Competitive markets never stay still, and neither does the nature of the competition. The proposed merger between Office Depot and Staples, and predictions about the response by the Federal Trade Commission (FTC), reflect these constant changes.
Nearly 20 years ago, these two office supply retailers proposed a merger, which the FTC rejected as anticompetitive. In 1997, their merger would have allowed customers few other options for obtaining paper and toner, so the FTC shut it down.
But today, consumers source their office supply products from a wide range of retailers, including not just the office supply giants but also general merchandise retailers like Walmart and online providers such as Amazon. Accordingly, most observers predict that the FTC will allow the deal to go through this time, without many concerns about limiting competition. Doing so would be in line with the FTC’s more recent acceptance of mergers in other retail sectors, such as that between Macy’s and Federated Department Stores.
The merger admittedly would be a huge one, creating a combined company with around 4400 stores and $34 billion in revenue. However, the parties argue that such a massive size is necessary for them to be able to survive and compete in modern markets. For example, to go up against Amazon, both Staples and Office Depot have recognized the need for lower prices. The merger would enable the combined company to save approximately $1 billion, through economies of scale for purchasing, lowered marketing costs, and personnel layoffs.
Discussion Questions
- Why might the Staples/Office Depot merger be more acceptable to the Justice Department today than it was in 1997?
- Do you believe the merger should be allowed?
Source: Michael J. de la Merced and David Gelles, The New York Times, February 4, 2015