Whole Foods deal would give Amazon an unfair advantage, critics warn

While antitrust experts expect Amazon.com Inc's bid for Whole Foods Market Inc to win regulatory approval, some critics argue the deal should be blocked because it gives the online retailer a nearly unstoppable head start toward domination of online grocery delivery.

They argue the Whole Foods acquisition will give Amazon an unfair advantage over traditional grocers and new players that might emerge in the market, potentially grounds for the deal to be blocked for antitrust reasons.

"As a matter of policy, should this be blocked? ...There should be a challenge to this because there should be a strong presumption against growth by acquisition and in fact there is supposed to be such a presumption in our law. It's what Congress intended," said Chris Sagers, a professor of antitrust law at Cleveland State University.

Amazon declined comment. Sagers and other critics urge regulators to prevent dominant firms from buying a major foothold in an adjacent industry.

Founded as a bookseller in 1994 and now the world's biggest online retailer that sells everything from paper towels to designer clothing, Amazon sent grocery stocks into a tailspin Friday when it announced it planned to buy Whole Foods for $13.7 billion.

Critics believe Amazon's strengths in logistics, its scale and leverage with suppliers could enable it to dominate groceries as it did with bookselling. Antitrust experts who represent deals being reviewed by the Justice Department and the Federal Trade Commission said the transaction will be approved because Amazon sells few groceries and Whole Foods is a minnow in the grocery market with 444 U.S. stores compared with 4,692 for Wal-Mart.

U.S. antitrust enforcement has generally looked favorably on deals that reduce consumer prices, and Amazon supporters contend the deal will be good for consumers. The drop in grocer share prices the day the deal was announced - No. 1 U.S. grocer Kroger fell more than 9 percent - demonstrates the threat investors feel Amazon poses to traditional grocery chains.

"Competitors can be expected not to like a merger that puts more pressure on them. If their share price goes down, it's a sign they'll be under more competitive pressure," said Alden Abbott, antitrust expert at the Heritage Foundation.

Amazon was accused of crippling book retailers like Borders in part through price cutting. At $480 billion, Amazon's market value equals 90 percent of all the stocks in the S&P 1500 food and staples index, which includes Walmart.

Sagers argues, however, that it would be legal for Amazon to independently develop its grocery sales rather than leapfrog ahead through acquisition. A Republican former antitrust enforcer, who asked not to be named to protect business relationships, agreed.

"The notion of leveraging your power in market A to enter into market B has a been around for a long time as a basis for enforcement," the ex-enforcer said.