__________________________________________ 

 

 

 

 

 

 

 

 

 

 

10 24 2012 

UNITED STATES OF AMERICA 

BEFORE THE FEDERAL TRADE COMMISSION 

OFFICE OF ADMINISTRATIVE LAW JUDGES
 

) PUBLIC RECORD 

In the Matter of ) 

) DOCKET NO. 9351 

McWANE, INC., ) 

Respondent. ) 

__________________________________________) 

COMPLAINT COUNSEL’S MOTION FOR IN CAMERA TREATMENT OF PORTIONS 

OF DR. LAURENCE SCHUMANN’S EXPERT REPORTS
 

AND DEMONSTRATIVE EXHIBITS
 

Complaint Counsel respectfully move the Court for an order extending in camera 

protection for designated portions of the Expert Report of Dr. Laurence Schumann, the Rebuttal 

Expert Report of Dr. Schumann, and certain demonstrative exhibits relating to Dr. Schumann’s 

rebuttal testimony. Attachment A contains the in camera version of Dr. Schumann’s Expert 

Report (CX 2260), and Attachment B contains the in camera version of Dr. Schumann’s 

Rebuttal Expert Report (CX 2265), with the confidential materials in brackets and, where 

possible, highlighted.1

 Attachment C contains the in camera version of Dr. Schumann’s Rebuttal 

Testimony Demonstrative Exhibit (CXD 3085) with the confidential materials in braces and bold 

font. In accordance with Rule 3.45(e) (16 C.F. R. § 3.45(e)), Complaint Counsel files this 

complete version marked In Camera and will concurrently file an redacted version marked 

Public Record.2 

1 We are unable to mark confidential materials in the two reports in bold font, as specified by paragraph 6 of 

the Scheduling Order, without changing the pagination of the reports and causing confusion in the references to the 

reports in the trial transcripts. 

2 The Public Record versions will be identified as CX 2260-A (Dr. Schumann’s Expert Report), CX 2265-A 

(Dr. Schumann’s Rebuttal Expert Report), and CXD 3085-A (Dr. Schumann’s Rebuttal Testimony Exhibit). 

1 
 

PUBLIC RECORD

Complaint Counsel seeks this protection because the reports and the demonstrative 

contain citations or specific references to material that the Court already granted in camera 

protection in its Order on Respondent's Motion for In Camera Treatment, dated August 17, 2012, 

or its Order on Non-Parties Motions for In Camera Treatment, dated August 17, 2012. 

Evidence or testimony is worthy of in camera treatment if “its public disclosure will 

likely result in a clearly defined, serious injury” to party or third party whose documents or 

testimony is involved. 16 C.F.R. § 3.45(b). Applicants must show that the information is 

sufficiently secret and sufficiently material to their business that disclosure would result in 

serious competitive injury. In re General Foods Corp., 95 F.T.C. 352, 355 (1980). In its August 

17, 2012, Orders, the Court found that certain materials designated by the Respondent or the 

third parties met these standards. Based on the Court's findings in its August 17, 2012, Orders, 

the same materials in Dr. Schuman's reports and his demonstrative exhibits warrant the same 

protection. 

Consistent with the Court’s August 17, 2012, Orders, which specified that both 

Respondent’s and the third parties’ confidential materials should be given uniform in camera 

treatment for five years, we respectfully suggest that the unredacted versions of Dr. Schumann’s 

Expert Report (CX 2260) and Rebuttal Expert Report (CX 2265) and the Rebuttal Testimony 

Demonstrative Exhibit (CXD 3085) also be given in camera treatment until September 1, 2017. 

A proposed order is attached. 

2 
__________________________________________ 

 

 

 

 

 

 

 

 

 

 

UNITED STATES OF AMERICA 

BEFORE THE FEDERAL TRADE COMMISSION 

OFFICE OF ADMINISTRATIVE LAW JUDGES
 

) PUBLIC RECORD 

In the Matter of ) 

) DOCKET NO. 9351 

McWANE, INC., ) 

Respondent. ) 

__________________________________________) 

COMPLAINT COUNSEL’S MOTION FOR IN CAMERA TREATMENT OF PORTIONS 

OF DR. LAURENCE SCHUMANN’S EXPERT REPORTS
 

AND DEMONSTRATIVE EXHIBITS
 

Complaint Counsel respectfully move the Court for an order extending in camera 

protection for designated portions of the Expert Report of Dr. Laurence Schumann, the Rebuttal 

Expert Report of Dr. Schumann, and certain demonstrative exhibits relating to Dr. Schumann’s 

rebuttal testimony. Attachment A contains the in camera version of Dr. Schumann’s Expert 

Report (CX 2260), and Attachment B contains the in camera version of Dr. Schumann’s 

Rebuttal Expert Report (CX 2265), with the confidential materials in brackets and, where 

possible, highlighted.1

 Attachment C contains the in camera version of Dr. Schumann’s Rebuttal 

Testimony Demonstrative Exhibit (CXD 3085) with the confidential materials in braces and bold 

font. In accordance with Rule 3.45(e) (16 C.F. R. § 3.45(e)), Complaint Counsel files this 

complete version marked In Camera and will concurrently file an redacted version marked 

Public Record.2 

1 We are unable to mark confidential materials in the two reports in bold font, as specified by paragraph 6 of 

the Scheduling Order, without changing the pagination of the reports and causing confusion in the references to the 

reports in the trial transcripts. 

2 The Public Record versions will be identified as CX 2260-A (Dr. Schumann’s Expert Report), CX 2265-A 

(Dr. Schumann’s Rebuttal Expert Report), and CXD 3085-A (Dr. Schumann’s Rebuttal Testimony Exhibit). 

1 
 

PUBLIC RECORD

Complaint Counsel seeks this protection because the reports and the demonstrative 

contain citations or specific references to material that the Court already granted in camera 

protection in its Order on Respondent's Motion for In Camera Treatment, dated August 17, 2012, 

or its Order on Non-Parties Motions for In Camera Treatment, dated August 17, 2012. 

Evidence or testimony is worthy of in camera treatment if “its public disclosure will 

likely result in a clearly defined, serious injury” to party or third party whose documents or 

testimony is involved. 16 C.F.R. § 3.45(b). Applicants must show that the information is 

sufficiently secret and sufficiently material to their business that disclosure would result in 

serious competitive injury. In re General Foods Corp., 95 F.T.C. 352, 355 (1980). In its August 

17, 2012, Orders, the Court found that certain materials designated by the Respondent or the 

third parties met these standards. Based on the Court's findings in its August 17, 2012, Orders, 

the same materials in Dr. Schuman's reports and his demonstrative exhibits warrant the same 

protection. 

Consistent with the Court’s August 17, 2012, Orders, which specified that both 

Respondent’s and the third parties’ confidential materials should be given uniform in camera 

treatment for five years, we respectfully suggest that the unredacted versions of Dr. Schumann’s 

Expert Report (CX 2260) and Rebuttal Expert Report (CX 2265) and the Rebuttal Testimony 

Demonstrative Exhibit (CXD 3085) also be given in camera treatment until September 1, 2017. 

A proposed order is attached. 

2 
 

 

 

 

 

 

 

PUBLIC RECORD

Dated: October 24, 2012 Respectfully submitted, 

 _s/ Edward Hassi____________ 

Edward Hassi, Esq.
 

Linda Holleran, Esq.
 

Thomas H. Brock, Esq.
 

Michael J. Bloom, Esq. 

Jeanine K. Balbach, Esq. 

J. Alexander Ansaldo, Esq. 

Andrew K. Mann, Esq.

 Monica M. Castillo, Esq. 

Counsel Supporting the Complaint 

 Bureau of Competition

 Federal Trade Commission

 Washington, DC 20580 

 Telephone: (202) 326-2470 

 Facsimile: (202) 326-3496 

 Electronic Mail: ehassi@ftc.gov 

3 
__________________________________________ 

 

 

 

 

 

 

 

PUBLIC RECORD

UNITED STATES OF AMERICA 

BEFORE THE FEDERAL TRADE COMMISSION 

OFFICE OF ADMINISTRATIVE LAW JUDGES
 

) 

In the Matter of ) 

) DOCKET NO. 9351 

McWANE, INC., ) 

Respondent. ) 

__________________________________________) 

PROPOSED ORDER ON MOTION FOR IN CAMERA TREATMENT OF EXPERT 

MATERIALS OF DR. LAURENCE SCHUMANN 

In consideration of the unopposed motion of Complaint Counsel for in camera treatment 

of designated portions of Dr. Laurence Schumann’s Expert Report (CX 2260), Dr. Schumann’s 

Expert Rebuttal Report (CX 2265), and Dr. Schumann’s Expert Rebuttal Testimony 

Demonstrative Exhibit (CXD 3085), it is hereby 

 ORDERED, that in camera treatment, for a period of five years, to expire on September 

1, 2017, is GRANTED for the confidential portions of Complaint Counsel’s Expert Report of Dr. 

Laurence Schumann, dated June 15, 2012 (CX 2260); the confidential portions of the Rebuttal 

Expert Report of Dr. Laurence Schumann, dated July 12, 2012 (CX 2265); and Rebuttal 

Testimony Exhibit (CXD 3085). 

ORDERED: ______________________________ 

 D. Michael Chappell

 Chief Administrative Law Judge 

Date: 

4 
__________________________________________ 

 

 

 

 

 

 

 

 

 

 

 

 

 

PUBLIC RECORD

UNITED STATES OF AMERICA 

BEFORE THE FEDERAL TRADE COMMISSION 

OFFICE OF ADMINISTRATIVE LAW JUDGES
 

) 

In the Matter of ) 

) DOCKET NO. 9351 

McWANE, INC., ) 

Respondent. ) 

__________________________________________) 

STATEMENT REGARDING MEET AND CONFER 

Pursuant to Paragraph 4 of the Scheduling Order, Complaint Counsel and Counsel for 

Respondent McWane, Inc. met and conferred in good faith regarding the issues raised in this 

motion. Complaint Counsel have been authorized to state that Respondent does not oppose this 

motion. 

Dated: October 24, 2012 Respectfully submitted, 

 _s/ Edward Hassi 

Edward Hassi, Esq. 

Linda Holleran, Esq. 

Thomas H. Brock, Esq. 

Michael J. Bloom, Esq. 

Jeanine K. Balbach, Esq. 

J. Alexander Ansaldo, Esq. 

Andrew K. Mann, Esq.

 Monica M. Castillo, Esq. 

Counsel Supporting the Complaint 

 Bureau of Competition

 Federal Trade Commission

 Washington, DC 20580 

 Telephone: (202) 326-2470 

 Facsimile: (202) 326-3496 

 Electronic Mail: ehassi@ftc.gov 

5 
 

 

 

 

PUBLIC RECORD

CERTIFICATE OF SERVICE
 

I hereby certify that on October 24, 2012, I filed the foregoing document electronically 

using the FTC’s E-Filing System, which will send notification of such filing to: 

Donald S. Clark 

Secretary 

 Federal Trade Commission 

600 Pennsylvania Ave., NW 

 Washington, DC 20580 

 I also certify that I delivered via electronic mail and hand delivery a copy of the 

foregoing document to: 

The Honorable D. Michael Chappell 

 Administrative Law Judge 

 Federal Trade Commission 

 600 Pennsylvania Ave., NW, Rm. H-110 

 Washington, DC 20580 

 I further certify that I delivered via electronic mail a copy of the foregoing document to: 

Joseph A. Ostoyich 

William C. Lavery 

Baker Botts L.L.P. 

The Warner 

1299 Pennsylvania Ave., NW 

Washington, DC 20004 

(202) 639-7700 

joseph.ostoyich@bakerbotts.com 

william.lavery@bakerbotts.com 

J. Alan Truitt 

Thomas W. Thagard III 

Maynard Cooper and Gale PC 

1901 Sixth Avenue North 

2400 Regions Harbert Plaza 

Birmingham, AL 35203 

(205) 254-1000 

atruitt@maynardcooper.com 

tthagard@maynardcooper.com 

Counsel for Respondent McWane, Inc. 

6 
 

 

 

 

PUBLIC RECORD

CERTIFICATE FOR ELECTRONIC FILING 

 I certify that the electronic copy sent to the Secretary of the Commission is a true and 

correct copy of the paper original and that I possess a paper original of the signed document that 

is available for review by the parties and the adjudicator. 

October 24, 2012 By: s/ Thomas H. Brock 

Attorney 

7 
PUBLIC RECORD

ATTACHMENT A 
__________________________________________ 

 

 

 

PUBLIC

UNITED STATES OF AMERICA 

BEFORE THE FEDERAL TRADE COMMISSION 

In the Matter of ) 

) 

McWANE, INC., ) 

) 

a corporation, ) DOCKET NO. 9351 

) 

Respondent. ) 

_________________________________________ )
 

EXPERT REPORT OF LAURENCE SCHUMANN, PH.D. 

CX 2260-A-001
PUBLIC

Expert Report of Laurence Schumann, Ph.D. 

Table of Contents 

I. Introduction ................................................................................................................. 1
 

A. Qualifications ....................................................................................................... 1
 

B. Background .......................................................................................................... 2
 

C. Assignment ........................................................................................................... 6
 

D. Summary of My Opinions .................................................................................... 7
 

II. The Fittings Markets................................................................................................ 9
 

A. Relevant Product Markets .................................................................................. 10
 

B. Geographic Market............................................................................................. 16
 

C. Market Structure ................................................................................................. 17
 

D. Pricing ................................................................................................................ 20
 

E. The Fittings Market From 2007 Through 2011 ................................................. 23
 

III. McWane, Sigma, and Star Fixed Prices for Ductile Iron Fittings ......................... 25
 

A. Oligopoly and Collusion .................................................................................... 25
 

B. The Fittings Market is Highly Susceptible to Collusion .................................... 34
 

C. McWane, Sigma, and Star Explicitly Colluded ................................................. 38
 

D. Conclusion.......................................................................................................... 55
 

IV. McWane Used its Monopoly Power in the “Made in America” Fittings Market to 

Delay Efficient Entry by Star and Further Sustain Its Monopoly ..................................... 57
 

A. The Economics of Exclusive (or Restrictive) Dealing ....................................... 57
 

B. The Need For Distribution Services Affects Entry in the MA Fittings Market . 63
 

C. McWane Used Its Monopoly Power to Restrict Star’s Access to Distribution for 

Its MA Fittings.............................................................................................................. 65
 

D. Conclusion.......................................................................................................... 78
 

V. McWane Entered the MDA to Eliminate Risk of Independent Sigma Entry; Had 

Sigma Entered, Competition Would Have Been Enhanced.............................................. 80
 

VI. Conclusions............................................................................................................ 83
 

Appendix A....................................................................................................................... 85
 

Appendix B ........................................................................ Error! Bookmark not defined.
 

i 

CX 2260-A-002
 

Expert Report of Laurence Schumann 

PUBLIC

I. Introduction

 A. Qualifications 

1. I am an economist on the staff of the Federal Trade Commission (“FTC”). In 

1986, I earned a Ph.D. in economics from the University of Virginia, where I had earned a B.A. 

in economics in 1980. My field of specialization is the economics of industrial organization, and 

throughout my career I have applied industrial organization economics to issues of competition 

and regulatory analysis. 

2. I first joined the staff of the FTC in September 1985. In March 1996, I left the 

FTC to become a private economic consultant. I rejoined the staff of the FTC in March 2008. 

During the spring of 1990, I returned to the University of Virginia to teach a course covering the 

law and economics of antitrust. More recently, I have lectured on the economics of antitrust at 

international technical assistance workshops and conferences sponsored jointly by the FTC, the 

U.S. Agency for International Development, and, in certain cases, additional organizations 

devoted to international economic development.1 I have authored or coauthored a number of 

articles that have been published in peer-reviewed journals, and I have previously provided 

expert economic testimony in Federal District Court and in private arbitration proceedings. A 

more extensive summary of my professional accomplishments can be found in my curriculum 

vitae, a copy of which is attached as Appendix A to this report. 

3. My testimony in this matter reflects my own independent analysis and opinions. 

As a testifying expert economist retained by the FTC staff, I receive no compensation besides 

1

 The FTC’s international technical assistance program provides training in antitrust policy, economics, and 

investigational methods to the staffs of competition enforcement agencies in countries with underdeveloped or 

transitional economies. 

1 

CX 2260-A-003
 

 

 

 

 

PUBLIC

that which I otherwise receive as a government employee. Further, I have reached the highest 

step of the highest pay grade for which I am eligible as a career federal employee. I cannot 

receive a promotion or any other increase in compensation in exchange for my testimony or for 

any particular opinion expressed in my testimony. 

B. Background 

4. This matter concerns certain business practices and conduct of the sellers of 

ductile iron pipe fittings (“Fittings”) in the United States. Ductile iron is a strong yet highly 

flexible and elastic form of cast iron in which graphite nodules in the iron take on a spherical 

shape, unlike the flakes of graphite found in gray iron, the most common form of cast iron. 

Ductile iron is formed by adding magnesium to the iron, which causes the graphite in the iron to 

form the spherical nodules that provide ductile iron with its unique properties.2

 Ductile iron is 

used in the manufacture of pipes, fittings, and related products used in waterworks, principally 

for the construction and repair of clean water and sewage treatment and transportation systems. 

5. Three companies – McWane, Inc. (“McWane”), Sigma Corporation (“Sigma”), 

and Star Pipe Products, Ltd. (“Star”) – supply over 90 percent of the Fittings sold in the U.S.3 

Each serves waterworks customers and their contractors through distributors, which account for 

roughly 95% of their Fittings sales.4

2

 QIT-Fer et Titane Inc, Ductile Iron Data for Design Engineers, Revised and Reprinted (Montreal: Rio 

Tinto Iron & Titanium, Inc., 1998), pp. 2-9 – 2-11 (available from metalwebnews.org/ftp/didata.pdf and The Ductile 

Iron Society (http://www.ductile.org/didata/default.htm)). Also see Ductile Iron Pipe Research Association, 

www.dipra.org, “About Ductile Iron Pipe,” http://www.dipra.org/benefits-of-dip/benefits-of-di-pipes/. 

3

 SIG – 0002517 – 2528, p. 2520 (“In fittings there are effectively 3 – McWane, Sigma, and Star . . . .”). 

Also see TU-FTC-0010086 – 10089, p. 10087, “2009 Narrative for 

Long Range Plan;” TU-FTC-0010434 – 10489, p. 10436, “2009 Budget Waterworks Division, Tyler/Union, Rick 

Tatman;” 

4

 McWane, Sigma, and Star formed the Ductile Iron Fittings Association (DIFRA), the bylaws of which 

require that “At least ninety-five percent of [a member’s] sales of ductile iron fittings must be to a distributor.” 

(SIG-0033693-712, p. 702.) 

2 

CX 2260-A-004
 

 

 

 

 

PUBLIC

6. McWane operates or has operated a number of subsidiaries that manufacture (or 

have manufactured) Fittings in the U.S. Its primary Fittings business unit is Tyler Union, which, 

until relatively recently was two separate business units that McWane had acquired, the Tyler 

Pipe Company and the Union Foundry Company. Tyler Xian Xian is a McWane business unit 

that manufactures Fittings in China, and Clow Water Systems is a McWane unit that sells ductile 

iron pipe and fittings. To avoid confusion, I will refer to all of McWane’s Fittings businesses 

collectively as McWane. 

7. McWane manufactures Fittings in the U.S. and China. Star and Sigma have 

traditionally been importers of Fittings from 5 

8. After several years of discussions, McWane, Sigma, and Star formed a trade 

association, the Ductile Iron Fittings Research Association (“DIFRA”) in 2007.6 They were 

joined by U.S. Pipe, a ductile iron pipe manufacturer that no longer manufactured (and still does 

not manufacture) Fittings. 7 The primary activity of DIFRA was the collection of data on the 

tons of Fittings shipped monthly by its members and the dissemination of monthly reports 

containing the aggregated shipments data (the “DIFRA Reports”) to its members. 

9. In June of 2008, DIFRA first obtained Fittings shipments data from all of its 

members. The first submission to DIFRA consisted of total 2006 Fittings shipments and 

monthly Fittings shipments for all of 2007 and through April of 2008.8

 The monthly DIFRA 

5 In addition to China, India, and Mexico, Star imports Fittings 

from Brazil and Korea (McCutcheon Deposition, May 16, 2012, pp. 9 – 10). 

6 SIG-0033727 – 33731. Pages 33728 – 33731 consist of DIFRA’s Articles of Incorporation. DIFRA was 

incorporated January 12, 2007, but did not begin operating until early 2008. 

7

 U.S. Pipe resold fittings with its pipes that were manufactured by others, primarily Sigma, but also 

McWane, Star, and other small foundries. In our calculations of total shipments and market shares, shipments by 

U.S. Pipe of Fittings that they had purchased from McWane, Sigma, and Star were not included to avoid double 

counting because they were included in McWane, Sigma, and Star shipments. 

8

 DIFRA-000497 – 000508. The shipments data collected by DIFRA consisted of shipments in tons. 

3 

CX 2260-A-005
 

 

 

 

PUBLIC

Reports would allow McWane, Sigma, and Star to determine the monthly changes in their 

respective market share as well as the combined market share of the two other Fittings suppliers. 

Accordingly, during periods in which Fittings volume was falling, the Fittings data would allow 

each supplier to obtain some indication of whether its shipment volume was falling because of 

decreased demand, which would be indicated by a stable market share, or if its volume was 

falling because its rivals were cutting prices, which would be indicated by a declining market 

share. 

10. DIFRA continued collecting monthly data and disseminating monthly Reports 

through the January 15, 2009 DIFRA Report, which provided the aggregated shipments data 

through December 2008.9 Thereafter, Sigma and Star declined to provide further shipments data 

to DIFRA,10 and DIFRA ceased operating.11 

11. On February 17, 2009, President Obama signed the American Recovery and 

Reinvestment Act of 2009 (“ARRA”).12 The ARRA allocated multiple billions of dollars for 

waterworks projects,13 but those projects were nearly always limited to the use of only American 

made iron and steel products.14 Before passage of the ARRA, 15 – 20 percent of the Fittings 

sold in the United States were for projects specifying domestic-only Fittings.15 

9

 SRHW-00007 – 00020, p. 00008. 

10 In May 2009, Sigma again provided its data to DIFRA in a failed effort to reinvigorate it. 

11 

12 Pub. L. No. 111-5. 

13 See H.R. 1, American Recovery and Reinvestment Act of 2009 (ARRA), §3; Division A. 

14 Section IV below contains more details of the ARRA. 

15 According to McWane, “Adjusting for that tonnage shows that the actual volume of domestic fittings 

sold to jobs that (at least at the time of that bid) preferred domestic fittings was roughly 20% of the total fittings sold 

in the U.S. during the 2007-09 period, and only slightly higher in 2010.” Memorandum of McWane, Inc. 

Responding to Commission Staff Questions Regarding the Competitiveness of the Ductile Iron Waterworks Fittings 

Market in the United States, May 10, 2011, p. 12. Mr. Tatman testified that before the ARRA, sales of Fittings for 

4 

CX 2260-A-006
 

 

PUBLIC

12. In reaction to the ARRA, Star announced in June 2009 that it was introducing a 

line of “Made in America” Fittings. McWane then implemented a program with the intent to 

block or delay Star’s entry.16 On September 22, 2009, McWane announced in a letter to 

distributors that it was adopting “a program whereby our [i.e., McWane’s] domestic fittings and 

accessories will be available to customers who elect to fully support McWane branded products 

for their domestic fitting and accessory requirements.”17 By “fully supporting” McWane’s 

domestic Fittings, distributors were expected to purchase all of their domestic Fittings from 

McWane.18 Distributors that elected to not support this program faced the potential of the loss 

of rebates and access to McWane domestic fittings and accessories. 

