Office-Supply Records Cite Exclusive Rivalry, U.S. Says

WASHINGTON — Internal company documents show that Staples Inc. and Office Depot Inc. consider themselves almost exclusive rivals, meaning the merger of the nation’s two largest office-supply superstores would virtually eliminate competition, government lawyers argued Tuesday.

The Federal Trade Commission is trying to persuade a judge to stop the proposed $4-billion merger, saying it would create an office-supply empire that would burden consumers with higher prices for items ranging from pencils to computer paper.

“They identify markets without other superstores as ‘noncompetitive’ in their documents. That’s their own internal perspective,” Warren Bolton, former chief antitrust economist for the Reagan administration, testified in U.S. District Court on Tuesday.

“I would say that the evidence from a large number of sources . . . all points to the same conclusion: that this merger can be expected to result in a large price increase, probably about 7%,” said Bolton, who reviewed company documents and sophisticated price-projection models for the government.

He showed a colorful pie chart, produced by Staples last year for strategic planning, illustrating that without the merger the company expected new competition from Office Depot in 76% of its markets by 2000, compared with 46% now.

“These firms are on a very rapid collision course,” Bolton said.

Lawyers for the companies will argue later in the week that their combined $11 billion in sales account for only 5% of a diverse office-supply market that includes other large retailers, such as Wal-Mart Stores Inc., mom-and-pop stationery stores and mail-order companies.

During opening arguments Monday, Staples attorney Don Kempf offered a list of 105 places where the FTC itself buys office supplies.

Staples plans to produce documents and a witness from Wal-Mart to prove its competition is widespread.

“It’s a highly competitive marketplace . . . where we have a very small piece,” said Todd Krasnow, Staples vice president of marketing, who plans to testify.

Staples also will argue that efficiencies created by the merger will actually result in lower prices for consumers--as the company has tried to convince shoppers in ad campaigns this spring.

Judge Thomas Hogan has said he will rule on the case by mid-June.