Diana Moss of the AAI argues in a recent white paper that

numerous factors and questions [in the Whole Fools matter] make a highly compelling case for looking closely at whether a Whole Foods/Wild Oats combination will tend substantially to lessen competition. In our opinion, therefore, there is enough “smoke to suspect a fire.”

Moss correctly predicts that market definition will be the battleground.

The legality of the proposed merger turns on product market definition. The Commission defines a relevant product market centered on the category of “premium natural and organic supermarkets.” In such a highly concentrated market in 28 geographic regions across the U.S., the merger would eliminate the second largest competitor or a potential competitor. The merging parties make statements that support this market definition. But they also make statements that the relevant market is centered on full-line supermarkets and mass merchandisers selling natural and organic products, in which case the effect of the merger is de minimis.

But it seems that she is not altogether convinced that the FTC’s proposed market definition is indeed sustainable. (It does sound a bit like a market for “Dodge automobiles in Mount Lebanon, PA,” but wait, the plaintiffs actually won that case — in 1968.) Moss points to some of the facts that will make a narrow market definition hard to sustain:

In retailing, product market definition has become more complex with the emergence of different channels of distribution. These include: conventional full-line supermarkets such as Safeway or Kroger, warehouse clubs such as Sams and Costco, mass merchandisers such as Wal-Mart, and stores such as Whole Foods and Wild Oats that specialize in natural and organic products. Whole Foods’ public statements are replete with the assertion that they are the category leader for natural and organic products, arguably a specialty retailer.

Okay, gotta go and load up on organics at Costco.

Update: Seems like Geoff Manne also just got back from Costco (or was it Sam’s Club, or even Wal-Mart?) with his fix of organic lifestyle tomatoes.

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