How Will the Royal Ahold Purchase Of Pathmark Supermarkets Affect Prices?

When a competitor buys another competitor in a local food market, prices may increase because there is less competition. The antitrust laws are designed to prevent mergers that most likely will result in higher prices. Economists do three things to help legal authorities determine whether a merger should be stopped or limited because it will likely increase sellers power over the market and consumer prices. First, economists measure the impact of a merger on the structure of a market. Then economists estimate the relationship between market structure and prices and use it to predict the impact of the merger on prices. Here we estimate the impact of the Royal Ahold/Pathmark merger on prices for each of the 16 New York and New Jersey counties and for one county in Pennsylvania and one in Delaware. These 18 counties are the areas where Pathmark and Royal Ahold (Edwards, Stop & Shop, Giant, Super G supermarkets) currently compete. Our analysis indicates that price increases in the 2-3 percent are quite likely on Long Island, and greater than 1 percent price increases will occur in 10 of the 18 counties. If the typical family of four purchases approximately $150 in groceries per week, or $7,800 of food annually, a 2 percent price increase raises annual food outlays for their family by $156. This is a substantial monopoly overcharge.