Current market realities indicate hardly any new entry even in the markets where prices are at elevated level. Over the past few years, the number of superstore chains has dropped. Office-1, which entered in 1991 and grew to thirty-five stores in eleven states by 1996, went bankrupt. Several other office superstores have exited the market altogether or have been acquired by one of the market incumbents. The fact that so many firms have exited and no one is trying to enter the market indicates significant challenges for any new entrants. In order to match the cost and distribution structures of existing players, a new entrant would have to establish presence at both, local and national levels. Effective competition in a particular local market requires a significant number of stores, however, in most areas, there’s hardly any room for new stores. Staples, Office Depot, and OfficeMax each have approximately 500 stores nationwide and they continue expanding their network. Through some retailers such as Target, Wal-Mart, and Kmart, and computer superstores catering to small businesses, such as Best Buy do exist but repositioning by such retailers to attract office superstore customers is very remote and unlikely as these companies would have to significantly change their strategies to compete with Staples and Office Depot.
3) If the merger were to be allowed, how would you characterize the merged firm’s own price elasticity in a geographic market that