CHAPTER 6. MARKUPS FOR PRODUCT PRICE DETERMINATION

TABLE OF CONTENTS

6.1 INTRODUCTION

................................ ................................ ................................ ........... 6

- 1

6.1.1 Distribution Channels

................................ ................................ .......................... 6

- 1

6.2 MARKUP CALCULATION M ETHODOLOGY

................................ ........................... 6

- 3

6.3 APPROACH FOR CALCULA TING OVERALL MARKUP

................................ ........ 6

- 4

6.3.1 Baseline Markup

................................ ................................ ................................ .. 6

- 4

6.3.2 Incremental Markups

................................ ................................ ........................... 6

- 5

6. 3.3 Approach for Calculating Overall Markup of the National Accounts

Distribution Channel

................................ ................................ ............................ 6

- 6
6.4 APPROACH FOR CALCULA TING MANUFACTURER MARKUP

.......................... 6

- 7

6.5 APPROACH FOR CALCULA TING WHOLESALER AND CONTRACTOR

MARKUPS

................................ ................................ ................................ ...................... 6

- 8

6.5.1 Key Data Sources and Assumptions of the Markups Methodology

.................... 6

- 8

6.5.2 Approach for Wholesaler Markup

................................ ................................ ....... 6

- 9

6.5.3 Approach for Mechanical and General Contractor Mar kup

.............................. 6

- 10

6.6 DERIVATION OF MARKUP S

................................ ................................ .................... 6

- 11

6.6.1 Manufacturer Markups

................................ ................................ ....................... 6

- 11

6.6.2 Wholesaler Markups

................................ ................................ .......................... 6

- 12

6.6.3 Mechanical Contractor Markups

................................ ................................ ........ 6

- 14

6.6.3.1 Aggregate Baseline Markups for Mechanical Contractors

...................... 6

- 14

6.6.3.2 Baseline Markups for Mechanical Contractors in the Replacement

and New Construction Markets

................................ ................................ 6

- 14

6.6.3.3 Baseline Markups for Small and Large Mechanical Contractors

............. 6

- 15

6.6.3.4 Baseline Markups by Disaggregated Mechanical Contractor Type

......... 6

- 16

6.6.3.5 Incremental Markups for Mechan ical Contractors

................................ ... 6

- 17

6.6.4 Estimation of General Contractor Markups

................................ ....................... 6

- 18

6.7 SALES TAX

................................ ................................ ................................ .................. 6

- 19

6.8 OVERALL MARKUPS

................................ ................................ ................................ . 6

- 20

6.8.1 Estimation of National Account Markups

................................ ......................... 6

- 22

REFERENCES

................................ ................................ ................................ .......................... 6

- 23

LIST OF TABLES

Table 6.1.1 Shares of Market by Distribution Channel

................................ .................... 6

- 3

Table 6.6.1 Manufacturer Gross Margins and Markups

................................ ................. 6

- 12

Table 6.6.2 Manufacturer Markups by Equipment Type

................................ ................ 6

- 12

Table 6.6.3 Wholesaler Expenses and Markups

................................ ............................. 6

- 13

Table 6.6.4 Baseline Markup, All Mechanical Contractors

................................ ............ 6

- 14

Table 6.6.5 Baseline Markups for the Replacement a nd New Construction Markets, All Mechanical Contractors

................................ .......................... 6

- 15

Table 6.6.6 Baseline Markups for Small and Large Mechanical Contractors

................ 6

- 16

Table 6.6.7 Baseline Markups by Mechanical Contractor Type

................................ ..... 6

- 17

6

- iTable 6.6.8 Mechanical Contractor Disaggregated Expenses and Markups Based

on 2007 U.S. Census Bureau Data

................................ ............................... 6

- 17

Table 6.6.9 Incremental Markups by Mechanical Contractor Type

............................... 6

- 18

Table 6.6.10 General Contractor Expenses and Markups

................................ ................ 6

- 18

Table 6.7.1 Average Sales Tax Rates by Census Division and Large State

................... 6

- 20

Table 6.8.1 Summary of Overall Markups

– Small (7.5 Tons)

................................ ...... 6

- 21

Table 6.8.2 Summary of Overall Markups

– Large (15 Tons)

................................ ....... 6

- 21

Table 6.8.3 Summary of Overall Markups

– Very Large (30 Tons)

.............................. 6

- 22

Table 6.8.4 National Account Markups

................................ ................................ .......... 6

- 22

LIST OF FIGURES

Figure 6.1.1 Distribution Channels for CUAC in New Construction Applications

........... 6

- 2 Figure 6.1.2 Distribution Channels for CUAC in Replacement Applications

................... 6

- 3

6

- iiCHAPTER 6. MARKUPS FOR PRODUCT PRICE DETERMINATION

6.1 INTRODUCTION

To carry out the life

- cycle cost (LCC) calculations described in Chapter 8, DOE needed

to determine the cost to the commercial consumer of a baseline air

- conditioning unit, and the

cost of the more

- efficient unit the consumer would purchase under the standards. However, the commercial consumer price of such units is not generally known. What is known is the manufacturer’s price for both baseline equipment and the more

- efficient equipment. By applying a multiplier called a “markup” to the manufacturer’s price, DOE was able to estimate the commercial consumer’s price. This chapter describes how DOE derived such markups.

The equipment price to the commercial consumer depends on how the consumer purchases the equipment. The Department defines two primary types of distribution channels to describe how the equipment passes from the manufacturer to the consumer: (1) in the first distribution channel, the manufacturer sells the equipment to a wholesaler, who in turn sells it to a mechanical contractor, who in turn sells it (and its installation) to a general contractor, who in turn sells it to the consumer; (2) in the second distribution channel, the manufacturer sells the equipment directly to the consumer through a national account. Figure 7.1.1 illustrates the two distribution channels for commercial air conditioners. The Department has further subdivided the

fir st distribution channel by mechanical contractor size (as measured in annual revenues).

For wholesalers and contractors , DOE estimated a baseline markup and an incremental markup. DOE defined a baseline markup as a multiplier that convert s the manufacturin g selling price of equipment with baseline efficiency to the consumer purchase price for the equipment at the same baseline efficiency level. An incremental markup is defined as the multiplier to convert

the incremental increase in manufacturing selling pr ice of higher efficiency equipment to the

consumer purchase price for the same equipment. Because companies mark up the price to cover business cost and profit margin at each step in the distribution channel, b oth baseline and incremental markups are depen dent on the particular distribution channe l, as described in Section

6.1.1

.

