Office Superstore Industry Case Study

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Register to read the introduction… Staples and Office Depot advertisements usually vary dramatically from one area to another. The proposed merger will lead to an office store monopoly in 15 markets; and in another 27 metropolitan areas, the number of competitors will be reduced from three to two. In other areas, where Staples and Office Depot had planned to compete, the projected competition will be completely eliminated by the merger.
5) How is the Herfindahl-Hirschman Index (HHI) affected by the merger? Why does the case list a range, instead of an exact number? Are the HHI levels in the case indicative of high industry concentration?
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The combined shares of Staples and Office Depot in the office superstore market in case of the merger would be 100% (HHI – 10,000) in 15 metropolitan areas. In the other 27 areas, the firm would have market shares range from 45% to 94%, with HHIs ranging from 5,003 to 9,049. These numbers indicate a very high industry concentration and are way above average, thus questioning the legality of the proposed merger. In 42 metropolitan areas where Staples and Office Depot today are the main competitors, the post-merger HHI’s average over 3,000, ranging from approximately 1,800 to over 5,000. It is impossible to state an exact number due to different geographical areas, where the situation varies significantly: in some areas Office Depot and Staples face no competition at all and their market share is very high; while in others, there are OfficeMax stores and/or other small stationaries, which may reduce the merger’s market

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