Question: Based on the case study Staples and Office Depot Again Propose a Merger. Please point out what you would liked about this analysis and do you agree or disagree with it? In paragraph form. Below is the case study link.

The office superstore industry is imperative for companies that need consumable office supplies around the United States and the world. There are two main competitors for the business to business side of office supplies in the United States. The two main competitors are Staples and Office Depot. Between both Office Depot and Staples, these two competitors control more than 70% of the relevant market for business to business consumable office supplies sales. Many companies in the United States have offices around the country. As a result, it is much more efficient for them to purchase supplies from one supplier. This need for national suppliers is a main characteristic that has created a market with only two real players with Office Depot and Staples who have national capabilities.

One aspect of the superstore market that has changed since Staples and Office Depot originally tried to merge is that other segments of the office supply market are controlled by other companies. Businesses go to other companies for printer supplies and other office-related products such as janitorial or break-room products. The barrier of entry that maintain the industry structure is the strong capabilities that both Office Depot and Staples have with superstores all over the country. They can provide service and supplies through one source around the country. They also get great prices from manufacturers because they buy supplies in such large quantities because they own majority of the market share. The process of competing with powerhouses like Staples and Office Depot would be nearly and impossible task for firms starting up in the office supply market. Overtime, another player could emerge in the market, but Staples and Office Depot have a strong hold on the industry.

If Staples and Office Depot merged, the industry for consumable office supplies would essentially become a monopoly. Monopoly agreements are defined as agreements, decisions, or concerted actions that eliminate or restrict competition (Mok, 2022). In a market that only contained only the new merged firm in a geographic location, I would expect the price elasticity to be very low. Because the firm would be the only true competitor in the region, consumers would be left with basically no choice except to purchase from the firm. As a result, changes in prices form the firm would have little effect on the quantity demanded by consumers from the firm. Overtime this could change with new competitors emerging in the market. However, a new firm emerging and competing with the merged firm of Office Depot and Staples would have a difficult time gaining market share. The relevant market is all companies purchasing large amounts of consumable office supplies such as paper, pens, pencils, markers, and other products. The customers for this market are large businesses that use the supplies for their own end-use. The employees use these materials instead of being resold. Classic customers in the market often purchase over $1 million in consumable office supplies. I do not believe that retailers that sell but do not specialize in office supplies should be considered as part of the market. Office Depot and Staples provide unmatched service and deals on large orders for corporations that these other firms who do not specialize in office supplies cannot. Therefore, I do not think they should be considered in the market. I do believe that these firms could shift their focus and take over a larger portion of the office supplies market share in the future though.

According to the Herfindahl-Hirschman Index (HHI), the merger would put the index in a position that makes the merger unlawful. To be unlawful, a post-merger market-concentration level could not be at a level above 2,500 points, and the merger could not increase market concentration by over 200 points. The merger between Staples and Office Depit would put the HHI at 4900 points and would increase by over 200 points making the merger unlawful and also indicative of very high market concentration. The merger could lead to cost reduction from Staples because they would not have to compete with Office Depot for deals with the manufacturers. Office Depot and Staples could also consolidate their infrastructure on deliveries around the country which would lower costs. This could lead to lower prices for consumers, however, it is likely that prices will rise because of the monopolistic environment due to Staples owning majority of the market share after the merger. In defense of their merger, Staples and Office Depot could argue that the pinch between making deals with manufacturers and customers threatening to leave one firm for the other leads to massive profit cuts for both firms. Combining the firms could also lead to more efficient deliveries and combining services which could make the environment better for consumers. However in my opinion, the merger places the market in a monopolistic environment which is not good for free market conditions.

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