This week, the @FTC approved a bad merger, letting Staples buy the office supply wholesaler Essendant.
Before you glaze over at the thought of copy paper, I want to explain why this is a terrible decision, why it hurts local economies, and what we should do about it. 1/
First, about this industry. Over 25% of office supplies are sold by independent dealers. These dealers are highly competitive. They’ve had next-day delivery for 30+ yrs & e-commerce for 20+ yrs. They beat Amazon Business on price. 2/ https://www.opsoftware.com/OP/docs/AmazonPricingComparison.pdf …
These dealers are also significant in their local economies. Many employ 100-300 people. Because they don’t have storefronts – it’s mostly a B2B market — you may not know they exist in your community. But they do. 3/
As competitive as these businesses are though, concentration threatens their future.
They’re down to just 2 wholesalers — that’s just 2 lifelines to their supply chain. On Monday, the FTC let a big competitor, Staples, buy one of those lifelines, Essendant. 4/
Wholesalers do more than ship products to independent dealers. They are intimately involved, providing services to end customers, working with dealers to put together bids for big contracts, etc. 5/
The FTC has handed Staples an inside look at its competitors’ business. Staples has agreed to a “firewall” but that’s not enforceable. As one dealer told me, it would be easy for Essendant to verbally share w/ Staples details about an independent's bid on a big contract. 6/
Staples could also raise prices to these independent dealers. When these higher prices are passed to end customers, then those customers might switch to a new supplier… such as Staples. 7/
One extraordinary section of the FTC’s decision says this won’t happen because Staples isn’t really a competitor in the B2B market that indies sell to. LOSING MY MIND…. 8/
… Staples is buying Essendant is to get into that market! Amazon is eating the consumer market. So Staples thinks: Essendant lets us into B2B and helps us knock out the independents. 9/
Another section of the FTC’s decision says that independents can easily switch to the 1 other wholesaler, SP Richards. This is nonsense. SPR isn’t in every region, for one, and switching is like undergoing a kidney transplant for an independent dealer. It’s not that simple. 10/
Moreover, by this line of thinking, the FTC is consigning independent dealers to a monopoly wholesaler. The majority even admits that it’s highly unlikely that a new wholesaler will start up: “We assume it will not occur, and so do not rely on it for our conclusions.” 11/
Okay, what do we do. This was a 3-2 decision. A few years ago, it probably would have been 5-0. Both dissents are worth reading. 12/ https://www.ftc.gov/news-events/press-releases/2019/01/ftc-imposes-conditions-staples-acquisition-office-supply …
Commissioner @RKSlaughterFTC makes a compelling case for not being so permissive about vertical mergers. 13/
Commissioner @RKSlaughterFTC also says the FTC needs to analyze past merger approvals – to see if their analysis was right or not. She’s absolutely right.
If the FTC won’t bring itself to do this self-examination, Congress should compel it to. 14/
Meanwhile, @chopraftc unpacks why this deal harms competition and violates the law, and why the settlement – the “firewall” – is not in the public interest. 15/
He also says the FTC is being negligent in not considering that Staples is owned by Sycamore, a private equity firm with a nasty track record of hollowing out companies and selling off the carcasses. 16/
“The majority seems to believe we should wear blindfolds when it comes to this type of buyer evidence,” he writes. 17/
So, what do we do? One thing is to submit a public comment to the FTC during the 30 day comment period on this deal. It doesn’t take many letters to get the FTC’s attention. They can lead to changes in a deal. But more importantly… 18/
… Letters become a public record for Members of Congress. They are grounds for Congress to exercise oversight, to ask why the @FTC is not fulfilling its mission. Here’s the link to comment:
https://ftcpublic.commentworks.com/ftc/staplesessendantconsent/ … 19/19
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