December 4, 2001

The Honorable Timothy J. Muris, Chairman
The Federal Trade Commission
600 Pennsylvania Ave, N.W.
Washington, DC 20580

Dear Commissioner Muris:

I am writing because of my concerns about the proposed acquisition of Ralston Purina by Nestle. The letter from the National Grange and the analysis of Professor Einer Elhauge of Harvard Law School raise serious competitive issues and merit careful examination. I have also been concerned for some time that monopsony issues have not received sufficient attention in recent merger reviews. I believe, as Judge Posner does, that "monopoly and monopsony are symmetrical distortions of competition from an economic standpoint" and that monopsony issues should be taken seriously. Vogel v. American Soc'y of Appraisers, 744 F.2d 598, 601 (7th Cir. 1984).

While I understand that the Commission is wrapping up its review of this transaction, I hope that you have considered the issues raised by the American Antitrust Institute and the consumer groups regarding the impact of this merger on retail stores’ practice of using "category captains." The Commission’s merger enforcement powers under §7 of the Clayton Act should allow the Commission to assess the impact of a combined Nestle-Ralston Purina on this practice. I am concerned that this proposed merger may lead to one company serving as the "category captain" for all varieties of dog and cat foods in most stores across the U.S. This is especially troubling since the dominant category captain apparently controls how rival brands are displayed. I hope the FTC will use its full investigatory powers to probe this aspect of the merger, if they have not done so already.

I am also concerned about a report from the National Grange that Commission staff asked the Grange to conduct its own analysis of the monopsony issues, and indicated that the Commission would not pursue the issue otherwise. Given the FTC’s subpoena powers and other powers not available to the Grange, this does not seem to be an appropriate request. Moreover, I can readily understand how farmers may be reluctant to voluntarily complain about a merger between these powerful companies. I believe the responsibility for fully investigating this proposed merger lies squarely with the Commission.

In addition, I understand that Nestle is urging the Commission to accept a consent decree whereby one or two brands would be divested to a company that does not currently make dog or cat food. My concern is that such a resolution of this matter would not address either the monopsony problems or the category captain issues. Post-merger, Nestle-Ralston would still have monopsony power with respect to poultry meal (likely 70% of the buying power) and it would still be the dominant category captain in most, if not all, pet food categories with significant power over the shelf space arrangements of rivals’ brands.

The potential effects of this proposed merger will greatly impact the farmers, rural businesses and consumers in my state and elsewhere. Therefore, I urge the Commission to review this merger closely. To be sure, this may require the Commission to prolong an already long investigation; but the Commission should do whatever is necessary to make sure that farmers and consumers are not harmed by this transaction.

Finally, while I am aware that you have recused yourself from voting on this transaction, I am concerned that a merger presenting these significant issues could conceivably be decided by a tie vote from the remaining voting Commissioners, thus permitting the transaction to go forward in a "passive" mode. For all these reasons, I urge the Commission to proceed carefully and thoughtfully in reviewing the proposed merger.

Sincerely,

PATRICK LEAHY
United States Senator