Antitrust Law Daily Wrap Up, ANTITRUST NEWS: AAI urges FTC to review competitive impact of Staples/Office Depot merger, (Jul 24, 2015)

By Linda O’Brien, J.D., LL.M.

The American Antitrust Institute (AAI) released a white paper on July 22, requesting that the FTC carefully scrutinize the competitive impact of the proposed merger of office supply chains Staples, Inc. and Office Depot, Inc. The white paper, authored by AAI Associate General Counsel Randy Stutz and titled “The Proposed Merger of Staples and Office Depot: Lessons from History and New Competitive Concerns,” warns that the merger may substantially lessen competition in the market for the sale of consumable office supplies to large multi-regional or national customers on a long-term contract basis (“enterprise market”).

The white paper addresses the implications of the proposed transaction, which closely follows the merger of Office Depot/OfficeMax in 2013 and completes a rapid consolidation of the office supply superstore (OSS) market. Specifically, the proposed merger threatens substantial unilateral anticompetitive effects that alternative supply responses could not ameliorate and harm to customers in that market will be passed on to consumers.

The white paper explains that the primary anticompetitive threat posed by the Staples/Office Depot merger is the loss of head-to-head competition between the two merging firms in either the enterprise market or the broader contract market. This is a very different scenario from the Office Depot/OfficeMax merger, where the FTC found that the merging firms were rarely each other’s closest competitors in the broader contracting market, and the merged firm would continue to face strong competition from Staples. This is a merger to monopoly in OSSs that 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, according to the white paper. 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.

The AAI white paper also notes that there are serious concerns to be addressed in the retail channel. In 2013, the FTC concluded that the Office Depot/OfficeMax merger was unlikely to substantially lessen competition in the retail market. First, the Commission found that mass merchants like Wal-Mart and Target and warehouse clubs like Costco and Sam’s Club had proliferated and expanded their product offerings and sales of office supplies. Second, online sellers like Amazon had taken away substantial in-store sales. However, the FTC did not address certain distinguishing factors among the different retail channels through which OSSs sell their products. This transaction is a merger to monopoly in local geographic markets where traditional OSSs are unconstrained by online and non-OSS competition, the author asserts. Therefore, the AAI encourages the Commission to evaluate the competitive effects of merging the two leading omnichannel suppliers of office products.

“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.”

“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 Stutz. “We don’t see any companies left in the enterprise contract market that can mount a serious challenge to Staples or Office Depot.”

Companies: Staples, Inc.; Office Depot, Inc.

News: Antitrust