What is a Market?

It seems such an innocuous question. It might even be silly. Surely we all know what a market is?

I was reading the WSJ the other day and I came across a related article. It was titled “A $20 Billion Merger Deal Hinges on Whether Walmart is a Grocer”. The article refers to an attempt by Kroger and Albertsons to merge.

Federal Antitrust regulators have taken an interest and were suing to prevent the merger. The reason being that such a merger would limit options for consumers and therefore could be anti-competitive and possibly lead to price rises.

It is not what I do, but what I say, that counts.

The root of the challenge is in how various retail operations are classified. Here are some comments from the article:

• “Walmart and Target historically haven’t been classified as supermarket.
• “Sprouts ranks as a premium natural and organic store.
• “Dollar stores are too limited in what they sell to be considered grocery competitors.
• "If Kroger and Albertsons merged, they would be the only major supermarket operator in town.

And also: “” Direct competition between Kroger and Albertsons has brought grocery prices down and the quality of grocery products and services up,” the FTC said in its lawsuit.”

Later in the article is this:

• “Walmart for years has been the biggest seller of groceries in terms of total sales.”

And:

• “According to regulators, discount grocery chains such as Aldi and Lidl are labeled as ‘limited assortment stores', not supermarkets, because they don’t have everything one-stop shoppers are looking for, including deli, bakeries, and pharmacies.”

What we do, not what we say.

From where I sit, this seems a delectable problem but also a silly one. It seems delectable since the case and argument for competition lays squarely on the shoulders of how stores and services are classified.

As a consumer, obviously Walmart sells groceries. So, are they not then a grocer? But maybe Walmart does not sell groceries in every story or location. Nationally it’s the largest grocer by sales. But we don’t all buy groceries at a national level. The market operates at a local level.

Also does sell groceries, but maybe not as broad an assortment as other retailers. So, the whole argument that it is only competition between Kroger and Albertsons is the driver of process and quality can’t be upheld. This is a complex case, but the outcome will be determined by which classification is accepted by the courts.

Grocery one day, and then not on the next.

And it could be that whichever classification is used may not be the one used for every form of competition policy or analysis later. Which leads to my silly point: why do we care about the classification in the first place? Why don’t we let all stores compete and may the best service provider win?

In a free market, surely competition would be rife and cutthroat competition would lead to rock bottom prices? Maybe. But do we have unfettered market boundaries?

We do need competition, but what happens is we seek to define the boundaries of that competition that fits a mental model defined by rule makers, lawyers, or politicians. We don’t observe unfettered free market competition at all.

I guess it’s what we signed up for.