6.1.1 Distribution Channels

The appropriate markups for determining consumer equipment prices depend on the type of distribution channels through which products move from manufacturers to purchasers. At each point in the distribution channel, companies mark up t he price of the equipment to cover their business costs and profit margin.

T

here are t wo primary types of distribution channels describ ing the way most equipment passes from the manufacturer to the consumer
, one involving distributors and contractors and from manufacturer to consumer via national accounts. Within these two primary channels, DOE distinguishes between new and replacement applications, as only new construction applications

are expected to includ e a general contractor. DOE also distinguishes between small and large

mechanical contractors.

6

- 1Distribution channels for new construction applications are shown in Figure 6.1

. 1

. In th e first new construction distribution channel, the manufacturer sells the equipment to a wholesaler

, who in turn sells it to either a small or large mechanical contractor, who in turn sells it to a general contractor, who in turns sells it to the consumer and performs the installation

. In the second new construction distribution channel, the manufacturer sells the equipment directly to the consumer through a national account.

Figure 6.1

. 1 Distribution Channel s for CUAC in New Construction Applications

Distribution channels for replacement applications are shown in Figure 6.1

. 2 . In the first replacement distribution channel, the manufacture r sells the equipment to a wholesaler, who in

turn sells it to either a small or large mechanical contractor, who in turns sells it to the consumer and performs the installation. In the second replacement distribution channel, the manufacturer sells the eq uipment directly to the consumer through a national account. Wholesaler Small

Mechanical

Contractor General

Contractor Consumer

Manufacturer

Large

Mechanical

Contractor General

Contractor Consumer

Manufacturer Consumer National Account

6

- 2Figure 6.1

. 2 Distribution Channels for CUAC in Replacement Applications

Based on information that equipment manufacturers provided, end

- use commercial

consumers purchase 50 percent of equipment through small mechanical contractors, 32.5 percent through large mechanical contractors, and the remaining 17.5 percent through national accounts.

I n addition, 2 0 percent of commercial air

- conditioning equipment is purchased for the

new construction market while th e remaining 8 0 percent is assumed to serve the replacement

market. Table 6.1

. 1 lists each distribution channel’s share of the full commercial air conditioner

market.

Table 6.1

. 1 Shares of Market by Distribution Channel

Distribution Channel Share of Market

New Construction, Small Mechanical Contractor 10.0 %

New Construction, Large Mechanical Contractor 6.5 %

New Construction, National Account 3.5 %

Replacement, Small Mechanical Contractor 40.0 %

Replacement, Large Mechanical Contractor 26.0 %

Replacement, National Account 14.0 %

6.2 MARKUP CALCULATION METHODOLOGY

A

t each point in the distribution channel, companies mark up the price of the equipment to cover their business costs and profit margin. In financial statements, gross margin is the difference between the company revenue and the company cost of sales or cost of goods sold ( CGS ). The gross margin includes the expenses of compani es in the distribution channel

— including overhead costs (sales, general, and administration); research and development (R&D) Wholesaler Small

Mechanical

Contractor Consumer

Manufacturer

Large

Mechanical

Contractor Consumer

Manufacturer Consumer National Account

6

- 3and interest expenses; depreciation and taxes

— and company profits. In order for sales of a product to contribute positively to comp any cash flow, the product’s markup must be greater than the corporate gross margin . Products command lower or higher markups, depending on company expenses associated with the product and the degree of market competition.

Equipment manufacturers sell mo st of their products directly to wholesaler s. Wholesaler s sell to contractors at the wholesale price. Wholesaler s absorb short

- term imbalances in supply and demand, allowing manufacturers to operate more efficiently and satisfying

consumer needs for fast deliveries. In addition, wholesaler s are important sources for parts. Most contractors compete at the local level. Many carry more than one brand of air conditioner

, and most install the products they sell.

In addition to the wholesale r and mechanical co ntractor markups, in new construction the general contractor adds a markup. In retrofit installations, sales tax appli es to the final consumer

cost.

6.3 APPROACH FOR CALCULATING OVERALL MARKUP

6.3.1 Baseline Markup

DOE used the overall baseline markup to estimate the consumer product price of baseline models, given the manufacturer cost of the baseline models. DOE considers baseline models to be product sold under existing market conditions ( i.e ., without new energy conservation standards). The following equation s hows how DOE used the overall baseline markup to determine the product price for baseline models in the first new construction distribution

channel

.

CPP BASE = COST MFG × � MU MFG × MU WHOLE

_ BASE × MU MCONTRACT

_ BASE × MU GC O NTRACT

_ BASE �

=
COST MFG × MU OVERALL

_ BASE

Where:

CPP BASE = Consumer product price for baseline models,

COST MFG = Manufacturer cost for baseline models,

MU MFG = Manufacturer markup,

MU WHOLE_B ASE = Baseline wholesaler markup

, MU M CONTRACT_BASE = Baseline mechanical contractor markup,

MU MGENERAL_BASE = Baseline general contractor markup, and

MU OVERALL_BASE = Baseline overall markup.

The following equation shows how DOE used the overall baseline markup to determine the product price for baseline models in the first replacement distribution channel.

6

- 4CPP BASE = COST MFG × � MU MFG × MU WHOLE

_ BASE × MU MCONTRACT

_ BASE × TAX SALES �

=
COST MFG × MU OVERALL

_ BASE

Where:

CPP BASE = Cons umer product price for baseline models,

COST MFG = Manufacturer cost for baseline models,

MU MFG = Manufacturer markup,

MU WHOLE_BASE = Baseline wholesaler markup,

MU MCONTRACT_BASE = Baseline mechanical contractor markup,

T

AX SALES = Sales tax, and

MU OVERALL_BASE = Baseline overall markup.

6.3.2 Incremental Markups

Similarly, DOE used the overall incremental markup to estimate changes in the consumer product price, given changes in the manufacturer cost from the baseline model cost resulting from an energ y conservation standard to raise product energy efficiency. The total consumer product price for more energy

- efficient models is composed of two components: the consumer product price of the baseline model and the change in consumer product price associate d with the increase in manufacturer cost to meet the new energy conservation standard. The following equation shows how DOE used the overall baseline markup to determine the product price for

more energy

- efficient models in the first new construction distr ibution channel

.

CPP BASE = COST MFG × � MU MFG × MU WHOLE

_ INCR × MU MCONTRACT

_ INCR × MU GCONTRACT

_ INCR �

= COST MFG × MU OVERALL

_ INCR

Where:

CPP BASE = Consumer product price for baseline models,

COST MFG = Manufacturer cost for baseline models,

MU MFG = Manufacturer markup,

MU WHOLE_ INCR = Incremental wholesaler markup,

MU MCONTRACT_ INCR = Incremental mechanical contractor markup,

MU MGENERAL_ INCR = Incremental general contractor markup, and

MU OVERAL L_ INCR = Incremental overall markup.

