1. How would you classify the office superstore industry? Who are the competitors? What are the characteristiecs of this industry that lead to this conclusion? Office superstores and other firms sized have a same strategy of providing a convenient, reliable, and economical source of office supplies for both businesses and individuals with home offices. Normally, the office superstore industry includes three main chains such as Office Depot, Staples and Office Demax and some office supply retailers. Office Depot and Staples are the first and second large office superstores chains in USA.
They offered one-stop shopping office superstores where they can provide a full line of consumable office items as well as other product such as computer, office furniture and other business related items; however, half of their revenues cam from office supplies. They charge higher prices in those parts of country where they do not compete against each other and lower prices where they are rivals (Micheal Bayes, Case: Proposed merger between Staples and Office Depot leads to concerns of higher prices, pg. 2). The battle is created between Office Depot, Staples and Office Max.
2. What barriers to entry help maintain the industry structure? Proprietory technology or knowledge, patents, government regulations/policies, exclusive ownership of natural resource or huge investment requirements – can serve to limit the number of new competitors and the pace at which they enter a market. New office superstore suppliers must enter at both local and national level. It has a barrier to entry at local level because saturated existing office superstores make insufficient demand to new office superstores. Thus, new entrant should check anticompetitive prices of market incumbents.
In addition, new firm needs to establish the “critical mass” of stores that help to achieve economies of scale in advertising and distribution (Micheal Bayes, Case: Proposed merger between Staples and Office Depot leads to concerns of higher prices, pg. 11). To achieve economies scales and be profitability, new superstores would have to open many stores anh incur high sunk cost. 3. If the merger were to be allowed, how would you characterize the merged firm’s own price elasticity in a geographic market that contained only that firm? How would this change over time?
If the proposed merger were to be llowed, it will create a monopoly. The price will high where only the merged office superstore exits. However, the price increase will be small due to the threate of competition from Office Max and other local office supply retailers. The merger also leads to reduce the production costs, to make the merger a good fit because of lack of competitive overlap and get mutual advertising, marketing, distribution and administrative benefits. Therefore, this merger eliminates price-cutting competitors that would have driven prices down in many areas where Office Depot and Staples planned to open new stores.