Staples and Office Depot – Case Study Example
Case study about staples and office depot Response to question Office superstore is an industry that is dominated by three major stores that are in competition with each other. The dominating companies in this industry include Office Depot, OfficeMax, and the Staples companies respectively. The major competitors in this market include Office Depot, Staples, and OfficeMax Company. The intense competition between Office Depot and Staples stores, lead to increased benefits to the consumers. The characteristics of this industry include the fact that the industry is dominated with the companies that compete each other aggressively. The Staples has almost five hundred stores, where as Office Deport has over five hundred stores in the entire nation. These companies are in competition with each other in the metropolitan region in the country. Office Depot and Staples got into an agreement in which Staples would obtain the stocks, where as Office Deport would get the assets worth $4 billion. This merged company was expected to have unified annual sales exceeding $ 10 billion.
Response to question 2
Some barriers to entry maintain the structure of this industry. The major barrier to entry is price. The supplying price for Staples office is low in the places where the other national offices do compete. This price increases in the regions where the existing competitor is OfficeMax. The price is extremely high in the regions where Staple experiences no competition. The case is same for Office Depot, which charges reduced price at the competition regions, relatively high price where there is little competition , and extremely high in the regions where the store has no competition.
The other barrier to entry is the fact that super stores provide the customers with a one stop convenience of shopping something that cannot be provided by the other retailers in the industry.
Response to question 3
The merger between Staples and Office Depot might injure the consumers who derive their gain from the rivalry of the two stores and the consumer expecting to reap the future reward of the superstore competition. The merger between the two stores would result into reduced competition in the industry. This would be a serious step towards the reduction of the destructive competition in price that is followed by the approaching saturation in the market. This also implies that the existing competition fear in the industry would die out. On the other hand, the merger would lead to increased profits for the merged company. If an elasticity curve is plotted, the price will be directly related to the demand of the products in the market (William 12). This is so because the merged company will have increased capital, increased resources, increased market, and the increase in the demand of the customers since the customers for the two companies would be doubled. The main effect would be increased sales and profits for the company. In regions where the company dominates the profits would be extremely high. In the regions where the company faces slight competition, the profit would be relatively low, and the region that the company minimum dominance the profits would be reduced.
Over time if the company continues to provide the consumer with the one stop purchasing, the profits would continue to increase. If the quality of the products were compromised, the firm would have reduced customers hence reduced profits.
Response to question 4.
The relevant market, in this case, is that of the superstores that sells the office supplies offers to the consumers and providing the consumers with a unique convenience, price, and selection. The geographical region is the metropolitan area that is influenced by the acquisition is the relevant area. This includes the 42 area in which Office Depot and Staples operated and the different metropolitan areas in the entire country. The proposed transaction would be made up of the two competing companies in the market leaving one competitor of superstore with the other retailers. This means that sellers who do not specialize in office products should be part of the market. The key evidence is that the anticompetitive effects, power of raising the consumer price are always depended in the merger that provides the firm increased dominance in the position of the market.
Response to question 5.
The merger, in the sense that the total shares of the two merged companies would be 100% for the fifteen metropolitan areas, would affect the Herfindahl-Hirschman Index (HHI). In addition, the remaining twenty seven regions, the post merger sector shares will vary from forty five percent to ninety four percent with the HHI ranges of 5,003-9,049. The reported percentages are of high level raising the illegality presumption. The case lists a range rather than an exact number because the details are but an approximation of the future occurrence. Future occurrence has no certainty, but can only be a presumption. The HHI levels indicates a high industrial concentration. This high concentration would be because of the merger.
Response to question 6
Staples and Office Depot have argued that the relevant superstore market has failed to account for the office supplies that were sold by different retailers. According to the two companies, the merger would make annual sales exceeding $10 billion.
William, Robert. Elasticity. Oxford: Oxford University press. 2012. Print.