The following equation shows how DOE used the overall baseline markup to determine the product price for more energy

- efficient models in the first replacement distribution channel.

CPP BASE = COST MFG × � MU M F G × MU WHOLE

_ INCR × MU MCONTRACT

_ INCR × TAX SALES �

= COST MFG × MU OVERALL

_ INCR

Where:

6

- 5CPP BASE = Consumer product price for baseline models,

COST MFG = Manufacturer cost for baseline models,

MU MFG = Manufacturer m arkup,

MU WHOLE_ INCR = Incremental wholesaler markup,

MU MCONTRACT_ INCR = Incremental mechanical contractor markup,

TAX SALES = Sales tax, and

MU OVERALL_ INCR = Incremental overall markup.

6.3.3 Approach for Calculating Overall Markup of the National Accounts Distribution

Channel

Equipment purchased through national accounts is an exception to the usual distribution of HVAC equipment to end users. Large commercial consumers of HVAC equipment use national accounts to circumvent the typical chain of distribution , thereby allowing them to negotiate equipment prices directly with the manufacturer. Due to the large volume of equipment purchased, large commercial consumers, such as national retail chains, are able to purchase equipment directly from the manufacturer at significantly lower prices than could be obtained through the typical distribution chain.

To capture the price savings realized from equipment purchased through national accounts, DOE derived a “national account” markup, assuming that the resulting equi pment price increase was one half of that realized from a typical chain of distribution. In other words, if the price increase resulting from the product of the wholesale, mechanical contractor, and general contractor markups is $100, the “national account ” markup is such that the price increase is one

half of that, or $50. The Department based the use of a “national account” markup that is one

half of that realized from a typical chain of distribution on the assumption that the resulting

“national account” equipment price must fall somewhere between the manufacturer price (i.e., a markup of 1.0) and the commercial consumer price under a typical chain of distribution. Because DOE did not know typical values for the actual “national account” equipment price, it chose a

value of one

- half.

The estimates of national account markups are estimated through a weighted average of the overall markups for the other distribution channels. As stated above, 50% of all sales are through a distribution channel involving a s mall mechanical contractor and 32.5% are through a distribution channel involving a large mechanical contractor, and 17.5% are through a national account. Therefore, of all sales involving mechanical contractors, 61% are small contractors and 39% are larg e contractors. Thus weights of 61% and 39% to the markups for small and large contractors, respectively, in the overall markup calculation.

6

- 6This is calculated separately for new construction and replacement, as well as baseline

and incremental markups . The national account markups for new construction are calculated using the following equations:

MU OVERALL = MU MFG × MU WHOLE × MU MCONTRACT × MU GCONTRACT (New Construction), or,

MU OVERALL = MU MFG × MU WHOL E × MU MCONTRACT × TAX SALES (Replacement)

Where:

MU MFG = Manufacturer markup,

MU WHOLE = W holesaler markup,

MU MCONTRACT = M echanical contractor markup (weighted as described above)

, MU MGENERAL = G eneral contractor markup, and

TAX SALES = Sales tax, and

MU OVERALL = O verall markup.

The half of the overall markup p roportion above cost is then calculated as follows:

ρ NA

_ MU

_ COST = 1

− MU OVERALL 2

Where:

MU OVERALL = O verall markup, and

ρ NA_MU_COST = National account markup prop ortion above cost.

Adding 1 to the national account markup proportion above cost, DOE arrives at the estimated national account markup:

MU OVERALL

_ NA = 1 + ρ NA

_ MU

_ COST

Where:

ρ NA_MU_COST = National accou nt markup proportion above cost, a nd

MU OVERALL _NA = National account o verall markup.

6.4 APPROACH FOR CALCULATING MANUFACTURER MARKUP

DOE uses manufacturer markups to transform a manufacturer’s product cost into a manufacturer sales price. Using the CGS and gross margin, the manufacturer markup can be

calculated as follows:

MU MFG = CGS MFG + GM MFG CGS MFG

6

- 7Where:

MU MFG = Manufacturer markup,

CGS MFG = Manufacturer cost of goods sold, and

GM MFG = Manufacturer gross margin.

6.5 APPROACH FOR CALCULATING WHOLESALER AND CONTRACTOR

MAR KUPS

DOE examined the manner in which markups change by efficiency level and other

factors for wholesaler s and contractors

. DOE determined that markups are neither fixed

- dollar, nor proportional to all direct costs, which means that the selling price of a product may not be strictly proportional to the purchase price of the equipment . Using the available data, DOE has

found measurable differences between incremental markups on direct equipment costs and the

average aggregate markup on direct business costs. Additionally, DOE discovered significant

differences between average and incremental markups for heating, ventilation, air

- conditioning and refrigeration (HVACR) wholesaler s and for HVAC contractors.

The main rea son that the selling price of a product may not be strictly proportional to the purchase price of the equipment is that businesses incur a wide variety of costs. When the purchase price of equipment and materials increases, only a fraction of the business expenses increase, while the remainder of the businesses’ expenses stays relatively constant. Certain business expenses are uncorrelated with the cost of equipment or cost of goods. For example

, if the unit price of an air conditioner increases by 30 perce nt, it is unlikely that the cost of secretarial support in an administrative office wi ll increase by 30 percent also.

6.5.1 Key Data Sources and Assumptions of the Markups Methodology

DOE derived the wholesaler and contractor markups from three key assumptions a bout

the costs associated with furnaces and central air conditioners and heat pumps . DOE based the

wholesaler and mechanical contractor markups on firm

- level income statement data, while it based the general contractor markups on U.S. Census Bureau data fo r the residential building construction industry. DOE obtained the firm income statements from the Heating, Air

conditioning & Refrigeration Distributors International (HARDI ) 2010 Profit Planning Report and from the Air Conditioning Contractors of America (ACCA). 1

, 2 HARDI and ACCA are trade associations representing wholesa ler s and mechanical contractors, respectively. DOE used the

financial data from the 2007 US Census of Business to develop general contractor markups in

the same form as the income statement data for wholesaler s and mechanical contractors. 3

, 4 These

income statements break down the components of all costs incurred by firms that supply and install air conditioning equipment. 1

The key assumptions used to estimate markups using these financial data are:

1 Wholesaler s and mechanical contractors to which these reports refer handle multiple commodity lines, including

residential and commercial air

- conditioners.

