April 5, 2016
The Street reported on Federal Trade Commission (FTC) expert witness Carl Shapiro’s testimony at the US District Court, with Shapiro facing questioning from Staples’ lawyer Diane Sullivan. The two “tangled at length on the issue of ink and toner cartridges”, which make up 21 percent of both Staples and Office Depot’s sales, and Shapiro had “excluded them” from his definition of the office products market earlier on in proceedings.
The economist joked that “the word ‘market’ is very special to me”, but the news site pointed out that “the issue of market definition is at the core of the case”, and both Staples and Office Depot contend that the government’s definition of the market “is crafted to exclude smaller business and individual customers as well as to rule out printer ink and toner cartridges”. Also excluded would be those called ‘BOS’, or “beyond office supply”, including furniture, break room supplies and janitorial and sanitation products.
The FTC meanwhile claims that a merger would create a monopoly in what it defines as “consumable office supplies”, with cartridges excluded by Shapiro and the FTC’s definition because OEMs such as Xerox, HP Inc, Canon or Lexmark “provide cartridges” as part of MPS programmes. They also claimed that because MPS can cover printers, copiers and servicing, the “rise of print-services contracts distinguishes ink and toner from other consumable office supplies”.
From the retailers’ perspectives, excluding cartridges from the definition of “consumable office supplies” would drive up market share that they have in that category, with Sullivan pointing out that the FTC “included cartridges in its market definition when it successfully challenged the proposed merger” of the two companies back in 1997, as well as when approving Office Depot’s acquisition of OfficeMax three years ago.
Even the FTC’s own director of procurement, Sullivan added, has said “that he sees cartridges as part of the office supply market”, noting that “no business defines the market as you do”. Both the witness and lawyer also conversed about Amazon’s aims in the B2B market, which Shapiro agreed was “the main changing piece of the puzzle”, as Amazon has “grand ambitions” as well as “deep resources and an impressive history”.
Recently, the case took a dramatic turn towards approval for the merger, with the New York Post reporting that the merger might go ahead after Sullivan highlighted the FTC’s attempts to pressure Amazon “to lie” about the challenge a combined company might pose. Amazon earlier became embroiled amid rumours of it helping out the merger, while further settlement talks were revealed that came to nothing.
The FTC filed a lawsuit to block the $6.3 billion (€5.8 billion) merger last year, with a divestment offer rejected. Both companies extended their merger agreement to May in January, while the EU recently approved the merger after concessions, while the case last saw Staples’ and Office Depot’s CEOs testify. A decision is expected from Sullivan before 10 May, six days before Staples and Office Depot’s merger agreement expires, while Staples has also offered to freeze prices for approval.
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