Sunday, May 25, 1997

Economist: Staples deal would trim retail prices

WASHINGTON (Dow Jones News) - An "economic death knell" would sound if a combined Staples Inc. and Office Depot Inc. raised prices after their merger, an economist at the Massachusetts Institute of Technology told a federal judge Friday.

"I think it would be suicide if they tried to raise prices," said Jerry Hausman, an MIT professor.

The Federal Trade Commission contends that the proposed $4 billion marriage of the nation's two biggest office supply superstores would prompt the combined company to boost prices more than 5 percent.

The FTC has asked a federal judge to block the merger on the grounds that it would be anticompetitive. A five-day hearing before U.S. District Judge Thomas Hogan concluded Friday.

Hausman, testifying for the retailers, said the merger would instead reduce prices by about 2.2 percent, largely due to cost savings the companies would reap through the combination.

"Consumers are made better off by this merger," Hausman said. "It should definitely be allowed to happen."

But the FTC sought to discredit Hausman's price estimates. Attorneys for the agency noted that he left certain stores in California and Pennsylvania out of the statistical mix, which they said skewed the projections.

Hausman said some stores in California were excluded because they are in less populated areas where competition and costs are different from typical Staples outlets.

Earlier, during questioning by Staples' attorney Donald Kempf, Hausman said the two stores have a small share - between 5 percent and 10 percent - of the $168 billion office supply market.

"There just can't be a competitive problem," he said. "No matter how you cut it, they have a very small share."

Final statements are scheduled for June 5 and a ruling is expected a couple of weeks later.