According to the article, a federal judge in New York recently sided with the Federal Trade Commission (FTC), effectively blocking the $8.5 billion merger of the company behind Coach and Kate Spade with the company that controls Michael Kors.

“Antitrust has come into fashion,” the judge wrote as she sided with the FTC, which argued the merger of the two companies -- Tapestry and Capri -- would substantially lessen competition in the market for “accessible luxury” handbags.

In April, the FTC sued to block the sale, arguing that these brands dominate the market and that if they combined, consumers would suffer by paying higher prices.

“In the Court’s view, the conclusion most consonant with the evidence is that handbag consumers do ‘purchase brands.’ To ignore the peculiar role of brands in the handbag market would be to ignore the commercial realities of the industry,’ Judge Jennifer Rochon wrote.

The companies argued there is already plenty of competition in the handbag marketplace, but the judge disagreed because she found they mainly compete with each other and not with mass-market or true-luxury brands.

“Coach, Kate Spade, and Michael Kors do not regard brands like Zara and Louis Vuitton as nearly as important to their bottom line as they regard one another, along with other usual suspects like Tory Burch and Marc Jacobs,” Rochon’s opinion said. “That there is a broad market for handbags overall does not negate the existence of a relevant submarket of affordable-luxury handbags.”

The judge said the FTC convinced her that the merger of the two companies would result in a combined firm holding “excessive market share and market concentration, thus establishing a presumption that the merger’s effects will be anticompetitive.”

Michael Kors testified his handbag line had reached a point of “brand fatigue” and needed the merger to revitalize it. The judge found that argument unconvincing.

“Simply put, Michael Kors faces no imminent risk of business failure,” the opinion said.

 

Discussion Questions

1. Why is this case in a federal court?

This case is in a federal court because it involves the interpretation and application of federal antitrust law. Federal courts have subject-matter jurisdiction over all cases involving federal law.

 

2. What is the role of the Federal Trade Commission (FTC) regarding antitrust law?

The FTC, along with the U.S. Department of Justice, enforces federal antitrust laws, which are meant to promote free and fair competition in the marketplace.

According to its website (https://www.ftc.gov/about-ftc), the FTC’s mission is to “protect the public from deceptive or unfair business practices and from unfair methods of competition through law enforcement, advocacy, research, and education.” Further, the FTC’s vision is “a vibrant economy fueled by fair competition and an empowered, informed public.” Finally, the FTC’s strategic goals are: “(1) Protect the public from unfair or deceptive acts or practices in the marketplace; (2) protect the public from unfair methods of competition in the marketplace and promote fair competition; and (3) advance the FTC’s effectiveness and performance.”

According to the FTC in its “Guide to Antitrust Laws” (https://www.ftc.gov/advice-guidance/competition-guidance/guide-antitrust-laws):

“Free and open markets are the foundation of a vibrant economy. Aggressive competition among sellers in an open marketplace gives consumers — both individuals and businesses — the benefits of lower prices, higher quality products and services, more choices, and greater innovation. The FTC’s competition mission is to enforce the rules of the competitive marketplace — the antitrust laws. These laws promote vigorous competition and protect consumers from anticompetitive mergers and business practices. The FTC’s Bureau of Competition, working in tandem with the FTC’s Bureau of Economics, enforces the antitrust laws for the benefit of consumers.”

 

3. In your reasoned opinion, should the federal government be intervening in the market for “accessible luxury” handbags? Why or why not?

This is an opinion question, so student responses may vary. In your author’s opinion, regardless of the type of product or market, the federal government should encourage competition in the marketplace. Generally, competition benefits consumers in terms of lower prices, higher quality, and greater selection of products.