Friday, August 20, 2010
Albertson’s, Vons (Safeway), Ralphs and Food 4 Less violated antitrust laws as a result of their 2003 profit-sharing agreement, ruled a federal appellate court. In banding together to share profits in the event workers from one of the stores went on strike, the grocery chains claimed they were able to reduce labor costs and thus lower prices for consumers.
Regardless of whether the agreement was beneficial to consumers, the Ninth Circuit Court of Appeals decided the profit-sharing reduced competition, putting the chains in violation of federal antitrust statutes.
The profit-sharing agreement covered 960 stores in Southern California that accounted for between 55% and 64% of the market in Los Angeles-Long Beach and between 66% and 75% of the market in the San Diego metropolitan area. When unions struck Vons stores in October 2003, Ralphs and Albertsons locked out their employees. After a labor agreement was reached in February 2004, Ralphs and Food 4 Less paid Vons and Albertsons $146.2 million for lost revenue.
Judge Stephen Reinhardt wrote for the 2-1 majority: “Profit pooling or profit sharing arrangements eliminate incentives to compete for customers along every dimension: there is little purpose in attempting to attract another firm’s customers by lowering prices, improving quality or taking any other measure if the profits earned from those new customers would be placed in a common pool in which the other firm is a participant, and the proceeds distributed in the same way no matter which participant in the profit pool generated the underlying sales.”
-Noel Brinkerhoff, David Wallechinsky
Grocers' Profit-Sharing Violates Antitrust Law (by Elizabeth Banicki, Courthouse News Service)
State of California v. Safeway et al. (U.S. Court of Appeals, Ninth Circuit) (pdf)
Comments