13. Sigma too concluded following the enactment of ARRA that it had to be in the 

business of selling Made-in-America Fittings.19 Although McWane had initially rejected 

Sigma’s request to supply its domestic Fittings,20 in September 2009, McWane agreed to sell 

domestic fittings to Sigma pursuant to a Master Distribution Agreement (“MDA”). Although 

McWane offered a 20 percent discount to Sigma under the MDA, this discount only offered 

Sigma a very small, but at least nonnegative, gross margin. Sigma was not happy with this as 

projects specifying domestic-only Fittings had been 15 – 18 percent. See Tatman IH, July, 21, 2010, pp. 47 – 48, 

50, 54, 65, and elsewhere; McWane-007526, slide 11. 

16 

17 TU-FTC-0010345. Emphasis added. 

18 McWane informed distributors that it viewed purchases of McWane-branded domestic Fittings from 

Sigma to also reflect support for McWane’s domestic Fittings. Consequently, distributors that purchased all of the 

domestic Fittings either directly from McWane or indirectly through Sigma’s sales of McWane-branded domestic 

Fittings (or both) were considered by McWane to be “fully supporting” its domestic Fittings. 

19 Rona Deposition, May 18, 2012, pp. 219-221; Pais Deposition, May 31, 2012, pp. 345-349. 

20 McWane had offered to sell domestic Fittings to Sigma at a 5 percent discount off of its own prices. 

(SIG-0001557-1559) However, this discount was so small that Sigma would have lost money on every domestic 

Fittings sale that it made. Later analysis by McWane indicated that a discount to Sigma 4 times higher than its 

original 5 percent offer would still result in Sigma’s gross margin being only 5.7 percent, suggesting that, at best, 

Sigma might barely break even with respect to its operating income. (TU-FTC-0031557) McWane’s original offer 

to Sigma of a 5 percent discount was not taken seriously by Sigma’s management. (SIG-0001557-1559) 

5 

CX 2260-A-007
 

 

PUBLIC

well as other terms that McWane required the MDA to include, but Sigma concluded that 

working with McWane through the MDA was, at least in the near term, a preferred alternative to 

manufacturing its own domestic Fittings, and was “likely to have the intended effect of 

marginalizing Star whose ability to deliver jobs will be highly suspect, at least over the next 12 

months or so.”21

 C. Assignment 

14. I have been asked by the staff of the FTC’s Bureau of Competition to perform an 

economic analysis and provide opinions on the competitive effects of certain actions performed 

by McWane, Sigma, and Star. In particular, I have been asked to analyze the competitive 

implications of: 

A. The communications among McWane, Sigma, and Star in 2008; 

B. The formation of DIFRA and the exchange of aggregate tons shipped data by 

McWane, Sigma, and Star; 

C. McWane’s imposition of its “full support program” on distributors of 

domestically manufactured Fittings; and 

D. The MDA. 

15. In performing my analysis, I have reviewed business documents provided by 

McWane, Sigma, Star, and third-parties, including DIFRA, other suppliers of pipe and Fittings, 

waterworks distributors, and foundries. I have also reviewed Investigational Hearings and 

depositions of McWane, Sigma, and Star executives, and executives of third-party pipe and 

fitting suppliers, waterworks distributors, and foundries. I have reviewed the complaints issued 

by the FTC and the consents agreed to by Sigma and Star. I have also reviewed presentations 

21 SIG-0005011 – 5019, p 5013. The last paragraph on page 5012 discusses the difficulties, risks, and costs 

of entry, which led Sigma to prefer the alternative MDA despite viewing it as “not entirely to our liking” and 

“comes with a few other restrictions . . . .” 

6 

CX 2260-A-008
PUBLIC

and white papers submitted by the parties to the Bureau of Competition’s staff and management 

and the pleadings submitted in this litigation. I have interviewed executives from a major 

waterworks distributor, an independent foundry, and Star. I have read or reviewed relevant 

economics literature, and I have read or reviewed various books on water distribution systems, 

water and wastewater engineering, and ductile iron pipe and fittings. Appendix B at the end of 

my report provides a list of all of the materials that I considered when performing my economic 

analysis and reaching my opinions. 

16. I am continuing to examine material obtained through discovery in this 

proceeding. Depositions were still being taken as late as June 5 and one or more of the parties to 

events charged in the Commission’s Complaint even now appear to be still producing documents 

in response to subpoenas. Based on this material, and on any new information relevant to this 

litigation that comes to my attention subsequent to the filing of this report, I reserve the right to 

revise or augment my analyses and opinions as I find appropriate. 

D. Summary of My Opinions 

17. Based on the materials that I have reviewed and the economic analysis presented 

in this report, I have formed the following opinions: 

(a) Sigma, Star and McWane communicated with one another by a variety of methods for 

the purpose of “stabilizing” falling prices and raising prices to higher levels. During 

certain periods of time, Fittings prices increased as a result of this communication. 

(b) Sigma, Star, and McWane established DIFRA, the Fittings trade association, for the 

express purpose of fostering coordination and collusion through the exchange of 

competitively sensitive information. Participation in the DIFRA information 

7 

CX 2260-A-009
 

PUBLIC

exchange, along with certain communications among the companies, directly resulted 

in a price-fixing accord. 

(c) McWane exercised monopoly power to impose a restrictive dealing, “full support” 

policy for the purpose of preventing or delaying Star’s efficient entry into the 

domestically manufactured Fittings market. By impeding Star’s access to 

distribution, McWane erected a significant antitrust barrier to entry. As a result, 

McWane maintained its monopoly power by preventing the degree of competition 

between McWane and Star that otherwise would have occurred. McWane’s exercise 

of monopoly power caused customers to endure periods in which prices were higher 

than they otherwise would have been and reduced consumer welfare. 

(d) McWane offered Sigma the MDA to avoid the prospect of Sigma’s entry into the 

domestic production of Fittings. If Sigma, like Star, would have entered into the 

domestic production of Fittings had McWane not agreed to the MDA, or to terms 

acceptable to Sigma, the MDA eliminated competition between McWane and Sigma 

that would have acted to lower prices and enhance consumer welfare. 

8 

CX 2260-A-010
 

 

 

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II. The Fittings Markets 

18. McWane sells Fittings manufactured in the United States and China to wholesale 

waterworks distributors throughout the United States. 

2

 Since 2009, Star has been selling small 

quantities of Fittings that it manufactures in the United States through agreements with 

independent foundries.23 Before the fourth quarter of 2009, McWane was the sole manufacturer 

of Fittings of 24 inches or less in the United States.24 

19. The competitive analysis of a firm’s conduct is undertaken within the context of a 

relevant antitrust market. A relevant antitrust market has two dimensions, a relevant product and 

a relevant geographic market. The relevant product market reflects consumers’ ability and 

willingness to substitute away from one product to another. The relevant geographic market 

reflects consumers’ ability and willingness to substitute the purchase of the product away from 

one sourcing area to another. As discussed below, my economic analysis concerns two relevant 

product markets. The first relevant product market consists of Fittings sold for use without 

regard to country of origin. The second relevant product market consists of Fittings sold for use 

when American manufacture is required. That market is relevant for review because a 

22 Star has imports 

Fittings from Brazil and Korea. (McCutcheon Deposition, May 16, 2012, pp. 9 – 10). 

23 Q011SP0000282 – 0000285, 

24 See Respondent McWane’s Objections and Responses to Complaint Counsel’s Requests for Admissions 

(June 8, 2012) at ¶ 12, p. 10. ACIPCO had been a manufacturer of Fittings (that is, narrow and medium-wide 

Fittings), but exited in 1995 (narrow) and 2006 (medium). Burns Deposition, May 17, 2012, p. 26. Since that time, 

it has manufactured only wide-width Fittings of 30 inches or more. Ibid. U.S. Pipe also was once a manufacturer of 

Fittings, but it exited in 2006 when it closed its Chattanooga facility. Morton Deposition, May 30, 2012, p. 10. U.S. 

Pipe no longer produces any Fittings. Ibid. Griffin Pipe Products also exited the production of MA Fittings. Kuhrts 

Deposition, May 24, 2012, pp. 11-13. 

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hypothetical monopolist can target this subset of Fittings customers for discriminatorily high 

prices. In all events, the relevant geographic is national. 

A. Relevant Product Markets 

20. A relevant product market consists of a set of close substitute goods or services 

such that a hypothetical monopolist would need to own all of them to implement profitably a 

“small but significant and nontransitory increase in price” (“SSNIP”). If a sufficient number of 

customers would turn to another close substitute product not owned by the hypothetical 

monopolist and defeat the hypothetical monopolist’s attempt to impose a SSNIP, then that 

additional close substitute would be added to the market. Having added that close substitute to 

the market, we would repeat the exercise to see if still another close substitute could defeat the 

hypothetical monopolist’s attempt to impose a SSNIP. When no additional product exists that 

consumers could turn to defeat a SSNIP, then all of the substitute products hypothetically owned 

by our hypothetical monopolist would compose the set of products that define the relevant 

product market.25 

The Fittings Market26 

21. Ductile iron is a type of cast iron primarily used to transport drinking water and 

sewage under high pressure conditions in municipal distribution systems and treatment plants. 

Fittings are attached to the ends of pipes for a variety of reasons. These include changing flow 

direction, connecting pipes of different sizes, merging two pipelines to one or branching-off one 

25 For discussions of the hypothetical monopolist test applied in the case of mergers, see U.S. Department 

of Justice and Federal Trade Commission, Horizontal Merger Guidelines, August 19, 2010, Section 4 “Market 

Definition,” pp. 7 – 14. One might wish to also review the Federal Trade Commission & U.S. Department of 

Justice, Horizontal Merger Guidelines, Issued April 2, 1992 & Revised April 8, 1997, pp. 4 – 10. 

26 Unless otherwise noted, the “Fittings market” consists of Fittings sold without regard to country of 

origin. 

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pipeline to two, and attaching, plugging, or capping pipes, valves, fire hydrants, or water 

meters.27 

22. In high-pressure waterworks applications, Fittings are not only used with ductile 

iron pipes, but also with polyvinyl chloride (“PVC”) pipe and high-density polyethylene 

(“HDPE”) pipe, two types of plastic pipe.28 PVC and HDPE fittings, however, are not used with 

ductile iron pipe in similar high-pressure waterworks applications.29 

23. Because Fittings are nearly always used with PVC or HDPE pipe in high-pressure 

waterworks applications, and Fittings are always used with ductile iron pipe30 in high-pressure 

waterworks applications, neither PVC fittings nor HDPE fittings (or fittings of any other 

material) constrain Fittings prices.31 Because no substitute for Fittings exists for use in highpressure waterworks applications at any price within any relevant range, the appropriate product 

market definitions in this case are limited to Fittings. 

27 See “Memorandum of McWane, Inc. Responding to Commission Staff Questions Regarding the 

Competitiveness of the Ductile Iron Waterworks Fittings Market in the United States,” May 10, 2011 (White Paper 

submitted to the FTC Staff), p. 5. 

28 Davis, Mackenzie L., Water and Wastewater Engineering: Design Principles and Practice. New York: 

McGraw-Hill, 2010: pp. 17-11 – 17-12. HD Supply interview, April 12, 1012. Keep in mind that “Fittings” refers 

strictly to ductile iron pipe fittings. Ductile iron pipe fittings are used with PVC and HDPE pipe in high-pressure 

waterworks applications, not PVC or HDPE pipe fittings (although these fittings may be used with PVC or HDPE 

pipe for other applications within a waterworks system or plant). 

29 Davis, Water and Wastewater Engineering, p. 17-11, and HD Supply Interview, April 12, 2012. 

30 Tatman IH, July 21, 2010, pp. 28-30. 

31 HD Supply interview, April 12, 2012; Sheley Deposition, April 24, 2012, p. 65; Webb Deposition, May 

30, 2012, pp. 63-64. 

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24. Fittings are produced in a wide range of shapes and diameters, which reflect the 

wide range of applications (paragraph 21) and the wide range of pipe diameters. The diameter of 

the pipe used in a waterworks project (or a section of a waterworks project) depends on issues 

related to pipeline design, engineering, and applications.32 A fitting must have a diameter 

appropriate for the pipe to which it is to be attached, and a shape or design appropriate for its 

intended function (for example, changing the direction of the pipeline’s flow by 90 degrees). For 

example, if a 90 degree bend is specified because a plant design requires that at a specific point 

the flow of water must be redirected by 90 degrees, a contractor or distributor cannot substitute a 

22.5 degree bend or a straight reducer (which connects two pipes with different diameters). 

25. Accordingly, based on this “demand side” analysis, one could view Fittings of 

different sizes and types as being in different product markets. Thus, I could separately analyze 

32 Davis, Waste and Wastewater Engineering, “Pipe Network Design,” pp. 17-10 – 17-22. 

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the impact of McWane’s conduct on each type of Fittings of 24 inch diameter and less, the sizes 

and types of Fittings that I conclude are implicated by the collusive and monopolistic conduct 

alleged in the Complaint. 

26. In this instance, however, it is neither necessary nor desirable to analyze the 

competitive effects of the allegedly anticompetitive conduct at issue here for each of these 

markets. Doing so would be an extended redundant exercise that would provide no more useful 

information about the competitive implications of the conduct than an analysis of the collection 

of Fittings having a diameter of 24” and less. For example, if we analyze the competitive effects 

of McWane’s, Sigma’s, and Star’s business practices with respect to a 4-inch, 90-degree bend, 

mechanical joint compact Fitting and perform the same analysis for 14-inch, push-on tee 

compact Fittings, the two analyses are essentially the same. For both products, the factors 

relevant for a competitive analysis are essentially identical. The primary suppliers, McWane, 

Sigma, and Star are the same; the customers, primarily waterworks products distributors, are the 

same; the materials and other inputs required to manufacture the products are the same;33 and the 

competitive effects of the allegedly anticompetitive practices will be the same. 

27. Accordingly, the competitive analysis of the business practices at issue in this 

matter will be identical for each size and shape of fitting of 24 inches or less. Thus, rather than 

redundantly performing the same analysis and finding the same competitive results for each 

fitting of a specific diameter and shape, I analyze Fittings with a diameter of 24 inches or less as 

if they were part of a single product market. 

33 They will both require identical inputs such as scrap iron, magnesium, and so forth. They both also 

require patterns, but the individually sized and shaped products will require individually sized and shaped patterns. 

This, however, is not relevant to an economic analysis of the allegedly anticompetitive conduct. The patterns can be 

supplied by the same suppliers and manufactured with the same materials. 

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28. I do not include fittings with diameters of more than 24 inches (“large Fittings”) 

in the relevant product market for two reasons. First, as I have noted, I conclude that large 

diameter Fittings are not implicated by McWane’s, Sigma’s, and Star’s conduct. Second, the 

competitive analysis of large diameter Fittings necessarily differs from that of small- and 

medium-diameter Fittings. American Cast Iron Pipe Company (“ACIPCO”), a significant 

producer of ductile iron pipe that also produces large diameter Fittings, is not a producer of 

Fittings of 24 inches and smaller diameter, nor does ACIPCO have any interest in extending its 

product scope to include small and medium diameter Fittings.34 

29. Finally, I note that producers tend to recognize the validity of grouping Fittings 

into size ranges for the purpose of their own planning and budget analyses. 

35 In addition, when McWane, Sigma, and Star set up 

DIFRA’s information exchange, they determined that shipments information could be usefully 

aggregated in small, medium, and large diameter categories, with small and medium Fittings 

being Fittings of 24 inches in diameter and below and large being Fittings of 30 inches and 

above.36 Thus, grouping Fittings with different sizes and shapes into distinct size categories is 

consistent with industry practice. Therefore, for the purpose of my analysis, I group all fittings 

of 24 inches in diameter and less as a single relevant market as I have explained. 

34 Burns Deposition, May 17, 2012, p. 71. (Jerry Burns is the Division Sales Manager for the ductile iron 

pipe division of ACIPCO.) 

35 

36 They further divided each size category into “flanged” and “all other”; however, for the purpose of my 

economic analysis, differentiating flanged fittings from all other fittings would again add redundancy, diminish the 

expositional efficiency and clarity, but provide no benefit to the analysis. 

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30. In all events, I wish to emphasize that combining Fittings of 24 inches and less 

into a single market does not affect the economic analysis of the conduct at issue in this matter. 

The identical results would be reached if I separately analyzed each size and shape of Fittings — 

just many, many times over. Accordingly, hereafter the references to Fittings or the Fittings 

market will denote ductile iron pipe fittings with diameters of 24 inches or less. 

Made-In-America Fittings 

31. Domestically manufactured Fittings and imported Fittings are virtually identical 

in all respects. Both are manufactured with the same materials to meet the same ANSI/AWWA 

standards.37 Accordingly, except for those projects in which only domestically manufactured 

Fittings can meet the specifications, domestically manufactured Fittings and imported Fittings 

are near perfect substitutes. Indeed, McWane sells blended Fittings consisting of bundles of both 

domestic and imported Fittings that are priced to compete with the imported fittings of its 

rivals.38 

32. Before 2009, 15 to 20 percent of Fittings were sold for use in waterworks projects 

specifying that the Fittings be made in America.39 For some municipalities, regional or state 

authorities, or private businesses, requiring that a waterworks project include the specification of 

Made-In-America (“MA”) Fittings reflects a matter of strong preference and policy. For other 

municipalities or state agencies, the specification of MA Fittings was (and, in certain states still 

is) a matter of law. For example, since 1978, in the Commonwealth of Pennsylvania, only iron 

37 ANSI refers to the American National Standards Institute, a private non-profit organization that oversees 

and accredits standards developed standard-developing industry organizations, government agencies, consumer 

groups, and others. AWWA refers to the American Water Works Association, “an international nonprofit 

educational association dedicated to safe water.” According to the AWWA, “ AWWA Standards Committees have 

developed more than 160 Standards that provide industry-approved technical guidance for 24 categories of products 

and processes in municipal water supply.” See www.awwa.org and follow its links to information posted under 

“About AWWA” and “About AWWA Standards” (under “Professional and Technical Resources”). 

38 Tatman Deposition, May 10, 2012, pp. 46-47. 

39 See footnote 155. 

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and steel products made in America can be used in all construction, repair, and maintenance 

contracts let by public bodies, including the Commonwealth, its political subdivisions, and 

authorities.40 

33. The specification of MA Fittings creates a second market, based on price 

discrimination concerns. For most high-pressure waterworks applications, Fittings manufactured 

in the United States or abroad compete in the same relevant Fittings product market. McWane 

sells domestically produced product into this market at prices set by the import product. 

However, Fittings manufactured abroad cannot substitute for Fittings manufactured domestically 

whenever MA Fittings is specified. Accordingly, I conclude that two distinct markets are 

relevant in this matter: a Fittings market consisting of both domestic and imported Fittings and a 

MA Fittings market consisting of Fittings sold for use in projects in which MA Fittings are 

specified.41 

B. Geographic Market 

34. The relevant geographic market is defined in a manner analogous to the definition 

of product market. When defining the relevant geographic market for cases in which suppliers 

deliver their products or services to customers’ locations, one starts with a hypothetical firm that 

is a monopolist seller of the relevant product in a particular location. If the hypothetical 

monopolist were to impose a SSNIP on the product and a sufficient number of customers would 

respond by purchasing the product from another location and, as a result, defeat the SSNIP, then 

40 The Pennsylvania Steel Products Procurement Act, 73 Pa. Stat. §§ 1881-1887. The definition of “steel 

products” includes cast iron products. When required by law, such as in Pennsylvania or under the ARRA, public 

waterworks projects will require MA Fittings under virtually all circumstances. Nonetheless, in certain cases, some 

negotiations over the extent of a MA Fittings specification may occur. 

41 When MA Fittings are specified because of a preference, rather than law, it is possible that, should the 

price of MA fittings be sufficiently high, Sigma or Star may convince those responsible for the specification to 

change it and allow imported fittings. Nonetheless, those water utilities that are bound by law to use MA Fittings 

establish a distinct discrimination market. 

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this other substitute location should be added to relevant geographic market. Next we consider 

whether our hypothetical monopolist seller in these two locations could profitably impose a 

SSNIP, or whether a sufficient number of customers would purchase the product from another 

substitute location and defeat the SSNIP. When customers can no longer turn to a substitute 

location to defeat a SSNIP, then the relevant geographic market is the region composed of all the 

locations in which our hypothetical firm is a monopolist seller of the product. 

35. Because Fittings suppliers ship their products nationally from multiple locations, 

a local distributor can substitute the Fittings of one manufacturer for those of another from 

virtually any locality in the country. Accordingly, the relevant geographic market is national in 

42

scope.

C. Market Structure 

36. Table 1 provides market shares for McWane, Sigma, and Star, as well as the 

Herfindahl-Hirschman Index (“HHI”), the standard measure of market concentration. As a 

group, McWane, Sigma, and Star, account for more than 95 percent of the Fittings sold in the 

United States.43 

42 Star and Sigma operate more distribution centers than McWane, and differences in freight costs could 

make one or more suppliers less attractive substitutes in certain localities. Nonetheless, with the suppliers shipping 

nationally, this issue does not appear to be of any significance, nor has the issue of price discrimination based 

strictly on the locations of suppliers and their local distributors. 

43 To avoid double counting, Sigma’s sales do not include its sales of MA Fittings, which are attributed to 

McWane. 

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Table 1 

Market Shares and Market Concentration 

Domestic and Imported Fittings 

24 Inches and Less 

PUBLIC

37. A small group of fringe suppliers import Fittings into the United States. The 

fringe importers include Serampore Industries (“SIP”), NAPAC, and Genesis Imports and 

starting in 2009, Electrosteel.44 

44
 

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Table 2 

MA Fittings Shipments and Market Shares 

Domestic Fittings 24 Inches and Under 

PUBLIC

38. The market structure of the MA Fittings market is quite different from that of the 

Fittings market. For a number of years before 2009, McWane was the sole manufacturer of 

Fittings in the United States.45 All Fittings for use in projects specifying MA materials could 

only be purchased from McWane. That changed in October 2009, when Star first shipped 

45 See Answer of Respondent McWane Inc. to the Federal Trade Commission’s Administrative Complaint 

(Feb. 2, 2012) at ¶ 40. 

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Fittings manufactured in the United States under tolling contracts with a number of U.S. 

foundries.46 

39. As indicated in Table 2, in 2010, Star’s shipments in tons represented 

of total MA Fittings shipments, and grew to in 2011.47 However, Star saw very little 

change in its 2011 shipments ( ) from those of 2010 ( 

 

 

 

 

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.
 

