Proposed Merger Between Staples

1. How would you classify the office superstore industry? Who are the competitors? What are the characteristics of this industry that lead to this conclusion?

Office superstores provide office supplies and other products like computers, office furniture, etc for businesses and individuals. The three main competitors are Office Depot, Staples and Office Max.

2. What barriers to entry help maintain the industry structure?

There are government regulations and a high initial investment. Furthermore, new offices must not only compete at the local level, but also to be able to compete at the national level by opening other stores, which means that the business will incur costs and debt.

3. If the merger were to be allowed, how would you characterize the merged firm's own price elasticity in a geographic market that contained only that firm? How would this change over time?

It will create a monopoly and therefore there will be a price increase. According to the study prices were lowest where Staples and OfficeMax also operated, and highest where they did not. These patterns held regardless of how many non-superstore sellers of office supplies operated in the metropolitan area under review.

4. What is the relevant market for this case? Should retailers that sell, but do not specialize in office products, be considered as part of the market? What evidence supports this conclusion? What are geographic considerations?

Two different classes of retails sell a particular type of merchandise does not mean that they are in the same product market. However, these two retailers offer a varierity of product line and convenience. In this case, the relevant markets include 42 metropolitan areas where both Staples and Office Depot operate office superstores and the numerous metropolitan areas throughout the country where Staples and Office Depot had planned to be competitors in the near future.

5. How is the Herfindahl-Hirschman Index (HHI) affected by the merger? Why does the case list a range, instead of an exact number? Are the HHI levels in the case indicative of high industry concentration?

It is an economic concept widely applied in antitrust and also technology management. It is defined as the sum of the squares of the market shares of the 50 largest firms (or summed over all the firms if there are fewer than 50) within the industry, where the market shares are expressed as fractions. The result is proportional to the average market share, weighted by market share. As such, it can range from 0 to 1.0, moving from a huge number of very small firms to a single monopolistic producer. Increases in the Herfindahl index generally indicate a decrease in competition and an increase of market power, whereas decreases indicate the opposite. Alternatively, if whole percentages are used, the index ranges from 0 to 10,000.

6. What