Friday, January 17, 2014

FTC v. Staples, Inc. case brief summary

FTC v. Staples, Inc. case brief summary
970 F.Supp. 1066 (1997)
The Federal Trade Commission (FTC) sought a preliminary injunction against Staples to prevent it from merging with Office Depot, based upon a market of office supplies sold through office superstores (which had only one other competitor, OfficeMax); the merging firms considered the market to be just office supplies (within which they had a combined 5.5% market share). The relevant geographic market were cities within the United States.

The Court found that sale of office supplies through office superstores was a distinct submarket within the “practical indicia” suggested by Brown Shoe and granted the preliminary injunction.
  • Despite the presence of smaller office supply retailers and Best Buys located in all cities where there were no competing superstores, Staples’ prices in those cities were significantly higher than in cities that had at least one other office superstore.
  • Evidence showed that defendants changed their price zones when faced with the entrance of another superstore, but not other retailers.
  • The defendants suggested that certain cities are simply more expensive environments in which to sell office supplies, due to zoning, transportation costs, congestion, and real estate costs, but these differences were not referenced and tracked in the defendant's accounting documents.
Analysis and Notes
  • The economists for each side had different theories: the FTC saw a 7% to 8% price differential when superstores change, but the defendants’ experts only saw a 1% difference. The economists theories were essentially a fight over technical details.
  • The Court essentially ignored the suggestion of unilateral effects and used the pricing information to define a submarket, although the case could be viewed as an issue of direct evidence of market power (price comparisons across cities) versus circumstantial evidence of market power (a fight over the market).
  • The narrow market/submarket approach often looks like the market has been simply concocted to invoke the structural presumption.
Using the unilateral effects approach avoids the fight over submarkets, but also has some disadvantages:
  • It loses the structural presumption.
  • Defendants can argue that there are more competitors in the market.
  • It sets up a contest between the direct and indirect evidence.
  • Potentially allows the defendants to invoke the safe harbor in the guidelines.

    See FTC v. Staples on Google Scholar

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