FTC v. Staples, Inc.
Citation: 970 F. Supp. 1066 (D.D.C. 1997)
Facts
Staples and Office Depot, two of the three largest office supply superstores in the United States, proposed a merger. The FTC sought a preliminary injunction to block the deal under § 7 of the Clayton Act, arguing that the merger would substantially lessen competition. The central dispute was over market definition: whether the relevant market was all retailers selling office supplies (broad) or only office supply superstores (narrow). Empirical evidence showed that Staples charged lower prices in markets where it faced superstore competition than in markets where it was the only superstore.
Issue
Whether the relevant product market for antitrust merger analysis was limited to office supply superstores or encompassed all sellers of office supplies including mass merchants, warehouse clubs, and drug stores.
Holding
The district court granted the preliminary injunction, accepting the FTC’s narrower market definition of office supply superstores and finding a substantial probability of success on the merits.
Rule
Market definition in merger cases focuses on the “hypothetical monopolist” test: whether a small but significant non-transitory increase in price (SSNIP) by the merged entity would be profitable — i.e., whether customers would switch to alternatives in sufficient numbers to defeat the price increase. Direct pricing evidence showing that prices are significantly lower in the presence of superstore competitors than in their absence is powerful evidence that superstores constitute a distinct relevant market.
Significance
FTC v. Staples is the canonical teaching case for market definition in horizontal merger cases, demonstrating how courts use econometric pricing evidence to define markets. The case illustrates the profound importance of market definition — a narrow market produces high market shares and triggers presumptive illegality, while a broad market may produce low shares that permit the merger. Staples is also important for demonstrating how the government can use natural experiments (comparing prices across markets with different competitive conditions) to prove competitive effects.