Post on 09-Feb-2016
description
Public Policy in Private Markets
Debate 2
Merger wrap up
Announcements
Today: Debate # 2 Pick up HW 3 Turn in HW 5
Debate 3: 4/12 (video due to me by 4/10) HW 6, posted and due on 4/12
Midterm # 2: 4/19 Review: 4/18; 6-8 pm More later
Midterm assessment
Thanks for your participation! Things that seem to work
i>clicker Cases Options for grading Fair grading (although stiff!) Usefulness of PPT slides
Midterm assessment
Things that need improvement Midterm: unexpectedly hard, time issue
This is a capstone course (expected) I failed in conveying the correct expectation Let me work on this:
Practice test will be posted prior to the exam You can turn in practice test the day of the review I will post answer key after review session You can get extra points for doing this (provided
you look at the key and let me know how you would have improved your answers after looking at answer key)
Midterm assessment
Things that need improvement Midterm/grading
Scaling: I will not scale the exams, but will scale final grade
Debate 2
Group 1: Dikesha Patel, Dionne Wisdom, Jason Lai (FTC – merger challenger) First video
Group 2: Devon Bell, Thomas Fantini, Michael Murphy, Aline Desouza (defense side) Second Video
Room for defense (5 minutes, per group) i>clicker questions throughout Please put away your laptops
Controversy
What was the most controversial issue in this case?
A. Geographic market definitionB. Product Market definitionC. Calculation of cost efficiencies
and pass through rateD. Determining entry barriers
Anticompetitive merger?
Do you think the merger would have significantly increased prices of office supplies?
A. YES
B. NO
Clarity of Presentation
Which side presented the clearest case?
A. FTC (merger challenger)
B. Staples – Office Depot
Strength of Arguments
Which side presented the strongest economic arguments?
A. FTC (merger challenger)
B. Staples – Office Depot
Overall assessment of quality of presentation
On a scale from 1 – 10 (1 poor, 10 outstanding), what would be your rating of the FTC’s side?
Overall assessment of quality of presentation
On a scale from 1-10 (1 poor, 10 outstanding), what would be your rating of the defense side (Staples – Office Depot)?
Anticompetitive merger?
Do you think the merger would have significantly increased prices of office supplies?
1. YES
2. NO
Staples – Office Depot
Recall merger guidelines is a two-step process:
1. Market definition
2. Would competition be harmed? Concentration (HHI) Increased prices (unilateral) Entry barriers Cost efficiencies
Market Definition
Key issue: Market Definition FTC: Sales in OSS
Different shopping experience One stop shop Different prices
Mutual recognition Internal documents
No close substitutes Non-OSS can’t discipline OSS
This definition gave 75% of market to merged firm
Market Definition
Staples – Office Depot Superstores, supermarkets, discount stores, on-
line, OSS, etc. Market definition should look at product not seller Costco and Wal-mart can easily expand shelf
space to compete With this definition: 5% - 6% combined market
share
Unique about this case: Inspection of store was critical for judge Identity of seller was used to define market
Likely Anticompetitive Effects Econometric and statistical evidence:
Compare prices going from 2 to 1 and from 3 to 2 competitors
Defendants showed statistical evidence on how prices went down with entry of Wal-mart, Best Buy
Office Depot effect
Staples effect
Likely Anticompetitive Effects Econometric and statistical evidence:
What does competition look like in the future?
Staples-OD : these are not reliable comparisons as 1 and 2 firm markets are different than 3-firm markets
3 to 2 competitors is more important
Likely Anticompetitive Effects
Econometric and statistical evidence: Stock event study: how did Office Max stock price
change after announcement? If merger is expected to increase price, then
competitors also benefit with a price increase If competitors benefit from a price increase, stock
should go up Statistical evidence supported increase in Office
Max stock price as likelihood of merger was higher
Likely Anticompetitive Effects Efficiencies
Defendants: less advertising, procurement costs (economies of scale)
FTC: costs will go down but: Are they merger specific? Economies of scale are nearly exhausted Even if costs go down, will prices? Cost reduction pass-through appears low: 0.15%
Judge: Estimates by defendants unreliable Cost efficiencies are (historically) difficult to
successfully use in court
Likely Anticompetitive Effects
Entry FTC:
There are notable entry barriers: Economies of Scale Economies of Advertising Customer Loyalty “Saturated” Markets (Insufficient Demand)
Staples – Office Depot
Some recent thoughts:
Increasing importance of internet sales (many office supplies are no longer purchased at brick and mortar stores).
Business model: back to small-size stores?
Best Buy, Staples, and even Wal-Mart considering new format
Back to old format?
Back to old format?