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Motives of Business Mergers

            The objective of competition policy is to prohibit anti-competitive business conduct and maintain markets that are helpful to efficient economic performance. The Federal Trade Commission (FTC) is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act with the principal mission of protecting consumers and eliminating anticompetitive business practices. This report will analyze and evaluate the antitrust case of the Office Superstore companies – Staples and Office Depot in 1996 followed by a critical assessment of the decisions made by FTC in the light of the theory of Industrial Organization.
             A merger is an agreement of a voluntary amalgamation of two firms into one new legal entity (Reference). In USA, the Office Supply Superstore (OSS) market exhibits a high level of market concentration, with the largest players in the industry Staples (35%), Office Depot (26.1%) and OfficeMax (15.6%) accounting for over 70% of the entire market. It can be said that the OSS firms operate under an oligopoly market structure. However, Staples does hold some monopoly power as it has over a third of the market. In terms of the relevant product market, these OSS firms operate in the "market for the sale of consumable office supplies through office superstores." On September 4, 1996, Office Depot and Staples, announced their agreement to merge. This type of merger is regarded as a horizontal merger as the firms are in the same industry and same stage of production (reference). The Federal Trade Commission voted to oppose the merger on the basis that it was likely to harm competition and lead to higher prices. The merging parties chose to contest the FTC's actions in court and on June 30, 1997, after a seven-day trial, Judge Thomas F. Hogan agreed with the FTC and granted a preliminary injunction, effectively preventing the merger from taking place.

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