6

- 81. The firm income statement s faithfully represent the various average costs incurred by firms distributing and installing HVAC products including commercial air conditioners.

2. These costs can be divided into two categories: 1 ) costs that vary in proportion to the

manufacturer selling price (MSP) of commercial air conditioners ( variant costs) ; and 2 ) costs that do not vary with the MSP commercial air conditioners ( invariant costs).

3. Overall

, commercial air

- conditioner wholesaler and contractor prices vary in proportion

to commercial air

- conditioner wholesaler and contractor costs included in the income

statements.

In support of the first assumption, the income statements itemize firm costs into a number of expense categories, including direct costs to purchase or install the equipmen t, operating labor and occupancy costs, and other operating costs and profit. Although wholesaler s and contractors tend to handle multiple commodity lines, including room air conditioners, furnaces, central air conditioners and heat pumps , and boilers, th e data provide the most accurate available indication

of the expenses associated with commercial air conditioners

.

Information obtained from the trade literature, and from selected heating, ventilating, and

air

- conditioning (HVAC) wholesaler s, contractors, and consultants, tends to support the second assumption ; t his information indicates that wholesale and contractor markups vary according to the quantity of labor and materials used to distribute and install appliances In its analysis

, DOE

assumes a divis ion of costs between those that do not scale with the manufacturer price (labor and occupancy expenses), and those that do (operating expenses and profit). This division of costs led to the estimate of wholesale and contractor markups described below.

In support of the third assumption, the HVAC wholesaler and contractor industry is competitive

, and consumer demand for commercial heating and air conditioning is inelastic, i.e., the demand is not expected to decrease significantly with an increase in pri ce of equipment. The large number of HVAC firms listed in the 2007 Census indicates the competitive nature of the market. For example, there are more than 700 HVAC manufacturers, 5 5,300 wholesaler s of heat pumps and air

- conditioning equipment, 6 more than 170,000 general residential contractors

, 36,000 commercial and institutional building contractors, 7

, 8 and 91,000 HVAC contractors listed

in the 2007 Census. 9 Additionally, the 2007 Census estimated that the four firm concentration
ratio (FFCR) for the HVAC wholesale sector is 29.7%. 10 The FFCR is the market share of the

fou r largest firms in the industry; FFCR under 40% represents a competitive industry. 11

, 12

Following standard economic theory, competitive firms facing inelastic demand either set prices in line with costs or quickly go out of business. 13

6.5.2 Approach for Wholesaler Markup

Using the above assumptions, DOE developed baseline and incremental markups

for wholesaler s using the firm income statement from the Heating, Air

- conditioning & Refrigerati on Distributors International (HARDI) 2010 Profit Report ( Appendix 6A. 1 )

. DOE

used the baselin e markups, which cover all of the wholesaler ’s costs (both invariant costs and

variant costs ), to determine the sales price of baseline models. Here variant costs were defined as

6

- 9costs that vary in proportion to the change in MSP induced by increased efficiency standards; in

contrast , invariant costs were defined as costs that do not vary in proportion to the change in

MSP due to increased efficie ncy standards. The baseline markup relates the manufacturer sales price to the wholesaler sales price. DOE calculated the baseline markup for wholesaler s using the following equation:

MU WHOLE

_ BASE = CGS WHOLE + GM WHOLE CGS WHOLE = CGS WHOLE + ( IVC WHOLE + VC WHOLE )

CGS WHOLE

Where:

MU WHOLE_B ASE = Baseline wholesaler markup,

CGS WHOLE = Wholesaler cost of goods sold,

GM WHOLE = Wholesaler gross margin,

IV C WHOLE = Wholesaler invariant costs, and

V C WHOLE = Wholesaler variant costs.

Incremental markups are coefficients that relate the change in the manufacturer sales price of more energy

- efficient models , or those products that meet the requirements of new energy conservation stand ards, to the change in the wholesaler sales price. Incremental markups cover only those costs that scale with a change in the manufacturer’s sales price ( i.e.

, variant

costs, V C ). DOE calculated the incremental markup for wholesaler s using the following equation:

MU WHOLE

_ INCR = CGS WHOLE + VC WHOLE CGS WHOLE

Where:

MU WHOLE_I NCR = Incremental wholesaler markup,

CGS WHOLE = Wholesaler cost of goods sold, and

V C WHOLE = Wholesaler variant costs.

6.5.3 Approach for Mechanical and Genera l Contractor Markup

Similar financial data to that used to estimat e wholesaler markups are also available for

mechanical contractors and general contractors from ACCA and the 2007 Economic Census

. 2

, 9

To estimate mechanical contractor markups for furnaces and central air conditioners and heat

pumps
, DOE collected financial data from ACCA and from the Plumbing and HVAC

Contractors (NAICS 23822) series from the 2007 Economic Census. T o estimate general contractor markups, DOE collected data from the Commercial and Institutional Building

Construction series from the 2007 Economic Census (NAICS 236220).

ACCA financial data provides gross margin (GM) as pe rcent of sales for the mechanical

contractor industry; therefore, the mechanical contractor baseline markup is derived using the following equation:

6

- 10MU MCONTRACT

_ BASE = SALES ( % )

SALES ( % )

− GM ( % )

The 2007 Economic C ensus data include the number of establishments, payroll for

construction workers , value of construction, cost of materials, and cost of subcontracted work at
both state and national level . DOE calculated another estimate of the baseline markup for

mechanical contractors an d general contractors using the following equation:

MU BASE = V CONSTRUCT PAY + MATCOST + SUBCOST

Where:

MU BASE = Baseline mechanical contractor or general contractor markup,

V

CONSTRUCT = Value of construction,

PAY = Payroll for construction workers

, MATCOST = Cost of materials, and

SUBCOST = Cost of subcontracted work.

Analogously, DOE estimated the incremental mechanical contractor and general

contractor markups by only considering those costs that scale with a change in t he manufacturer’s sales price ( variant costs, VC ) for higher energy efficiency products. As stated in

Section 6.5.1 , DOE assumes a division of cost s between those that do not scale with the manufacturer price (labor and occupancy expenses), and those that do ( other operating expenses and profit). Hence, DOE categorized the 2007 Economic Census cost data in each major cost category and estimated incremental contractor markup s using the following equation :

MU CONTRACT

_ INCR = CGS CONTRACT + VC CONTRACT CGS CONTRACT Where:

MU CONTRACT_I NCR = Incremental contractor markup,

CGS CONT RACT = Contractor cost of goods sold, and

VC CONT RACT = Contractor variant costs.

