The American Antitrust Institute (AAI) today issued a white paper titled The Proposed Merger of Staples and Office Depot: Lessons from History and New Competitive Concerns. The paper urges the Federal Trade Commission (FTC) to carefully scrutinize the competitive impact of the proposed Staples/Office Depot merger.
“This is a watershed deal for antitrust,” said AAI President Diana Moss. “The proposed merger raises a number of threshold questions. If the government is faced with a merger to monopoly of the office supply superstores, the AAI wants to make sure those get addressed.”
The AAI white paper warns that the deal’s biggest threat could be to the merging firms’ biggest customers: national and multi-regional businesses that buy office supplies through negotiated long-term contracts. The AAI’s analysis shows that the two merging firms dominate this market for “enterprise” contract customers, and many of these large customers have no viable alternatives to Staples or Office Depot.
“While the deal deserves a lot of attention on retail market issues, we highlight that competition for the largest customers in the contract market is basically on life support,” said AAI Associate General Counsel Randy Stutz, who authored the white paper. “We don’t see any companies left in the enterprise contract market that can mount a serious challenge to Staples or Office Depot.”
The white paper explains that a merger to monopoly in office supply superstores (OSSs) would threaten enterprise contract customers not only with higher prices and diminished service, but also the loss of competition to provide the best cyber security in keeping sensitive customer data safe. Because the deal eliminates all redundancy in the OSS supply channel, it also puts these customers at risk of having no supply options in the event of a disruption to the merged firm.
“Leaving large customers to internalize significant risk of a shock to a merged Staples/Office Depot should be considered an adverse effect of the merger,” said Moss. “Whenever you get down to a few firms or a single firm, you should be asking what happens if these guys get hit by another cyber attack or some other unforeseen disruption, especially when Staples/Office Depot is the only competitor capable of serving a huge swath of customers.”
The AAI white paper also notes that there are serious concerns to be addressed in the retail channel. “The fact that consumers buy office supplies on Amazon and at Walmart should be the beginning of the analysis, not the end,” explained Stutz. “Three-to-one consolidation among OSSs should prompt the FTC to consider whether a merged Staples/Office Depot could use price discrimination or dynamic pricing strategies to harm consumers in local geographic regions that are underserved by such alternatives.”
Diana Moss, President, American Antitrust Institute
Randy Stutz, Associate General Counsel, American Antitrust Institute
CORRECTION: In a previously posted version of this white paper, the discussion of remedies beginning at page 17 relied on the merging firms’ global sales and global distribution facilities rather than their domestic sales and domestic distribution facilities for purposes of comparing divestitures with Sysco/US Foods. This version relies on domestic sales and domestic distribution facilities. Information in this version was taken from the merging firms’ 10-K filings.