Federal Trade Commission:

Study Needed to Assess the Effects of Recent Divestitures on Competition in Retail Markets

GAO-02-793: Published: Sep 25, 2002. Publicly Released: Sep 25, 2002.

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The Federal Trade Commission (FTC) seeks to prevent business practices that are anticompetitive, deceptive, or unfair to consumers. If FTC determines that a merger may harm competition in the marketplace, the agency may decide to block the merger or select a remedy that addresses the anticompetitive problems it has identified. FTC's preferred remedy is divestiture--the selling of a business or assets by one or both of the merging parties to maintain or restore competition where it might be harmed by the merger. When divestiture is chosen as a remedy, FTC usually drafts a proposed agreement with the merging parties that contains an order requiring the divestiture needed to remedy the anticompetitive problems. If all parties agree, FTC issues a proposed order which is made available to the public for comment for 30 days and, in most cases, authorizes the parties to consummate the merger. According to FTC staff, FTC decisions to use particular divestiture approaches are (1) based on the unique facts of each case and do not readily translate into written guidelines or systematic aggregation and (2) tied to proprietary company information that FTC is statutorily prohibited from disclosing to the public. From fiscal years 1990 through 2000, FTC used clean sweep divestitures, single buyers, or up-front buyers in the 31 divestiture orders announced for public comment in the grocery store, drug store, funeral services, and gas station industries (up-front buyers were not used at all in these industries prior to fiscal year 1996). Although there were too few buyers to analyze the level of smaller business participation in purchasing divested drug store, funeral services, and gas station assets for the period reviewed, GAO's analysis found that, after 1996, the smaller buyers were significantly less likely to purchase divested assets. FTC has not systematically measured the success or failure of the divestitures it has approved since it developed preferences for approaches like clean sweep and up-front buyers. In 1999, FTC reported the results of a study on divestiture orders made final during fiscal years 1990 through 1994 that found (1) FTC's divestiture orders had created viable competitors in the relevant markets and (2) smaller buyers succeeded at least at the same rate as larger buyers. However, without current information on the economic impact of its divestiture practices on the marketplace, especially given the changes it has made since the period covered by its 1999 study, FTC cannot state that divestiture orders have, among other things, restored or maintained competition in the affected markets.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: In response to GAO's recommendations, FTC said it recognized the benefits of reviewing the effectiveness of its divestiture orders and was doing ongoing analysis of mergers in other market sectors to assess the effects of antitrust merger decisions. However, as of August 2004, FTC had not undertaken a study the impact of divestiture orders affecting the retail sector since 1994.

    Recommendation: To ensure the FTC has complete and up-to-date information on the effectiveness of divestitures in industries in the retail sector, the Chairman of FTC should direct the Bureaus of Competition and Economics to undertake a study of the impact of divestiture orders made final since fiscal year 1994 that require divestitures in the retail sector on (1) viability of buyers of divested assets and (2) competition in the marketplace.

    Agency Affected: Federal Trade Commission

  2. Status: Closed - Not Implemented

    Comments: In response to GAO's recommendations, FTC said that it recognized the benefits of reviewing the effectiveness of its divestiture orders and was doing ongoing analysis of mergers in other market sectors to assess the effects of antitrust merger decisions. However, as of August 2004, FTC had not undertaken a study the impact of divestiture orders affecting the retail sector since 1994. Thus, FTC is not positioned to explore expanding the study beyond the retail sector and into other sectors that may have been impacted by changes to FTC divestiture practices.

    Recommendation: If the findings show that FTC's intended results have not been achieved, FTC should explore expanding the study to include divestiture orders for other sectors of the economy that have been impacted by changes to FTC divestiture practices during the mid-1990s.

    Agency Affected: Federal Trade Commission

 

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