Chris Hopkins of Barnett & Co.Since the end of the recession in 2009, the U.S. economy has grown at a disappointingly tepid rate of around 2 percent per year. The factors conspiring to impede a more robust expansion are many, but a leading role must be assigned to policy mistakes and regulatory overreach. This past week brought another example, as regulators obsessed over competition in paper clips.
On Dec. 6, the Federal Trade Commission filed a lawsuit in Federal court to halt the proposed merger of Staples and Office Depot. In an even more puzzling twist, the agency did not focus on the impact of the merger on individual retail customers but instead cited the potential for higher prices to large corporate buyers with national accounts. In other words, the most sophisticated customers with the greatest buying power and the ability to switch suppliers most easily. The mind reels.
The pursuit of antitrust enforcement in America has had a noble beginning but a checkered history. Free market capitalism only operates effectively with vigorous competition. By the late 1800s, a few giant corporations known as “trusts” had effectively cornered the market for certain resources and infrastructure assets like oil, railroads and steel. This was possible because barriers to entry were too high to allow competitors to enter, or because a few firms controlled the bulk of raw material supplies. To address the problem of monopolies, Congress passed the Sherman Antitrust Act in 1890, which President Theodore Roosevelt wielded with gusto during the first decade of the 20th century.
In 1914, the Clayton Act expanded the government’s antitrust tool kit and added the authority to challenge business combinations that were judged to be “anti-competitive.” It is under this 100-year-old interpretation of impaired competition that the FTC action was brought.
The two office supply giants are seeking the tie-up precisely because of the hyper-competitive environment in their industry. Antitrust analysis often assumes a static landscape and fails to recognize the restless dynamism of competition and change from alternative channels. Staples and Office Depot are not at war with each other; they are losing market share to Sam’s Club, Costco and BJ’s Wholesale. They are dodging competitive threats from Dell and HP, Best Buy and Alibaba. And don’t forget Amazon, from whom businesses can acquire anything available at Office Depot, and in some cities have it delivered the same day by an Uber driver.