Open Markets Condemns FTC’s 3-2 Decision to Allow Staples to Buy Office Product Wholesaler That Supplies Staples Competitors
January 29, 2019
WASHINGTON, D.C. — Open Markets Institute strongly condemns the Federal Trade Commission’s (FTC) decision to approve the merger of office supply giant Staples and the wholesale office supply distributor Essendant. The decision ignores the relevant law as well as overwhelming evidence that “vertical” mergers between dominant retailers and suppliers raise prices, and reduce competition, choice, supply and quality.
FTC Chairman Joe Simons, and commissioners Noah Phillips and Christine Wilson voted to approve the deal. In their decision they admitted that Staples takeover of Essendant could harm Staples’ competitors who rely on Essendant to supply their stores. But they said that “firewalls and other safeguards” would prevent Staples from exploiting this new power over its rivals.
The Open Markets Institute believes such thinking is, at best, extremely naive.
By contrast we applaud the dissenting statements by FTC Commissioners Rebecca Kelly Slaughter and Rohit Chopra who emphasize that Essendant is one of only two office product wholesale distributors with operations across the country. Commissioner Slaughter said she fears that the majority’s “conclusions depend on unreliable assumptions and predictions about how a vertically integrated firm will conduct itself and are too credulous about claimed pro-competitive benefits unique to vertical integration.” Commissioner Slaughter reminded the majority that the Clayton Antitrust Act empowers “the Commission to prevent anticompetitive mergers in their incipiency without having to wait until the merger’s anticompetitive effects come to fruition.” Commissioner Slaughter noted that the FTC’s staff analysis “indicated that the transaction would result in significant harm” and recommended a retrospective review of the merger within a “few years.”
In a separate dissent, Commissioner Chopra wrote that the combination of Staples and Essendant could give the corporation enormous power over the manufacturers who supply both corporations with office products. The FTC, Chopra argued, “did not adequately rule out the possibility” that a Staples-Essendant combination could wield its buyer power to squeeze its suppliers.
“This decision is bad for every American student, every American business person, indeed for every American who ever uses paper or pens,” Open Markets Executive Director Barry Lynn said. “It’s also bad for every American as a citizen, as the undermining of traditional prohibitions on vertical mergers will further worsen the already dangerous concentration of wealth, power, and control in America.”
Commissioner Slaughter’s dissent was one of the most important statements on the dangers of vertical integration by an enforcement official in many years. The decision by the three commissioners in the majority – all of whom were nominated to the FTC by Republican policymakers – also contradicted recent efforts by the Antitrust Division of the Justice Department to reinforce prohibitions against vertical mergers, and to limit the use of agreements designed to regulate the behavior of merged enterprises.
For more on Open Markets’ perspective on vertical mergers, you can read the comment that Open Markets submitted to the FTC for its “Competition and Consumer Protection in the 21st Century” hearings.