D. Pricing 

40. Waterworks projects are local: Typically, a municipality, regional water district, 

or residential or commercial construction company hires a contractor to extend water and sewer 

46 Star had trivial shipments in September 2009. 

47 Sigma sales of MA Fittings have been attributed to McWane to avoid double counting. 

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lines to a new residential or commercial development or to construct a new water or sewage 

treatment plant. Accordingly, waterworks products distributors tend to be local, although the 

entities may be local offices of national companies. The sales data produced by Sigma, Star, and 

McWane contains shipments to more than distinct waterworks distributors (not branch 

distribution centers) operating in the United States during 2010.48 Most of these waterworks 

distributors are small, local companies with just one or a few distribution yards. But a number of 

regional distributors with local distribution centers in several states play an important role in 

Fittings distribution. Finally, there are two very large distributors, HD Supply and Ferguson. 

They are large, national companies that distribute waterworks products throughout the country. 

Yet, they sell their waterworks products to contractors and municipalities through local branches. 

HD Supply operates approximately 215 branches that distribute waterworks products at the local 

level.49 Ferguson operates 161 branches throughout the country.50 

41. The Fittings suppliers sell to distributors through a complex institutional process. 

A supplier’s prices depend first on the supplier’s list prices and the supplier’s “multipliers.” 

Each supplier publishes list prices for the fittings it sells. Each distributor nominally pays prices 

based on a discount off of the list prices. The discounts vary by state and region of the country 

and are publicly announced as “multipliers” that equal 1 minus the discount. Thus, if a particular 

distributor is located in a state in which distributors receive a 70 percent discount off of a 

supplier’s list price, the multiplier is 0.30. The product of the multiplier and the list price is the 

48 

McWane sales: McWane-007664.xlsx through McWane-007685.xlsx. 

49 Webb Deposition, May 30, 2012, p. 59. 

50 Thees Deposition, June 1, 2012, p. 11. 

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nominal price of a supplier’s fittings, the price a distributor would pay for each fitting if pricing 

were actually conducted as fittings suppliers would like them to be – completely transparent and 

stable.51 McWane published different multiplier maps for its blended fittings, bundles of 

domestic and imported fittings that compete against imported fittings in the Fittings market, and 

its domestic fittings, which are sold in the MA Fittings market.52 It has also published multiplier 

maps designated for its “program participants” and maps that are not. 

42. These nominal prices of fittings can change through either changes in the set of 

list prices or changes in multipliers. Multipliers tend to change more frequently than list prices. 

For example, in April 2009 McWane announced that new list prices, LP-5091, would replace the 

then current list prices, LP-5072, effective May 1, 2009.53 LP-5072 had been announced on June 

4, 2007 and had become effective July 2, 2007.54 After LP-5072 became effective July 2, 2007, 

new sets of multipliers became effective later that July, in November 2007, in February 2008, 

and in July 2008.55 

43. The price that a distributor actually pays for Fittings tends to differ from the 

nominal price for a number of reasons. These include: 1.) Special buy programs for some 

51 Tatman Deposition, May 10, 2012, pp. 36-37 (describing McWane’s preference for stable prices). 

52 McWane distinguished between “domestic fittings” and “blended fittings” through its May 1, 2009 set of 

multiplier maps. (McWane-001633-35.) By no later than January 22, 2010, McWane began publishing multiplier 

maps distinguishing “non-domestic fittings” from “domestic fittings.” (McWane-015035-37.) From at least the 

beginning of 2006, McWane has published separate maps with different multipliers for domestic fittings and for 

non-domestic fitting or blended fittings. That McWane’s publishes a separate map for domestic with different 

multipliers is consistent with my conclusion that there is a distinct domestic market. 

53 TU-FTC-0010299. 

54 TU-FTC-0010293. 

55 McWane-007642; TU-FTC-0010310; TU-FTC-0023404; TU-FTC-0023405; TU-FTC-0023299; 

McWane-123857. 

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customers; 2.) Project discounts and “one-time pricing”; 3.) Corporate rebates and sometimes 

branch rebates; 4.) Cash discounts; and 5.) Freight terms.56 McWane’s rebate programs can 

include quarterly rebates and annual rebates offered or negotiated with individual distributors, 

57 or offered as general programs to others. 

44. A major factor that works to undermine price transparency is “project pricing” or 

“job pricing.”58 These are additional discounts that suppliers or their sales representatives offer 

to win bids on specific waterworks projects. This sort of discounting played a key role in the 

alleged collusive activity of McWane, Star, and Sigma. 

E. The Fittings Market From 2007 Through 2011 

45. The demand for Fittings is based primarily on the demand for new residential 

construction, coupled with the demand for public water and sewer systems and treatment 

plants.59 As indicated in the graph below, the recent housing recession served to significantly 

depress the demand for Fittings over the 2007-2009 period, although the demand is clearly 

seasonal. Peak demand clearly falls materially from 2007 to 2008 and then from 2008 to 2009. 

With the stimulus spending in 2010, demand increased somewhat above what would be expected 

from the depressed housing market. 

56 Bhutada Deposition, May 14, 2012, pp. 104-06, 109-10. 

57 TU-FTC-0011285; 

TU-FTC-0020902. 

58 See SIGTP00000024 – 25, p. 25; SIG-0055257 – 58, p. 58; TU-FTC-0011435 – 48, p. 38; 

59 McCullough IH, August 12, 2010, pp. 121 – 122 (housing starts); United States International Trade 

Commission, Certain Ductile Iron Waterworks Fittings From China, V-5 - V-6 (2003). 

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III. McWane, Sigma, and Star Fixed Prices for Ductile Iron Fittings 

A. Oligopoly and Collusion 

46. The market for the sale of Fittings in the United States is an oligopoly. 

Oligopolies are markets characterized by a few large firms selling all or most of the market’s 

output. As I discussed in the previous section, the dominant sellers, McWane, Sigma, and Star, 

supply more than 95 percent of the Fittings sold in the United States,60 

61 

47. Because there are few firms in an oligopoly, each firm’s profit maximizing price 

and output decision depends on the price, output, and strategic behavior of each of the other 

firms in the market. Thus, to maximize its profits, an oligopolist must account, in its strategic 

decision-making, for the likely strategic reactions of other oligopolists. By recognizing their 

mutual interdependence, firms in oligopolies may be able to develop strategies through 

observations associated with their ongoing interactions in the market that tend to promote 

cooperative behavior and diminish competitive behavior. This sort of strategic behavior by firms 

in an oligopoly may allow them to jointly obtain prices and profits that exceed competitive 

levels.62 

48. The term that economists use to denote strategies and business practices that 

promote cooperation for the purpose of jointly obtaining anticompetitive outcomes is 

60 See Table 1. As previously described, Fittings refers to ductile iron pipe fittings of 24 inches in diameter 

or less. 

61 

62 As noted by David Colander, “In oligopolies all decisions, including pricing decisions, are strategic 

decisions. Collusion is much easier.” Colander, David C., Microeconomics, 8th ed. (Boston: McGraw-Hill Irwin, 

2010), p. 367. 

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“coordinated interaction.” The 2010 Horizontal Merger Guidelines defines coordinated 

interaction as conduct by multiple firms that is profitable for each only as a result of the 

accommodating reactions of the others. These reactions can dampen a firm’s incentive to offer 

customers better deals by undercutting the extent to which such a move would win business 

away from rivals. “They also can enhance a firm’s incentive to raise prices by assuaging the fear 

that such a move would lose customers to rivals.”63 As further described in the 2010 Horizontal 

Merger Guidelines, 

Coordinated interaction includes a range of conduct. Coordinated interaction can 

involve the explicit negotiation of a common understanding of how firms will 

compete or refrain from competing. Such conduct typically would itself violate 

the antitrust laws. Coordinated interaction also can involve a similar common 

understanding that is not explicitly negotiated but would be enforced by the 

detection and punishment of deviations that would undermine the coordinated 

interaction. Coordinated interaction alternatively can involve parallel 

accommodating conduct not pursuant to a prior understanding. Parallel 

accommodating conduct includes situations in which each rival’s response to 

competitive moves made by others is individually rational, and not motivated by 

retaliation or deterrence nor intended to sustain an agreed-upon market outcome, 

but nevertheless emboldens price increases and weakens competitive incentives to 

reduce prices or offer customers better terms. Coordinated interaction includes 

conduct not otherwise condemned by the antitrust laws. 64 

49. There is a fundamental conflict that tends to undermine coordinated interaction by 

firms in an oligopoly. Jointly, the firms can obtain higher profits through coordination and 

accommodation. However, if any given firm believes that its rivals have decided to follow 

strategies to maintain high prices and profits jointly, then it can further increase its profits by 

secretly shaving its prices and taking business (and profits) away from its rivals. Yet, as firms in 

63 2010 Horizontal Merger Guidelines, Section 7, p. 24. The 2010 Horizontal Merger Guidelines concern 

the approach that the Antitrust Division of the Department of Justice and the Federal Trade Commission take to the 

investigation and enforcement of antitrust laws with respect to mergers. Nonetheless, this description of coordinated 

interaction reflects current economic research and consensus on the strategic and potentially anticompetitive 

behavior of firms in oligopolies generally and is not limited to just merger analysis. 

64 Ibid. Section 7, pp. 24 – 25. 

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the oligopoly maximize their profits through secret price cutting, market prices fall lowering 

every firm’s prices and profits. 

50. Reaching and sustaining coordinated interaction requires that several challenges 

be overcome. Although speaking specifically of cartelization, Margaret C. Levenstein and 

Valerie Y. Suslow group into three categories the challenges facing all sellers seeking to 

coordinate: 

A. Selecting and coordinating the behavior of cartel participants on mutually 

consistent, collusive strategies; 

B. Monitoring the behavior of cartel participants to detect and deter defections from 

these collusive strategies; and 

C. Preventing entry (or expansion) by non-cartel firms. 65 

51. George Stigler, in his seminal 1964 article, “A Theory of Oligopoly,” 

significantly advanced the analysis of coordinated interaction.66 Stigler provided a theory of 

oligopoly that identified characteristics of markets, products, and firms that promote or impede 

successful coordination, and thus, the characteristics that make coordinated interaction, including 

collusion, more or less likely. First, Stigler observed that coordinated interaction requires more 

65 Levenstein, Margaret C. and Valerie Y. Suslow, “What Determines Cartel Success,” Journal of 

Economic Literature XLIV (2006), pp. 43 – 95. Levenstein and Suslow survey and analyze a large number of 

economic studies of cartels. They report that the one paper in their survey that looked at cartel duration found that 

they lasted on average about 5 years, but with a fairly high variance. Although concentration tended to aid cartel 

stability, industry associations facilitated cartel formation in less concentrated industries, and by increasing 

profitability, cartels helped marginal firms survive, which then tended to reduce concentration. Demand instability, 

particularly unanticipated shocks, undermined cartel stability, but commonly known cyclical fluctuations had little 

impact on cartel stability. Levenstein and Suslow concluded that, “Successful cartels develop mechanisms for 

sharing information, making decisions, and manipulating incentives through self-imposed carrots and sticks.” (p. 86) 

Also see, Connor, John M., Price-Fixing Overcharges: Revised 2nd Edition (2010), Social Science Research 

Network (“SSRN”), available at http://ssrn.com/abstract=1610262. 

66 Stigler, George J., “A Theory of Oligopoly,” Journal of Political Economy 72 (1964) pp. 44-61. For an 

extensive discussion of Stigler’s “A Theory of Oligopoly” and the influence that it still has on antitrust analysis and 

enforcement policy, see Carlton, Dennis W. and Sam Peltman, “Introduction to Stigler’s Theory of Oligopoly,” 

Competition Policy International 6, Autumn 2010, pp. 238 – 251. 

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than just recognition of interdependence among rivals to succeed. After Stigler, others, 

particularly George Hay and Daniel Kelly, further analyzed the features of oligopolistic markets 

that render them more or less conducive to coordination.67 

52. According to Stigler, Hay and Kelly, and others, these features include: 1.) High 

concentration; 2.) Few rivals; 3.) Product homogeneity; 4.) Inelastic demand; 5.) Price 

transparency; 6.) Trade association; 7.) Information exchange; 8.) Unconcentrated buyers; 9.) 

Barriers to entry; and 10.) Industry social structure.68 With respect to “Industry Social 

Structure,” Hay and Kelly wrote, 

In the formative stages of a conspiracy, unless it is organized under the aegis of an 

organization such as the NRA, someone must take the lead in making the contacts 

and organizing the meetings. Given the illegality of such arrangements some 

competitors must be coaxed into joining, and a dominant individual will often 

overcome the inertia and take the lead.69 

53. Although characteristics such as these may make coordinated interaction more 

likely, not all of these characteristics are necessary for successful coordination to occur. The 

critical element that Stigler emphasizes for coordination is not really a characteristic of a market, 

product, or firm so much as a function of them: the ability to enforce consensus. Stigler notes 

that if any member of a price agreement can secretly violate it, the firm will gain more profits by 

doing so than by conforming to it. According to Stigler, 

It is, moreover, surely one of the axioms of human behavior that all agreements 

whose violation would be profitable to the violator must be enforced. The 

literature of collusive agreements, ranging from the pools of the 1880’s to the 

electrical conspiracies of recent times, is replete with instances of the collapse of 

67 Hay, George A. and Daniel Kelly, “An Empirical Survey of Price Fixing Conspiracies,” The Journal of 

Law and Economics 17 (1974), pp. 13 – 38. 

68 The list here is not intended to be exhaustive, and virtually any undergraduate textbook on Industrial 

Organization will contain a chapter on coordinated interaction (or collusion) that discusses the many market, 

product, and firm characteristics that may be conducive to coordination. 

69 Hay and Kelly, p. 16. 

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conspiracies because of "secret" price cutting. . . . But no conspiracy can neglect 

the problem of enforcement.70 

Because no conspiracy can neglect the problem of enforcement, no conspiracy can neglect the 

problem of identifying instances or patterns of secret price cutting. 

54. Stigler advanced the idea that cartel participants can track changes in sales 

patterns to detect (and thus deter) competitive pricing in the marketplace. Stigler’s model 

suggests that detection of competitive conduct [i.e., price cutting] is easiest when information on 

prices and sales is readily available. It is also possible to infer the likelihood of pro-competitive 

conduct from the totality of the evidence. Such an inference is more likely when the number of 

buyers served by each competitor is relatively stable (customer switching leads to inference of 

discount pricing, even though little market share may be lost), the market is relatively stable 

(buyers grow or shrink slowly, so they are less likely to switch suppliers for reasons unrelated to 

discounts), and the industry is relatively static (few new buyers exist to disrupt historical 

business relationships). If pro-competitive conduct can be readily identified and punished, it is 

less likely to occur in the first place. 

55. The limited number of firms in an oligopoly may make it feasible for the firms to 

communicate and come to mutual understandings through a series of reactions to changes in 

price or other strategic factors (e.g., capacity or technology). Such communication may allow 

the rival firms to reach agreements intended to maximize joint profits without explicitly 

colluding through meetings, phone calls, or other direct means. As Hay and Kelly suggest above 

(see paragraph 52), with just a few large firms in an oligopoly, social interactions prompted by a 

dominant or popular personality or by social events at industry conventions or trade shows may 

give rise to the sort of casual, informal communication that can lead to understandings regarding 

70 Stigler, “A Theory of Oligopoly,” p. 46. 

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prices and pricing behavior. It is important to note that these communications move beyond the 

purely tacit mechanisms envisioned in independent pricing decisions. By taking explicit actions 

to communicate in any way, shape, or form prior to unilaterally setting competitive variables, 

firms may be able to increase the probability of sustaining prices above the competitive level. 

56. Barriers to entry prevent or delay competition from entrants that might otherwise 

undermine coordinated behavior among incumbent firms. As discussed in more detail in Section 

IV, 71 antitrust barriers to entry may not fully preclude firms from becoming new suppliers in a 

market, but they delay the growth of entrants and the time they need to reach a minimum 

efficient scale. By doing so, antitrust barriers to entry impede entrants ability to attain 

competitive significance in the market.72 

57. Informal or social communication can promote cooperative behavior by rivals in 

an oligopoly in a number of ways. It can create personal relationships among managers of rival 

firms that promote high degrees of predictability and trust. And despite the characterization of 

informal communication as “cheap talk,” Joseph Farrell and Matthew Rabin agree that “talk is 

cheap” in that “it does not directly affect payoffs,” but observe that 

given that people respond to it, talk definitely affects payoffs. A misinformed 

listener will do something that is not optimal for himself and, if their interests are 

sufficiently aligned, this is bad for the speaker too. In a nutshell, this is how 

cheap talk can be informative in games, even if players ruthlessly lie when it suits 

them.73 

71 See paragraphs 130 – 132 in Section IV. 

72 For a discussion of the term “antitrust barrier to entry” see Schmalensee, Richard, “Sunk Costs and 

Antitrust Barriers to Entry,” The American Economic Review, 94, Papers and Proceedings of the One Hundred 

Sixteenth Annual Meeting of the American Economic Association, San Diego, CA, January 3-5, 2004 (May 2004), 

pp. 471-475, p. 471; McAfee, Preston R., Hugo M. Mialon, and Michael A. Williams, “What Is a Barrier to Entry?,” 

The American Economic Review, 94, Papers and Proceedings of the One Hundred Sixteenth Annual Meeting of the 

American Economic Association, San Diego, CA, January 3-5, 2004 (May, 2004), pp. 461-465. 

73 Farrell, Joseph and Matthew Rabin, “Cheap Talk,” Journal of Economic Perspectives 10 (Summer 1996), 

pp. 103 – 118. Quoted from page 104 (italics added). 

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Thus, informal communication, although perhaps just “cheap talk,” may convey information that 

reduces uncertainty and promotes coordination because it helps “align” the interests of otherwise 

rivalrous firms. By doing so, the talk increases the likelihood that price increases can be 

successfully imposed and maintained. 

58. Uncertainty regarding the behavior of rivals can lead to price cutting by 

encouraging firms to cheat on their rivals before their rivals can cheat on them. That is, the lack 

of trust in rivals (as well as the lack of an enforceable agreement) creates or enhances the 

uncertainty that each firm in an oligopoly faces with respect to the likelihood that a rival will 

cheat. By promoting trust through the personal relationships that casual social interactions 

encourage and by promoting casual communication, even if it is only “cheap talk,” informal 

communication reduces uncertainty with respect to rivals’ willingness to secretly cut prices, 

which acts to maintain high prices, which lowers consumer welfare. 

59. Firms in a market may also agree on the adoption of certain practices that assist in 

the creation or maintenance of supra-competitive pricing. Participation in trade association 

activities may facilitate coordination, including collusion. At the same time, some of these 

activities can be efficient and beneficial both to firms and consumers. For example, trade 

associations can support research leading to improved products or lower-cost methods of 

production. Trade associations may establish standards that benefit consumers by ensuring 

compatibility or safety, while promoting price competition. Trade associations can also provide 

training and other professional development activities for members’ employees, expose members 

to existing production technologies and competing suppliers through trade shows, and promote 

members’ goods or services to consumers. 

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60. Nonetheless, the creation of a trade association may also facilitate collusion by 

facilitating the exchange of competitively sensitive information and facilitating more general 

communication among executives of the rival firms in an oligopoly. Indeed, the relationship 

between trade associations and collusion is a long noted empirical regularity. As discussed by 

Joseph E. Harrington, Jr., 

It has been documented that trade associations are used as a cover for cartel 

meetings, and more to the point, trade associations have been created for that 

express purpose. For example, the Amino Acid Manufacturers International 

Association was formed by members of the lysine cartel (Connor 2001) and the 

Oklahoma Highway Department only started receiving identical bids at 

procurement auctions some time after the Asphalt Refiners Association was 

formed (Funderburk 1974).74 

More recently, trade associations facilitated price fixing in the citric acid industry and the 

vitamin industry.75 

61. Game theory provides economists with additional tools to model and analyze 

strategic coordination among sellers within an oligopoly. Game theory has been defined as, “a 

mathematical method for analyzing strategic interaction.”76 In industrial organization, game 

theory is particularly well-suited for modeling and analyzing oligopoly because recognition of 

mutual interdependence gives rise to profit-maximizing strategies that must incorporate 

expectations of the profit-maximizing strategies of rivals. By allowing economists to formally 

74 Harrington, Joseph E. Jr., “Detecting Cartels,” Handbook of Antitrust Economics, ed. Paolo Buccirossi, 

(Cambridge: The MIT Press, 2008), Chapter 6, pp. 213 – 258. The section quoted is on p. 220. Citations 

incorporated in the quote are: Connor, J.M., Global Price Fixing: Our Customers are the Enemy (Boston: Kluwer 

Academic, 2001) and Funderburk, D. R., “Price Fixing in the Liquid-asphalt Industry: Economic Analysis Versus 

the ‘Hot Document,’” Antitrust Law and Economics Review (1974), pp. 61 – 74. Also see Levenstein, and Suslow, 

footnote 65 above. 

75 See Connor, John M., Global Price Fixing 2nd ed. (Berlin: Springer-Verlag, 2008). Connor provides 

detailed descriptions of the Citric Acid Cartel, the Lysine Cartel, and the Vitamin Cartel. 

76 The quote is from the Royal Swedish Academy of Sciences press release announcing its decision to 

award the 1994 Nobel Prize in Economics to John C. Harsanyi, John F. Nash Jr., and Reinhard Selten. They 

received the award based on their pioneering analysis of the principal aspect of game theory, the concept of 

equilibrium, which is used to make predictions about the outcome of strategic interaction. See 

http://www.nobelprize.org/nobel_prizes/economics/laureates/1994/press.html. 

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model these strategic interactions among rival oligopolists, game theory has given rise to an 

extensive literature studying how characteristics of markets and changes in those characteristics, 

may affect equilibrium prices and consumer welfare. 

62. Although game theory can incorporate strategic decision making into its models, 

its use has certain limitations. The Cournot and Bertrand models of oligopoly, two very early 

models of oligopoly based on game theory, are “static” single-period games that cannot analyze 

how repeated interaction affects outcomes.77 Modern oligopoly theory, therefore, has developed 

through the analysis of models of repeated games (“supergames”) in which oligopolists compete 

in period after period. By allowing economists to analyze equilibrium strategies over more than 

a single period, multi-period models provide economists with the tools to develop models that 

better predict behavior in actual oligopoly markets. 

63. One weakness of supergames, however, is that they may allow for an infinite 

number of equilibriums, some of which may be welfare reducing (i.e., anticompetitive) and 

others of which may be welfare enhancing (pro-competitive). In addition, the conclusions that 

are drawn from the models can be very sensitive to small changes in assumptions or parameters 

of the model. Nevertheless, game theory has provided, and still provides, helpful insight into the 

effect on prices of different strategies applied in markets having varying characteristics, 

particularly game theoretic models of oligopoly. They highlight that oligopolists who alter the 

“rules” of their interaction to facilitate speedier detection and punishment of defectors from the 

industry profit-maximizing price are more likely than otherwise to gain and maintain supra77 Cournot assumed that an oligopolist sets its output level under the assumption that its rivals’ output will 

not change. Betrand assumed that an oligopolist sets its price under the assumption that its rivals’ prices will not 

change. Although the models appear similar and were both based on the same assumptions of homogeneous goods, 

a constant marginal cost, and a simple linear demand curve, the equilibrium prices and quantities obtained by the 

two models are very different. The Cournot equilibrium price and output level lies between the monopoly price and 

output level and the competitive price and output level, depending on how many firms sell in the oligopoly market. 

The Betrand equilibrium is the competitive price and output level. 

