of the Secretary



February 27, 2003


Albert A. Foer
The American Antitrust Institute
2919 Ellicott Street, NW
Washington, DC 20008


Wal-Mart Stores, Inc. and Supermercados Amigo, Inc.,
File No. 021 0090, Docket No. C-4066

Dear Mr. Foer:

Thank you for your comment 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.

Your comment expresses several concerns. You emphasize the need for transparency in the merger investigation process, ask us to explain in more detail the basis on which the product and geographic markets were defined, ask us to explain why we did not address the issues of potential competition, monopsony, and raising rivals' costs, and, finally, ask us to provide further detail concerning the Commission's approval of the buyer of the assets to be divested, and additional information relating to the buyer itself.


You begin by stressing the importance of transparency in the Commission's investigative process, a point with which we agree. The Commission strives to provide transparency with respect to information that can be made public and, as a reflection of those efforts, comments and responses regarding the instant transaction will be posted on the FTC's website. It is, however, important to note that while we have attempted to address your concerns in this response, 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 of the Complaint and Proposed Decision and Order to Aid Public Comment ("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.

As you know, 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.

You are quite correct in noting that the Commission has on occasion gone beyond the requirements of the rule and discussed matters that may be of interest to outside observers. The Commission is committed to transparency and in appropriate cases the Commission or individual Commissioners will explain to the extent possible why decisions were made. However, their willingness to provide this information in individual cases should not be taken as a commitment to do so in all cases.(1)

Product Market Definition

In your section, "On What Basis Was the Market Definition Defined?," you request an exact definition of "a substantial portion of retail purchasers." As it does in every investigation, the Commission considered market definition on an intensely factual, case-by-case basis, using its long-established approach and methodology for market definition in the context of supermarket mergers. The Analysis cites information obtained from the extensive testimony and documents as well as analyses of actual competitive effects and responses as examples of what persuaded the Commission in this instance to determine, among other things: that supermarkets in Puerto Rico are in direct and substantial competition with club stores, and have lost significant sales and customers to club stores, in large part because of price competition; that there is considerable overlap in the types of products club stores and supermarkets offer in Puerto Rico; and that a substantial portion of retail purchasers in Puerto Rico regard full-service supermarkets, supercenters, and club stores as reasonably interchangeable (in fact, club stores are identified by consumers as their primary "supermarkets" as frequently as or more frequently than many "supermarket" chains in Puerto Rico). From all of the evidence developed in the investigation, the Commission concluded that a "supermarket" product market in Puerto Rico would not meet the Merger Guidelines' requirements(2) unless club stores were included.(3)

You also comment in a footnote that there is no explanation as to why "weekly one-stop shopping" was made part of the product market test and ask whether the Commission anticipates applying this standard in the future. The concept that consumers frequent a particular type of retail establishment on some regular basis to purchase much of their food and other household items for consumption and use--for which "weekly one-stop shopping" may be viewed as a general summary or shorthand description--has long been a part of the Commission's analysis of supermarket mergers, and is referred to in earlier supermarket complaints and analyses.(4)

Potential Competition

You also ask, "Why Has the Commission Ignored Potential Competition as a Theory of Liability?" The short answer is that it has not. To the extent appropriate, we have included as "overlap markets" areas in which actual planned expansion by either Wal-Mart or Amigo would create an overlap in the next two years.(5) As noted in the Analysis, we have required two divestitures of Amigo stores in a market in which Wal-Mart is not currently present. Furthermore, for numerous reasons (that in large part cannot be publicly disclosed), other potential competition theories were not meritorious.

Monopsony and Vertical Issues

You next ask, "Why Has the Commission Ignored Possible Problems Relating to Monopsony, Vertical Distributional Effects and the Raising of Rivals' Costs?" The Commission and its staff analyze the impact of acquisitions on potential creation or abuse of monopsony power, and on vertical concerns, in appropriate cases. Based on the evidence developed in our investigation, we did not find a credible threat that the acquisition of Amigo by Wal-Mart would increase the risk of monopsony power or of "raising rivals' costs" through vertical distribution effects, and, as a result, did not discuss either issue in the Analysis. Given your concerns, we briefly 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, or impair competition by raising rivals' costs.

