Federal Trade Commission: Study Needed to Assess the Effects of Recent Divestitures on Competition in Retail Markets

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.