THE FTC'S AIM WAS TRUE THIS TIME
The Federal Trade Commission's surprise decision to block Staples Inc.'s $4.4 billion acquisition of Office Depot Inc. is part of a strategy designed to keep the new superstore retail market competitive. The FTC had been trying to modify the deal so that Staples sold off stores in markets it would monopolize after acquiring Office Depot to rival OfficeMax. Odds are the FTC decision, in the end, will produce just such a deal.
The FTC traditionally viewed retailing broadly, as an ultracompetitive business with many small and large stores, where sav-vy shoppers forsook brand or store loyalty for the best bargain. It was therefore reluctant to take action against any merger.
But the FTC argued that customers don't view other kinds of stores--such as local stationers, mail order, or even general superstores such as Wal-Mart--as substitutes for Staples and Office Depot. Its analysis shows that when local Staples stores raise prices, customers drive to competing office-supply superstores--either Office Depot or Office Max--and not other alternatives. The result, says the FTC: Prices at Staples are lower in markets where Office Depot and OfficeMax compete with them and higher where they don't.
Ninety-nine percent of all proposed mergers go through without a hitch in the U.S. When there are problems, as in the recent Ciba-Geigy and Sandoz deal or the Baxter International and Immuno International agreement, the FTC has acted to modify them to preserve market competition. This is the proper role for the regulatory agency to play. The FTC can be a watchdog without being an obstacle.