Gauging Prices with Kamala and Khan
In Richard V’s new neighborhood in Fort Worth, Texas, there is both a Kroger and an Albertsons. That combo no doubt raises the anxiety level over at the FTC where Lina Khan is suing to stop the two grocery chains’ proposed merger.
Her goal, like the concern of Kamala Harris’s proposed price controls, is to head off “price gouging.” Khan, calm thyself. In addition to the Kroger and the Albertsons, Richard and his wife Susan can choose among two discount groceries, Aldi and Trader Joes, a Tom Thumb (owned by Albertsons but serving a different customer profile), a SuperTarget, a Walmart, a Whole Foods, and a Central Market, at last count.
Richard Vigilante and his wife have high hopes for the merger because, among all these choices, none is reliably stocked with, say, 90% of what they seek on a typical grocery run. Back in the Twin Cities, that role was filled by their super-scale HyVee, about twice the square footage of a typical grocery and stocked with just about anything they wanted, including a sports bar, a bakery, a pharmacy, and an excellent food court. Richard did most of his writing in a booth at the HyVee bar.
Maybe if Albertsons and Kroger merge and shut down some failing stores in RV’s district, and combine some others they can begin to perform at a HyVee level.
Not infrequently, what consumers want is the very thing the FTC hates: Big. Big enough to do it all and big enough to set standards of performance for rivals. Every time we shop on Amazon, we are grateful for big. Maybe in a new blockchain-based, inherently secure internet, where we never have to remember passwords, user IDs, or credit card numbers, the appeal of one-stop shopping will fade a bit. Yet benefits of Amazon’s size will remain, including trust, an amazingly simple return system, astonishingly low shipping costs, and a single, comprehensive open market for small business entrepreneurs.
All economic growth, including the household economic growth provided by a smart shopper, comes from learning. Most bureaucracies stop learning almost the moment their foundations are laid. The founding wisdom of the Federal Trade Commission (FTC) and the premise of most of its decisions ever since, is that “big is bad.” The assumption of FTC experts is that the reason businesses want to grow, by merger or organically, is to gain pricing power and extort customers.
Even if the FTC had the motive right, history offers astonishingly little evidence of any business achieving such power in a sustained way. As writers on technology, we cover everyday companies that seek passing monopolies via innovation and uniqueness. Yet, if they succeed, these companies lead all others in giving consumers far more value than they pay for. Nvidia makes a lot of money via its dominance of artificial intelligence (AI) chips. It’s nothing compared to what the companies using the chips will make.
That the FTC has never managed to learn much beyond its defective founding principle is neither surprising, nor even very blameworthy. Although all bureaucracies suffer from profound learning disabilities, agencies dealing with consumer markets are particularly handicapped. Consumers (along with line workers) are near perfect vessels of the dispersed knowledge Hayek celebrated, even while he lamented its inaccessibility to central authorities and experts.
“Today it is almost heresy to suggest that scientific knowledge is not the sum of all knowledge. But a little reflection will show that there is beyond question a body of very important but unorganized knowledge which cannot possibly be called scientific in the sense of knowledge of general rules: the knowledge of the particular circumstances of time and place. It is with respect to this that practically every individual has some advantage over all others because he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active cooperation.”
— Friedrich Hayek: The Use of Knowledge in Society.
That “unique information of which beneficial use might be made” includes naturally subjective preferences of which no bureaucracy can be aware, but about which no consumer can be wrong. As the Vigilantes shop for grocery nirvana in Fort Worth, the last thing they need is more interference from FTC chair Lina Khan.
P.S. George here… I want to invite you to a free webinar I’ll be a part of on Sept. 11 at 10 a.m. EST. Jon Medved, the founder of OurCrowd, will be joining me, along with Lisa Graston from OurCrowd and my publisher Roger Michalski from Eagle Financial Publications. We’ll be discussing Investing in the AI Landscape… with a focus on pre-IPO opportunities. Click here now to register for this free event! I look forward to seeing you on Sept. 11.