Review of Industrial Organization 19: 469–481, 2001.
© 2001 Kluwer Academic Publishers. Printed in the Netherlands.
Staples and Ofﬁce Depot: An Event-Probability
FREDERICK R. WARREN-BOULTON
and SERDAR DALKIR
MiCRA Microeconomic Research and Consulting Associates, 1155 Connecticut Avenue NW, Ste.
900, Washington, DC 20036, U.S.A.
E-mail: email@example.com; firstname.lastname@example.org
Abstract. Investors in ﬁnancial markets bet their dollars on whether a merger will raise or lower
prices. Below, we apply an event-probability methodology to the proposed merger between Staples
and Ofﬁce Depot, which was challenged by the FTC and eventually withdrawn. In addition to a time-
series regression, we also look at the effect of the merger in speciﬁc event windows. We ﬁnd highly
signiﬁcant returns to the only rival ﬁrm in the relevant market. We estimate the price effect of the
merger and ﬁnd it highly consistent with independent estimates.
Key words: Antitrust, event study, horizontal merger, price effect, stock market, unilateral effects.
JEL Classiﬁcations: L41 – horizontal anticompetitive practices, G14 – event studies.
Investors in ﬁnancial markets bet their dollars on whether a merger will raise or
lower prices. A merger that raises market prices will beneﬁt both the merging
parties and their rivals and thus raise the prices for all their shares. Conversely, the
ﬁnancial community may expect the efﬁciencies from the merger to be sufﬁciently
large to drive down prices. In this case, the share values of the merging ﬁrms’ rivals
fall as the probability of the merger goes up. Thus, evidence from ﬁnancial markets
can be used to predict market price effects when signiﬁcant merger-related events
have taken place.
MacKinlay (1997) is a recent source for a general discussion of event studies.
Brown and Warner (1984) discuss the special case of daily returns. Recent applic-
ations on merger cases include Cox and Portes (1998) and Simpson and Hosken
(1998). Werden and Williams (1988) provide a critical perspective.
McGuckin et al. (1992) developed an event-probability methodology to analyze
the effect of merger announcements on the stock returns of the ﬁrms in the same
line of business using continuous time-series regression; they found relatively small
Frederick R. Warren-Boulton served as an expert witness for the FTC in this case. We thank
Panagiotis Mavros, Suzanne Gleason and Donald Martin for their assistance and comments.