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.

Although you do not go into detail, you apparently raise a concern about possible monopsonization based on what you describe as "Wal-Mart's enhanced buyer power in Puerto Rico."(6) 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, there are numerous other purchasers (actual and potential) of Puerto Rico products--both in and beyond a "supermarket" product market and in and beyond Puerto Rico--to which Puerto Rico distributors or suppliers could turn if Wal-Mart/Amigo attempted to exercise monopsony power. In other words, the market for sales of Puerto Rico products is not highly concentrated, and the Wal-Mart/Amigo transaction neither significantly increases concentration in any such market nor endows the merged firm with monopsony power. Thus, the fundamental condition for any viable monopsony theory is not present. Second, if Wal-Mart/Amigo shifts its purchases to lower-cost suppliers, Puerto Rico distributors' or suppliers' sales to Wal-Mart/Amigo may be reduced, but this would reflect competition, not monopsony.

You also ask whether the transaction will raise the costs of the parties' rivals by increasing their distribution costs. The theory you and other commentators (including complaining competitors) have proposed in this case apparently involves Wal-Mart shifting some portion of Amigo's purchases away from existing suppliers to Wal-Mart's allegedly more efficient, lower-cost supply system. Your apparent concern is that the loss of Amigo as a customer could result in Amigo's former suppliers' costs being spread across a smaller base, potentially causing those suppliers to raise prices to their remaining supermarket customers. To the extent there actually is a significant effect on suppliers, the expected result would be that there would be increased competition among the suppliers for the remaining business. In addition, the transaction has no direct effect on the structure of Puerto Rican suppliers, except that it may increase incentives for efficiency enhancements. Thus, basic economics leads to a conclusion that the effect, if any, would be to reduce wholesale prices, and there was no credible evidence to the contrary.

Buyer and Divestiture Approval

Finally, you ask, "Why Has the Commission Approved Divestiture to This Particular Buyer?" 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 relating to Maximo to determine that it has the capacity and incentive to operate the divested stores in a manner that will maintain competition in the relevant markets.(7) Indeed, as a new entrant(8) 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.(9) 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 to the public as much information as is permissible and practicable without harming the very remedy on which we, and the public, depend.

In the same section, you also question why the Commission limited its divestitures to certain markets (although you stated there are four such markets, in actuality there are three). The Commission staff defined relevant antitrust markets in which to assess the proposed acquisition only after a careful examination of business operations, consumer purchasing patterns, and other circumstances applicable to Puerto Rico. Unlike commentators who had to speculate on market definition, concentration, and other issues, the Commission compelled the parties to the acquisition and others to produce (on a confidential basis) commercially sensitive information to make its assessment of the proposed merger.(10) Based on this and other information, the Commission has determined that the effect of the Wal-Mart/Amigo acquisition, if consummated, may be substantially to lessen competition in these three geographic markets and not in other areas. In each of the markets in which the acquisition would threaten competition, the Commission's consent order requires the divestiture of all of the acquired stores. Further, based on the information available to it, the Commission concluded that divesting additional stores was not necessary to ensure Maximo's competitive viability. Under these facts, requiring additional divestitures in markets not threatened by anticompetitive effects would be an improper exercise of the Commission's authority, and could deprive consumers of substantial benefits.

You specifically inquire in a footnote why there were no divestitures required in the city of San Juan.(11) The Commission found that the merger would not significantly lessen competition in any possible relevant geographic market in the San Juan metropolitan area because there would continue to be extensive competition post-acquisition. Moreover, in addition to the high number of competitors already present, the area is subject to substantial additional entry and expansion by competitors other than Wal-Mart and Amigo. As a result, there is no basis for concluding that the Wal-Mart/Amigo transaction would be likely to cause anticompetitive problems in any part of the San Juan metropolitan area.


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

1. We also appreciate your comment on the various statements in the cruise line matter. You should understand, however, that similarly comprehensive explanations are not always appropriate or possible. But where it is appropriate and possible the Commission will no doubt continue to elaborate on its decisions.

2. United States Dep't of Justice & Federal Trade Commission, Horizontal Merger Guidelines (1992), as revised (1997), at 1.11.