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competitive prices. 78 As Stigler, and others, have suggested, economic analysis of market 

behavior can allow us to detect these problematic agreements.79 

B. The Fittings Market is Highly Susceptible to Collusion 

64. I previously identified market and product conditions and business practices that 

are conducive to coordination, including explicit collusion. The extensive record in this matter 

indicates that the Fittings market exhibits many of these characteristics. Accordingly, I conclude 

that the Fittings market is highly susceptible to collusion. 

65. High Concentration: The Fittings market is characterized by very high 

concentration. As discussed in Section II above and shown in Table 1, the HHI in the Fittings 

market is very high. For each year over the period 2007 – 2011 the HHI exceeded 3400,80 and 

an HHI above 2,500 is classified by federal antitrust enforcement agencies as reflecting a highly 

concentrated market.81 

66. Few Rivals: The Fittings market is characterized by few sellers of any 

significance. McWane, Sigma, and Star supply over 95 percent of Fittings sold in the United 

78 For a discussion of infinitely repeated games and strategies and parameters that promote compliance with 

collusive understandings among rivals in an oligopoly, see Pepall, Lynne, Daniel J. Richards, and George Norman, 

Industrial Organization: Contemporary Theory and Practice, 2nd ed. (Mason, OH: South-Western – Cengage 

Learning, 2002), pp. 368 – 374. 

79 See Coate, Malcolm B., “Alive and Kicking: Collusion Theories in Merger Analysis at the Federal Trade 

Commission,” Competition Policy International 4 (Autumn 2008), pp. 145 – 174, at pages 150 – 151. 

80 See Table 1. 

81 For a discussion of the degrees of concentration as measured by the HHI, see the Horizontal Merger 

Guidelines, pp. 18 – 19. Although, this particular discussion of the HHI is in the context of merger analysis, the 

HHI is generally used by economists to measure market concentration for any research or analysis in which market 

concentration is relevant – not just merger analysis and not just antitrust analysis. Merger analysis incorporates the 

HHI because mergers raise concentration, and, “The higher the post-merger HHI and the increase in the HHI, the 

greater are the Agencies’ potential competitive concerns. . . .” (p. 19). It is the link between high concentration and 

the potential for coordinated interaction, particularly in homogeneous product markets, that raises the competitive 

concerns. 

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States. The remaining amount, less than 5 percent, is divided among a number of small, fringe 

companies.82 

67. Unconcentrated Buyers: Although just a few firms import or produce Fittings, 

their distributor-customers are often small, local companies. McWane alone has over 

distinct distributor-customers,83 and McWane, Star, and Sigma together sold to over distinct 

distributors (not branches) during 2010.84 HD Supply and Ferguson are exceptions. These are 

large national companies that together have about a 50 percent share of the distribution market.85 

68. Product Homogeneity: Fittings of any particular size or shape are homogeneous 

commodity products manufactured to meet industry-wide standards.86 One supplier’s 4-inch, 90­

degree bend, mechanical joint compact Fittings are virtually identical to any other supplier’s 4­

inch, 90-degree bend, mechanical joint compact Fittings. Therefore, no incumbent could 

maintain a nominal consensus price while effectively cheating through the pricing of distinct 

product features or bundles of features. Nor could an incumbent conceal effective cheating 

through the addition of new features, the improvement of existing features, or otherwise 

improving quality, while outwardly appearing to maintain a consensus price. 

69. Inelastic Demand: The demand for ductile-iron fittings is highly inelastic over the 

range of prices germane to Fittings transactions. This is because, for water distribution and 

82 See Table 1. 

83 See “Memorandum of McWane, Inc. Responding to Commission Staff Questions Regarding the 

Competitiveness of the Ductile Iron Waterworks Fittings Market in the United States,” May 10, 2011 [White Paper 

submitted to the FTC Staff], p. 16, footnote 58. McWane sales data contained over 300 customers (by unique 

customer number) over the 2007 – 2011 period. McWane-007664.xlsx – McWane-007685.xlsx. 

84 See Sigma sales: 

Star sales: 

 STAR0182054_FTC Docket No. 9351_Confidential.xlsx, 

McWane-007664.xlsx through McWane-007685.xlsx. 

85 Thees IH, November 16, 2010, pp. 87-88. 

86 Standards for Fittings were developed jointly by the American National Standards Institute and the 

American Water Works Association. 

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treatment systems, no economically relevant or practical substitute for ductile-iron fittings exists. 

Moreover, Fittings costs represent a very small share of the overall cost of constructing a 

waterworks system or plant—approximately 5 percent of the total project cost.87 Finally, 

decisions to build or repair waterworks systems or treatment plants depend on many factors 

unrelated to the cost of Fittings. These include such things as 1.) The age and condition of 

existing water works facilities and pipelines; 2.) The size of the plant to be built; 3.) The rate of 

growth in the municipality; 4.) The state of local real estate markets, municipal budgets, and so 

forth.88 

70. Inelastic demand for Fittings indicates that the rewards from price cutting are 

likely to be small and the rewards from collusion are likely to be large. As noted by Hay and 

Kelly, “The more inelastic is industry demand, the greater are the potential rewards to the price 

fixers.”89 

71. Price Transparency: Transparency of pricing also is conducive to coordination. 

In particular, transparency of pricing is one way of providing a relatively sure means for rivals to 

detect cheating on any consensus price, which increases the risk of its punishment and thereby 

creates a disincentive for such cheating in the first instance. Although list prices and 

“multipliers” are published, the prices that distributors actually pay are often very different from 

those implied by the list prices and multipliers.90 Fittings suppliers offer various types of 

87 Tatman Deposition, May 10, 2012, p. 18 (McWane estimates Fittings represent 5% of the cost of a 

waterworks job). 

88 McCullough IH, August 12, 2010, pp. 121-122 (housing starts); United States International Trade 

Commission, Certain Ductile Iron Waterworks Fittings From China, V-5 - V-6 (2003). 

89 Hay and Kelly, p. 15. 

90 As I discussed in Section II, nominally, waterworks distributors are charged a price for Fittings that 

reflects a discount off of the supplier’s list price. The multiplier is 1 minus the discount. That is, if a distributor 

receives a 60 percent discount, then the price they are nominally expected to pay is 40 percent of the supplier’s list 

price. The multiplier in this case is .40. 

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discounts and rebate programs to distributors. Project pricing, in which a supplier’s sales 

representatives offers additional discounts to distributors to help them win bids for specific 

projects, has been a common problem often blamed for price “instability.”91 

72. Trade Association: Trade associations can beneficial to both the firms in an 

industry and consumers. However, trade associations also may facilitate collusion and have been 

associated with past price fixing conspiracies. DIFRA, the trade association created by Fittings 

suppliers, is central to the allegations of collusion by McWane, Star, and Sigma. 

73. Barriers to Entry: Antitrust barriers to entry may fully preclude firms from 

becoming new suppliers in a market, or they may delay the growth of entrants and their ability to 

attain competitive significance. In the Fittings market, distributors provide manufacturers with 

critical services necessary for success in the market. Building a network of distributors can be a 

long and arduous task. Existing distributors already have business relationships with incumbent 

firms, and agreeing to sell the Fittings of a previously unknown firm can pose significant risks to 

distributors until the entrant has proven its quality and reliability. For an entrant, the time and 

cost of negotiating sales agreements with a large number of individual distributors located in 

cities and counties throughout the U.S. limits the speed of entry. Accordingly, this need to 

develop a network of local distributors could facilitate collusion by acting to keep concentration 

high, with McWane, Sigma, and Star as the only suppliers of any significance in the market. 

74. Industry Social Structure: The Fittings market also exhibits regular interaction 

and communication among suppliers’ senior executives. Certain senior executives at McWane, 

Sigma, and Star have known each other for many years. Sigma’s president, Victor Pais, started 

91 SIGTP00000025 – 26, at 26; SIG-0055257 – 58, at 58; TU-FTC-0011435 – 48, at 38; 

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Star Pipe and initially was its only employee.92 

94 Mr. Pais also has a “mutually trusting and mutually respectful”95 relationship 

with Ruffner Page, the CEO of McWane. The two met numerous times in 2007 and 2008 to 

discuss business opportunities and challenges.96 The record describes dinners between Star and 

Sigma executives and McWane and Sigma executives.97 The record indicates that Mr. Pais is 

particularly interested in socially engaging executives of McWane and Star to “make peace” and 

stabilize the markets.98 

C. McWane, Sigma, and Star Explicitly Colluded 

75. McWane, Sigma, and Star took advantage of the characteristics of Fittings and the 

Fittings market to embark on a course of action that allowed them to collude explicitly. As a 

result of these actions, McWane, Sigma, and Star at times successfully raised and maintained 

prices above those that would have otherwise prevailed. As economic theory predicts, cheating 

ultimately caused the cartel to collapse, but consumers were harmed, nonetheless. 

76. Reaching this collusive agreement appears to have involved a multi-stage process 

in which the firms first agreed to reduce or eliminate discounting. Then they agreed to exchange 

92 Pais IH, July 23, 2010, pp. 7–8. 

93 

94 

95 SIG-0002602-610, p. 605. 

96 Pais and Page met numerous times in 2007 and 2008 to discuss business opportunities and challenges. 

Pais Deposition, May 31, 2012, see e.g. pp. Page Deposition, May 24, 2012, see e.g. pp. 

 106-110, 240, and 

97 See e.g. Tatman (McWane) dinner with McCutcheon (Star) on Mar. 27, 2008, Tatman Tr; numerous 

meetings between Pais (Sigma) and Page (McWane), Pais Deposition, May 31, 2012, pp. Pais (Sigma) 

lunch with McCutcheon (Star) on Feb. 19, 2008, SIG-0058408 and SIG-0053608. 

98 See SIG-0058000-03 at 00 (“We need to earn their TRUST and CONFIDENCE in our plan to improve 

the industry.”); SIGTP00016204-06 (“This is a huge step by SIGMA and Star, in being able to demonstrate our 

willingness and commitment to strengthen our industry and signal our willingness to grow in an [sic] responsible 

manner.”); McCutcheon IH, October 12, 2010, pp. 226–230. 

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output information and they collusively fixed prices. The exchange of output information 

facilitated the agreement by providing the firms a method to assure themselves that rivals 

actually implemented and maintained the collusively agreed to prices. The agreement collapsed, 

possibly driven by further declines in demand and discord over the ARRA’s Buy American 

provision. 

77. Executives from McWane, Sigma, and Star regularly communicated with each 

other on strategies to sustain higher Fittings pricing. Their communication was overt at times, 

taking place at in-person meetings, during conversations over the phone, in e-mails, at trade 

shows, and over dinner.99 At other times, the communication was indirect; the firms used price 

announcements that they would send to customers as a means of sending messages 

surreptitiously to one another. The communication succeeded in establishing terms of a 

consensus effort to reduce or eliminate discounting, and the actions undertaken by the firms 

constituted adherence to it. As discussed in Section II, competition in the Fittings market 

generally involves discounts off of a nominal price (itself established by the product of the 

published multiplier and the published list price for the fitting). Multipliers and list prices are 

transparent, while the various discounts are confidential.100 

99 See McCutcheon IH, vol. 2, May 4, 2011, pp. 219 -231; SIG-0054525 (e-mail from Mitchell Rona to 

Siddharth Bhattacharji and Victor Pais discussing conversation with Rick Tatman, at 526: “He said he hears that 

some of the new prices in the market are being compromised with deals. He hopes the market will improve and 

hopes do our part.”) Also see, SIG – 0059439 (e-mail from Mitchell Rona to his colleagues at Sigma discussing 

conversation with Rick Tatman) “Rick was upset by the numbers in Florida and California based on what he has 

seen from us and Star. He said the .26 and .30 [multipliers] respectively were available from us both without any 

second thought,” McCutcheon Dep. 227:22 – 228:8; McCutcheon IH 257:7 – 258:18 (testifying about having a 

conversation with Rick Tatman about new price lists); Second Declaration of Factual Statement of Dan McCutcheon 

(May 25, 2011). 

100 Distributors also may obtain rebates based their quarterly or annual purchases from a specific supplier. 

Larger distributors may negotiate individually with suppliers to obtain better rebate terms. Thirty-two small 

distributors formed a buying group, The Distribution Group (“TDG”), to obtain a negotiating position on rebates 

similar to those of the national distributors, HD Supply and Ferguson. 

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78. In late 2007, Sigma announced a price increase that would be effective January 2, 

2008.101 Whereas Star quickly followed,102 McWane held back to the others’ dismay.103 On 

December 20, 2007 Sigma announced that it was putting its previously announced price increase 

on hold, indicating that it was doing so because McWane had not followed with a price increase 

of its own.104 This pricing episode appears to have inspired McWane executives to consider 

ways to exploit their mutual dependence through communications with its rivals.105 

79. On January 30, 2008, Rick Tatman sent an e-mail to Leon McCullough discussing 

the potential advantages and disadvantages of selling 3 inch to 8 inch Fittings to Sigma at $1,220 

per pound.106 The first item listed under the heading “Potential Advantages” is 

Awareness within Sigma that our costs on the Disa are competitive with China[.] 

There is a theory that our ability to stabilize the market is tied to our competitor’s 

perception of our cost structure and our ability to sustain aggressive pricing if our 

share position is threatened.107 

80. Mr. McCullough replied with an e-mail containing his comments written 

following each individual item listed.108 After the first item under “Potential Advantages,” he 

wrote, “This is a good thing,”109 and on February 1, 2008, Mr. Tatman sent an e-mail to Sigma’s 

Victor Pais with the offer he had described to Mr. McCullough two days before.110 

101 See SIGTP00000011; McWane-002051. 

102 See McWane-002051; SIGTP00000024. 

103 Ibid.
 

104 SIGTP00000011. 

105 McWane-002051; TU-FTC-0011435-448, at 438.
 

106 McWane-002061. 

107 McWane-002061; see also McWane-002443-44 (Tatman email to Page (“supplying that quote should
 

reinforce the point that with the DISA and our TXX facility we’re in a very different competitive cost game than 

what they’ve been used to with us.”)). 

108 McWane-002063-64. 

109 Ibid. at p. 002063. 

110 SIG-0053397. 

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81. Although negotiating the deal took some time, word of Sigma’s purchase of 

fittings from McWane and its competitive implications were clearly conveyed to Star as well. 

Star’s Dan McCutcheon viewed the sale exactly as Mr. Tatman expected. In an e-mail to other 

Star executives he wrote: 

Sigma recently bought 8 t/l’s from tyler [McWane] because sigma said “they 

could buy them for 15% cheaper from tyler than they could get them from china”. 

After the 8t/l’s, tyler would not take any more orders. My Guess is tyler took 

these orders to try to make a point. During the negotiation, tyler stated that they 

are now the low cost producer and said they could prove it. I think there is some 

exaggeration in this statement, but I believe the core point.111 

82. That McWane offered to sell Fittings to Sigma, but, at the same time, refused to 

consider further orders, might at first appear odd given the difficulty in making any Fittings sales 

on account of the steep decline in demand. However, as explained above by Mr. Tatman, the 

purpose of the sale was not to just generate revenue, but to convey to Sigma and Star the implied 

threat that if they did not agree to transparently reduce their own discounting, McWane’s lower 

costs would allow it to price very aggressively.112 

83. In seeking the pricing agreement with Star and Sigma, McWane intended to take 

advantage of the cost pressures facing Sigma and Star on account of the high and rising inflation 

in China and the rising cost of iron throughout Asia. Because Star and Sigma imported the 

Fittings that they sold (mostly from China, in the case of Star, and from China and India, in the 

case of Sigma), the sharply increasing prices in Asia had a disproportionate effect on their costs. 

Although Tyler imported Fittings manufactured at its Tyler Xian Xian foundry in China, much of 

111 SPP020918 – 20919, p. 20918. 

112 McWane-002061-62. 

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its production was still in the United States, which was not experiencing the degree of inflation 

that was occurring in China and India.113 

84. In effect, McWane managed to communicate its potential power to both of its 

rivals by making relatively trivial sales to one rival and waiting for that rival to tell the other. 

85. McWane understood its cost advantage as well as Sigma’s and Star’s needs for a 

price increase.114 In fact, the sale of Fittings to Sigma followed from a plan McWane had 

developed to use those advantages to increase prices and drive price stability in the Fittings 

market. 

86. On December 22, 2007, Rick Tatman, McWane VP and General Manager of its 

Waterworks Fittings Division, emailed his superiors at McWane, including EVP Leon 

McCullough, explaining his “concept” to “drive stability and rational pricing with the proper 

communications and actions.”115 This “concept” is detailed in a McWane PowerPoint 

presentation prepared by Tatman and discussed with his bosses McCullough and Thomas 

Walton.116 In it, Tatman describes the necessary communications and actions for McWane to 

secure industry-wide price increases.117 These communications and actions are directed to the 

attainment of supra-competitive pricing outcomes beyond those attainable through unilateral 

action in recognition of pricing interdependence. One slide in the presentation listed the specific 

message that McWane intended to convey to Sigma and Star as well as to the Fittings market as 

a whole: 

113 See, for example, McWane-002051, email of December 22, 2007 from Rick Tatman, McWane VP and 

General Manager of its Waterworks Fittings Division, to McWane EVP Leon McCullough. 

114 Tatman Deposition, May 10, 2012, pp. 82 – 83. 

115 McWane-002051. 

116 

117 TU-FTC-0011435 – 448, at 438. 

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87. The document also contained two alternative “rough drafts” of what would be 

McWane’s January 11, 2008 letter to customers regarding price increases that would be effective 

February 18, 2008. These draft letters, as well as the final January 11, 2008 letter, contained 

language clearly intended as a message to Sigma and Star signaling that McWane would not be 

discounting off their soon to be published list prices, and that additional price increases might be 

forthcoming if the competitive environment justified raising prices. The McWane presentation 

indicates that McWane would not increase prices further unless Sigma and Star stopped using 

discounts to win market share from McWane, and that it intended convey that message to its two 

competitors by means of its price announcement, which it knew Star and Sigma would easily 

obtain. Here, the communication is indirect, via public price announcements, but the 

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communication among competitors is clear, McWane’s rivals must cooperate or prices will not 

increase further. Such communication moves beyond purely the unilateral actions that a firm is 

expected to undertake in an oligopoly. 

88. Star and Sigma each quickly responded to McWane’s January customer letter and 

price increase by announcing price increases that matched McWane’s118 and by taking overt 

measures to reduce project pricing,119 including the removal of project pricing authority from 

line personnel.120 In so doing, they indirectly communicated back to McWane that they were of 

one mind, and that further price increases may be imposed without the ordinary risk of market 

share loss due to cheating on the consensus price.121 Thus, McWane, Sigma, and Star agreed that 

Sigma and Star would take measures to reduce or eliminate conduct that undermined cooperative 

pricing in return for the prospect of future price increases soon thereafter. 

89. Sigma documents are rife with references to forgoing profits attainable through 

project pricing to assure McWane that it could be as forward looking and disciplined as required 

to enable the imposition and maintenance of supra-competitive prices.122 And Sigma senior 

118 SIG – 0053393-94; SPP009151-52; TU-FTC-0261470-71 (“Star is raising or matching all fittings 

numbers to match Tyler effective Feb 18th.”); SIG – 0061257-58. 

119 ESP0004665; SPP009151; SIG – 0058464-66; 

 TU-FTC-0261470 (Star announcement to HD Supply “NO UTILITY PROJECT PRICING NATIONWIDE.”). 

120 ESP0004665; TU-FTC-0010942-65 at 0010965. 

121 None of this was lost on McWane. See, for example, TU-FTC-0010113-15, a Tyler/Union (McWane) 

Executive Report for 1st Q 2008, noting that Star and Sigma project discounting “appears to have died down 

significantly,” that apparently “both have removed pricing authority from the front line . . . , and expressing 

confidence that Sigma “understand[s] our published position on supporting a list price change . . . .” 

122 See, for example, SIG-0058464, email of January 24, 2008 from Victor Pais to other Sigma senior 

managers advocating the abandonment of project pricing “TO ELIMINATE THE CONFUSION WE ARE 

CREATING WITH CUSTOMERS AND COMPETITORS . . . .” (emphasis added) And referring to McWane’s 

price increase announcement as, “both a lesson and an opportunity for SIGMA and Star to develop a patient and 

disciplined Marketing approach and demonstrate to Tyler [McWane] that we are capable of being part of a stable 

and profitability conscious industry.” See also Rybacki Deposition, May 14, 2012, p. 229 (when asked if he recalled 

in January 2008, that Mr. Pais was asking him to make a committed and serious effort to normalize pricing, Mr. 

Rybacki testified that “Because Star’s pricing was ruining the market; and as a result, it was upsetting the gorilla in 

the room, which was Tyler, because they’re the biggest, McWane’s the biggest, and it was obviously hurting us as 

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managers communicated with Star senior managers to persuade them that Star too needs to 

reform its conduct to assure McWane that pricing to maximize industry profits will be a winwin-win proposition, despite McWane’s historic losses of market share to Star’s and/or Sigma’s 

cheating on the consensus price.123 

90. In taking the actions “desired” by McWane, Star would be acting against its selfinterest absent an agreement to increase industry prices. Star’s strategy had been to grow share 

by project pricing.124 Star knew that in the absence of an agreement, Star would lose market 

share if it stopped offering discounts.125 As Star’s Matt Minamyer explained in an email to other 

Star senior managers, “Our goal is to take a price increase and to stop project pricing.”126 But at 

the same time, he explains, 

don’t think we need the price increases, as that is not the case. A price increase 

will be good for us on the short and long term profit situation but are not vital to 

our strength. The truth is that we would come out of a price war stronger than 

ever and with a bigger market share, but we don’t think the industry needs that 

right now.127 

Minamyer also stated, “What we are doing is what is right for the industry.”128 

91. When asked in an investigational hearing whether advising its personnel and its 

customers that there will be no more project pricing was, “an unusual step for Star,” Minamyer’s 

well; and that’s the reason why we he wanted us to normalize or try to standardize on the list and multiplier to create 

some kind of stability . . . .” 

123 McCutcheon IH, October 12, 2010, pp. 226-30; see also Declaration of Factual Statement by Dan 

McCutcheon (April 28, 2010) (discussing “pressure” on Star to join DIFRA). See also SIG – 0058464-66; 

SIGTP00016204-06. 

124 McCutcheon Deposition, May 16, 2012, pp. 152-153 (project pricing was a core part of Star’s strategy). 

125 Minamyer Deposition, May 9, 2012, pp. 118 – 120. 

126 ESP0004665 – 4666, p. 4665. 

127 Ibid. 

128 Ibid. 

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superior, Dan McCutcheon, testified that it was, “irrational” and “bizarre.”129 In a Declaration 

provided to FTC staff, dated May 25, 2011, Mr. McCutcheon further explained: 

Project pricing is a significant part of Star’s competitive Strategy and, as the 

smallest competitor in the market, Star could not afford to cease project pricing 

and remain competitively viable. 

130 

Nevertheless, Star informed its customers that it was ceasing project pricing.131 

92. Through its sales force, McWane monitored the incidence of project pricing and 

found that “discounting by both Star and Sigma appears to have died down significantly” and 

that “both have removed pricing authority from the front line sales team and pushed it up higher 

within their organizations. Discounting is still available, but it now requires a more structured 

decision process...”132 

93. As I previously observed, when McWane announced its January 2008 price 

increase it held out to Star and Sigma the prospect of further 2008 price increases. Any further 

price increases, however, would be contingent on Star and Sigma promptly adopting McWane’s 

increase and thereafter maintaining stable and transparent pricing policies.133 But despite Star 

and Sigma’s agreement, McWane feared that it would not be able to detect cheating on the 

consensus price. Moreover, although the list prices and multipliers are transparent, the actual 

transaction prices are not,134 and given the potential for further declines in new housing starts and 

129 McCutcheon IH, October 12, 2010, p. 452; see also McCutcheon Deposition, May 16, 2012, pp. 152– 

53; 

130 Second Declaration of Factual Statement of Dan McCutcheon (May 25, 2011), ¶ 13. 

131 and McWane-002065-66. 