6.6 DERIVATION OF MARKUPS

6.6.1 Manufacturer Markups

DOE developed a set of base case manufacturer markup s by examining the annual Securities and Exchange Commission (SEC) 10

- K reports filed by seven publicly

- traded manufacturers engaged in the production of small, large and very large air

- cooled commercial package air conditioners and heat pumps. 14 DOE evaluated manufacturer m arkups for the years

between 200 6 and 20 11 , inclusive.

6

- 11Table 6.6

. 1 lists the average net revenues

, estimated corporate gross margin , and

estimated manufacturer markup for the years 200 6 to 20 11 for the seven manufacturers.

Table 6.6

. 1 Manufacturer Gross Margins and Markups

Descriptions Mfr A Mfr B Mfr C Mfr D Mfr E Mfr F Mfr G

Average Net Revenues (Million) $ 255 $ 10,876 $ 12,000 $ 34,759 $ 3,359 $ 2,117 $ 54,630

Corporate Gross Margin 22% 33% 28% 14% 27% 28% 27%

Markup 1.28 1.48 1.39 1.17 1.37 1.39 1.37

Source: SEC 10

- K reports (200 6

- 20 11 )

The weighted average manufacturer markup based on public filings by these seven companies is 1. 34

. T o further refine the base case markup, DOE solicited feedback from

manufacturers in confidential interviews. Based on manufacturer informati o n , DOE calculated and applied the following industry average manufacturer markups for covered equipment.

Table 6.6

. 2 M anufacturer Markups by Equipment Type

Equipment Markup
Small Commercial Package Air

- Conditioners (Air

- Cooled)

- ≥65,000 Btu/h and
<135,000 Btu/h 1.3 0

Small Commercial Package Heat Pumps (Air

- Cooled)

- ≥65,000 Btu/h and <135,000 Btu/h 1.3 0

Large Commercial Package Air

- Conditioners (Air

- Cooled)

- ≥135,000 Btu/h and <240,000 Btu/h 1.34

Large Commercial Package Heat Pumps (Air

- Cooled)

- ≥135,000 Btu/h and
<240,000 Btu/h 1.34

Very Large Commercial Package Air

- Conditioners (Air

- Cooled)

- ≥240,000 Btu/h and <760,000 Bt u/h 1.41

Very Large Commercial Package Heat Pumps (Air

- Cooled)

- ≥240,000 Btu/h and <760,000 Btu/h 1.41

6.6.2 Wholesaler Markups

Wholesaler s reported median data in a confidential survey that HARDI conducted across its members . In the survey, HARDI it emized revenues and costs into categories, including direct equipment expenses (cost of goods sold), labor expenses, occupancy expenses, other operating expenses, and profit. DOE presents these data in full in a ppendix 6A .1

, Detailed Data for Equipment Pri ce Markups. Table 6.6

. 3 summarizes them in terms of cost

- per

- dollar sales

revenue in the first data column and in terms of cost

- per

- dollar of cost of g oods sold in the

second column

.

6

- 12Table 6.6

. 3 Wholesaler Expenses and Markups

Descriptions Per Dollar

Sales Revenue $ Per Dollar Cost

of Goods $
Direct Cost of Equipment Sales: Cost of goods sold 0.73 7 1.000 Labor Expenses: Salaries and benefits 0.151 0.205 Occupancy Expense: Rent, maintenance, and utilities 0.036 0.049 Other Operating Expenses: Depreciation, advertising, and insurance. 0.055 0.075 Operating Profit 0.020 0.027

Baseline Revenue: Baseline revenue earned per dollar cost of goods sold 1.357 Wholesaler Baseline Markup ( MU WHOLE BASE ) 1.357

Incremental Revenue: Increased revenue per dollar increase cost of goods sold 1.10 3 Incremental Markup ( MU WHOLE INCR ) 1.10 3 Source: Heating, Air Conditioning & Refrigeration Distributors International. 201 2 . 201 2 Profit Report (20 10 Data). In this case, direct equipment expenses (cost of goods sold) represent about $0.7 4 per dollar sales revenue, so for every $1 wholesaler s take in as sales revenue, $0.7 4 is used to pay the direct equipment costs. Labor expenses represent $0.1 5 per dollar sales revenue, occupancy expenses represent $0.04, other operating expenses represent $0.0 6 , and profit accounts for $0.0 2 per dollar sales revenue.

DOE converted the expenses per dollar sales into expenses per dollar cost of goods sold, by dividing each figure in the first data column by $0.7 4 (i.e., cost of goods sold per dollar of sales revenue). F or every $1.00 the wholesaler spends on eq uipment costs, the wholesaler spends $0.2 05 to cover labor costs, $0.0 49 to cover occupancy expenses, $0.07 5 for other operating expenses, and $0.0 27 in profits. This totals to $1.3 57 in sales revenue earned for every $1.00 spent on equipment costs. Theref ore, the wholesaler baseline markup ( MU W HOLE BASE ) is 1.3 57 ($1.3 57 ÷ $1.00).

DOE also used the data in column two to estimate the incremental markups. The incremental markup depends on which of the costs in Table 6.6

. 3 are variant or invariant with
respect to MSP . For example, for a $1.00 increase in the MSP, if all of the other costs scale with the MSP (i.e., all costs are variant), the increase in wholesale price will be $1.3 57 , implying that the incremental markup is 1.3 57 , or the same as the baseline markup. At the other extreme, if no other costs are variant , then a $1.00 increase in the MSP will lead to a $1.00 increase in the

wholesale price, f or an incremental markup of 1.0.

As stated in section 6.5

, DOE believes that the labor and occupancy costs are invariant with respect to MSP, while other opera ting costs and profit are variant . In this case, for a $1.00
increase in the MSP, the wholesale price will increase in line with changes in the categories

“other operating costs ” and “ operating profit ”; these are approximately of $ 0.067, which when divided by $0.737 cents in cost of goods sold yields an increase of $0. 103 , giving a wholesaler incremental markup ( MU W HOLE INCR ) of 1. 10 3 . See appendix 6.A for cost details.

6

- 136.6.3 Mechanical Contractor Markups

6.6.3.1 Aggregate Baseline Markups for Mechanical Contractors

The HVAC contractors, represented here as mechanical contractors, reported median cost data in an ACCA financial analysis of the HVAC industry. These data are shown in Table 6.6

. 4

.

