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Why does the government interfere with big company mergers?

Mergers between grocery chains Kroger and Albertsons and airlines JetBlue and Spirit are the latest to face roadblocks from the federal government.
Why does the government interfere with big company mergers?
Posted at 9:03 AM, Mar 07, 2024

The government has stepped in on multiple big company mergers in recent years.

JetBlue and Spirit Airlines recently called off their merger agreement, weeks after losing a federal antitrust lawsuit.

And the Kroger-Albertsons merger, announced in 2022 with a target date of finalizing early 2024, is now facing legal challenges.

“Historically, the government has tried to, if you will, balance businesses' pursuit of profit with consumers' pursuit of low prices, lots of variety, convenience, et cetera,” said Dan Roccato, a clinical professor of finance at the University of San Diego.

@scrippsnews JetBlue and Spirit Airlines recently called off their #merger agreement after losing a federal lawsuit. But why does the #government ♬ original sound - Scripps News

In both cases, the companies argued that merging would allow them to be more efficient and pass on savings to customers.

“After mergers and acquisitions, we create higher monopoly power for one company. And that monopoly power can be misused,” said Kishore Kulkarni, a professor of economics at Metropolitan State University of Denver.

This is what experts say caused the airline merger to fail.

“It looked like it was doomed from the start because the government initially said this will probably limit competition, raise prices at certain airports, something we’re going to look very closely at,” Roccato said.

So what could this mean for the Kroger-Albertsons merger?

SEE MORE: US sues to block $24.6B merger of grocery giants Kroger and Albertsons

Kroger’s brands include Ralphs, King Soopers and Fred Meyer, for example. Some of Albertsons' brands include Safeway and Acme.

The Federal Trade Commission filed a complaint against the $24.6 billion deal, asking a judge to block the merger temporarily. The FTC claims the deal is anticompetitive, and even cited grocery executives as considering this deal a monopoly. 

Yet Kulkarni explained monopolies exist everywhere in our everyday lives. “There are monopoly powers all over. If you look around, utility is a monopoly power, even your garbage pickup company is a monopoly power,” he said.

Roccato said this specific merger may have a tough time going through for multiple reasons.

“I suspect the government is going to pursue a kind of an anti-takeover on this particular deal, if for no other reason than because some administrations take a little bit more of an assertive stance. And in this case you have the unions at Kroger and Albertsons who are basically saying this is not a good deal for consumers and it's not a good deal for us union members,” Roccato said.

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