# United States v. Pabst Brewing Company/Concurrence Douglas

* Court Documents
* Case Syllabus
* Opinion of the Court
* Concurring Opinions Douglas White Fortas
United States Supreme Court
384 U.S. 546
United States v. Pabst Brewing Company
Argued: April 27, 1966. --- Decided: June 13, 1966
Mr. Justice DOUGLAS, concurring.
While I join the Court's opinion, I add only a word in support of the Court's description of the anatomy of the 'relevant geographic market' for purposes of the Clayton Act. The alternative leads to a form of concentration whose ultimate reductio ad absurdum is described in the Appendix to this opinion.
APPENDIX TO CONCURRING OPINION OF MR. JUSTICE DOUGLAS.
Every time you pick up the newspaper you read about one company merging with another company. Of course, we have laws to protect competition in the United States, but one can't help thinking that, if the trend continues the whole country will soon be merged into one large company.
It is 1978 and by this time every company west of the Mississippi will have merged into one giant corporation known as Samson Securities. Every company east of the Mississippi will have merged under an umbrella corporation known as the Delilah Company.
It is inevitable that one day the chairman of the board of Samson and the president of Delilah would meet and discuss merging their two companies.
'If we could get together,' the president of Delilah said, 'we would be able to finance your projects and you would be able to finance ours.'
'Exactly what I was thinking,' the chairman of Samson said.
'That's a great idea and it certainly makes everyone's life less complicated.'
The men shook on it and then they sought out approval from the Anti-Trust Division of the Justice Department.
At first the head of the Anti-Trust Division indicated that he might have reservations about allowing the only two companies left in the United States to merge.
'Our department,' he said, 'will take a close look at this proposed merger. It is our job to further competition in private business and industry, and if we allow Samson and Delilah to merge we may be doing the consumer a disservice.'
The chairman of Samson protested vigorously that merging with Delilah would not stifle competition, but would help it. 'The public will be the true beneficiary of this merger,' he said. 'The larger we are, the more services we can perform, and the lower prices we can charge.'
The president of Delilah backed him up. 'In the Communist system the people don't have a choice. They must buy from the state. In our capitalistic society the people can buy from either the Samson Company or the Delilah Company.'
'But if you merge,' someone pointed out, 'there will be only one company left in the United States.'
'Exactly,' said the president of Delilah. 'Trank God for the free enterprise system.'
The Anti-Trust Division of the Justice Department studied the merger for months. Finally the Attorney General made this ruling. 'While we find some drawbacks to only one company being left in the United States, we feel the advantages to the public far outweign the disadvantages.
'Therefore, we're making an exception in this case and allowing Samson and Delilah to merge.
'I would like to announce that the Samson and Delilah Company is now negotiating at the White House with the President to buy the United States. The Justice Department will naturally study this merger to see if it violates any of our strong anti-trust laws.'
Art Buchwald, Washington Post, June 2, 1966, p. A21.
Mr. Justice HARLAN, whom Mr. Justice STEWART joins, concurring in the result.
I concur in the judgment of reversal on the limited ground that the Government's evidence is sufficient to establish prima facie that Wisconsin and the tristate area comprising Wisconsin, Michigan and Illinois are both proper sections of the country in which to measure the probable effects of the acquisition of Blatz by Pabst under § 7 of the Clayton Act, 38 Stat. 731, as amended, 64 Stat. 1125, 15 U.S.C. § 18 (1964 ed.). However, I am wholly unable to subscribe to the Court's opinion which appears to emasculate the statutory phrase 'in any section of the country.'
The Court is quite right in stating that the primary question in a § 7 case is whether the effect of the challenged acquisition 'may substantially lessen competition.' Ante, p. 550. But any resolution of this question necessarily involves a study of statistics and other evidence bearing upon market shares, market trends, number of competitors and the like. Obviously such figures will vary depending upon what geographic area is chosen as relevant, and the possibilities for 'gerrymandering' are limitless. The Senate Report which discusses the 'section of the country' requirement, S.Rep. No. 1775, 81st Cong., 2d Sess., 5-6 (1950), notes that it 'will vary with the nature of the product' so as to determine an 'economically significant' area in which to measure a change in the level of competition. Id., at 5. 'In determining the area of effective competition for a given product,' the report continues, 'it will be necessary to decide what comprises an appreciable segment of the market. An appreciable segment of the market may not only be a segment which covers an appreciable segment of the trade, but it may also be a segment which is largely segregated from, independent of, or not affected by the trade in that product in other parts of the country.' Id., at 6, U.S.Code Congressional Service 1950, pp. 4293, 4297, 4298.