Table 6.6

. 4 Baseline Markup, All Mechanical Contractors

Description Contractor Expenses or Revenue

Per Dollar

Sales Revenue $ Per Dollar

Cost of Goods $
Direct Cost of Equipment Sales: Cost of goods sold 0.73 1.00 Gross Margin: Labor, occupancy, operating expenses, and profit 0.27 0.37

Revenue: Baseline revenue earned per dollar cost of goods 1.37 Baseline Markup ( MU MECH CONT BASE ) 1.37

Source: Air Conditioning Contractors of America. 2005. Financial Analysis for the HVACR Contracting Industry. Data reported in this analysis are not as detailed as th ose provided by HARDI and the

U.S. Census , containing only cost of goods sold and gross margin. Since the gross margin is the sum of labor, occupancy expenses, operating expenses, and profit, the data are sufficient to

estimate the baseline markup. The first data column in Table 6.6

. 4 provides the cost of goods sold and gross margin , expressed as dollars per dollar of sales revenue. The only important difference is that the direct cost of equipment sales in this table includes installation costs as well as the cost of goods sold. As shown in the table, the direct cost of sales represents about $0.73 per dollar sales revenue to the contractor and the gross margin is $0.27 per dollar sales revenue.

DOE converted these expenses per dollar sales into revenue per dollar cost of goods sold by dividing each figure in the first data column by $0.73. For every $1.00 the mechanical contractor spends on equipment costs, the mechanical contractor earns $1.00 in sales revenue to cover the equipment cost, and $0.37 in sales revenue to cover the other costs. This totals $1.37 in sales revenue earned for every $1.00 spent on equipment costs, for a baseline markup ( MU MECH

CONT BASE ) of 1.37 for mechanical contractors. This is the beginning point for the determination of

me chanical contractor markups.

The baseline markup derived above for mechanical contractors is the average value for all contractors, including large and small contractors serving the replacement an d new construction markets. The following section s describe how DOE further derived the baseline and incremental markups for four distinct categories of mechanical contractors: (1) small contractors in the replacement market; (2) small contractors in the new construction market; (3) large contractors in the replace ment market; and (4) large contractors in the new construction market.

6.6.3.2 Baseline Markups for Mechanical Contractors in the Replacement and

New Construction Markets

As presented above for all mechanical contractors in aggregate , the ACCA financial data provided only gross margin data, which allows for the determination of only the baseline markup

for the four types of contractor , since the gross margin is the sum of all contractor labor and operating expenses plus profit.

6

- 14Table 6.6

. 5 summarizes the gross margin and resulting baseline markup data for all mechanical contractors that serve the replacement and new construction m arkets. Note that while this data is disaggregated by the market served, it aggregates mechanical contractors of all sizes.

Table 6.6

. 5 Baseline Markups for the Replacement and New Construction Markets, All

Me chanical Contractors

Description Contractor Expenses or Revenue by Market Type Replacement New Construction

Per Dollar

Sales Revenue $ Per Dollar

Cost of Goods $ Per Dollar

Sales Revenue $ Per Dollar

Cost of Goods $
Direct Cost of Equipment Sales: Cost of goods sold 0.703 1.000 0.745 1.000

Gross Margin: Labor, occupancy, operating expenses, and profit 0.297 0.422 0.255 0.342

Baseline Markup ( MU MECH CONT BASE ): Revenue per dollar cost of goods NA 1.42 NA 1.34

% Difference from Aggregate

Mechanical Contractor Baseline MU NA 3.6% NA

- 2.2%

Source: Air Conditioning Contractors of America. 2005. Financial Analysis for the HVACR Contracting Industry

.

Using the baseline markup data for replacement and new construction contractors from

Table 6.6

. 5 , DOE calculated that the baseline markups for the replacement and new markets are 3.6 percent higher and 2.2 percent lower, respectively, than that for all mechanical contractors serving all markets shown in Table 6.6

. 4

. These percentage differences are later used, along

with those defined in section 6.6.3.3 , to estimate separate markups for the four categories of

mechanical contractor of interest.

6.6.3.3 Baseline Markups for Small and Large Mechanical Contractors

ACCA provides data for contracting busin esses earning annual revenues in each of the four following categories: (1) below one million dollars; (2) from one to two million dollars; (3) from two to five million dollars; and (4) over five million dollars. DOE aggregated the data into two categories : contractors earning annual revenue below two million dollars and contractors earning annual revenue above two million dollars. The values reported for small contractors are the average of the categories: (1) below one million dollars, and (2) from one t o two million dollars. The values reported for large contractors are the average of the categories: (3) f rom two
to five million dollars, and (4) over five million dollars.

6

- 15Table 6.6

. 6 Baseline Markups for Small and Large Mechanical Contractors

Description Contractor Expenses or Revenue by Market Type Small ( < $2 million) Large ( > $2 million)

Per Dollar

Sales Revenue $ Per Dollar

Cost of Goods $ Per Dollar

Sales Revenue $ Per Dollar

Cost of Goods $
Direct Cost of Equipment Sales: Cost of goods sold 0.653 1.000 0.753 1.000

Gross Margin: Labor, occupancy, operating expenses, and profit 0.347 0.532 0.247 0.328

Baseline Markup ( MU MECH CONT BASE ):
Revenue per dollar cost of goods NA 1.53 NA 1.33

% Difference from Aggregate

Mechanical Contractor Baseline MU NA 11.6% NA

- 3.2%

Source: Air Conditioning Contractors of America. 2005. Financial Analysis for the HVACR Contracting Industry.

Using the baseline markup data for small and large contractors from Table 6.6

. 6 , DOE calculated that the baseline markups for small and large are 11 .6 percent higher and 3 .2 percent lower, respectively , than that for all mechanical contractors serving all markets shown in

Table 6.6

. 4

.

6.6.3.4 Baseline Markups by Disaggregated Mechanical Contractor Type

Usi ng the percentage difference from the aggregate mechanical contractor baseline markup ( Table 6.6

. 4 ), DOE then estimated the baseline markup for each o f the four mechanical contractor types: (1) small contractors in the replacement market; (2) small contractors in the new construction market; (3) large contractors in the replacement market; and (4) large

contractors in the new construction market. The ba seline markup for each mechanical contractor type is estimated using the following equation:

MU MCONTRACT

_ BASE = MU AGGREGATE + MU AGGREGATE × μ SIZE + MU AGGREGATE × μ MARKET

Where:

MU AGGREGATE = Baseline markup for aggregate of all mechanical contractors,

μ SIZE = Size modifier (small or large contractor percentage difference from aggregate of all contractors’ markup)

, μ MARKET = Market modifier (replacement or new construction contractor percentage di fference from aggregate of all contractors’ markup)

, and,

MU MCONTRACT_BASE = Baseline markup for specific mechanical contractor type.

