1) What were the alternative methods used by the FTC and the merging firms to determine whether or not an Office Depot and a Staples outlet were in the same geographical market?
2) How did this differentiation in geographical market measurement affect the pricing behavior estimated by the FTC and by the merging firms? What is the economic term we commonly use for "price sensitive" as used in the paper?
3) Which of the two studies do you find more compelling? Would you allow the merger? Has your company been involved in a similar court injunction (if no, choose a similar example outside your firm)? Identify the case and how it is similar.
See attached file for full problem description.
This case involves the merger of two office supply stores, Staples and Office Depot. The FTC successfully argued before the judge that the merger of these companies would result in higher prices due to lower competitive pressure. Unilateral effects theory is mentioned; this is when the merger of two companies enables them to charge more, due to lack of competition. This may not be a deliberate act on their part, but in charging what the market will bear they do end up raising prices. To prove this, the FTC used models that showed that in areas where both firms co-existed, prices were lower (whenever the article says "we" or "us" it is referring to the FTC). The merging companies presented their own model to show that prices wouldn't change significantly. The ...
Federal Trade Commission methods of geographical market measurement