132 McWane-000668-72 (Fittings Dashboard and Tyler/Union Executive Report for 1st Quarter 2008). 

133 See McWane-002051; TU-FTC-0011435; ESP0004665; SIG-0058464; SIG-0058000; TU-FTC0255098-104; TU-FTC-0010321; SIG-0034424; SIGTP00016204; TU-FTC-0010081; SPP000086; 

134 See Section II, paragraphs 43 – 44. 

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other construction, McWane would not be able to tell the extent to which its declining sales 

resulted from an overall decline in the market, cheating by Star or Sigma, or both. 

94. The lack of price transparency in conjunction with declining demand ensured that 

McWane would not be able to overcome what Levenstein and Suslow described as the second 

impediment to reaching and sustaining collusive agreements, adequately “monitoring the 

behavior of cartel participants to detect and deter defections from these collusive strategies.”135 

It therefore refused to risk a second 2008 price increase without further assurance from Star and 

Sigma that they would not take advantage of another McWane price increase by again 

undercutting McWane’s prices to grow their sales. For this assurance, McWane required both 

Sigma and Star to provide sales data to DIFRA before taking further price increases. 

95. Trade associations have long been associated with the creation of collusive 

schemes and conspiracies.136 Although trade associations may enhance efficiency through such 

activities as standard setting, consumer education, or research and development of more efficient 

technologies or best practices, they also may collect and disseminate competitively sensitive 

information, and promote social interaction among competitors that can foster cooperation or 

conspiracy. 

96. DIFRA’s Articles of Incorporation state that it is organized for numerous 

beneficial purposes. These include: 1.) To provide members with opportunities for “seminars, 

publications, and other programs and activities” for their education, advancement and for the 

improvement of the industry; 2.) To “advocate and publicize the needs, interests and merits of 

the ductile iron fittings industry to industry, the public, and the government;” 3). “To assist in the 

development and establishment of standards with respect to the ductile iron fittings industry;” 

135 Levenstein and Suslow, p. 44.
 

136 See for example, Hay and Kelly, pp. 29-38. 

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and 4.) “To plan and conduct research and test programs for ductile iron fittings and other 

products of interest to the ductile iron fittings industry.”137 The record reflects that DIFRA 

failed to perform any of these activities over the two-year period of DIFRA’s effective life, from 

DIFRA’s incorporation on January 12, 2007138 until the organization effectively ceased operating 

in January 2009.139 DIFRA’s only activity was the collection of monthly Fittings shipments data 

from its individual members, and the distribution of the aggregated monthly Fittings shipment 

data back to them.140 

97. Tom Brakefield, who at the time was a Sigma employee, had been president of 

DIFRA, but is currently not sure if he still is because, 

”

141 In his 

deposition, Mr. Brakefield indicated the members were interested in standardization, but never 

actually did anything about it: 

Q. What actions did DIFRA take to promote the standardization of the fittings? 

A. I don’t think we got -- we didn’t take any action. We didn’t get to that. 

Q. Did DIFRA form a committee to evaluate standards for fittings? 

A. There was discussion of committees being formed and organized and staffed 

by member people, but none of that took place at all.142 

Other witnesses involved with DIFRA agreed. With the exception of the collection of members’ 

shipments data and the distribution of the aggregated shipments data back to its members, 

DIFRA accomplished nothing.143 

137 SIG-0033727 – 33731, The DIFRA Certificate and Articles of Incorporation, January 12, 2007. The 

purposes of the organization are found on pages 33728 – 33729. 

138 SIG-0033727 – 33731, p. 33727. 

139 Deposition of Tom Brakefield Volume 1, May 4, 2012, p. 10. 

140 The first set of Fittings shipment data collected from its members and later disseminated to them in an 

aggregated form covered consisted of annual 2006 shipments, and monthly covering the period January 2007 

through April 2008. DIFRA finished collecting this first set of data with the submission of Star on June 5, 2008 

(Q006SP0000805) and it sent the aggregated data to members on June 17, 2008 (Q006SP0000810). 

141 

142 Brakefield Deposition Vol. 1, May 4, 2012, p. 95. 

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98. Mr. Brakefield testified that enthusiasm for DIFRA “really dropped” after the 

passage of the ARRA in mid-February 2009.144 Conflicts were raised within DIFRA by the 

ARRA because it required that the Fittings used in ARRA funded projects be made in America, 

and, at that time, McWane was the only domestic manufacturer of Fittings. However, Mr. 

Brakefield testified that DIFRA ceased operating in December 2008 or January 2009, before the 

passage of the ARRA, but coincident with the decisions of DIFRA’s members to cease 

submitting shipping data to DIFRA. 

99. The DIFRA members appear to have made no effort whatsoever to accomplish 

any of the stated purposes of DIFRA. It is just not credible, in my opinion, to assert that during 

the period that DIFRA members were deciding what sales or shipments data members would 

provide, how the spreadsheet template for the data should be designed, and then submitting their 

data and reviewing DIFRA’s shipments reports, the members of DIFRA were incapable of 

setting-up a single committee for any of the many standard-setting activities they supposedly 

planned; or, for that matter, to create a single committee to do just one of any of the many 

beneficial activities that DIFRA’s Articles of Incorporation describe as the purposes of the 

organization. 

100. The record strongly indicates that McWane’s, Sigma’s, and Star’s support for 

DIFRA was expressly for the purpose of monitoring compliance with their price agreements and 

revealing cheating. This monitoring mechanism was achieved through the only activity DIFRA 

143 Rybacki Deposition, May 14, 2012, pp. 184-185; Pais IH, July 23, 2010, pp. 59-61. 

144 Brakefield Deposition Vol. 1, May 4, 2012, p. 125. 

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ever undertook, the collection and dissemination of Fittings shipment data provided to DIFRA by 

McWane, Sigma, and Star.145 

101. Victor Pais provided an excellent description of how the DIFRA data could be 

used to help enforce a collusive agreements and fix prices: 

One of the advantages we enjoy in our competitive environment is what we had 

achieved in the past few years – a consolidation in each of the product ranges. In 

Fittings, there are effectively 3 – McWane, SIGMA, and Star – and all suffer from 

the same challenges and there seems to be a great desire to improve the pricing 

and each one has demonstrated thru a reasonable amount of discipline, even being 

protective of our respective market share. This is where the monthly market size 

data produced by DIFRA, an industry association that SIGMA helped to form, 

with 4 supplier members from Fittings (one, U.S. Pipe, actually is not a producer 

anymore, but a small player buying almost all of their needs from SIGMA), helps 

maintain the pricing discipline, as the market and market share data point to a 

relatively consistent and stable market pattern. It has helped all of us not to allow 

the sharp market decline to be mistaken as a “loss of market share,” which mostly 

causes price reaction. Our GMs have continued to be strong, throughout the year, 

even as the volumes have been weak. In fact, the recent reduction in our GMs is 

more due to the increase in raw material prices which finally caught up with our 

blended inventory cost in Q3 and Q4, rather than pricing swings!146 

102. Oddly enough, though Mr. Pais describes DIFRA’s role in maintaining “pricing 

discipline,” by preventing a sharp market decline from being mistaken as a loss of market share, 

an activity not mentioned as a purpose of the organization in its Articles of Incorporation, he 

fails to mention a single activity actually listed in the Articles of Incorporation as a purpose for 

DIFRA’s existence. He says nothing of standard setting, seminars, publications, research 

programs, or any plans for these activities in the future. 

103. With market demand, and therefore prices, falling during the 2008 – 2009 period, 

collusive behavior required that McWane, Sigma, and Star be able to distinguish between 

declining revenue caused by decreased demand and declining revenue caused by cheating. The 

145 U.S. Pipe also provided shipment data, but it neither manufactured nor imported Fittings. Instead, U.S. 

Pipe purchased Fittings, primarily from Sigma, for resale with the pipes it manufactured. 

146 SIG-0002517 – 2528 at 25220. 

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key to doing so was the market share numbers that each of the three suppliers could calculate 

from the DIFRA data. If a supplier experienced falling revenues, but stable market share, then 

the decline in revenue would follow from the decline in overall demand rather than cheating. 

But, if falling revenue was accompanied by falling market share, then one or more of the rivals 

must have been cheating. 

104. This use of the DIFRA data to monitor rivals’ cooperation with collusive prices 

was never more evident than it was with the release of McWane’s June 2008 multiplier increase. 

In late April 2008, SIGMA sent letters to customers located in different regions of the country 

announcing that, effective May 19, it would be raising its multipliers “as high as 10 multiplier 

points” depending on a customer’s location.147 On April 25, 2008, executives from McWane, 

SIGMA, and Star participated on a conference call to finalize the DIFRA sales reporting rules. 

They agreed that by May 15, 2008 all would have submitted annual sales data for 2006 and 

monthly sales data for January 2007 through April 2008. Then on May 7, Star began informing 

its customers of its own multiplier increases effective May 19, 2008.148 

105. McWane, however, chose to wait and not announce any price increase until after 

the receipt of the DIFRA Report. When he learned that Sigma was announcing price increases, 

Mr. Tatman drafted a letter that would “align with the approach of waiting until the DIFRA data 

is available before announcing any price actions” and eliminate any “misperceptions [that were] 

starting to circulate.”149 

106. In a May 7, 2008 letter to distributors (and Sigma and Star), McWane stated,150 

147 SPP000083 – 000085, p. 000084. 

148 See ESP0002164, ESP0002166, and ESP0002168. 

149 TU-FTC-0255098-104, pp. 98 and 99.
 

150 TU-FTC-0023311, emphasis added.
 

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Dear Valued Customer, 

You have likely heard or read about continued increases in factors of production 

impacting both domestic and global operations. The foundry industry has been hit 

particularly hard with sharp increases in scrap iron, alloys and transportation 

costs. While the financial impact to our business is real, we also recognize there 

are restrictions as to the level and timing at which pricing can be accommodated 

in the market. 

We are sending this general communication to our waterworks distribution 

customers to more clearly define our intention in regards to future pricing actions. 

Before announcing any price actions, we carefully analyze all factors including: 

domestic and global inflation, market and competitive conditions within each 

region, as well as performance against our own internal metrics. We anticipate 

being able to complete our analysis by the end of May. At that point, we will send 

out letters to each specific region detailing changes, if any, to our current pricing 

policy. 

For planning purposes only, we expect for regions with a change that multipliers 

will increase in the range of 6% up to 16% effective June 16th. 

Sincerely, 

Jerry Jansen 

National Sales Manager 

107. Although McWane, Sigma, and Star earlier had agreed on a timetable for 

submitting their shipments data to DIFRA, Star failed to provide its shipments data as scheduled. 

However, just hours after it received McWane’s May 7 letter, Star emailed the DIFRA members 

that it would submit its data. McWane’s letter also caused Star and Sigma to suspend their 

announced price increases. 

108. On June 5, 2008, Star finally sent its sales data to DIFRA. In an e-mail informing 

DIFRA president Tom Brakefield that it had submitted its data to DIFRA, Star’s Dan 

McCutcheon quoted McWane’s May 7 letter verbatim, 

Good morning Mr. President. I just sent our info in. Sorry it took us so long, but 

we were “carefully analyzing all factors including: domestic and global inflation, 

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market and competitive conditions within each region, as well as performance 

against our own internal metrics.” (Does that look familiar?)151 

109. On June 17, DIFRA disseminated its first monthly report. In less than an hour, 

McWane’s Tatman performed a brief analysis of the data which he circulated to his boss 

McCullough, who forwarded it on to McWane’s CEO.152 Later that same day, McWane 

announced a price increase, and shortly afterwards Sigma and Star did too.153 

110. By participating in the DIFRA monthly shipments reports, McWane, Sigma, and 

Star allowed all three Fittings rivals to monitor changes in their respective market shares and 

detect secret price cutting. The very day that DIFRA released its first shipments report, McWane 

rewarded its two rivals by announcing a price increase.154 The increase was a direct result of 

DIFRA participation. Shortly thereafter, Star and Sigma followed suit with announcements of 

their own price increases.155 Thus, the DIFRA reports worked exactly as predicted. By 

providing McWane, Sigma, and Star with the sum of their respective shipments each month, 

each of three firms could monitor their market shares and determine if declines in revenue were 

the result of declines in demand or price cutting by rivals. 

111. In January 2009, when DIFRA sent its members the December 2008 aggregate 

shipments report, McWane’s Rick Tatman wrote Thomas Walton and Leon McCullough, 

“December was clearly our worst share performance for the year!”156 In Mr. Tatman’s “DIFRA 

Market Share Analysis” based on the December 2008 DIFRA data, Mr. Tatman found that 

151 SIG-0033880. 

152 TU-FTC-0266469.
 

153 TU-FTC-0010081; SPP000086-87.
 

154 See TU-FTC-0010331 – 0010332; TU-FTC-0010083 – 10084. 

155 SPP024887 - SPP024888 and SPP000087. Star’s and Sigma’s announcements of their price increases 

indicated that they would both become effective the very same day as McWane’s, July 14, 2008. 

156 TU-FTC-0031718. 

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McWane’s December 2008 market share was 41.2 percent, compared to 44.4 percent in 

December 2007. McWane’s market share for all of 2008 was 46.1 percent, compared to 51.0 

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percent for all of 2007 and 54.9 percent for 2006. Total industry tons had fallen from 134,334 

tons in 2006, to 118,953 tons for 2007, to 99,262 tons for 2008.157 Although the aggregate 

shipment figures DIFRA data clearly showed that demand had fallen considerably over the 2006 

through 2008 period, Mr. Tatman used the data just as Mr. Pais predicted, to determine that 

McWane’s declining revenue was not the result of just declining demand, but also the result of 

price cutting by Sigma and Star, as evident from McWane’s lower market share.158 

112. In mid-April 2009, McWane announced a new price list and a new set of 

multipliers, both of which would become effective May 1, 2009. The events that occurred 

following this announcement illustrate McWane’s, Sigma’s and Star’s total lack of inhibition 

with respect to communicating directly with rivals to fix prices. 

113. 

159 and he showed no qualms about calling his competitors to discuss how Fittings should be 

priced. He called Dan McCutcheon, Star’s Vice President for Sales to try to persuade Star to 

continue its use of the July 2007 price list,160 and he appears to have called SIP’s VP of Business 

Development, Bharat Agarwal, for the same purpose.161 

157 TU-FTC-0266255 – 0266263, p. 266257. 

158 See TU-FTC-0266472; SIG-0001553-56; see also SIGTP00016204-06. 

159 

160 Declaration of Factual Statement By Dan McCutcheon, April 28, 2010. 

161 Ibid., Appendix A. Mr. McCutcheon wrote in his Declaration, “Victor was very angry about the new 

price list and insisted that Star Pipe publish a letter to the market stating that we will not follow McWane’s new 

price list. He told me that I was the only one who was not agreeing to this strategy, and that I should sign a letter 

stating that we would all be using the July 2007 price list where import prices were much higher.” Appendix A of 

Mr. McCutcheon’s Declaration consists of a letter sent by Mr. Agarwal addressed to “Our Valued Customers” 

announcing SIP’s intention to use the July 2007 prices. See Q010SP0000375 – 383, p. 0375. 

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114. On April 22, 2009, Star announced that it would revise its price list, effective May 

19, 2009, but it did not indicate whether it planned to follow McWane or what changes it 

planned to make.162 Star VP Dan McCutcheon testified that his conversation with Sigma’s Pais 

had left him unsure of whether McWane would go forward with its announced price changes.163 

115. To eliminate this uncertainty, Star’s McCutcheon telephoned McWane’s Tatman. 

As Mr. McCutcheon as testified, “In light of my concerns, I contacted Rick Tatman at McWane 

to confirm McWane’s intention to issue a new price list on May 1, 2009.”164 And, “I did have a 

doubt in the back of my mind – I wanted to make sure before we moved ahead and printed all 

these price lists, so I called Rick just to make sure.”165 Star’s McCutcheon went on: 

So, I picked up the phone and I called him. And I said, I’m only going to ask you 

one question, are you guys going to come out with a new price list, because I’m 

getting ready to approve it and spend $25,000 to do it. And he said, we absolutely 

are, and he says, I’m so sure that I’ll pay the $25,000 if we don’t. And I said, I 

appreciate that, nice talking to you, and hung up the phone.166 

116. Having assured one another they were going ahead with their new pricing, 

McWane implemented its price changes on May 1, 2009 as it had previously announced it would 

do, followed shortly thereafter by Star, which adopted substantially the same prices.167

 D. Conclusion 

117. The Fittings market is practically a textbook example of anticompetitive 

facilitating practices and collusion in an oligopoly. Interdependence leading to agreements to 

facilitate coordination and collusion, collusion in fact, and then cheating, detection, and finally 

162 TU-FTC-0031768 

163 Second Declaration of Factual Statement of Dan McCutcheon, May 25, 2011, ¶ 16; McCutcheon Dep.
 

227:22 – 228:19. 

164 Second Declaration of Factual Statement of Dan McCutcheon, May 25, 2011, ¶ 17. 

165 McCutcheon Deposition, May 16, 2012, pp. 227 – 228. 

166 McCutcheon IH, May 4, 2011, pp. 257 – 258; McCutcheon Deposition, May 16, 2012, pp. 229 – 231. 

167 See McWane’s price list, McWane 014242 - 451, and Star’s price list, McWane 018123 - 268. 

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collapse. The only real surprise that characterized the Fittings cartel is just how brazen the price 

fixing was. 

118. Senior executives at McWane, Sigma, and Star regularly communicated with one 

another, both directly and indirectly, in attempts to end or reduce discounting and stabilize 

falling prices. They used their trade association, DIFRA, to exchange shipment data so that they 

could monitor their market shares to detect price cutting, and McWane refused to increase its 

prices until both Sigma and Star had submitted their shipments data to DIFRA. Star was the last 

of the three to submit its data to DIFRA, and on the very day that DIFRA sent to its members the 

report based on this data, McWane announced its price increase, which was soon followed by 

similar price increases by Sigma and Star. In my opinion, the communication among the three 

rivals and the use of DIFRA to exchange shipments data directly resulted in these price 

increases. 

119. The events surrounding McWane’s announcement of its May 1, 2009 price list 

illustrates the flagrant discussions of prices among McWane, Sigma, and Star executives. They 

appear to show no hesitation when it comes to picking-up the phone and calling a rival to discuss 

prices, and, if called by a rival, they appear quite willing to have these discussions. 

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IV. McWane Used its Monopoly Power in the “Made in America” Fittings Market to 

Delay Efficient Entry by Star and Further Sustain Its Monopoly 

A. The Economics of Exclusive (or Restrictive) Dealing 

120. McWane imposed a form of “exclusive dealing” on waterworks distributors for 

the express purpose of delaying or preventing Star from entering the MA Fittings market. By 

unilaterally imposing this form of vertical restraint on waterworks distributors, McWane acted to 

maintain its monopoly position and monopoly power whenever local, state, or federal regulations 

required that waterworks projects use only domestically manufactured Fittings and when 

customers otherwise exhibited a strong preference for MA Fittings. 

121. Economists use the term “vertical” to refer to different stages in the production 

and distribution of a given product. Raw materials suppliers, parts suppliers, manufacturers, 

distributors, and retailers describe firms that are vertically related. Stages of production that 

precede any given stage are described as being “upstream” and stages of production that follow 

any given stage are described as being “downstream.” Economists describe a firm that operates 

at more than one level of a product’s production or distribution as a “vertically integrated” firm. 

For example, a manufacturer that also produces parts for the goods it manufactures or operates 

an in-house distribution system is vertically integrated.168 A firm may be vertically integrated in 

numerous upstream or downstream markets, or essentially not vertically integrated at all.169 

168 Firms that produce products that compete against one another at the same vertical stage of production 

are horizontally related. A horizontal merger, for example, is the acquisition of a competitor. In contrast, a vertical 

merger is the acquisition of a supplier or customer. 

169 Literally, every firm is vertically integrated to some, though perhaps trivial, degree. An extensive 

economic literature explores the factors that determine firms’ decisions to rely on markets for goods or services that 

it uses (buying inputs such as fabricated parts from third-party manufacturers or services such as customer assistance 

through third-party call centers) or relying on vertical integration. More generally, “the theory of the firm” explains 

why society relies on firms rather than markets to organize economic activity in certain situations and not others. 

Central to the modern theory of the firm is the role that transaction costs play. Ronald H. Coase explained that the 

use of the marketplace involves costs and these costs not only help determine the size and nature of firms, but also 

markets and market structure. If the cost of buying from other firms is relatively low, for example, the firm is more 

likely to buy inputs from other firms than produce them itself. Economies from vertical integration such as reducing 

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122. Vertical restrictions are arrangements between firms at different stages of 

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production that limit the ability of an “upstream” supplier or “downstream” customer to operate 

its business in a certain manner, usually in exchange for access to either the goods or services of 

the other firm. Many different types of vertical restrictions can be agreed to by vertically related 

firms. These include territorial restrictions in which a distributor or retailer agrees to operate in 

specific geographic areas in exchange for the right to sell a manufacturer’s products; supply 

restrictions in which a manufacturer agrees to purchase a minimum amount of an input (or all of 

its requirements) from a particular supplier; and resale price maintenance, in which a 

manufacturer might supply goods or services to a retailer for resale to consumers under the 

restriction that the retailer agrees to sell the good or service for no less than a price specified by 

the manufacturer (minimum resale price maintenance) or no greater than a price specified by the 

manufacturer (maximum resale price maintenance). 

123. Vertical restrictions can be efficient, reducing costs by eliminating “free riding” 

by retailers, manufacturers, or consumers; protecting manufacturers’ reputations; or preventing 

post-contractual opportunism. As a result, a vertical restriction can result in greater output and 

lower prices for consumers.170 

124. Vertical restrictions, however, are not always benign. As noted by Carlton and 

Perloff, “in some cases, vertical restrictions (and vertical integration) can be used for 

uncertainty in the supply inputs or coordinating interrelated stages of production of inputs and final products 

(producing pig iron so that the molten iron can be immediately used to make steel) represent costs of using the 

marketplace to obtain the inputs. See Coase, Ronald H., “The Nature of the Firm,” Economica 4 (1937), pp. 386 – 

405 and Williamson, Oliver E., Markets and Hierarchies – Analysis and Antitrust Implications: A Study of the 

Economics of Internal Organization (New York: The Free Press, 1975). 

170 Carlton, Dennis W. and Jeffrey M. Perloff, Modern Industrial Organization, 4th ed. (Boston: Pearson Addison 

Wesley, 2005) pp. 426-27. 

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anticompetitive purposes. For example, they may be used to cartelize an industry or prevent 

entry, or otherwise harm rivals by raising rivals’ costs.”171 

125. Exclusive dealing is a vertical restraint in which “a manufacturer prevents its 

distributors from selling competing brands.”172 Typically, under exclusive dealing, firms 

compete for the right to be the exclusive supplier or seller of a product to a specific customer. 

