The Internet’s effects on geographic markets and competition barriers

April 8, 2013

Global Internet 2The Federal Trade Commission (FTC) and Department of Justice (DOJ) have a history of getting involved in M&A deals over geographic market issues. Such was the case with Staples’ attempted acquisition of Office Depot in 1997. The possibility that the combined company would reduce competition in markets where the two had been direct competitors led the FTC to conclude the deal violated federal antitrust laws.

Today, with the help of search engines, consumers can easily find bottom-line prices from a multitude of suppliers that are located both near and far from consumers’ homes. They range from neighborhood stores like Target to online-only retailers including Amazon.com and those vendors a browsing customer might have never heard of until performing an Internet search.

As Michael Glasser notes in a recent Business Law Currents article, “[Office supply stores] do not need a physical presence near their customers to provide their services. … Looking at the FTC’s and DOJ’s description of geographic markets, it is clear that the Internet makes it feasible to no longer receive goods or services at Office Depot’s, OfficeMax’s and Staples’ physical locations.” Customers can also move between geographic locations simply by making their purchases from different websites if they find more competitive prices, Glasser notes.

Other considerations concerning customers’ responses to price increases within a geographic market, as put forth by the FTC and DOJ, include:

  • The history of customers’ movements between geographic locations because of various terms and conditions.
  • The costs and effort of transporting the product itself, or the consumer to the product.
  • The necessity for suppliers to remain near to customers for service or support purposes.
  • The addition of “costs and delays of switching from suppliers” within a market to those outside the market.

It’s been more than 15 years since the failed Office Depot acquisition. Now, with Office Depot and OfficeMax looking toward a similar tie-up, it is possible that the FTC or DOJ may reveal a new view of what constitutes a relevant geographic market; a view that includes the sprawling online marketplace of competitors. This could result in less of a hurdle for future mergers or acquisitions.