Proposed Staples-Office Depot Merger Will Depend on Relevant Product Market

Posted on by Matt Crorey

In 1996, Staples proposed a merger with Office Depot to the FTC and Department of Justice.1 The FTC, however, opposed the merger on the grounds that it “would violate federal antitrust laws by substantially reducing competition in the retail sale of office supply superstores in various markets throughout the country where each firm directly competes against each other.”2  The court in3 , agreed with the FTC and upheld a preliminary injunction preventing the merger, holding that there was a “‘reasonable probability’ that the proposed merger . . . may substantially impair competition,” and that “the Commission ha[d] shown a likelihood that it [would] succeed in proving . . . that the effect of the proposed merger between Staples and Office Depot ‘may be substantially to lessen competition’ in violation of Section 7 of the Clayton Act.”4

Earlier this month, rumors of another Staples attempt at purchasing Office Depot sparked.5 As the two office supply superstores continue to struggle, investors urge the merger so the office retail superstores can better compete against Amazon and Wal-Mart.6 The key to whether this merger will be approved this time around will likely turn on the relevant product market.

Relevant Product Market

To determine the likely competitive effects of a merger, one of the determinations that must be made is “the ‘line of commerce’ or product market in which to assess the transaction.”7  In the Staples case, the court held that there was a broad market including all sellers of “consumable” office supplies (i.e. those which consumers buy recurrently and get discarded, such as pens and paper.)8 However, the court further held that the sale of consumable office supplies by office superstores qualified as a submarket within this larger market of retailers of office supplies in general.9 Key to this holding was the finding by the court that office superstore prices were “affected primarily by other office superstores and not by non-superstore competitors like Wal-Mart, . . . wholesale clubs, . . . computer and electronic stores, . . . independent retail office supply stores, . . . mail order firms, . . . and contract stationers.”10

If the Staples-Office Depot merger is to go through this time around, Staples will likely have to show that the relevant product is much broader now than it was in 1996; this is especially true since Office Depot and OfficeMax (two of the three existing office superstore chains recognized in the Staples case, with Staples being the third existing superstore) merged in 2013.11 In other words, Staples and Office Depot must be experiencing more competition in the consumable office supplies market from non-superstores like Amazon and Wal-Mart than they were when the original merger was struck down.  Showing similar types of customers targeted and attracted by superstore and non-superstore retailers, a high responsiveness of non-superstore sales to higher prices charged by superstores (which indicates a high cross-elasticity of demand between consumable office supplies sold by superstores and those sold by other sellers), and/or an inability for superstores to profitably implement a “small but significant” (approximately five percent) price increase would all help Staples and Office Depot in this regard.12 With the office supply landscape becoming more digital, and Amazon being a much more sophisticated and viable competitor than it was in 1996 (just two years after its founding), making such showings are certainly not beyond Staples’ and Office Depot’s reach.13

  1. FTC v. Staples, 970 F. Supp. 1066, 1070 (D.D.C. 1997). ↩

  2. FTC Wins Court Order Blocking Staples and Office Depot Merger, Fed. Trade Commission (June 30, 1997), http://www.ftc.gov/news-events/press-releases/1997/06/ftc-wins-court-order-blocking-staples-and-office-depot-merger. ↩

  3. FTC v. Staples, 970 F. Supp. 1066 (D.D.C. 1997). ↩

  4. Id. at 1093; Clayton Act, 15 U.S.C. § 18 (2012). ↩

  5. Staples, Office Depot Merger Talk Moves Stock, USA Today, Sept. 2, 2014, http://www.usatoday.com/story/money/markets/2014/09/02/staples-office-depot/14997919/. ↩

  6. Phil Wahba, Wall Street Likes the Idea of Staples-Office Depot Merger, Fortune, Sept. 2, 2014, http://fortune.com/2014/09/02/staples-office-depot-merger/. ↩

  7. Staples, 970 F. Supp. at 1072. ↩

  8. Id. at 1073, 1075. ↩

  9. Id. at 1080. ↩

  10. Id. at 1077. ↩

  11. Staples, 970 F. Supp. at 1087; Welcome to the NEW Office Depot, Inc., Office Depot Max, http://www.officedepotmaxmerger.com/ (last updated 2013). ↩

  12. See Staples, 970 F. Supp. 1066 (considering these factors in the determination of the relevant product market). ↩

  13. Mary Ellen Biery, Office-Supply Stores Seeing Profit Margins Erased, Forbes (Apr. 13, 2014, 6:34 AM), http://www.forbes.com/sites/sageworks/2014/04/13/office-supply-stores-margin-trends/; Amazon.com, http://www.amazon.com/Careers-Homepage/b?ie=UTF8&node=239364011# (last visited Sep. 28, 2014). ↩

Category: Blog Articles