Eric Fruits on the Waterbed Effect

WCPO-TV – ICLE Senior Scholar Eric Fruits was quoted by WCPO-TV in Cincinnati about the role of the so-called “waterbed effect” in potential challenges of the proposed merger of supermarkets Kroger and Albertsons. You can read full piece here.

And that’s why some think an economic theory known as the waterbed effect could influence the outcome, said Eric Fruits, an antitrust expert and senior scholar for the International Center for Law & Economics in Portland, Oregon.

“If you sit on one part of a waterbed, that part sinks down and then another part rises up,” Fruits said. “As a large firm pushes down prices that they pay, other firms pay higher prices. And so there’s this argument that through this waterbed effect, other firms might be harmed.”

Fruits was the co-author of an October 17 white paper that predicts the FTC will lose if it challenges the merger in court. The waterbed argument is one reason he thinks the FTC will lose.

“The waterbed effect is mostly theoretical,” Fruits said. “There’s never been a demonstration of it in grocery markets. The UK has subjected at least two mergers to waterbed type scrutiny and found that there is no waterbed effect.”