Although a particular retailer or distributor may carry just a single manufacturer’s product, 

consumers obtain the benefit of competition among competing manufacturers to obtain the 

exclusive supply contract. Consumers may also obtain the benefits from competing retailers or 

distributors, even if each one sells exclusively the products manufactured by just one of multiple 

competing suppliers. 

126. As is the case generally with vertical restrictions, exclusive dealing arrangements 

can be efficient and can foster competition. They can prevent “free riding” that discourages 

manufacturers or retailers from investing in promotion and other output enhancing activity.173 

For example, an exclusive supply contract may allow a manufacturer to invest in promoting a 

retailer’s sales or service, which may allow the manufacturer to more effectively compete against 

other manufacturers selling through other retailers. If the retailer, instead, sold the brands of 

many manufacturers, then, should any single manufacturer invest resources in promoting the 

retailer’s sales or service, consumers attracted to the retailer by the manufacturer’s promotional 

activities could, once in the retailer’s store, purchase a brand of the product produced by a 

competing manufacturer, but sold by the same retailer. In this case, the manufacturer providing 

the promotional activities would be essentially providing free promotion to his competitor. To 

171 Ibid., p. 429 (footnote and chapter reference in original is omitted).
 

172 Ibid., p. 672. 

173 Ibid., p. 424. 

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avoid doing so, the manufacture may choose to forgo otherwise economically efficient 

promotional activities.174 

127. Exclusive dealing can also create incentives for retailers to be more 

knowledgeable about a manufacturer’s products and better promote and service their sales.175 

128. Just as a vertical contract can be thought of as a somewhat less restrictive form of 

vertical merger, a “restrictive” supply contract can be thought of as a somewhat less restrictive 

form of an exclusive supply contract. A restrictive supply contract may not outright preclude the 

purchase of an input from one of the supplier’s competitors, the restrictions impose costs or 

otherwise create incentives for the input buyer to purchase exclusively from the contracted 

supplier. Thus, though not literally exclusive dealing, to the extent that both forms of supply 

contract achieve the same end, the economic analysis of “restrictive” dealing is essentially the 

same as that of exclusive dealing. 

129. Although restrictive dealing may benefit competition, it, like other vertical 

restraints, may also be used to enhance or maintain market power. Restrictive dealing can raise 

barriers to entry by raising distribution costs. As Carlton and Perloff note, “[A]n incumbent can 

make it difficult or impossible for a rival to enter by tying up scarce distribution channels. 

Exclusive dealing is one way for manufacturers to tie up distribution.”176 Entry is particularly 

difficult when economies of scale require an entrant to obtain a certain level of output in order to 

reach minimum efficient scale. In such a case, an incumbent manufacturer does not need to “tie 

up” all distributors through restrictive arrangements, just enough that any manufacturer 

174 Ibid. 

175 Ibid., p. 419. 

176 Ibid., p. 430. Carlton and Perloff also note that this sort of strategic behavior can only work if channels 

of distribution are limited. As I discuss below, water works distributors are essentially the only channel through 

which Fittings are sold. 

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attempting to enter would not be able to obtain sufficient distribution services necessary to 

manufacture and sell that quantity of output required to reach the minimum efficient scale of 

production.177 

130. The economic concept of “barrier to entry” has had a somewhat controversial 

history in its application to antitrust. McAfee, Mialon, and Williams defined what they called an 

“economic barrier to entry” as “a cost that must be incurred by a new [sic] entrant and that 

incumbents do not or have not had to incur.”178 However, antitrust analysis and enforcement 

policies focus strictly on how merger- and non-merger-related business practices affect 

consumers and consumer welfare. Accordingly, even if, in the long-run, any firm can replicate 

what incumbents have done and enter the market, if consumers are materially injured during that 

intervening period by a diminution of competition, the business practice is deemed 

anticompetitive. 

131. The focus of antitrust analysis on consumer welfare gives rise to a more broadly 

defined concept of an entry barrier, what McAfee et al. refer to as an antitrust barrier to entry, 

“a cost that delays entry and thereby reduces [consumer] welfare relative to immediate but 

177 Thousands of different sizes and shapes of Fittings may be used in waterworks projects, but only 100 

fittings account for 80 percent of the Fittings sold in the United States and less than 300 fittings account for more 

than 90 percent (see McWane-007527). Accordingly, even when rarely used sizes and shapes are manufactured as 

needed, fixed warehouse and inventory costs for both fittings and the patterns used to make molds for the fittings 

will add to economies of scale in production. Nonetheless, increased production also may significantly lower costs 

as a firm grows from a relatively small manufacturer to a larger manufacturer. Greater production levels make the 

use of the most efficient equipment more economical; accordingly, as the scale of production grows, costs decline 

through the adoption of more efficient production equipment (Interview with Charles Frazier, May 25, 2012). For 

further discussion of anticompetitive exclusive contracts see, Rasmusen, Eric B., J. Mark Ramseyer, and John S. 

Wiley, Jr., “Naked Exclusion,” American Economic Review, December 1991, pp. 1137 – 1145; Segal, Ilya R. and 

Michael D. Whinston, “Naked Exclusion: Comment,” American Economic Review, March 2000, pp. 296 – 309; and 

Simpson, John and Abraham L. Wickelgren, “Naked Exclusion, Efficient Breach, and Downstream Competition,” 

American Economic Review, September 2007, pp. 1305 – 1320. 

178 McAfee, Preston R., Hugo M. Mialon, and Michael A. Williams, “What Is a Barrier to Entry?,” The 

American Economic Review, 94, Papers and Proceedings of the One Hundred Sixteenth Annual Meeting of the 

American Economic Association, San Diego, CA, January 3-5, 2004 (May, 2004), pp. 461-465. 

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equally costly entry.”179 The effect of the singular role of consumer welfare on the concept of 

barriers to entry is further noted by Richard Schmalensee, “I argue that U.S. antitrust is 

concerned with consumers’ surplus, not overall economic welfare, and that this choice of 

objective has important implications for the proper definition and assessment of ‘antitrust 

barriers to entry’. . . .”180 

132. Accordingly, a business practice that delays efficient entry creates an antitrust 

barrier to entry that may result in harm to consumers.181 If, absent the business practice, the 

output of an entrant would grow more quickly than otherwise, allowing the entrant to attain a 

minimum efficient scale sooner, then the competitive impact of the entrant on prices and, 

consequently, on consumer welfare, will be achieved sooner. By impeding the ability of the 

entrant to grow sales, such a business practice ensures that consumers pay higher prices for 

longer periods of time.182 In addition, if adoption of the most efficient production methods 

requires achieving a minimum scale, then business practices that impede the growth of an entrant 

and hence represent an antitrust barrier to entry, harm consumers further by delaying the 

179 McAfee et al., p. 463. McAfee et al. define an antitrust barrier to entry as reducing “social” welfare, 

which is what economists generally are concerned with, but not antitrust enforcement policies. The key distinction 

between an antitrust barrier to entry and an economic barrier to entry is not affected by the specific concept of 

welfare in this context, however. The economic barrier to entry concerns the long-run ability of a firm not currently 

operating in a market to do so in reaction to the presence economic profits. In contrast, an antitrust barrier to entry 

is a short-run concept. It concerns factors that delay entry and, therefore, allow mergers or other business practices 

to raise prices above those that would prevail in their absence, imposing costs on consumers that lower consumer 

welfare even if entry forces prices to return to otherwise prevailing levels in the long-run. 

180 Schmalensee, Richard, “Sunk Costs and Antitrust Barriers to Entry,” The American Economic Review, 

94, Papers and Proceedings of the One Hundred Sixteenth Annual Meeting of the American Economic Association, 

San Diego, CA, January 3-5, 2004 (May, 2004), pp. 471-475, p. 471. 

181 An antitrust barrier to entry is expected to prevent market forces from deterring anticompetitive effects. 

Thus, de minimis delays in entry are not relevant for antitrust purposes. By efficient entry, I am referring to entry at 

a minimum efficient scale that allows consumers to obtain the maximum benefits possible from entry. If immediate 

entry can occur, but only at a scale too small to be competitively significant because a business practices delays the 

ability of an entrant to obtain the minimum efficient scale, then post-entry, prices will remain high. 

182 Under the Horizontal Merger Guidelines, for example, an entrant facing constraints that limit its 

competitive effectiveness or prevent rapid expansion will not meet the “sufficiency” requirement for entry to be 

viewed as easy. 

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entrant’s adoption of lower-costs methods of production. With higher costs than otherwise, the 

ability of the entrant to lower its prices, expand its output, and compete more vigorously with 

incumbent firms is constrained, further harming consumers. 

B. The Need For Distribution Services Affects Entry in the MA Fittings Market 

133. Wholesale waterworks distributors provide services that are crucial to the success 

of a Fittings supplier. Waterworks distributors operate locally, either as independent local 

companies, regional companies with multiple local branches, or large national companies with 

local branches throughout the country. Through local operations and the provision of other 

services, waterworks distributors provide substantial benefits to Fittings suppliers, benefits that 

substantially lower suppliers’ costs.183 Distributors are compensated for these services through 

their margin on the fittings product. 

134. Each local waterworks distribution operation maintains inventories to service 

local contractors and municipalities. This reduces the working capital required of Fittings 

suppliers and reduces the substantial investments in local warehouses and distribution facilities 

that suppliers would require if they sold directly to all of the many local contractors that 

construct, expand, and repair waterworks plants and transportation systems for cities and 

counties throughout the country.184 

135. Distributors also lower supplier’s costs by handling billing and invoicing to local 

contractors and municipalities,185 and assume the credit risk from dealing with local contractors. 

183 McCutcheon IH, October 12, 2010, pp. 41– 42; TUFTC-0024813 – 815, p. 815; Tatman IH, July 21, 2010, p. 72; Pais IH, 

July 23, 2010, pp. 42- 43. 

184 Ibid. 

185 Sheley IH, January 11, 2011, p. 120. 

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136. Waterworks distributors supply contractors and municipalities with a full range of 

products required for the construction of clean water or sewage treatment plants and clean water 

or sewage transportation pipelines. The products they supply include ductile iron pipes, fittings, 

valves, fire hydrants, and accessories, as well as steel and plastic waterworks products and other 

miscellaneous products used in the construction and maintenance of waterworks projects. 

137. Accordingly, one important service provided by a waterworks distributor that 

benefits both the distributor’s customers and its Fittings suppliers is the provision of “one-stopshopping” to contractors and municipalities.186 Because the distributor packages bundles of 

different types of products made from different materials for sale to contractors and 

municipalities, manufacturers and import suppliers of waterworks products do not need to 

provide this service themselves. They can specialize in one or more related line of waterworks 

products and not necessarily be at a competitive disadvantage relative to a manufacturer or 

import supplier with a more diverse line of different products made from different materials. A 

supplier of Fittings, for example, may use the services of a waterworks distributor to sell its 

Fittings alongside ductile iron, PVC, and HDPE pipes or other products manufactured or 

imported by other firms. Accordingly, a Fittings supplier does not need to manufacture, import, 

or purchase ductile iron, PVC, or HDPE pipes to package with its Fittings, and it may even 

realize certain efficiencies from specialization that it could not obtain (or avoid certain costs 

from diversification that it might incur) if it were to try to diversify into the supply of 

waterworks products made from PVC, HDPE, or other materials with which it has no history or 

experience. 

186 McCutcheon IH, October 12, 2010, pp. 41- 42; Bhutada IH, October 12, 2010, pp. 19-20. 

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138. Thus, the services of waterworks distributors are a vital input into the supply of 

Fittings. Without the benefits provided by waterworks distributors, the costs of participating in 

the domestic manufacturing of Fittings, or in the supply of imported Fittings, could well be 

substantially higher than they are now. 

139. If a Fittings supplier were prevented from obtaining the services of distributors 

outright, it would face an absolute, long-term “economic barrier to entry.” Moreover, a business 

practice that limits an entrant’s access to distributors will limit the ability of the firm to sell its 

products and grow its business. Accordingly, even if access to distribution is not blocked 

absolutely, an incumbent’s business practice that limits an entrant’s access to distributors will 

delay the entrant’s ability to grow its sales to the point to which it can have a significant 

competitive impact on the market. 

140. In addition, by constraining the ability of an entrant to grow its sales, such a 

business practice could significantly delay the point in time at which an entrant will obtain the 

scale necessary to adopt the most efficient production processes, to the extent that efficient 

production technologies require a minimum scale of production to implement. In either or both 

cases, actions by incumbent firms that limit an entrant’s access to distribution create an antitrust 

barrier to entry. Consequently, consumers are harmed by having to pay higher prices for longer 

periods of time than otherwise. 

C. McWane Used Its Monopoly Power to Restrict Star’s Access to Distribution 

for Its MA Fittings 

141. McWane executives have testified that, before 2009, waterworks projects that 

required domestically manufactured Fittings represented approximately 15 to 20 percent of its 

sales.187 In February 2009, in the midst of what some commentators have called “the Great 

187 See footnote 155; Tatman IH, July 21, 2010, p. 47. 

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Recession,” Congress passed the ARRA, which allocated approximately $840 billion to spur 

economic growth and end the recession,188 and included allocations totaling $7.4 billion for 

waterworks projects.189 These funds, however, could be used for waterworks projects only if the 

iron, steel, and manufactured goods used in these projects were made in America.190 

142. The record indicates that the executives of McWane, Sigma, and Star anticipated 

that the ARRA’s MA requirement could have a significant impact on both McWane’s domestic 

and imported Fittings sales.191 As the sole manufacturer of MA Fittings, McWane would be the 

only Fittings supplier that could offer a full line of imported and domestic Fittings. 

188 http://www.recovery.gov/Transparency/fundingoverview/Pages/fundingbreakdown.aspx . Originally, 

ARRA expenditures were estimated as $787 billion. This figure was revised to $840 billion in 2011. 

189 The ARRA allocated $4 billion to the Environmental Protection Agency (“EPA”) Clean Water State 

Revolving Fund and $2 billion for grants under section 1452 of the Safe Drinking Water Act (see PUBLIC LAW 

111–5—FEB. 17, 2009; 123 STAT. p. 169). The ARRA also allocated an additional $1.4 billion for the cost of 

direct loans and grants for the rural water, waste water, and waste disposal programs authorized by sections 306 and 

310B and described in section 381E(d)(2) of the Consolidated Farm and Rural Development Act (PUBLIC LAW 

111–5—FEB. 17, 2009; 123 STAT. page 118). 

190 The ARRA allows for fund recipients to seek a waiver on the made in America provisions, but only 

when: 1.) Iron, steel, and manufactured goods are not produced in the United States in sufficient and reasonably 

available quantities and of a satisfactory quality; 2.) Inclusion of iron, steel, and manufactured goods produced in the 

United States will increase the cost of the overall project by more than 25 percent; or 3.) Applying the Buy 

American requirements of ARRA would be inconsistent with the public interest. (See United States Environmental 

Protection Agency, Memorandum From James A. Hanlon, Director, Office of Wastewater Management and Cynthia 

191 McCutcheon IH, October 12, 2010, pp. 101 – 107; SIG-0008050- 8057, p. 8053; SIG-0006431-6433, p. 

6432 (Buy American “is a very serious and unexpected handicap and the problem will only get worse as our 

distributors will align themselves with McWane (the sole domestic fittings supplier) to retain their ability bid on the 

domestic only jobs. In the process of this alignment, we may lose a portion of the market that is not restricted to 

domestic simply because McWane will demand a larger share of the business.”); 

C. Dougherty, Director, Office of Ground Water and Drinking Water To Water Management Division Directors, 

April 28, 2009, p. 4. 

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193 Any expansion of 

McWane’s sales of imported (or blended) Fittings that it would obtain on account of its position 

as the only domestic manufacturer of Fittings would represent sales lost by Sigma, Star, and 

fringe importers. 

143. The ARRA, therefore, created an incentive for Sigma and Star to enter into 

domestic production of Fittings, and both companies took steps to study and consider domestic 

entry. McWane also analyzed the implications of supplying their competitors with MA Fittings 

and the possibility that Star or Sigma might enter the domestic market. But as late as May 2009, 

McWane remained confident in its position as the monopoly supplier of MA Fittings, as 

reflected in a May 29 email from McWane’s VP and General Manager for its Fittings business, 

Rick Tatman, to his boss, Leon McCullough, in which Tatman wrote, “Regardless of whether 

we structure a relationship with Sigma, Tyler/Union [i.e., McWane] would remain the only true 

viable source of domestically produced DWIF 3” – 24” . . . .”194 

144. On June 15, 2009, Star announced the introduction of their “new American Made 

line of Waterworks Fittings . . .”195 at the annual convention of the American Water Works 

Association. McWane executives expressed considerable apprehension over the prospect of 

announcement of its entry, McWane Senior Vice President Thomas Walton wrote, “Whether we 

end up with Star as a complete or incomplete domestic supplier my chief concern is that the 

domestic market gets creamed from a pricing standpoint just like the non-domestic market has 

193 

194 TU-FTC-0031766 – 31767, p. 31766. Mr. Tatman’s use of DWIF in this context is a typographical 

error. Mr. Tatman uses the acronym DIWF for “ductile iron waterworks fittings,” which are the same as “ductile 

iron pipe fittings.” 

195 TU-FTC-0031773 – 31774; and 

Star entering the MA Fittings market. In an e-mail to Rick Tatman shortly after Star’s 

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been driven down in the past. That would dramatically affect our profit potential.”196 Mr. 

Tatman replied, “If their [i.e., Star’s] claims are ahead of their actual capabilities we need to 

make sure that they don’t reach any critical market mass that will allow them to continue to 

invest and receive a profitable return. The difficulty and expense of doing so is somewhat 

proportional to their product availability and supply costs both of which we have yet to get hard 

data on.”197 McWane was bent on preventing Star’s entry into the MA market in part because 

“Star would not be a responsible competitor. . . .”198 

145. On September 22, 2009, before Star began shipping its domestic Fittings, 

McWane announced that effective October 1, 2009 it was implementing a new domestic fitting 

and accessory program.199 The program required any waterworks distributor that wished to sell 

McWane domestic Fittings and accessory products “to fully support McWane branded products 

for their domestic fitting and accessory requirements.”200 Distributors that failed to purchase 

only McWane domestic fittings (i.e., to “fully support” McWane domestic products) “may forgo 

participation in any unpaid rebates for domestic fittings and accessories” or face delays in 

shipments of as many as 12 weeks.201 

146. McWane carefully wrote the program announcement with the words “may” and 

“or,” and there was a mix of interpretations McWane’s announcement in the marketplace; but 

McWane itself concluded that “the market has interpreted the communication in the more hard 

196 TU-FTC-0031436 – 31437, p. 31436 (emphasis added). 

197 TU-FTC-0255547 – 255548, p. 255547 (emphasis added). 

198 McWane-000264, slide 4.
 

199 TU-FTC-0010345. 

200 Ibid. 

201 Ibid. 

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line “will” sense.”202 And that, apparently, is how McWane wanted its program announcement 

to be understood. In fact, McWane told its sales representatives to quietly convey just that 

message to its distributors: “What are we going to do if a customer buys Star domestic? We are 

not going to sell them our domestic ... Once they use Star, they can’t EVER buy domestic from 

us.”203 

147. Almost immediately after the release of the September 22, 2009 announcement by 

McWane of its “full support” program, distributors that had already requested quotes from Star 

for domestic Fittings withdrew their requests and told Star that they were no longer interested in 

purchasing domestic Fittings from the company.204 Ramesh Bhutada testified that before 

McWane’s announcement, it had received requests for quotes for domestic fittings worth 

approximately $10 million.205 The requests were from the two largest waterworks distributors in 

the country, HD Supply and Ferguson, important regional distributors, such as members of TDG, 

Mainline, and Winwater, and a variety of independent waterworks distributors.206 Other 

distributors have testified that they had intended to purchase some of their domestic fittings 

requirements from Star, but after McWane’s announcement, they decided not to submit requests 

for quotes from Star.207 

202 TU-FTC-0255188 – 255192, p. 255189. 

203 TU-FTC-0240054-056, p. 055; Pitts IH, October 29, 2010, pp. 76-79, 137-139. 

204 Bhutada Deposition, May 14, 2012, pp. 79-80, 87; E00000787; Q007SP0000118-119; Q011SP0000279; 

McCutcheon Deposition, May 16, 2012, pp. 245-246; HDSWW001395; Webb IH, November 19, 2010, pp. 198­

199; Thees Deposition, June 1, 2012, p. 77; Berry Deposition, June 1, 2012, pp. 131-133. 

205 Bhutada Deposition, May 14, 2012, pp. 79-80. 

206 Ibid., at p. 80; Tatman IH, July 21, 2010, pp.

80, 87; E00000787; Q007SP0000118-119; Q011SP0000279; McCutcheon Deposition, May 16, 2012, pp. 245-246; 

 278-279; Bhutada Deposition, May 14, 2012, pp. 79­

HDSWW001395; Webb IH, November 19, 2010, pp. 198-199; Thees Deposition, June 1, 2012, p. 77; Berry 

Deposition, June 1, 2012, pp. 131-133. 

207 Sheley Deposition, April 24, 2012, p. 135; Prescott Deposition, May 8, 2012, p. 113; Sheley IH, January 

11, 2011, pp. 96-97, 142; Morrison IH, February 2, 2011, pp. 72-76, 83-85; 

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148. On September 23, 2009, HD Supply, the largest waterworks distributor in the 

country, sent a memorandum to all of its district managers, branch managers, and operations 

managers instructing them to only buy MA Fittings from McWane or Sigma.208 Ferguson, the 

second largest distributor in the country also instructed its district managers and branches to 

purchase MA Fittings from only McWane and Sigma.209 Together HD and Ferguson distribute 

approximately 50 percent of the Fittings sold in the United States.210 

149. With HD Supply, Ferguson, and regional distributors such as members of TDG, 

Winwater, and Mainline abiding by McWane’s “full support” program, McWane denied Star 

access to a large portion of the market, and likely among the most efficient means of distribution, 

the large U.S. and regional, multi-branch distributors.211 

150. Hajoca experienced the full impact of McWane’s “full support” policy. Hajoca 

has a unique business model. Each of its local branches operates as if they were a local 

company, with the local manager having the same responsibilities that the owner of a local 

business would have.212 Hajoca uses this business model not just for its waterworks distribution 

business, but for a variety of businesses it owns, all of which have the characteristic of requiring 

local operations to provide service in local markets.213 Accordingly, Hajoca’s branch managers 

in its waterworks distribution business had full responsibility for the branch, including choosing 

suppliers.214 

208 HDSWW001395. 

209 Thees Deposition, June 1, 2012, p. 77.
 

210 Thees IH, November 16, 2010, pp. 87-88.
 

211 See Ibid. at pp. 89-92; see also McCutcheon IH, October 12, 2010, pp. 49-55.
 

212 Pitts IH, Oct. 29, 2010, pp. 68-70; HAJ000043. 

213 Hajoca’s other businesses include residential and commercial plumbing, heating and air condition sales 

and service, pool suppliers, and industrial pipe, valves and fittings. See www.hajoca.com. 