The cases under § 7 have established a flexible, but workable, approach to the question of geographic market. In Brown Shoe Co. v. United States, 370 U.S. 294, 82 S.Ct. 1502, the Court recognized that a test for an appropriate geographic market had been prescribed by Congress, 370 U.S., at 336, 82 S.Ct., at 1529, and that it must "correspond to the commercial realities' of the industry and be economically significant.' 370 U.S., at 336-337, 82 S.Ct., at 1530. The determination of relevant geographic market received more detailed study in United States v. Philadelphia Nat. Bank, 374 U.S. 321, 83 S.Ct. 1715. The Court there saw the 'proper question' as framed to ascertain 'not where the parties to the merger do business or even where they compete, but where, within the area of competitive overlap, the effect of the merger on competition will be direct and immediate.' 374 U.S., at 357, 83 S.Ct., at 1738.
The appropriate geographic area in which to examine the effects of an acquisition is an area in which the parties to the merger or acquisition compete, and around which there exist economic barriers that significantly impede the entry of new competitors. Of course, as Philadelphia National Bank and commentators have noted, no such designation is perfect, for all geographic markets are to some extent interconnected, and over time any barrier may be overcome or may disappear owing to structural or technological changes in the industry, e.g., refrigeration which widened markets for 'perishable' foods. Thus, in Philadelphia National Bank, it was recognized that large borrowers and depositors operate in something like a national banking market, and that very small borrowers and depositors are likely to confine themselves to banks in their immediate neighborhood. Nevertheless, the Court was able to find a four-county area in metropolitan Philadelphia to be a relevant 'section of the country' in which to measure that merger. Some of the criteria cited there as supporting such a determination were the convenience of location for all but the largest bank customers as an important factor limiting competition by outsiders, the concentration of the defendant's business in that region, and administrative designations of that region as an 'area of effective competition.' 374 U.S., at 359-361, 83 S.Ct., at 1740. See also Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 327, 330-333, 81 S.Ct. 623, 627, 5 L.Ed.2d 580.
In the case before us the Government has in my opinion made a prima facie showing that the State of Wisconsin and the three-state area are both relevant sections of the country for measuring the effects of this merger. That is, on the basis of the evidence thus far submitted, I believe the Government has made a sufficient showing that significant barriers exist to prevent outside brewers from entering the Wisconsin market as effective competitors to those brewers already marketing beer there.
As a preliminary matter, it is clear that Pabst and Blatz both carry on substantial business and are direct competitors in Wisconsin. About 13% of Pabst's sales in 1957, the year before the merger, were made in Wisconsin, where Pabst maintained one of its four breweries. Blatz maintained its only brewery in Wisconsin, where it sold 31% of its beer in 1957. It is thus clear that the two beers were important competitors in that area; indeed Blatz was the loading seller in Wisconsin and Pabst the fourth largest. There statistics become meaningful for antitrust purposes in the context of the further evidence showing substantial barriers to brewers who were not then selling beer in Wisconsin.
The sales statistics submitted by the Government show not only a high percentage of the Wisconsin market dominated by Pabst and Blatz, but also a pattern of local concentration in the sale of beer there and throughout the country. Wisconsin, with about the highest percapita beer consumption level in the country, was dominated by substantially the same group of brewers maintaining substantially the same market shares year after year without serious challenge from other brewers operating in other sectors of the country. This picture of local concentration in various regional markets is supported by evidence that brewers are able to sell the same beer in different States for different prices (exclusive of transportation cost). Although there is no direct evidence in the record that beer is subject to high transportation costs, which would of course be highly persuasive evidence supporting the local-market theory, it is relevant that about 90% of beer sold in Wisconsin comes from breweries located in that State or nearby in Minnesota. Indeed, in 1959 the Blatz brewery in Wisconsin was closed down, and Blatz beer was brewed in the four Pabst breweries, because 'decentralization' was considered more efficient. To the extent that it is true that local breweries have an advantage in terms of efficiency and thus cost, a significant barrier exists to brewers who wish to sell in Wisconsin but brew their beer in other areas of the country. Thus, in terms of the structure of beer marketing as reflected in sales statistics and brewery location the record supports the relevancy of Wisconsin as a distinguishable and economically significant market for the sale of beer.
