asher meir 88.
(photo credit: )
The Food Manufacturers Association has lodged a complaint with the Antitrust Authority asking to have the Shufersal supermarket chain declared a monopoly. They claim Shufersal’s buying policies are anticompetitive.
We are used to the Antitrust Authority working to prevent a monopoly. If a business is the only seller in an industry, they can lower quantities and thus raise prices without fear of competitors rushing in. The result is less supply and higher prices to the consumer.
But the same thing can happen in reverse: If a business is the only
buyer in a market, it can lower prices it pays to suppliers and they
can’t respond by selling to someone else.
It’s true that at a lower price fewer sellers will be found, but that’s
the price you pay for paying lower prices. If the monopoly is also a
monopoly, they will gain coming and going: By limiting quantities on
the buying side, they can pay lower prices, and by limiting them on the
selling side, they can command higher prices. So it is not surprising
that the Antitrust Authority is authorized to deal with both kinds of
There are however a lot of problems with the food manufacturers’ story.
A firm is not anticompetitive merely by being the only guy in town; it
is anticompetitive only if it takes active steps to prevent other firms
from entering. These could include collusion, buying out competitors,
threatening other market participants not to do business with the new
kid on the block, etc.
Another problem is that a monopoly is not evaluated statically. If
there are no barriers to entry, then you may be a monopoly but you
can’t really enjoy it. When potential entrants are breathing down your
neck, the second you raise your prices, competitors will sprout up.
Obviously in a very capital-intensive industry it can take a very long
time for that to happen; for example, it takes years to build a new
automobile plant, and in the meantime the monopolist has market power.
But no barriers to entry exist in the retail-food industry. A small
market can be launched within a few weeks, and even a supermarket does
not take much longer than that.
But the biggest problem of all is that Shufersal is far from being a
monopoly. It sells, and thus presumably buys, only about 37 percent of
the food products sold in Israel.
The Food Manufacturers Association sidestepped this problem by
asking the Antitrust Authority to define the relevant market as
“nationwide chains,” but from the point of view of the market, there is
no real difference between nationwide chains and local markets: They
buy the exact same food products from the same suppliers.
Shufersal may have the majority of sales from supermarkets whose names
begin with S, but that doesn’t seem to be a pertinent fact for the
antitrust people to consider. Anyway, even on a nationwide level,
Shufersal faces intense competition from Blue Square. They can hardly
get away with limiting quantities and raising prices in their stores.
That doesn’t mean that pressuring suppliers to lower prices can never
be ethically problematic. In industries with very long-term
relationships and heavy capital investments, your suppliers may have
made large investments in meeting your needs on the tacit assumption
that you will give them fair prices down the line.
When you then pressure suppliers on prices for unique items, you may be
taking unfair advantage of their good will. But no food producers are
investing millions in making unique products specially for Shufersal.
The retail-food industry is an intensely competitive business. Barriers
to entry are extremely low and economies of scale are minimal. The
result is that prices to consumers are driven down by competition, and
prices paid to suppliers will also be driven down.
On the positive side, low prices means high sales volumes. No supplier
is obligated to sell to Shufersal if they don’t like the prices
Shufersal is offering, but no one wants to miss out precisely because
Shufersal has huge sales volumes, precisely because it is not a
monopoly and has to compete on email@example.comAsher Meir is research director at
the Business Ethics Center of Jerusalem, an independent institute in
the Jerusalem College of Technology (Machon Lev).