Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Canada Competition Bureau Finds That Combination of Furniture Retailers Not Likely to Harm Competition, (Mar 20, 2013)

The Canada Competition Bureau issued a statement yesterday explaining its March 11 decision to issue a No Action Letter regarding Leon’s Furniture Limited’s acquisition of The Brick Ltd. The statement sets forth its view that the transaction would not be likely to lead to reduced competition in the relevant markets due to the presence of a variety of national and regional competitors.

On November 11, 2012, Leon’s, the owner of a chain of 77 retail stores selling furniture, mattresses, appliances, and electronics, announced an agreement between it and The Brick, owner of 231 retail stores in the same lines of business, under which Leon’s would acquire The Brick. According to the Competition Bureau, the chains’ retail operations overlapped in over 60 local Canadian markets.

The analysis focused on the transaction’s impact in the market for furniture and mattresses because the Bureau determined their competition was greatest in that market, and because Leon’s and The Brick were more differentiated from other competitors in that market than in the markets for electronics and appliances.

The Competition Bureau performed an econometric study using sales data from all Leon’s and The Brick retail stores to determine the competitive impact the chains had on each other. The Bureau compared the chains’ prices in areas where they competed against each other to their prices in areas where they did not compete, controlling for Area specific characteristics, store specific characteristics, product specific characteristics, customer specific characteristics, and the presence of other competitors. The Bureau also considered internal documents from the companies, the views of market participants, and the impact Leon’s entry into certain markets had on the performance of The Brick’s stores, among other information.

The Competition Bureau concluded that “the price effects it observed in its cross-sectional analysis were not material.” It weighed the magnitude, scope, and sustainability of the competitive effect, as well as factors that could constrain price following the transaction, including barriers to entry and effective remaining competition.

It was observed that greater scale would give a furniture or mattress retailer cost advantages that small retailers would not have, and that obtaining that scale would require time and considerable unrecoverable investments. A fully-functioning retail network would require multiple high-traffic store locations, exclusive supplier relationships, a well-established reputation, advanced inventory management capabilities, and market expertise, among other factors. These considerations, as well as difficulty in locating viable real estate, could constitute barriers to entry. However, a variety of national and regional furniture and mattress retailers existed that would provide sufficient effective competition in each of the relevant local markets.

News: Antitrust