3. In your comment, you maintain that in this case the Commission "did something new by concluding that traditional Wal-Mart stores, supercenters, and clubs . . . all belong in the same product market as a traditional supermarket." That statement is incorrect for two reasons. First, the Commission did not include traditional Wal-Mart stores in the product market. Second, although we did include supercenters in the market, that is not "new"; supercenters, which are full-service supermarkets co-located with mass merchandise stores, have been included in the Commission's "supermarket" product market definition for some time. The inclusion of club stores--which resulted in significantly more enforcement scrutiny and relief than would otherwise have been the case--was new in this investigation.

4. See, e.g., Koninklijke Ahold NV and Bruno's Supermarket, Inc., Docket No. C-4027 (2002); Etablissements Delhaize Freres Et Cie "Le Lion" S.A., Delhaize America, Inc., and Hannaford Bros. Co., Docket No. C-3962 (2001); Winn-Dixie Stores, Inc., Docket No. C-4001 (2001); The Kroger Co. and The John C. Groub Co., Docket No. C-3905 (1999); The Kroger Co. and Fred Meyer, Inc., Docket No. C-3917 (1999); Koninklijke Ahold NV, Giant Food Inc., and The 1224 Corp., Docket No. C-3861 (1999).

5. You complain that the Analysis did not provide "the share of the overall Puerto Rico market either party holds . . . ." Of course, there is no overall "supermarket" market for the entire Commonwealth of Puerto Rico. Further, defining such a market would have been a significant (and factually unwarranted) departure from Commission precedent.

6. Your letter refers to "buying power" and "buyer 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.

7. The staff also ensured that there are no entanglements between the seller and purchaser of the four divested Amigo stores (for example, through the requirement that Wal-Mart/Amigo be completely removed from the leases of the divested properties). Further, while you state that Maximo "was created by members of the family that sold Amigo," there were a number of families (five total) involved in the initial formation and sale of the Amigo chain, and it was a subset of those families, along with other highly qualified individuals, that founded Maximo.

8. Although you maintain that the Analysis "does not spell out . . . that the purchaser really was a new entrant," you yourself earlier quote our Analysis as stating, "The divestitures are to an up-front newly-formed entity founded by experienced supermarket owners which would be a new entrant . . . ." (emphasis added).

9. See, e.g., 15 U.S.C. 18a(h).

10. In its investigation, Commission staff sought and considered information about the likely competitive effect of the proposed acquisition from numerous sources, including retailers and distributors of supermarket items. The information provided by these sources often was valuable; for example, such information played an important role in the Commission's conclusion that in Puerto Rico the relevant product market includes club stores in addition to supermarkets. In considering the submissions of incumbent firms, however, the Commission is careful to recognize that their interests do not necessarily correspond to those of consumers. Such firms often ignore or understate their ability to respond to competition, and treat pro-competitive efficiencies as threats.

11. We note that you refer to a "pre-FTC complaint by the government of Puerto Rico" and, whenever you mention this government case, you cite "Cooperativa del Consumidores del Noroeste, Inc. et al. v. Wal-Mart Stores, Inc. et al., Commonwealth of Puerto Rico Court of First Instance, Superior Court, San Juan Part, Docket KPE 022503, filed October 25, 2002." That citation, however, is to a case filed by supermarkets and consumers in, not the government of, Puerto Rico. Because of these crossed references, we cannot ascertain whether you are referring to the private case or that of the Secretary of Justice of Puerto Rico. The action filed by the Secretary of Justice is currently subject to a preliminary injunction entered on December 26 by the United States District Court in Puerto Rico, Wal-Mart Stores, Inc. v. Rodriguez, 2002 U.S. Dist. LEXIS 25228, Civ. No. 02-2778 (PG) (Dec. 26, 2002). The Puerto Rico Court of Appeals dismissed the private suit to the extent that it sought to enjoin the merger, because, according to the Court of Appeals, private parties do not have standing to enjoin mergers under Puerto Rico's Monopolies and Trade Restrictions Act, Act No. 77 of June 25, 1964, as amended, P.R. Laws Ann. T.10, 257 et seq.