Question

In the United States, the Federal Trade Commission (FTC) is charged with promoting competition and challenging mergers that would likely lead to higher prices. In 1996, Staples and Office Depot, two of the largest office supply superstores, announced their agreement to merge. a. Some critics of the merger argued that, in many parts of the country, a merger between the two companies would create a monopoly in the office supply superstore market. Based on the FTC’s argument and its mission to challenge mergers that would likely lead to higher prices, do you think it allowed the merger? b. Staples and Office Depot argued that, while in some parts of the country they might create a monopoly in the office supply superstore market, the FTC should consider the larger market for all office supplies, which includes many smaller stores that sell office supplies (such as grocery stores and other retailers). In that market, Staples and Office Depot would face competition from many other, smaller stores. If the market for all office supplies is the relevant market that the FTC should consider, would it make the FTC more or less likely to allow the merger?

Answer 1

The FTC should not or is less likely to allow mergers as the argument of the presence of the small stores does not hold very true. These small stores don’t give competition to these big companies and form the very small part of the overall office supply market. Further, these small stores lack core competencies in office supply as their primary business is grocery or other retail consumer products. As a result, the merger can easily drive these small stores out of the office supply market. Hence, FTC is less likely to allow the merger.