6

- 16Table 6.6

. 7 Baseline Markups by Mechanical Contractor Type

Mechanical Contractor Type Size Modifier Market Modifier Baseline Markup Size Market

Small Replacement 11.6% 3.6% 1.58

New Construction 11.6%

- 2.2% 1.50

Large Replacement

- 3.2% 3.6% 1.38

New Construction

- 3.2%

- 2.2% 1.30

6.6.3.5 Incremental Markups for Mechanical Contractors

Calculation of the incremental markups for each mechanical contractor type required separation of the invariant and variant costs. Since this was not possible using the ACCA data,

DOE used more detailed 2007 U.S. Census Bureau data for all plu mbing, heating, and air

conditioning contractors. The U.S. Census Bureau data were used to calculate the baseline and incremental markups as shown in Table 6.6

. 8

. Appendix 6A.2 c ontains the full set of data used in

this calculation.

Table 6.6

. 8 Mechanical Contractor Disaggregated Expenses and Markups Based on 2007

U.S. Census Bureau Data

Description Contractor Expenses or Revenue

Per Dollar

Sales Revenue $ Per Dollar

Cost of Goods $
Direct Cost of Equipment Sales: Cost of goods sold 0.68 1.00 Labor Expenses: Salaries (indirect) and benefits 0.17 0.26 Occupancy Expense: Rent, maintenance, and utilities 0.02 0.03 Other Operating Expenses: Depreciation, advertising, and insurance. 0.04 0.06

Net Profit Before Taxes 0.09 0.13 Baseline Markup ( MU MECH BASE ): Revenue per dollar cost of goods 1.47 Incremental Markup ( MU MECH INCR ): Increased revenue per dollar increase cost of goods sold 1.18
Percent difference between Baseline and Incremental Markup 20.0% Source: U.S. Census Bureau. 2007. Plumbing, Heating, and Air

- Conditioning Contractors. Sector 23: 238220. Construction: Industry Series, Preliminary Detailed Statistics for Establishments, 2007.

Using the data in Table 6.6

. 8 , the incremental markup is 20 p ercent lower than the baseline markup. By applying this 20 percent differential between baseline and incremental markup to the baseline markups estimated for the four specific mechanical contractor types,

DOE estimates the incremental markup for each type ( Table 6.6

. 9 ).

6

- 17Table 6.6

. 9 Incremental Markups by Mechanical Contractor Type

Mechanical Contractor Type Incremental Markup Size Market

Small Replacement 1.26

New Construction 1.20

Large Replacement 1.10

New Construction 1.04

6.6.4 Estimation of General Contractor Markups

DOE derived markups for general contractors from U.S. Census Bureau data for the

commercial building construction sector. The commercia l construction sector includes establishments primarily engaged in construction work, including new construction work, additions, alterations, and repairs.

The U.S. Census Bureau data for the construct ion sector include detailed statistics for establishments with payrolls, similar to the data reported by HARDI for wholesaler s. The primary difference is that the U.S. Census Bureau reports itemized revenues and expenses in

total dollars for the c onstructi on industry as a whole, rather than in typical values for an average or representative business. Because of this, DOE assumed that the total dollar values that the

U.S. Census Bureau reported, once converted to a percentage basis, represented revenues and expenses for an average or typical contracting business. Similar to the data for wholesaler s, Table 6.6

. 10 summarizes the expenses for general contractors as expenses per dollar sales

revenue in the first data column ( A ppendix 6A .3 contains the full set of data).

Table 6.6

. 10 General Contractor Expenses and Markups

Description Wholesale Firm Expenses or Revenue

Per Dollar

Sales Revenue $ Per Dollar

Cost of Goods $
Direct Cost of Equipment Sales: Cost of goods sold 0.7 6 1 Labor Expenses: Salaries (indirect) and benefits 0.0 8 0.10 Occupancy Expense: Rent, maintenance, and utilities 0.0 1 0.01 Other Operating Expenses: Depreciation, advertising, and insurance. 0.03 0.04

Net Profit Before Taxes 0.1 2 0.15 Baseline Markup ( MU GEN CONT BASE ): Revenue per dollar cost of goods 1.31 Incremental Markup ( MU GEN CONT INCR ): Increased revenue per dollar increase cost of goods sold 1. 19 Source: U.S. Census Bureau. 2007. Sector 236220 (Commercial Building Construction). Construction: Industry Series: Preliminary Detailed Statistics for Establishments: 2007. As shown in the first column , the direct cost of sales represents about $0. 7 6 per dollar sales revenue to the general contractor. Labor expenses represent $0.0 8 per dollar sales revenue,

occ upancy expenses represent $0.01 per dollar sales revenue, other operating expenses represent $0.03, and profit makes up $0. 1 2 per dollar sales revenue.

DOE converted these expenses per dollar sales into revenue per dollar cost of goods sold, by dividing ea ch figure in the first data column by $0. 76 . The data in column two show that, for every $1.00 the general contractor spends on equipment costs, the general contractor earns $1.00

6

- 18in sales revenue to cover the equipment cost, $0. 10 to cover labor costs, $0 .01 to cover occupancy expenses, $0.0 4 for other operating expenses, and $0. 15 in profits. This totals to $1. 31 in sales revenue earned for every $1.00 spent on equipment costs. Thus, the general contractor baseline markup ( MU GCONTRACT_ BASE ) is 1. 31

.

DOE was also able to use the data in column two of Table 6.6

. 10 to estimate the incremental markups

, after classifying the costs as either invariant or variant . At one extreme, if all of the other costs scale with the equipment price (i.e., all costs are variant), the increase in general contractor price will be $1.48, implying that the incremental markup is 1.48, or the same as the baseline markup. At t he other extreme, if none of the other costs are variant , then a $1.00 increase in the equipment price will lead to a $1.00 increase in the general contractor price, for an incremental markup of 1.0. DOE believe s the labor and occupancy costs are invariant , while the other operating costs and profit to scale wi th the equipment price ( i.e., are variant). In this case, for a $1.00 increase in the equipment price, the general contractor price will increase by $1. 19 , giving a general contractor incremental markup ( MU GCONT RACT_ INCR ) of 1. 19

.

6.7 SALES TAX

The sales tax represents state and local sales taxes that are applied to the consumer price of the equipment. The sales tax is a multiplicative factor that increases the consumer equipment price.

