Key nonmarket issues - Whether to allow Staples and Office Depot to merge on the basis of antitrust concerns.
Interests - The three office supply superstores, Consumers, Competitors like other Superstores (e.g. Walmart, etc.), Manufactures, Suppliers, Labor organizations.
Institutions - Courts, FTC, DOJ, Congress.
Information - Asymmetric (FTC has done a lot of research and know quiet a lot to support the antitrust case but Staples and Office depot will know more about the relevant product market, Pricing etc.),
Incomplete (e.g. Whether it was possible to pass through the improvements in efficiencies to the consumers and if yes how much), Contested (Whether the definition of the ...view middle of the document...
Also the internal documents obtained from the companies in which the companies referred to the competition as the office superstore industry and the distinctive features like appearance variety of items etc. offered at a store helped define the market as office superstore. With the relevant market now constrained to office supply stores only, FTC was able to prove that the concentration figures were very high and the barriers to entry were high making it impossible to reduce the anticompetitive nature of the industry in future. So the courts concluded that the FTC had shown that they had a strong case and were likely to succeed on its merit. Also, post merger the companies decided to consolidate the warehouses, close 40-70 stores, renegotiating contracts with the manufactures and consolidate management, which will ultimately result in substantial layoffs. The private equity at stake here was the loss to the Office Depot shareholders but the court thought the loss of this private equity does not justify the denial of the preliminary injunction as the public equity clearly supported it.
2) Was the courts analysis of the pricing data appropriate for determining the likely effects of the merger?
The courts analysis to find the effects of the merger had some serious flaws.
Firstly, these studies did not take in to consideration other factors affecting prices, like the size and nature of the regional market, its population or the presence of other discount retailers that sell office supplies. It would have been more effective to see what happened to prices when a second office supply superstore chain entered a one office supply superstore area, thus turning the one office supply superstore area into a two office supply superstore area. Because in this case the other economic factors affecting pricing would generally be similar before and after the entry of the second chain, this approach holds those other factors constant. Secondly, the price comparisons were a snapshot of price differences at one point in time and again they pooled all Staples stores together into a single model instead of having separate models for different parts of the country.
Lastly, the FTC changed the definition of the relevant market from the total market for office supplies to the market served only by the office-supply superstores. Staples and Office Depot together sell only about 5.5 percent of total office supplies. The FTC’s restricted definition of the relevant market ignores reality by assuming that the office-supply superstores face no effective competition from the many other types of stores and online retailers selling office supplies. As the first paragraph in the case mentions that Staples and Office Depot grew and prospered offering low prices to its price-sensitive customers. And they will prefer to go to the store that gives better prices.
3) Could Staples and Office Depot be reasonably expected to pass two-third of any cost efficiencies through to...