214 Pitts IH, October 29, 2010, p. 68-70; HAJ000043. 

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151. Hajoca refused to alter its business model after McWane announced its “full 

support” program.215 At that time two Hajoca locations needed MA Fittings. One was in 

Oklahoma and the other in Pennsylvania.216 Historically the Pennsylvania branch had purchased 

all of its fittings from McWane because McWane was the only supplier of domestic fittings and 

in Pennsylvania state law requires the use of domestically produced iron and steel products for 

all public construction, repair, and maintenance projects.217 

152. The Hajoca Oklahoma branch decided to purchase domestic fittings from Star. 

McWane then informed Hajoca that they would be cut-off and lose their rebate for domestic 

fittings if they did not comply with the “full support” program.218 Hajoca stood by its own 

corporate policy to allow individual branches to choose their suppliers.219 

153. McWane then informed Hajoca that their branches no longer had access to their 

domestic line of fittings. Hajoca negotiated with McWane to allow any outstanding orders for 

domestic fittings from the Pennsylvania branch to be placed by December 4, 2009.220 McWane 

allowed a little leeway on the date, but no new orders were allowed after approximately 

December 23, 2009.221 McWane also instructed Sigma not to sell MA Fittings to Hajoca, as 

215 Pitts Deposition, April 11, 2012, p. 24. 

216 HAJ000055-56.
 

217 Pitts IH, October 29, 2010, p. 57.
 

218 HAJ000058-59.
 

219 Pitts IH, October 29, 2010, pp. 68-70.
 

220 HAJ000046. 

221 Roy Pitts testified that McWane gave an extension of “a week or two” after Rick Tatman returned from
 

China (December 9,2010), which would have extended the date out to about December 23, 2009. Pitts IH, October 

29, 2010, pp. 123-124. 

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required by the MDA.222 In addition to cutting off its MA Fittings to all Hajoca branches, 

McWane withheld the Hajoca’s fourth quarter 2009 domestic rebate for fittings.223 

154. Hajoca did not regain access to McWane MA Fittings until the following April.224 

McWane ultimately relented and supplied Hajoca branches, except the Oklahoma branch, with 

MA Fittings even though the Oklahoma branch continued to buy from Star. Nevertheless, 

Hajoca was denied MA Fittings from McWane for the period of time during which ARRA 

funded waterworks projects were at their peak.225 

155. Groeniger & Company is a family-owned waterworks distribution company that 

operated nine branches before being acquired by Ferguson in 2011.226 Michael Groeniger, the 

former owner of Groeniger & Company, testified that before McWane’s September 22, 2009 

announcement of its “full support” policy for domestic fittings, Groeniger awarded two big 

domestic-only projects to Star.227 Mr. Groeniger testified that Star handled these jobs very well, 

and that he was pleased with the quality of Star’s service.228 Shortly after the McWane policy 

came out, McWane raised its price on a municipal contract Groeniger had with San Jose Water 

Company.229 McWane imposed its price increase despite the traditional industry practice of 

222 TU-FTC-0257648-49. 

223 HAJ000045. 

224 Pitts Deposition, April 11, 2012, pp. 155-158; HAJ00001. 

225 See Figure 1. McWane ultimately relented and settled its dispute with Hajoca. McWane may not 

thereafter have punished other distributors that purchased Star MA Fittings as harshly. This could be explained by 

two factors: First, by no later than the end of January 2010, approximately one month after cutting-off Hajoca, 

McWane knew of the FTC’s investigation in this matter (Mr. Tatman sent McWane executives a presentation for 

use as a reference during a February 24, 2010 conference call with FTC staff, McWane-007527 and McWane007526. The presentation was first created on January 29, 2010). Second, McWane wanted compliance with its 

policy—not to have violators who they must punish. One well-publicized punishment of a well-known firm can 

have a substantial deterrence effect on others, reducing the likelihood that they will violate the policy. 

226 Groeniger Deposition, May 11, 2012, p. 125. 

227 Ibid., pp. 217-218. 

228 Ibid., pp. 224-225. 

229 Ibid., p. 95. 

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honoring any municipal contracts already in place at agreed upon prices.230 Although McWane 

ultimately lowered its price, for six months Groeniger, was forced to pay higher than previously 

agreed-upon prices to service the San Jose contract.231 

156. To Groeniger, McWane’s “full support” policy, and the threats implied by it, was 

not unlike a similar policy that McWane had imposed in the 1980’s.232 Mr. Groeniger testified 

that back in the 80s, McWane had cut Groeniger off from supply for at least a year and possibly 

as many as three.233 McWane wanted Groeniger to purchase more of its products, and when 

Groeniger didn’t increase its purchases, McWane cut them off.234 

157. At the time that McWane announced this domestic program, it sold virtually 100 

percent of domestically manufactured Fittings. Any distributor hoping to supply Fittings for a 

waterworks project funded with ARRA grants or loan guarantees had to purchase from McWane 

at that time. Accordingly, at that time and continuing until Star was well-positioned to satisfy 

substantially all of its needs, any distributor that purchased Star Fittings that could have been 

purchased from McWane would incur substantial risks. If a distributor had to wait for months 

for a McWane shipment after having purchased domestic Fittings from Star, the delay could 

severely harm its business relationship with a contractor. Accordingly, distributors have testified 

that they viewed McWane’s September 22, 2009 program announcement as essentially a 

McWane imposed exclusive distribution requirement.235 

230 Ibid., pp. 92-93.
 

231 Ibid., p. 94. 

232 Ibid., pp. 102-104.
 

233 Ibid., p. 106. Mr. Groeniger testified, “Year, two years. Maybe three.”
 

234 Ibid., p. 104. 

235 HDSWW001395; Coryn Deposition, May 16, 2012, p. 114; Prescott Deposition, May 8, 2012, pp. 120­

121; Webb Deposition, May 30, 2012, pp. 93-94; Morton Deposition, 

May 30, 2012 pp. 144-146; USP-FTC_00000008-9; Berry Deposition, June 1, 2012, pp. 164-165. 

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158. By restricting Star’s access to distribution, McWane’s “full support” program 

would, as Mr. Tatman described, “make sure that they don’t reach any critical market mass that 

would allow them to continue to invest and receive a profitable return.”236 Although McWane’s 

“full support” program did not completely prevent Star from selling domestic Fittings, the 

evidence indicates that distributors that had expressed interest in buying considerable quantities 

of Star’s domestic Fittings before September 22, 2009 withdrew their requests shortly after this 

date on account of McWane’s new policy.237 Moreover, with HD Supply and Ferguson, which 

together account for approximately 50 percent of the sales of Fittings nationwide, informing their 

branches to not purchase domestic fittings from Star on account of the “full support” program, 

Star was denied access to a large share of the market. With some of the larger regional 

distributors also being unwilling to purchase domestic fittings from Star’s access to the MA 

Fittings market was greatly limited, slowing its growth and lessening its ability to reach an 

efficient scale of production. With higher costs and less output than otherwise, McWane’s “full 

support” policy lessened Star’s ability to compete with McWane. As a result, prices were higher 

than otherwise and consumers were harmed. 

159. McWane has argued that an efficient rationale for its “full support” program was 

to avoid “free-riding” by Star and waterworks distributors that would allow Star to focus 

production on only the most popular fittings while taking advantage of McWane’s investments to 

obtain less popular fittings when necessary.238 The disingenuous nature of McWane’s “free 

236 TU-FTC-0255547 – 255548, p. 255547. 

237 Bhutada Deposition, May 14, 2012, p. 79-80; E00000787; Q007SP000118-119; Q011SP0000279; 

McCutcheon Deposition, May 16, 2012, pp. 245-246; HDSWW001395; Webb IH, November 19, 2010, pp. 198­

199; Thees Deposition, June 1, 2012, p. 77; Berry Deposition, June 1, 2012, pp. 131-133. 

238 See “Memorandum of McWane, Inc. Responding to Commission Staff Questions Regarding the 

Competitiveness of the Ductile Iron Waterworks Fittings Market in the United States,” May 10, 2011 [White Paper 

submitted to the FTC Staff], p. 28 

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riding” rationale for its “full support” policy is evident by the fact that had “free riding” by Star 

and distributors been a legitimate concern, McWane could have eliminated any potential for it to 

occur in a much less restrictive, exclusionary and anticompetitive way. Rather than requiring 

“full support” over a distributor’s entire purchases of domestic Fittings, McWane could have 

adopted a policy in which “full support” for its domestic products was required for any project in 

which any McWane Fittings was used. Such a program would have eliminated any potential for 

free riding; yet, would have allowed Star to participate in any project through any distributor as 

long as it was willing and able to supply all domestic fittings specified, which it claimed it 

was.239 Such a policy would have ensured that Star or its distributors could not “cherry pick,” 

while not restricting Star’s access to the one input necessary for any manufacturer to enter the 

MA Fittings market: distribution. 

160. McWane could implement its “full support” policy only because it had the 

monopoly power to do so. Had McWane faced efficient competition by other incumbent 

manufacturers of Fittings, it could not have imposed such a restrictive dealing policy on 

distributors that would have been unwilling to voluntarily purchase domestic Fittings from only 

McWane. If distributors felt harmed by McWane’s policy, they could have turned to another 

incumbent supplier of domestic Fittings, had any existed. 

161. Any distributor that wanted to only purchase domestic Fittings from McWane was 

always free to do so. McWane chose to implement the policy even though the distributors would 

not have chosen to do so themselves. Where economists find efficient exclusive (or restrictive) 

dealing, both parties benefit because these agreements are generally voluntarily agreed to. A 

retailer may agree to stock only one brand of a product, but only because the manufacturer offers 

239 TU-FTC-0250485. 

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the retailer a better deal than any other manufacturer of the product. The manufacturer 

voluntarily agrees to charge the retailer less (or provide better service, or better quality, or other 

benefits to the retailer) because it gets the benefits from exclusivity, which may include not only 

sole access to the retailer’s customers, but also the retailer’s dedication and enthusiasm for the 

brand, promotion of the brand, better customer service, or any other “point of sale” benefits the 

retailer would have incentives to provide the manufacturer, if it were the only brand of the 

particular product that the retailer stocked.240 

162. Thus, it is not mere coincidence that McWane’s “full support” policy did not 

cover imported Fittings. As discussed previously, Fittings is a homogeneous product. If 

McWane had told distributors that they would lose unpaid rebates and have limited access to 

McWane’s products unless they provided “full support” to McWane’s imported Fittings, 

distributors could have easily purchased virtually identical Fittings supplied by Sigma, Star, or 

any number of the small fringe importers. I strongly suspect that Sigma, Star, or any other 

importer would have been quite willing to make sales at McWane’s expense to distributors that 

were not willing to “fully support” McWane’s imported Fittings. 

capital expenditures necessary to build or buy a cost-efficient foundry of its own. Testimony 

from investigational hearings indicates that Fittings production faces significant economies of 

scale. For example, McWane’s Leon McCullough testified: 

163. Although Star has obtained some sales, these sales are far below its current ability 

to supply domestic Fittings, and not sufficient for it to obtain the scale necessary to justify the 

240 Benjamin Klein and Andres Lerner, “The Expanded Economics of Free Riding: How Exclusive Dealing, 

Prevents Free-Riding and Creates Undivided Loyalty,” 74 Antitrust Law Journal, 474, 491-496 (2007). 

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McWane’s Richard Tatman concurred with Mr. McCullough, describing significant economies 

of scale in the production of Fittings: 

164. Thus, the testimony of McWane executives as well their statements in documents 

written during the course of business indicates both that the production of Fittings entails 

significant economies of scale and that the express purpose of imposing exclusive dealing on 

distributors was to “eliminate Star as a domestic supplier of fittings.”243 

165. Although McWane may not have (yet) eliminated Star from the domestic Fittings 

market, its “full support” program has delayed Star’s ability to enter the MA Fittings market with 

competitively significant sales. Moreover, with the economies of scale necessary to obtain a 

minimum efficient size for its own foundry, Star could lower its costs significantly. The scale to 

justify a foundry would allow Star to obtain the efficiencies offered by high-volume 

manufacturing equipment. Equally important, it would enable Star to avoid the inefficiencies 

241
 

242
 

243 McWane-017936. 

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caused by its continued use of others’ foundries to manufacture its MA Fittings. 

244 

166. By using its market power to impede Star’s growth, McWane also has managed to 

maintain a level of monopoly power that Star otherwise would have diminished. Accordingly, 

the ultimate result of McWane’s use of its monopoly power to impose its “full support” policy 

has been to keep the prices of domestic Fittings manufactured for the MA Fittings market higher 

than otherwise and reducing consumer welfare. 

D. Conclusion 

167. McWane’s “full support” program resulted in Star immediately losing sales by 

distributors fearing the loss of rebates and access to McWane’s MA Fittings. HD Supply and 

Ferguson, the two largest distributors in the country, and other distributors refused to purchase 

MA Fittings from Star as a direct result of the “full support” policy. By denying Star the 

services of distributors that represented such a large share of the U.S. market, McWane erected a 

barrier to entry the impeded Star’s growth and its ability to most efficiently manufacture MA 

fittings. 

168. McWane could not have imposed a “full support” policy without its exercising 

monopoly power. By implementing its “full support” policy, McWane has been able to maintain 

monopoly power for longer than otherwise, resulting in higher prices than otherwise. 

244 Bhutada Deposition, May 14, 2012, pp. 73-75, 126-131. 

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169. By impeding Star’s access to distribution and thereby its growth, McWane’s “full 

support” program lowered the degree of competition that otherwise would have existed between 

McWane and Star. The result was higher prices and lower consumer welfare. 

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V. McWane Entered the MDA to Eliminate Risk of Independent Sigma Entry; Had 

Sigma Entered, Competition Would Have Been Enhanced 

170. McWane entered the MDA with Sigma to eliminate the risk that Sigma would 

enter into the MA Fittings market as Star was doing. Had Sigma entered independently, 

competition would have been enhanced, and consumer welfare increased. 

171. After passage of the ARRA, Sigma assured its customers that it would be able to 

supply them with domestic Fittings.245 McWane reacted by weighing the risk of independent 

Sigma entry against supplying Sigma with its domestic Fittings, which McWane regarded as “a 

choice of evils as having more Domestic suppliers doesn’t really increase the size of the pie.”246 

On August 18, McWane’s Tatman wrote McWane VPs McCullough and Walton, saying he was 

“not picking up any strong sense that they [Sigma] have a strong alternate path at this point that 

they’d be willing to invest significant $ into.” 247 “As such,” Tatman advised, he would “not 

throw too much $ at this insurance policy [the MDA] . . . .”248 On September 17, apparently 

having concluded that the risk of Sigma investing in an alternate path justified the payment of 

some insurance premium, McWane entered the MDA with Sigma.249 

172. I have been asked by the staff of the Bureau of Competition to consider the 

competitive effects of the MDA under the assumption that Sigma would have entered into the 

MA Fittings market as a domestic manufacturer had the MDA not been signed. Under this 

assumption, the MDA reduced competition in the MA Fittings market that otherwise would have 

lowered prices and increased consumer welfare. 

245 Pais IH, July 23, 2010, pp. 140 - 145.
 

246 TU-FTC-0258025. 

247 TU-FTC-0265821 – 827, p. 0265821. 

248 Ibid. 

249 SIG-00001-21 

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173. If Sigma would have entered into the domestic production of Fittings but for the 

MDA, then the MDA would not be characterized properly as a vertical supply agreement in 

which McWane acted as a supplier of domestic Fittings to a downstream distributor, Sigma. 

Instead, it would be a characterized properly as a horizontal agreement between McWane and 

Sigma that imposed significant restrictions on competition between the two companies. 

174. The MDA greatly restricted the prices at which Sigma could resell McWane’s 

domestic Fittings. The MDA stated that Sigma could sell McWane’s domestic Fittings “at any 

price it deems appropriate [although] it is the unilateral policy of McWane not to appoint or 

continue any OEM distributor who resells McWane Domestic Fittings at a price less than 98% of 

McWane’s published pricing on a weighted average basis for all customers and items sold during 

any given quarterly period....”250 That is, Sigma could regularly discount McWane’s Fittings by 

no more than 2 percent below McWane’s published pricing, irrespective of market conditions, 

competition from Star for a specific project, or any other factor that might cause Sigma to offer a 

distributor a price more than 2 percent below McWane’s published prices. The MDA also 

required Sigma to offer a rebate program of 8 percent or greater rebate to any customer that 

purchased more than $200,000 annually of McWane domestic Fittings or that stocked McWane’s 

domestic Fittings in the normal course of business.251 

175. The MDA not only controlled Sigma’s pricing, but also McWane’s. Sigma 

expressly requested that the same rules on pricing and customers that the MDA required of it 

apply to McWane.252 Moreover, McWane sales managers and production executives explicitly 

requested their salespeople to abide by the restrictions placed on Sigma. “We can’t be moving 

250 SIG-00001 - SIG-00021, p. 00002. 

251 SIG-00001 - SIG-00021, p. 00002. 

252 SIG – 0003947. 

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domestic numbers with our MDA with Sigma. We need to stay stable so let’s keep focused on 

what is happening out there.”253 “Sigma (and in theory Tyler Union [McWane]) is supposed to 

sell within 98% of the published levels.”254 

176. McWane recognized that having multiple suppliers of domestic Fittings would not 

significantly increase the overall size of the MA Fittings market, and that an increase in net 

tonnage of its sales of domestic Fittings for the MA Fittings market would be unlikely.255 The 

demand for fittings is derived from the demand for new sewage treatment plants or clean water 

treatment plants, or new or replacement water and sewage transportation systems. With the price 

of fittings representing only 5 percent or so of the cost of waterworks projects, prices for Fittings 

could be well above competitive levels without having a significant effect on the demand for 

Fittings. 

177. At any given time, multiple suppliers of MA Fittings for use in ARRA projects or 

any other waterworks projects in which they are specified would have been competing for a 

share of a nearly fixed quantity of MA Fittings demanded for waterworks projects. Star’s entry 

alone raised the concern that the domestic market would “get creamed from a pricing 

standpoint.”256 Had Sigma also entered the MA Fittings market prices would likely have fallen 

substantially below the prices McWane had commanded as the sole producer of MA Fittings. 

178. Thus, if Sigma had entered into the domestic production of Fittings rather than 

agreeing to the MDA, consumer welfare would have increased because of the enhanced degree 

253 Tu-FTC-0245518 – 245519, p. 235518 (e-mail from Jerry Jansen to Greg Adams and Marla Drake, 

October 4, 2009) 

254 TU-FTC-0249663 (e-mail from Rick Tatman to Leon G. McCullough and Thomas Watson, December 

13, 2009). 

255 McWane-000264, slide 4. 

256 TU-FTC-0031436 – 31437, p. 31436 

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of competition in the MA Fittings market that Sigma’s entry would have engendered and the 

resulting lower prices. 

VI. Conclusions 

179. Based on my economic analysis, I conclude that Sigma, Star and McWane 

communicated with one another by a variety of methods for the purpose of “stabilizing” falling 

prices and raising prices to higher levels. During certain periods of time Fittings prices increased 

as a result of this communication. 

180. I also conclude that McWane, Sigma, and Star formed DIFRA for the purpose of 

uncovering cheating and “stabilizing” falling prices. To achieve this end, executives from 

McWane, Sigma, and Star not only used information exchanged through DIFRA, but also 

communicated with each other. This communication led to McWane raising price upon receipt of 

the DIFRA data, a price increase that Sigma and Star followed. 

181. I further conclude that McWane used its monopoly power in the domestic 

production of Fittings to prevent or delay Star’s efficient entry into the MA Fittings market. It 

accomplished this end by unilaterally imposing restrictive dealing on distributors, greatly 

diminishing Star’s access to distribution for its products. By exercising its monopoly power in 

this way, I conclude that McWane was able to maintain monopoly power that otherwise would 

have been diminished by Star. 

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Appendix A 

LAURENCE SCHUMANN, PhD 

FEDERAL TRADE COMMISSION
 

BUREAU OF ECONOMICS
 

600 PENNSYLVANIA AVE., NW 

WASHINGTON, DC 20580
 

 Education 

 PhD in Economics, University of Virginia (1986) 

 BA with Distinction, Major in Economics, University of Virginia (1980) 

Current Position 

Federal Trade Commission 

Economist, Bureau of Economics 

March 2008 – Present 

Coordinator – Bureau of Economics Competition Advocacy Program 

December 2008 – September 2010 

Technical Assistance Missions: 

Hue, Vietnam 

Competition Law Enforcement: Experiences from Vietnam and the United 

States, May 13, 2011 

Nha Trang, Vietnam 

Regional Training Workshop: Legal and Economic Framework for Merger 

Analysis, May 9 – 11, 2010 

Budapest, Hungary 

Competition Economics Regional Training Conference, June 1 – 3, 2010 

Nairobi, Kenya 

Workshop On Antitrust Enforcement And Economics, September 22-24, 2009 

Economist, Bureau of Economics 

September 1985 – March 1996 

Previous Positions 

LECG 

Senior Managing Economist
 

June 2006 – February 2008 

CRA International 

Principal 

January 2004 – May 2006 

Glassman-Oliver Economic Consultants 

Vice President 

March 1996–January 2004
 

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Expert Testimony 

Confidential Medical Device Arbitration. Hearing testimony, deposition, and expert 

report (2004). 

Solaia Technologies LLC v. Rockwell Automation, Inc. et al. (Civil Action No. 03 C 

0566), U.S. District Court for the District of Illinois, Eastern Division. Expert report
 

(2003). 

United States of America v. Boston Scientific Corporation (Civ. No. 00-12247-PBS), 

U.S. District Court for the District of Massachusetts. Trial testimony, deposition, and 

expert report (2002). 

Sony Electronics, Inc. et al. v. Soundview Technologies, Inc. (Lead No.: 3:00CV754 

(JBA)), U.S. District Court for the District of Connecticut. Expert Report and affidavit
 

(2002). 

Angelo Prieto, Trustee of the Brett M. Davis Insurance Trust, and Brett M. Davis, 

Individually v. John Hancock Mutual Life Insurance Company, Jim Engram, Individually 

and Jim Engram & Associates (Civil Action No. 3:97-CV-2441-H), U.S. District Court 

for the Northern District of Texas, Dallas Division. Expert report (2000). 

Sacramento Municipal Utility District v. Campbell Soup Company, American Arbitration 

Association. Hearing testimony and deposition (1999). 

Easy Gardner Inc. v. Dalen Products, Inc. (Civil Action No. W97-CA261), U.S. District 

Court for the Western District of Texas, Waco Division. Expert report (1998). 

Bayou Steel Corporation v. United Steelworkers of America et al. (Civil Action No. 95­

496-RPM) U.S. District Court for the District of Delaware. Expert report and deposition
 

(1997). 

Federal Trade Commission v. Boston Scientific Corporation (Civil Action No. 1:95 

CV00198) United States District Court for the District of Columbia. Expert report
 

(1995).
 

Publications 

“Discriminatory Dealing With Downstream Competitors: Evidence From the Cellular 

Industry.” (with David Reiffen and Michael R. Ward), The Journal of Industrial 

Economics 48, September 2000. 

“In the Matter of Weyerhaeuser Company: The Use of a Hold-Separate Order in a 

Merger with Horizontal and Vertical Effects.” (with James D. Reitzes and Robert P. 

Rogers), The Journal of Regulatory Economics 11, May 1997. 

“Patterns of Abnormal Returns and the Competitive Effects of Horizontal Mergers.” The 

Review of Industrial Organization 8, December 1993. 

