Meyersohn, Nathaniel
CNN.com
Posted 3/28/2024
Keywords
market structure, oligopoly, market power, Justice Department
Current News Topic
# 5 Market Structure
Article Synopsis
Big box category killer Home Depot announced it would spend $18.3 billion to acquire SRS Distribution. SRS is a building material distributor that sells primarily to professional roofers, pool contractors, and landscapers. This purchase puts Home Depot squarely in the professional market with SRS having 760 warehouses and over 4,000 delivery trucks. Home Depot stated the firm would operate independently.
Home Depot and Lowes are the two major players in the do-it-yourself construction market, but Home Depot currently generates about 50% of sales from professionals. The company experienced a sales boom during and immediately after the pandemic as people stayed home and invested in home improvements. However, now that boom has subsided and sales are down.
High mortgage rates and a tight real estate market also reduced Home Depot’s sales and now the firm is looking to the professional market to increase revenue. However, the acquisition will need regulatory approval and the current regulatory trend in Washington is to limit mergers and acquisitions. The Federal Trade Commission (FTC) is expected to challenge the deal claiming the combined firm will have too much market power.
Exercise 1 Questions
1. Fill in the blank: Home Depot competes in an industry with a(n)_________ market structure.
2. Which of the following industry structures is characterized by a large number of buyers and sellers, freedom of entry and exit, and a homogenous product?
a. pure competition
b. oligopoly
c. monopolistic competition
d. monopoly
3. True or false: Home Depot’s planned acquisition of SRS Distribution will have to clear regulatory approval before it is finalized.
Exercise 2 Discussion Questions
1. Why is Home Depot attempting to acquire SRS Distribution?
NOTE TO INSTRUCTOR: Look up building permit trends and discuss them in class.
2. Why would the FTC and the Justice Department be concerned about this acquisition?
NOTE TO INSTRUCTOR: Debate this issue in class. Should the FTC allow more mergers if it causes prices to fall initially?
3. Why is competition considered to be good for consumers?
NOTE TO INSTRUCTOR: Brainstorm some industries that are fairly competitive.
Pearson Economic News 