal even if Amazon did deceive customers

The Federal Trade Commission is reportedly looking into whether Amazon (AMZN) deceived customers about its pricing discounts, as part of a review of its deal to buy Whole Foods (WFM).

Pedestrians walk past a Whole Foods Market,
In this Tuesday, July 11, 2017, photo, pedestrians walk past a Whole Foods Market. AP Photo/Elaine Thompson

However, Herbert Hovenkamp, a prominent antitrust law professor, doesn’t see any conceivable way the FTC’s inquiry could hold up Amazon’s $13.7 billion deal to buy Whole Foods. That’s because the allegations that Amazon deceives customers about prices, even if they’re true, aren’t a sign that Amazon has monopoly power.

“Normally, we don’t think about deceptive pricing as a sign of market power and indeed if you look at the people who do it, they’re not monopolists,” Hovenkamp said. “These are the aluminum-siding sales people and used-car dealers and small firms that operate in particular markets where they can take advantage of vulnerable people.”

The advocacy group Consumer Watchdog brought the complaint claiming that Amazon’s “list prices” on certain items were often higher than what Amazon had sold the product for in the past 90 days. These inflated list prices made Amazon’s deals look like a steal, Consumer Watchdog claims.

Amazon denies Consumer Watchdog’s allegations.

“The conclusions the Consumer Watchdog group reached are flat out wrong,” Amazon said in a statement provided to Reuters. “We validate the reference prices provided by manufacturers, vendors and sellers against actual prices recently found across Amazon and other retailers.”

Even if the allegations against Amazon were true, they likely wouldn’t hold up the Whole Foods deal, according to another professor, John Kirkwood of Seattle University School of Law.

“It isn’t clear that Amazon has been inflating its reference prices and, even if it had,” Kirkwood said, “the FTC could simply order it to stop.”

The merchant you haggle with doesn’t have market power

While Consumer Watchdog is asking the FTC to hold up the Whole Foods deal because of these allegations, the deceptive pricing allegations are “unlikely to have an effect on the merger analysis,” according to Steven Salop, a professor of law and economics at Georgetown University Law Center.

Another professor, Maurice Stucke, put it like this: “When you bargain in a bazaar and they give you an inflated price and you start negotiating it down, the merchant doesn’t have market power.”

Still, Stucke, a law professor at the University of Tennessee, Knoxville, said that in theory the FTC could use the deceptive pricing allegations as evidence of market power if it could prove that Amazon can engage in this behavior only because its customers feel like they don’t have alternatives.