Amazon Isn't Threat to Staples-Office Depot, Economist Says

  • FTC sued to prevent Staples' merger with rival Office Depot
  • Judge limits expert testimony about Amazon growth predictions

Amazon.com Inc. won’t curb the market power of a combined Staples Inc. and Office Depot Inc. in the sales of office supplies to large corporate customers, according to an economist for the U.S., which has sued to block the proposed merger.

“I don’t think they’re going to make that big a dent in that market,” said Carl Shapiro, an economist at the University of California Berkeley, who testified on Friday in federal court in Washington.

Staples and Office Depot are defending their merger against the Federal Trade Commission’s lawsuit, arguing that they need to merge to better compete with Amazon Business, which they describe as a “behemoth” that is rapidly gaining customers. 

The FTC’s bid to block the merger hinges on whether it can convincingly show the Internet retailer’s nascent Amazon Business unit won’t be a credible threat to a combined Staples-Office Depot in winning corporate customers. What U.S. District Judge Emmet Sullivan decides on that issue is central to the outcome of the lawsuit.

Sullivan on Friday dealt a setback to the FTC’s case when he said he won’t consider some testimony the regulator planned to offer about Amazon’s ability to be a competitive threat. Sullivan barred Shapiro from talking about future projections because the agency hadn’t previously shared that data with lawyers for the nation’s biggest office supply retailers.

“This is important because the issue of whether or not Amazon business will be able to replace competition lost by virtue of the merger could be the most crucial factor,” in the outcome of the case, said Jennifer Rie, an analyst at Bloomberg Intelligence who has been attending the hearing.

The FTC wants Sullivan to temporarily block Staples’ takeover of Office Depot pending a trial in its own administrative court. It contends the combined entity will be able to raise prices for office supplies sold to the biggest American companies and that Amazon Business, which entered the market a year ago, isn’t ready to compete and keep prices in check.

“They’re going to have more power,” and can raise prices if they combine, Shapiro told the court on Friday. Companies now doing business with either the Framingham, Massachusetts-based Staples or Boca Raton, Florida-based Office Depot will lose leverage in bargaining for the best price if the merger goes forward, he said.

A substantial amount of Amazon.com sales originate with third-party vendors who will have to pay manufacturers more to acquire the office supplies they sell than would a combined Staples-Office Depot, he said, adding the company isn’t likely to change its primary means of doing business.

Amazon’s success in other areas doesn’t mean success in this market, he said, “not withstanding their awesomeness.”

Office Depot shares closed up 6 percent at $7.55 in New York, while Staples stock rose 1.4 percent to $11.18.

The case is Federal Trade Commission v. Staples Inc., 15-cv-2115, U.S. District Court, District of Columbia (Washington).

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