Critical Loss Analysis in the Whole Foods Case

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Kevin Murphy, Robert Topel, Mar 17, 2008

In the matter of the U.S. Federal Trade Commission (FTC) versus Whole Foods (hereinafter Whole Foods), the economist for Whole Foods, Professor David Scheffman, applied “Critical Loss” (CL) analysis to the issue of market definition in the proposed merger of Whole Foods and Wild Oats. Our point in this comment is not to criticize the application of critical loss analysis to market definition in that particular case. Rather, we illustrate why the CL analysis used by Whole Foods’ economist is not useful as a general matter. In our view, the type of analysis he presented is so fundamentally flawed that it cannot be used as a tool of market definition.

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