by Mitch Kokai
Senior Political Analyst, John Locke Foundation
As soldiers are taught to seize the high ground, so antitrust prosecutors are taught to define the relevant market. If there are many businesses competing in a broad market, then the prosecutor must slice the market into pieces. Then he can sue over one piece where the targets have dominant positions and therefore must not be allowed to merge.
That’s how the Federal Trade Commission seized the high ground in its recent battle against Office Depot and Staples. The commission ignored the growth of businesses selling office supplies and other products on the Internet and through manufacturers’ regional dealers and resellers. Instead, the FTC charged that the target companies would have too much power in one segment of the market.
The commission invented a market segment of large corporate customers that buy office supplies on long-term contracts with big-box retailers. Then it trimmed the definition to exclude sales of ink and toner for printers and copiers, because Staples and Office Depot don’t have a strong market share for those office supplies.
This maneuver produced the odd sight of the federal government intervening to prevent price increases on behalf of big companies that have enough market power of their own to protect themselves, for whom office supplies may be a small part of corporate expenses.
The Staples–Office Depot case, involving large business suppliers dealing with large business customers, favors buyers over sellers. If the merger had gone through and the FTC’s worst fears were realized, both sides of every transaction would have had market strength and both sides would be well informed about their options.
Even though the survivor would have some market power, it would not hold a monopoly on office-supply sales. Liberty and freedom of choice would still control prices, not the government.