Analysts said the deal would also enable Dollar Tree to offer more competitive prices.
For example, the combined company could buy overlapping products in larger volume and, in turn, at a lower cost, said Brian Sozzi, CEO of Belus Capital Advisors. Though offerings and consumer demographics at the stores differ—Dollar Tree operates with fixed dollar-and-below prices, while Family Dollar's introduction of more name brand products has led prices to "creep up"—both sell more than 50 percent consumable goods, such as chips and cereal, Sozzi said.
Read MoreWho the monster dollar-store merger should scare
"[The merger] is more likely to take prices down than bring them up," Champine said.
If Dollar Tree successfully experiments with different price points and drives prices lower, it increases its chances of cutting into Dollar General's and Wal-Mart's market shares, analysts said.
Still, Kantar's Gildenberg noted that the merger may not spark a huge shift, as discount retailers such as Family Dollar have "been disruptive to Wal-Mart for a long time." That's because they are typically located closer to city centers, so they have stolen many of shoppers' mid-week spending.
Read MoreFamily Dollar profit falls by a third
But the sheer volume of stores would mark a shift in discount retail.
"Dollar General and Wal-Mart have to pay attention," Champine said.
Read MoreWhy Wal-Mart's new US head can right the business
Family Dollar shares jumped more than 20 percent after the announcement, while Dollar Tree shares rose slightly.
—By Jacob Pramuk, Special to CNBC.com.