When consumers think of U.S. companies with too much power, it’s a good bet they don’t put toner and paperclip mongers at the top of their list. Too bad the American government doesn’t feel the same way.
This week, a judge helped the Federal Trade Commission deliver a final kick to the merger efforts of two sickly office supply companies, Staples (SPLS) and Office Depot (ODP). This legal coup de grace will supposedly protect consumers and firms from getting gouged by monopoly pricing, but it’s doubtful many will feel that grateful.
The reason is that outfits like Staples, whose bread-and-butter is old-school office supplies, are becoming less relevant to modern work life. Office Depot’s homepage, for instance, is awash in offers for cartridges and paper. How many office workers still use this stuff anymore?
Even if a merged company could corner the market on this dwindling customer base, it’s hard to see any monopoly lasting long. As Tim Worstall at Forbespoints out, a market for paper and pens doesn’t exactly come with high barriers to entry. As Jeff Bezos of Amazon (AMZN) likes to say, “Your margin is my opportunity.”
Speaking of Amazon, note how it and fellow tech giants Google and Facebook have been able to grow and gobble everything around them with barely a peep from the antitrust folks at the FTC and the Justice Department. While few firms and consumers fret about paperclip monopolists, they certainly do have concerns about these giant Internet platforms that shape how they read, shop, and spend.
The chart below shows the profits of Google and Amazon, and those of the hapless office supply firms:
Despite the fact the office supply firms are obviously foundering, the FTC still refused to let them try save themselves with a hail-mary merger.
We’ve seen this before, where the feds treat fading retailers as if they possessed the market clout and importance of their glory years. Most blatantly, the Justice Department responded to upheaval in the book market by taking antitrust action against book publishers and Apple, rather than the industry giant Amazon.
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The motives here are hard to explain. On one hand, the antitrust agencies are staffed by sophisticated people who use complex economic models in an attempt to protect consumers. But they also appear oblivious to how technology is disrupting older industries or actively have it in for retailers, as when the FTC got caught asking Amazon to fabricate testimony that would hurt Staples.
As for the tech industry’s free pass, it may have something to do with the outsize influence of Silicon Valley in the Obama administration. Or it may be a form of regulatory humility that is wary about mucking up fast-evolving industries with antitrust action. (Yes, there are murmurs this week about a new FTC investigation of Google (GOOG), but the smart money is this goes the way of the last one.)
In any event, it may be time for antitrust officials to strive for some consistency in how they treat the tech versus retail sectors.
