| **Analysis of Proposed Consent Order        to Aid Public Comment**

The Federal Trade Commission ("Commission") has accepted,        subject to final approval, an Agreement Containing Consent Order        ("Order") from fourteen swimming pool contractors in        Bakersfield, California, a city of 224,000 people in Kern County in the        Central Valley of California. As alleged in the Commission's proposed        complaint, these swimming pool contractors were part of an unlawful        price-fixing and group boycott combination that began in the Spring of        1998. The proposed Order is designed to prevent the recurrence of these        anticompetitive practices engaged in by these swimming pool contractors.

**The Proposed Complaint**

The proposed complaint alleges that, in the Spring of 1998, fourteen        swimming pool contractors formed an informal group, known as the        Southern Valley Pool Association (the "Association"). The        complaint alleges that, through the Association meetings and other        communications, some of these swimming pool contractors agreed to        increase prices substantially to homeowners for swimming pool        construction. The proposed complaint also alleges that, as a result of        this combination, some of these contractors thereafter significantly        increased their prices to homeowners.

The proposed complaint also alleges that some of these swimming pool        contractors engaged in a group boycott designed to prevent homeowners        from escaping this collective price increase by turning to alternative        means for the construction of swimming pools. According to the        Commission's proposed complaint, homeowners usually hire a swimming pool        contractor to handle all aspects of constructing a swimming pool. Some        homeowners, however, may choose to enter into an arrangement, known in        the industry as an "owner-builder" arrangement, by which they        hire subcontractors directly or use swimming pool contractors as        consultants only in arranging for subcontractors. In this way,        homeowners who act as owner-builders are able to save substantial        amounts of money.(1) Similarly, home        construction developers and contractors may hire swimming pool        contractors to handle all aspects of constructing a swimming pool, or        they may hire subcontractors directly for that purpose.

According to the Commission's proposed complaint, owner-builders were        viewed as a major threat to the success of the collective efforts by        some swimming pool contractors to raise prices to homeowners. Homeowners        acting as owner-builders could work directly with subcontractors or use        pool contractors only as consultants and thereby defeat the price        increase. Similarly, home construction developers and contractors could        also work directly with subcontractors (rather than with pool        contractors) and similarly defeat the price increase. To effectuate this        group boycott, the proposed complaint alleges that, beginning in early        April 1998, a series of meetings was held, with some of respondents and        all or nearly all of each trade of subcontractors in attendance. At        these meetings, some respondents:
- instructed the subcontractors to raise their prices to            owner-builders by 50 percent and to home construction developers and            contractors by 25 percent, substantial price hikes that were            designed to eliminate or reduce the savings homeowners and home            construction developers and contractors would normally realize by            bypassing pool contractors and dealing directly with subcontractors;
- warned the subcontractors that the respondents would stop            subcontracting with them if the subcontractors did not increase            their prices to owner-builders and home construction developers and            contractors as set forth above; and
- offered the subcontractors a  quid pro quo  whereby, if the            subcontractors agreed to increase prices to owner-builders and home            construction developers and contractors as set forth above,            respondents would agree to a specified increase (the amount of which            varied depending on the particular subcontracting work being done)            in the price subcontractors charged respondents for subcontractor            services.

As a direct result of these meetings, according to the proposed        complaint, most of the subcontractors raised their prices to pool        contractors by the specified amounts on or about May 15, 1998. Also as a        direct result of these meetings, some subcontractors began charging or        sought to charge owner-builders and home construction developers and        contractors substantially higher prices than they charged swimming pool        contractors. Other subcontractors stopped doing owner-builder jobs        altogether, because they were fearful of losing their work with        respondents.

According to the proposed complaint, the effects of these collective        actions are to increase prices for swimming pool construction services        and swimming pool subcontracting services and to interfere with        consumers' choice in deciding to build their swimming pool in an        owner-builder arrangement or through home construction developers or        contractors.

**The Proposed Order**

The proposed Order contains provisions designed to remedy the        violations charged and to prevent the proposed respondents from engaging        in similar acts and practices in the future.

Paragraph II of the proposed Order would prohibit the proposed        respondents from

(1) entering into any agreement, express or implied, relating to the        price for swimming pool contracting or subcontracting services and (2)        requesting, proposing, threatening, urging, recommending, advocating, or        attempting to persuade in any way anyone else to alter in any way their        price and terms for such services. Paragraphs II.A.(1) & B.(1).        These provisions will prevent future efforts, whether by agreement or        through requests to others, to raise prices and alter terms for both        swimming pool contracting and subcontracting services.

Paragraph II would also prohibit the proposed respondents from        entering into any agreement to refuse to deal with owner-builders or        home construction contractors or developers. Paragraph II.A.(2). It        would bar them as well from requesting, proposing, threatening, urging,        recommending, advocating, or attempting to persuade in any way any        swimming pool contractor or subcontractor to refuse categorically to        deal with owner-builders, home construction contractors or developers,        or swimming pool contractors who act or wish to act as consultants for        owner-builders. Paragraphs II.B.(2) & (3). Finally, Paragraph II        would prohibit respondents from requesting, proposing, threatening,        urging, recommending, advocating, or attempting to persuade in any way        any subcontractor with respect to the terms of that subcontractor's        dealings with owner-builders, home construction contractors or        developers, or swimming pool contractors who act or wish to act as        consultants for owner-builders. Paragraph II.B.(4)

Together, these provisions will bar respondents, collectively as well        as individually, from seeking (1) to stop any subcontractor from working        for owner-builders, home contractors or developers, and swimming        contractors who act or desire to act as consultants for owner-builders;        (2) to change the prices and terms subcontractors charge those        homeowners and contractors; and (3) to stop other swimming pool        contractors from working for those homeowners and contractors. These        provisions, by barring individual efforts as well as collective ones,        fence in respondents from engaging in conduct similar or dangerously        close to the unlawful activity they engaged in earlier.

A proviso to Paragraph II makes it clear that nothing in this        Paragraph prohibits any respondents from discussing and/or entering into        a specific proposed or actual business transaction or project in which        those involved are or would be in a contractor/subcontractor or other        joint or cooperative working relationship.

Paragraph III of the Order requires respondents, for a period of five        years, to tape record all meetings and maintain copies of those tape        recordings and all materials distributed at the meetings. This provision        should have a prophylactic effect in ensuring that the respondents do        not seek to engage in such anticompetitive conduct again.

The proposed Order also requires that, should the respondents turn        the Association into a more formal organization, they must incorporate        Paragraph II of this Order by reference in the by-laws of such        organization and distribute a copy of the by-laws to each of the members        of the organization. Paragraph IV. Finally, the Order contains reporting        requirements (Paragraphs V. & VI.) and provisions guaranteeing        Commission staff access should the need arise (Paragraph VII.).

**Opportunity for Public Comment**

The proposed consent Order has been placed on the public record for        sixty (60) days for reception of comments by interested persons.        Comments received during this period will become part of the public        record. After sixty (60) days, the Commission will again review the        agreement and the comments received and will decide whether it should        withdraw from the agreement or make final the agreement's proposed        Order.

The purpose of this analysis is to invite public comment on the        proposed Order. This analysis is not intended to constitute an official        interpretation of the agreement and proposed Order or to modify their        terms in any way.

1. In owner-builder arrangements,        liability in the event of an accident or injury during construction        falls on the homeowner, rather than on the pool contractor. |
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