Waterstone’s / Ottakar’s

1. Adrian Majumdar Are there direct tests of how a merger will impact on non-price features? Some answers from Waterstone’s / Ottakar’s.

2. Waterstone’s / Ottakar’s • The merging firms – specialist book retailers • Waterstone’s • 190 stores in the UK • Ottakar’s • 141 stores in the UK • 33 overlap areas (stores within the same shopping location), mainly outside London

3. National shares for book retailers (2005) Source: Table 1, National book market shares, 2005, Final CC report

4. Product market • retailing of new books to consumers (CC) • Both CC and OFT recognised potential differentiation by: • sales channel: e.g. bricks and mortar vs internet vs book clubs • store: “Large range” vs. “Small range” retailers (e.g. stock 10,000 titles or fewer vs the rest) • book category: “Deep range” vs. Best seller titles, i.e. top 5,000 vs the rest

5. Geographic Market (1) • National features of competition • homogenous pricing throughout UK for most booksellers • most “deep range” titles sold at RRP set by publishers • Diversion ratio analysis indicated that national market shares reasonable indicators of competitive pressure – no reduction in national rivalry in price

6. Geographic Market (2) • Potentially local features of competition which could be harmed: • Range of titles stocked • Quality of service offered

7. A direct test of harm on range • Does O’s presence have an impact on W’s range after controlling for other factors that may have an effect (and vice versa), e.g. • W’s range = function of: local population, store size, presence of O’s • No finding of a robust statistically significant uplift in range when the other party is present • W’s provided evidence that the merger could lead to an increase in range through synergies

8. A direct test of harm on service quality • Does O’s presence have an impact on W’s service quality after controlling for other factors that may have an effect (and vice versa) • Measures of service considered: • staff levels • staff experience • opening hours • refurbishments • book signings • No finding of a robust statistically significant uplift in service indicators when the other party is present for any measure… other than perhaps book signings

9. Book signings – a good measure? • Service quality measure should be: • important in determining consumers’ choice of store; and • representative of other important aspects of service quality determined by the merging parties • Book signings fails on both counts: • rank v low on scale of attributes valued by consumers • not always a retailer decision

10. The forgotten dimension? • Competition in non-price factors should not be viewed in isolation from price competition • pincer movement… growth of supermarkets and internet would force W’s and O’s to differentiate themselves by good range and service