# Case Studies Gregory K. Leonard.

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Case Studies Gregory K. Leonard

Staples Acquisition of Office Depot

Price Comparison Across Price Zones
In 1995, Staples price when Office Depot is present (Los Angeles and New York) \$0.74 In 1995, Staples price when Office Depot is not present (Indianapolis) \$0.81 Staples price is 9.8% lower when Office Depot is present

Price Comparison Before and After Office Depot Entry
In Los Angeles in 1995, Staples price when Office Depot was present \$0.74 In Los Angeles in 1994, Staples price when Office Depot was not present \$0.75 Staples price is 2.6% lower after Office Depot entered

Which Measure is Better?
The first measure compares Los Angeles and Indianapolis at one point in time Good: Controls for any time-related factors that might affect all cities Bad: Does not control for anything that is special about Los Angeles or Indianapolis that might explain the price difference The second measure compares Los Angeles before and after Office Depot entry Good: Controls for anything that might be special about Los Angeles by comparing it to itself Bad: Does not control for any time-related factors that changed over time

A Better Method: Difference-in-Differences
Compare the change in price in Los Angeles (where Office Depot entered) to the change in price in New York and Indianapolis (where there was no change in Office Depot’s presence) Los Angeles change = -2.6% Reflects the Office Depot effect and time-related factors Average change for New York/Indianapolis = +1.3% Reflects only the time-related factors Difference = -2.6 – 1.3 = -3.9% Reflects only the Office Depot effect

Alleged Price-Fixing in the Graphite Industry

Alleged Price-Fixing Period
Graphite Prices Alleged Price-Fixing Period

What Would the Price Have Been If There Had Been No Price-Fixing?
0.4 0.35 0.3 Price 0.25 0.2 Price If There Had Been No Price-Fixing? 0.15 0.1 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Time

More Accurate Approach
Without price-fixing, price would have been determined by supply and demand factors Approach Identify the supply and demand factors that affect the graphite price Statistically fit the relationship between price and these supply and demand factors using data from outside of the period where there was price-fixing Use this statistical relationship to “predict” what prices would have been during the price-fixing period if there had been no price-fixing

“Simple” Model Supply factor: Price of natural gas
Demand factor: US industrial production

Price If There Had Been No Price-Fixing
“Simple” Model 0.4 8 percent overcharge 0.35 0.3 Price 0.25 Price If There Had Been No Price-Fixing 0.2 0.15 0.1 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Time

Better Model The “simple” model may be too simple Better model
Supply factors: price of natural gas, petroleum coke, electricity, and labor Demand factors: industrial production for each of the industries where graphite is used, including chemicals, glass, aerospace, metallurgy, and semiconductors

Better Model 2 percent overcharge Price Time Price If There
0.4 2 percent overcharge 0.35 0.3 Price 0.25 Price If There Had Been No 0.2 Price-Fixing 0.15 0.1 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Time

Did “Unexplained” Price Increases Follow Meetings?
0.4 0.35 0.3 Price 0.25 Second Alleged Meeting 0.2 First Alleged Meeting 0.15 0.1 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Time

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