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The Independent Institute
Working Paper #31

The Positive Correlation of Price and Concentration in Staples: Market Power or Indivisibility?

Abstract: The FTC's successful challenge of the Staples-Office Depot merger is one of the most important antitrust cases in recent years. Vital to the FTC's success was evidence that prices for office supplies were significantly higher in markets having only one firm operating office supply superstores than in markets having two or three such firms. The FTC used this evidence to argue that the merger would raise the price of office supplies. This paper applies an idea of Harold Demsetz (1989) -- indivisibility rent -- to argue that one-firm markets probably have higher marginal costs. If so, the FTC's inference about the effect of the merger is doubtful.