On Friday, November 1, 2013 the Federal Trade Commission (FTC) ended a seven-month investigation of the proposed merger between Office Depot Inc. and OfficeMax Inc., allowing the transaction to move forward.
The merger between the second and third largest office supply superstores (OSS) is not the first time the FTC has been interested in OSS transactions. In 1997, the FTC successfully blocked a proposed merger between the two largest OSS in FTC v. Staples, Inc., 970 F.Supp. 1066 (D.D.C. 1997). The FTC’s seemingly contradictory positions can be discerned, however, by the changes in the competitive landscape for OSS.
As acknowledged in the FTC’s statement concerning the proposed merger, OSS now compete with online retailers and mass merchants far more than in 1997. In fact, in Staples, the court determined that while mass merchants, wholesale clubs and mail order firms sold office supplies, prices at OSS were primarily affected by the presence of another OSS in the geographic market. Because of this determination, the FTC was successful in arguing that the relevant product market was the sale of consumable office supplies just through OSS.
Now, OSS compete rigorously with the growing number and size of online retailers and mass merchants. As the FTC found, OSS “closely monitor” and “respond competitively” to non-OSS retailers. Indeed, the FTC noted that OSS are responding to such competition not only through staples of competition such as price matching and price-checking, but also through innovation, such as “offering in-store pickup for online purchases and using in-store internet kiosks to order products online.”
The rapidly changing landscape in the consumable office supplies market is highlighted by two contrasting outcomes sixteen years apart. It highlights the importance of staying abreast of how changes in market dynamics and modernizing competition law may affect regulators’ view of potential transactions. As exemplified in this case, such knowledge can lead to a successful evaluation of a transaction that was previously thought to be impossible.