This picture of beer competition as essentially a localized or regional matter is buttressed by evidence of marketing techniques used by the industry. Beer is not a fungible commodity like wheat; product differentiation is important, and the ordinary consumer is likely to choose a particular brand rather than purchase any beer indiscriminately. The record demonstrates a recognition in the industry that a successful sales program relies to a large extent on consumer recognition and preference for particular brands, and that this preference must be built up through intensive advertising and other promotional techniques. There is evidence in the record regarding efforts by Pabst and Blatz to enter new or undeveloped markets in this way, and the inference is inescapable that were a brewer from, say, Colorado, interested in entering the Wisconsin market, a great deal of costly preliminary promotional activity would be required before sizable Wisconsin sales could be expected. In addition, the record indicates that beer is sold through distribution networks operating on regional, statewide, and local levels. There are numerous examples in the record of the highly specialized salesmanship needed to induce local retail sellers to carry, display, and advertise new brands of beer.
This heavy emphasis on consumer recognition and promotional techniques in the marketing of beer supports the conclusion that there does exist a substantial barrier to a new competitor in a regional market such as Wisconsin. To enter this market the new entrant must be prepared to incur considerable expense over a substantial period of time creating a distribution network and advertising his brand in order to compete more or less on a parity with an established seller in the Wisconsin market.
A further factor, the pervasive state regulation of the sale and promotion of alcoholic beverages, well documented in the record supports the acceptability of Wisconsin as a relevant geographic market for beer. Methods of sales promotion permitted in one State are unlawful in others. State regulations govern labeling, size of containers, alcoholic content of beer, shipping procedures, and credit arrangements with wholesalers. A brewer wishing to enter the Wisconsin market does not merely start transporting beer to Milwaukee; he must comply with these various state requirements, which may differ from those in the States in which he has always dealt. Although this factor may not by itself be an effective barrier to distant competitors, it does reinforce the other factors examined in justifying the conclusion that there is a state or regional market for beer.
All of this, taken in the context of a prima facie case, supports the proposition that Wisconsin is an identifiable 'section of the country' presenting impediments to the entry of new competitors and insulating those already within the market. In terms of antitrust consequences, this means that those already within such a local market can engage in oligopolistic pricing or other practices without a very real threat that brewers operating in other areas could easily, and within a reasonably short time, enter the Wisconsin market as effective competitors of those already entrenched there.
It should be emphasized that we are faced here only with a dismissal after the presentation of the Government's case. On remand, the appellees can of course attempt to refute this showing by introducing evidence demonstrating either that these asserted barriers do not in practice exist, or that when seen in light of other factors they are so unimportant that brewers who presently do not sell in the Wisconsin market are not in fact appreciably hindered from entering as effective competitors.
The trial court also found that viewing the entire continental United States as the relevant market, the evidence submitted did not sustain the Government's contention that the acquisition may substantially lessen competition. I would not disturb that conclusion. I do not of course pass upon the sufficiency of the evidence to establish a prima facie violation of § 7 within Wisconsin or the three-state area, an issue which the District Court had no occasion to reach in view of its determination that neither of these sections was a relevant market.
For these reasons I believe the District Court erred in dismissing the complaint at the close of the Government's case.

## Notes

* ↑ See in addition my concurring opinion in Brown, 370 U.S., at 368-369, 82 S.Ct., at 1548.
* ↑ See, e.g., Bock, Mergers and Markets 35-42 (1960); Kaysen & Turner, Antitrust Policy 101-102 (1959); Martin, Mergers and the Clayton Act 321-322 (1959).
* ↑ The evidence in the record supporting the Government's contention that the three-state area is a relevant geographic market in which to measure the effects of this acquisition is not significantly different from that supporting the Wisconsin market. For simplicity, this opinion will therefore discuss these criteria only in terms of the Wisconsin market.
* ↑ Only one-third of the Nation's beer producers sold beer in the Wisconsin market.
This work is in the public domain in the United States because it is a work of the United States federal government (see 17 U.S.C. 105).
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