DOE derived s tate and local taxes from data provided by the Sales Tax Clearinghouse. 15

These data represent weighted averages that include county and city rates. DOE then derived population

- weighted average tax values for each Census division and large state, as shown in

Table 6.7

. 1 below. The average sales tax presented in the bottom row of the table is the weighted

average accounting for commercial building floor space with packaged cooling by Census

division , calculated using CBECS 2003

. Detailed sales tax data by each state can be found in

A

ppendix 6A

. 4

.

6

- 19Table 6.7

. 1 Average Sales Tax Rates by Census Division and Large State

Census Division/State Tax Rate
New England 6.91%

Mid Atlantic 8.01%

East North Central 7.47%

West North Central 6.44%

South Atlantic 5.68%

East South Central 7.65%

West South Central 6.50%

Mountain 7.09%

Pacific 8.13%

New York 8.40 %

California 8.45 %

Texas 7.90 %

Florida 6.65%

Average 7.16 %

Source: The Sales Tax Clearinghouse at https://thestc.com/STRates.stm ( Accessed March, 201 4 )

6.8 OVERALL MARKUPS

The overall markup for each distribution channel is the product of the appropriate markups, as well as sales tax in the case of replacement applications . These values are provided for each capacity of CUAC in Table 6.8

. 1 through Table 6.8

. 3

.

6

- 20Table 6.8

. 1 Summary of Overall Markups

– Small (7.5 Tons)

Distribution Channel Segment Replacement New Construction

Baseline Markup Incremental Markup Baseline Markup Incremental Markup

Manufacturer 1. 30 1. 30 1. 30 1. 30

Wholesaler 1.36 1.10 1.36 1.10

Mechanical Contractor

(large/small) 1.38 / 1.58 1.10 / 1.26 1.30 / 1.50 1.04 / 1.20

General Contractor

(new construction only) -- -- 1.31 1.20

Sales tax

(replacements only) 1.07 1.07

-- --

Overall Markup

(large/small contractor) 2.60 / 2.99 1.70 / 1.94 3.00 / 3.47 1.78 / 2.06

Table 6.8

. 2 Summary of Overall Markups

– Large (15 Tons)

Distribution Channel Segment Replacement New Construction

Baseline Markup Incremental Markup Baseline Markup Incremental Markup

Manufacturer 1.34 1.34 1.34 1.34

Wholesaler 1.36 1.10 1.36 1.10

Mechanical Contractor

(large/small) 1.38 / 1.58 1.10 / 1.26 1.30 / 1.50 1.04 / 1.20

General Contractor

(new construction only) -- -- 1.31 1.20

Sales tax

(replacements only) 1.07 1.07

-- --

Overall Markup

(large/small contractor) 2.68 / 3.08 1.75 / 2.00 3 .1 0 / 3. 58 1. 84 / 2.12

6

- 21Table 6.8

. 3 Summary of Overall Markups

– Very Large (30 Tons)

Distribution Channel Segment Replacement New Construction

Baseline Markup Incremental Markup Baseline Markup Incremental Markup

Manufacturer 1.41 1.41 1.41 1.41

Wholesaler 1.36 1.10 1.36 1.10

Mechanical Contractor

(large/small) 1.38 / 1.58 1.10 / 1.26 1.30 / 1.50 1.04 / 1.20

General Contractor

(new construction only) -- -- 1.31 1.20

Sales tax

(replacements only) 1.07 1.07

-- --

Overall Markup

(large/small contractor) 2.82 / 3.24 1.84 / 2.11 3.26 / 3.77 1.93 / 2.23

6.8.1 Estimation of National Account Markups

DOE derived markups for national accounts through a weighting of the overall markups

estimated for the other distribution channels. National accounts markups are estimated separately for replacement and new construction applications. To capture the price savings realized from equipment purchased through national accounts , DOE applies a national account markup one half of that of a typical chain of distribution ( Table 6.8

. 4 ).

Table 6.8

. 4 National Account Markups

Equipment Market Baseline Markup Incremental Markup

Small (7.5 tons) New Construction 2.14 1.47

Replacement 1.92 1.42

Large (15 tons) New Construction 2.20 1.50

Replacement 1.96 1.42

Very Large (30 tons) New Construction 2.28 1.56

Replacement 2.04 1.50

6

- 22REFERENCES

1. Heating Air Conditioning & Refrigeration Distributors International, 2010 Profit Report

, 2010.

2. Air Conditioning Contractors of America, 2005 Financial Analysis for the HVACR Contracting Industry , 2005.

3. U.S. Census Bureau, Data set for Sector 23, EC0723A1, Construction: Geographic Area Series, Detailed Statistics for Establishments , 2007.

4. U .S. Census Bureau, Data set for Sector 23: EC0723I1, Construction: Industry Series, Preliminary Detailed Statistics for Establishments: 2007 . 2007.

5. U.S. Census Bureau, Manufacturing Industry Series: Detailed Statistics for the United

States: 2007. Air

- Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Mnufacturing. Data set for Sector 31: EC073111

2007.

6. U.S. Census Bureau, Wholesale Trade: Industry Series: Preliminary Summary Statistics for the United States: 2007. HVAC Equipment Merchant Wholesaler. Data set for Sector

42: EC0742111 , 2007.

7. U.S. Census Bureau, Construction: Industry Series: Preliminary Detailed Statistics for Establishments: 2007. Commercial and Institutional Building Construction

. , 2007.

8. U.S. Census Bureau, Construction: Industry Series: Preliminary Detailed Statistics for Establishments: 2007. New Single

- Family General Contractors, New Multifamily Housing Construction (Except Operative Builders), New Housing Operative Build ers Residential. , 2007.

9. U.S. Census Bureau, Plumbing, Heating, and Air

- Conditioning Contractors. Sector 23: 238220. Construction: Industry Series, Preliminary Detailed Statistics for Establishments, 2007. , 2007.

10. U.S. Census Bureau, Wholesale Trade: Subject Series: Estab and Firm Size: Summary Statistics by Concentration of Largest Firms for the United States: 2007. Data set for

Sector 42: EC074373 . 2007.

11. University of Maryland University College, Note on Industry Structure, 2002. (Last accessed February, 2013.)

< http://info.umuc.edu/mba/public/AMBA607/IndustryStructure.html >

12. QuickMBA, Industry Concentration, 2010. (Last accessed February, 2013.)

< http://www.quickmba.com/econ/micro/indcon.shtml >

6

- 2313. Pindyck, R. and D. Rubinfeld, Microeconomics . 2000. Prentice Hall.

14. Security Exchange Commission, SEC 10

- K Reports, 2006

- 2011. < http://www.sec.gov/ >

15. The Sales Tax Clearinghouse, <https://thestc.com/STRates.stm>

6

- 24