“The Competitive Effects of Horizontal Mergers in the Hospital Industry: A Closer 

Look.” (With Michael G. Vita), The Journal of Health Economics 10, October 1991. 

“State Regulation of Takeovers and Shareholder Wealth: The Case of New York’s 1985 

Takeover Statutes.” The RAND Journal of Economics 19, winter 1988. 

“Industry Structure with Fluctuating Demand.” (With David E. Mills), The American 

Economic Review 75, September 1985. Reprinted in Small Firms and Economic Growth, 

86 

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Zoltan J. Acs, ed., 1996, Elgar Reference Collection, International Library of Critical 

Writings in Economics, vol. 61. 

	 Research Reports and Other Papers 

“An Economic Analysis Of The Draft Small Open-Flame Regulation Of Upholstered 

Furniture.” (with Lloyd E. Oliver). Report submitted to the staff of the U.S. Consumer 

Product Safety Commission, February 2001. 

“Case Studies of the Price Effects of Horizontal Mergers.” (With Robert P. Rogers and 

James D. Reitzes), Federal Trade Commission, Bureau of Economics Staff Report, April 

1992. 

“Comment on Weidenbaum and Vogt’s ‘Takeovers and Stockholders: Winners and 

Losers.’” (With Robert Stoner), California Management Review (published as a letter to 

the editor), spring 1988. 

“The Effects of FTC Antitrust Challenges on Rival Firms 1981-1987: An Analysis of the 

Use of Stock Returns to Determine the Competitive Effects of Horizontal Mergers.” 

Federal Trade Commission, Bureau of Economics Staff Report, November 1989. 

	 Teaching Experience 

 University of Virginia, Department of Economics 

Visiting Lecturer, The Law and Economics of Antitrust Policy, January 1990– 

May 1990 

Instructor, Intermediate Microeconomics, August 1983–May 1984 

Teaching Assistant, Graduate Econometrics, January 1983–May 1983 

Teaching Assistant, Introductory Economics, August 1982–December 1982 

Teaching Assistant, Introductory Economics, August 1981–May 1982 

	 Journal Referee 

The Journal of Industrial Economics
 

The Journal of Law and Economics
 

The Journal of Law, Economics, & Organization 

The RAND Journal of Economics 

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Appendix B 

Materials Considered 

Books 

	 Carlton, Dennis W. and Perloff, Jeffrey M., Modern Industrial Organization, 4th ed. 

(Boston: Pearson Addison Wesley, 2005). 

 Colander, David C., Microeconomics, 8th ed. (Boston: McGraw-Hill Irwin, 2010). 

 Connor, J.M., Global Price Fixing: Our Customers are the Enemy (Boston: Kluwer 

Academic, 2001). 

 Connor, John M., Global Price Fixing 2nd ed. (Berlin: Springer-Verlag, 2008). 

 Davis, Mackenzie L., Water and Wastewater Engineering: Design Principles and 

Practice (New York: McGraw-Hill, 2010). 

	 Pepall, Lynne, Daniel J. Richards, and George Norman, Industrial Organization: 

Contemporary Theory and Practice, 2nd ed. (Mason, Ohio: South-Western – Cengage 

Learning, 2002). 

	 Williamson, Oliver E., Markets and Hierarchies – Analysis and Antitrust Implications: A 

Study of the Economics of Internal Organization (New York: The Free Press, 1975). 

Articles 

 Asker, John, "Diagnosing Foreclosure due to Exclusive Dealing," (October 14, 2005). 

 Baker, Jonathan, "Market Definition: An Analytical Overview" (2006).
 

 Baker, Jonathan, "Two Sherman Act Section 1 Dilemmas: Parallel Pricing, The 

Oligopoly Problem, and Oligopoly Problem and Contemporary Economic Theory" 38 

Antitrust Bulletin, 143, (1993). 

 Carlton, Dennis and Peltzman, Sam, "Introduction to Stigler's Theory of Oligopoly" 6 

Competition Policy International, 237 (2010). 

	 Carlton, Dennis W., Robert H. Gertner, and Andrew M. Rosenfield, "Communication 

Among Competitors: Game Theory And Antitrust," 5 George Mason Law Review, 423 

(1996-1997). 

 Coase, Ronald H., “The Nature of the Firm,” 4 Economica, 386 (1937). 

 Coate, Malcolm, "Alive and Kicking: Collusion Theories in Merger Analysis at the 

Federal Trade Commission." 

 Connor, John M., "Price-Fixing Overcharges: Revised 2nd Edition," SSRN (2010), 

Available at: http://ssrn.com/abstract=1610262. 

 Farrell, Joseph and Matthew Rabin, “Cheap Talk,” 10 Journal of Economic Perspectives, 

103 (1996). 

 Funderburk, D. R., “Price Fixing in the Liquid-Asphalt Industry: Economic Analysis 

Versus the ‘Hot Document,’” Antitrust Law and Economics Review (1974), pp. 61 – 74. 

 Grout, Paul A. and Silvia Sondegegger, "Predicting Cartels," Office of Fair Trading, 

(March 2005). 

 Harrington, Joseph E. "How do Cartels Operate," (March 27, 2006). 

 Harrington, Joseph E., "Posted Pricing As A Plus Factor," 7 Journal of Competition & 

Economics, 1 (2011). 

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	 Harrington, Joseph E., “Detecting Cartels,” Handbook of Antitrust Economics, ed. Paolo 

Buccirossi, 213 (2008). 

	 Harrington, Joseph E., EARIE Presentation, "The Anatomy of a Cartel Price Path: 

Theory Meets Practice," (August 27,2006). 

	 Hay, George A. and Daniel Kelly, “An Empirical Survey of Price Fixing Conspiracies,” 

17 Journal of Law and Economics, 13 (1974). 

	 Kaplow, Louis, "An Economic Approach To Price Fixing," 77 Antitrust Law Journal, 

343 (2011). 

	 Kaplow, Louis, "Direct Versus Communications-Based Prohibitions on Price Fixing," 3 

Journal of Legal Analysis, 449 (2011). 

	 Kirby, Alison "Trade Associations as Information Exchange Mechanisms," 19 RAND 

Journal of Economics, 138 (1988). 

	 Klein, Benjamin and Andres Lerner, “The Expanded Economics of Free Riding: How 

Exclusive Dealing, Prevents Free-Riding and Creates Undivided Loyalty,” 74 Antitrust 

Law Journal, 474 (2007). 

	 Kovacic, William E., "The Identification and Proof of Horizontal Agreements Under The 

Antitrust Laws," 38 Antitrust Bulletin, 5 (1993). 

	 Kovacic, William E., Robert C. Marshall, and Leslie M. Marx, "Plus Factors and 

Agreement in Antitrust Law," 110 Michigan Law Review, 393 (2011). 

	 Lafontaine, Francine "Exclusive Contracts and Vertical Restraints: Empirical Evidence 

and Public Policy," (September 2005). 

	 Levenstein, Margaret C. and Valerie Y. Suslow, “What Determines Cartel Success,” 44 

Journal of Economic Literature, (2006). 

	 McAfee, Preston R., Hugo M. Mialon, and Michael A. Williams, “What Is a Barrier to 

Entry?,” 94 The American Economic Review, 461 (2004). 

	 Posner, Richard A., "Information and Antitrust: Reflections on the Gypsum and 

Engineers Decisions," 67 Georgetown Law Review, 1188 (1978-1979). 

	 Posner, Richard A., "Oligopoly and the Antitrust Laws: A Suggested Approach,"21 

Stanford Law Review, 1562 (1969). 

	 Rasmusen, Eric B., J. Mark Ramseyer, and John S. Wiley, Jr., “Naked Exclusion,” 

American Economic Review, 1137 (1991). 

	 Schmalensee, Richard, “Sunk Costs and Antitrust Barriers to Entry,” 94 American 

Economic Review, 471 (2004). 

	 Segal, Ilya R. and Michael D. Whinston, “Naked Exclusion: Comment,” 90 American 

Economic Review, 296 (2000). 

	 Simpson, John and Abraham L. Wickelgren, “Naked Exclusion, Efficient Breach, and 

Downstream Competition,” 97 American Economic Review, 1305 (2007). 

	 Stigler, George J., “A Theory of Oligopoly,” 72 Journal of Political Economy, 44 (1964). 

	 Wright, Joshua D., "An Evidence-Based Approach to Exclusive Dealing and Loyalty 

Discounts," Online Magazine for Global Competition Policy, (July, 2009), Available at: 

http://ssrn.com/abstract_id=1434406. 

	 Yao, Dennis A. and Susan S. DeSanti, "Game Theory and the Legal Analysis of Tacit 

Collusion," 38 Antitrust Bulletin, 113 (1993). 

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Transcripts and Exhibits Type 

10.11.16 Thees, Bill IH Tr and Exhibits 

11.01.11 Sheley, James IH Tr and Exhibits 

11.02.11 Morrison, Edward IH Tr and Exhibits 

10.12.14 Groeniger, Michael IH Tr and Exhibits 

10.11.19 Webb, Jerry IH Tr and Exhibits 

11.01.13 Coryn, Michael IH Tr and Exhibits 

11.01.04 Prescott, Peter IH Tr and Exhibits 

11.01.28 Gibbs, Roger IH Tr and Exhibits 

10.10.29 Pitts, Roy IH Tr and Exhibits 

11.01.26 Johnson, Wayne IH Tr and Exhibits 

10.08.12 McCullough, Leon IH Tr and Exhibits 

10.07.21 Tatman, Richard IH Tr and Exhibits 

10.08.06 Rona, Mitchell IH Tr and Exhibits 

10.07.23 Pais, Victor IH Tr and Exhibits 

10.06.04 Agarwal, Bharat IH Tr and Exhibits 

10.06.04 Agarwal, Tilak IH Tr and Exhibits 

10.10.12 McCutheon, Dan IH Tr and Exhibits 

10.10.12 Bhutada, Ramesh IH Tr and Exhibits 

11.11.10 Minamyer, Mathew IH Tr and Exhibits 

12.03.16 Haley, Richard Depo Tr and Exhibits 

12.04.11 Pitts, Roy Depo Tr and Exhibits 

12.04.17 Fairbanks, Karen Depo Tr and Exhibits 

12.04.17 Fairbanks, Richard Depo Tr and Exhibits 

12.04.24 Ewing, Lee Ann Depo Tr and Exhibits 

12.04.24 Frazier, Charles Depo Tr and Exhibits 

12.04.24 Gupta, VJ Depo Tr and Exhibits 

12.04.24 Sheley, Dennis Depo Tr and Exhibits 

12.04.26 Glidewell, David Depo Tr and Exhibits 

12.04.30 Morrison, Edward Depo Tr and Exhibits 

12.05.02 Box, Stuart Depo Tr and Exhibits 

12.05.02 Swalley, Danny Depo Tr and Exhibits 

12.05.04 Brakefield, Tom Depo Tr and Exhibits 

12.05.08 Hall, Eddie Depo Tr and Exhibits 

12.05.08 Prescott, Everett Depo Tr and Exhibits 

12.05.09 Jansen, Jerry Depo Tr and Exhibits 

12.05.09 Minamyer, Matt Depo Tr and Exhibits 

12.05.10 Tatman, Richard Depo Tr and Exhibits 

12.05.11 Groeniger, Michael Depo Tr and Exhibits 

12.05.14 Bhutada, Ramesh Depo Tr and Exhibits 

12.05.14 Meyer, Mark Depo Tr and Exhibits 

12.05.14 Rybacki, Lawrence Depo Tr and Exhibits 

12.05.15 Keffer, Jim Depo Tr and Exhibits 

12.05.16 Coryn, Michael Depo Tr and Exhibits 

12.05.16 McCutcheon, Dan Depo Tr and Exhibits 

12.05.17 Burns, Jerry Depo Tr and Exhibits 

90 

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12.05.17 Hays, Michael Depo Tr and Exhibits 

12.05.17 Teske, Thomas Depo Tr and Exhibits 

12.05.18 Rona, Mitchell Depo Tr and Exhibits 

12.05.22 McCullough, Leon Depo Tr and Exhibits 

12.05.22 Backman, Alan Depo Tr and Exhibits 

12.05.24 Page, Ruffner Depo Tr and Exhibits 

12.05.24 Kuhrts, Douglas Depo Tr and Exhibits 

12.05.25 Bharat, Agarwal Depo Tr and Exhibits 

12.05.29 Bhattacharji, Siddarth Depo Tr and Exhibits 

12.05.29 Nowlin, Charles Depo Tr and Exhibits 

12.05.30 Morton, Thomas Depo Tr and Exhibits 

12.05.30 Napoli, Vincent Depo Tr and Exhibits 

12.05.30 Webb, Jerry Depo Tr and Exhibits 

12.05.31 Crawford, Gary Depo Tr and Exhibits 

12.05.31 Leider, Leroy Depo Tr and Exhibits 

12.05.31 Pais, Victor Depo Tr and Exhibits 

12.05.31 Long, Thad Depo Tr and Exhibits 

12.05.31 Walton, Thomas Depo Tr and Exhibits 

12.06.01 Berry, Michael Depo Tr and Exhibits 

12.06.01 Thees, William Depo Tr and Exhibits 

Correspondence 

 2010.05.03 Sigma White Paper 

 2010.09.30 Sigma White Paper 

 2010.10.20 Sigma WP (DIFRA) 

 2010.10.20 Sigma WP (MDA) 

 2011.05.10 McWane White Paper 

 2011.05.12 McWane White Paper 

 2010.06.01 6:32 pm E-mail to Renner from Stargard 

 2011.05.26 Letter to Renner from Stargard re: Available DIWF distributors 

 2012.03.06 Letter to Lavery from Hitsky re: Enclosing US Pipe production 

 2012.03.21 Letter to Brock from Lavery re: US Pipe Documents 

 2012.04.06 3:23 pm E-mail to Holleran from Lavery 

 2012.04.06 3:49 pm E-mail to Holleran from Lavery 

 2012.04.18 1:33 pm E-mail to Holleran from Lavery 

 2012.04.26 7:04 pm E-mail to Bloom from Williams re: Sales Transaction Spreadsheets 

(FTC-DIPF-03557) 

 2012.04.27 12:22 pm E-mail to Bloom from Williams re: Sales Transaction Spreadsheets 

(FTC-DIPF-03550) 

 2012.05.10 9:20 am E-mail to Bloom from Leckerman re: Questions re Sigma Product 

Descriptions (FTC-DIPF-03571) 

 2012.05.10 9:35 pm E-mail to Bloom from Leckerman re: CONFIDENTIAL-- FTC 

Docket #9351 - Sample Rebate Data from SIGMA (FTC-DIPF-03572) 

 2012.05.14 9:36 am E-mail to Bloom from Lavery 

91 

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Data Company 

DALLAS_2862759_1.XLS (Star) Star Pipe 

DALLAS_2864221_2.XLS (Star) Star Pipe 

DALLAS_2873056_1.XLS Star Pipe 

Fitting Purchases - 2003 - USP-FTC_00000018 US Pipe/Mueller 

Fitting Purchases - 2004 - USP-FTC_00000019 US Pipe/Mueller 

Fitting Purchases - 2005 - USP-FTC_00000020 US Pipe/Mueller 

Fitting Purchases - 2006 - USP-FTC_00000021 US Pipe/Mueller 

Fitting Purchases - 2007 - USP-FTC_00000022 US Pipe/Mueller 

Fitting Purchases - 2008 - USP-FTC_00000023 US Pipe/Mueller 

Fitting Purchases - 2009 - USP-FTC_00000024 US Pipe/Mueller 

Fitting Purchases - 2010 - USP-FTC_00000025 US Pipe/Mueller 

Fittings sales - USP-FTC_00000026 US Pipe/Mueller 

FTC-SIGMA-000001 (Audit Data).mdb Sigma 

Itemdescription.xls Sigma 

mcwane_sales_data_2008_2010_q1.dta McWane 

McWane-007664.xlsx through McWane-007685.xlsx McWane 

STAR0000001_FTC Docket No. 9351_Confidential.xlsx Star Pipe 

STAR0000008_FTC Docket No. 9351_Confidential.xls Star Pipe 

STAR0182054_FTC Docket No. 9351_Confidential.xlsx Star Pipe 

Commission Documents/ALJ Filings 

 Subpoena Duces Tecum Issued to DIFRA, 2010-08-06 

 Transcript of Scheduling Conf of 2012.02.13 

 McWane-Star - ALJ Designation 

 McWane-Star FTC Press Release 

 McWane-Star Complaint 

 Sigma - Decision and Order 

 Sigma - Statement of Commissioner Rosch 

 Sigma Agreement 

 Sigma Complaint 

 Sigma Press Release 

 Subpoena Duces Tecum Issued to McWane, 2010-03-17 

 Subpoena Duces Tecum Issued to McWane (Modification), 2010-04-02 

 Subpoena Duces Tecum Issued to McWane (Modification), 2010-04-30 

 Subpoena Ad Testificandum Issued to Tatman (McWane), 2010-06-21 

 Subpoena Duces Tecum Issued to Sigma, 2010-03-17 

 Subpoena Duces Tecum Issued to Sigma (Modification), 2010-04-01 

 Subpoena Duces Tecum Issued to Star, 2010-03-17 

 Subpoena Duces Tecum Issued to Star (Modification), 2010-04-02 

 McWane’s Answer to the Federal Trade Commission’s Administrative Complaint, 2012.02.02 

 McWane's Responses to CC's RFAs, 2012.06.08 

92 

CX 2260-A-094
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Miscellaneous 

 The Pennsylvania Steel Products Procurement Act, 73 Pa. Stat. §§ 1881-1887 

 US EPA, Memorandum From James A. Hanlon, Director, Office of Wastewater Management and 

Cynthia C. Dougherty, Director, Office of Ground Water and Drinking Water To Water 

Management Division Directors, April 28, 2009 

 2012.02.09 Complaint in Water Line Supply v. McWane 

 2010 FTC/DOJ Horizontal Merger Guidelines 

 1997 FTC/DOJ Horizontal Merger Guidelines 

 H.R. 1, American Recovery and Reinvestment Act of 2009 (ARRA), Public Law 111-5, Feb. 17, 

2009 

 Ductile Iron Pipe Research Association, www.dipra.org, “About Ductile Iron Pipe,” 

http://www.dipra.org/benefits-of-dip/benefits-of-di-pipes/ 

 QIT-Fer et Titane Inc, Ductile Iron Data for Design Engineers, Revised and Reprinted (Montreal: 

Rio Tinto Iron & Titanium, Inc., 1998), available from metalwebnews.org/ftp/didata.pdf and The 

Ductile Iron Society (http://www.ductile.org/didata/default.htm) 

 http://www.awwa.org 

 http://www.census.gov/construction/c30/totpage.html 

 http://www.hajoca.com 

 http://www.nobelprize.org/nobel_prizes/economics/laureates/1994/press.html 

 http://www.recovery.gov/Transparency/fundingoverview/Pages/fundingbreakdown.aspx 

 HD Supply Interview (Jerry Webb and others), Elkridge, MD, April 12, 1012 

 Frazier and Frazier Interview (Charles Frazier), May 25, 2012 

 Star Pipe Interview (Rishi Bhutada), May 25, 2012 

Documents (Beginning Bates Number) Company 

ACIP000003 ACIPCO 

ACIP000018 ACIPCO 

ACIP000019 ACIPCO 

DIFRA-000496 DIFRA 

DIFRA-000497 DIFRA 

DIFRA-000498 DIFRA 

E00000787 Star Pipe 

E00002878 Star Pipe 

E00002879 Star Pipe 

E00006631 Star Pipe 

E00006633 Star Pipe 

E00006640 Star Pipe 

E00006642 Star Pipe 

E00007035 Star Pipe 

E00007132 Star Pipe 

E00014599 Star Pipe 

E00016058 Star Pipe 

E00017339 Star Pipe 

E00020779 Star Pipe 

E00020779 Star Pipe 

E00025630 Star Pipe 

E00026239 Star Pipe 

93 

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E00044444 Star Pipe 

E00046819 Star Pipe 

E00047705 Star Pipe 

E00047705 Star Pipe 

E00047856 Star Pipe 

E00048297 Star Pipe 

E00063548 Star Pipe 

E00064106 Star Pipe 

E00064108 Star Pipe 

E00064110 Star Pipe 

E0010379 Star Pipe 

ESP00001138 Star Pipe 

ESP0001102 Star Pipe 

ESP0001105 Star Pipe 

ESP0001113 Star Pipe 

ESP0001122 Star Pipe 

ESP0001138 Star Pipe 

ESP0001468 Star Pipe 

ESP0001988 Star Pipe 

ESP0002164 Star Pipe 

ESP0002166 Star Pipe 

ESP0002168 Star Pipe 

ESP0002170 Star Pipe 

ESP0002172 Star Pipe 

ESP0002174 Star Pipe 

ESP0002176 Star Pipe 

ESP0002178 Star Pipe 

ESP0002185 Star Pipe 

ESP0002310 Star Pipe 

ESP0002578 Star Pipe 

ESP0002933 Star Pipe 

ESP0002937 Star Pipe 

ESP0002976 Star Pipe 

ESP0003012 Star Pipe 

ESP0003036 Star Pipe 

ESP0003054 Star Pipe 

ESP0003083 Star Pipe 

ESP0003092 Star Pipe 

ESP0003143 Star Pipe 

ESP0003145 Star Pipe 

ESP0004665 Star Pipe 

FEI-00000002 Ferguson 

FEI-00002420 Ferguson 

HAJ00001 Hajoca 

HAJ000043 Hajoca 

HAJ000045 Hajoca 

94 

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HAJ000046 Hajoca 

HAJ000053 Hajoca 

HAJ000055 Hajoca 

HAJ000058 Hajoca 

HDSWW000001 HD Supply 

HDSWW000002 HD Supply 

HDSWW000005 HD Supply 

HDSWW000006 HD Supply 

HDSWW000008 HD Supply 

HDSWW000018 HD Supply 

HDSWW000019 HD Supply 

HDSWW000023 HD Supply 

HDSWW000031 HD Supply 

HDSWW000033 HD Supply 

HDSWW000035 HD Supply 

HDSWW000039 HD Supply 

HDSWW000042 HD Supply 

HDSWW000044 HD Supply 

HDSWW000048 HD Supply 

HDSWW000053 HD Supply 

HDSWW000054 HD Supply 

HDSWW000055 HD Supply 

HDSWW000056 HD Supply 

HDSWW000057 HD Supply 

HDSWW001395 HD Supply 

McWane-000002 McWane 

McWane-000044 McWane 

McWane-000053 McWane 

McWane-000057 McWane 

McWane-000061 McWane 

McWane-000098 McWane 

McWane-000149 McWane 

McWane-000177 McWane 

McWane-000263 McWane 

McWane-000264 McWane 

McWane-000353 McWane 

McWane-000367 McWane 

McWane-000387 McWane 

McWane-000423 McWane 

McWane-000449 McWane 

McWane-000668 McWane 

McWane-001199 McWane 

McWane-001295 McWane 

McWane-001337 McWane 

McWane-001338 McWane 

McWane-001339 McWane 

95 

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McWane-001532 McWane 

McWane-001564 McWane 

McWane-001623 McWane 

McWane-001633 McWane 

McWane-002051 McWane 

McWane-002053 McWane 

McWane-002057 McWane 

McWane-002058 McWane 

McWane-002061 McWane 

McWane-002063 McWane 

McWane-002065 McWane 

McWane-002123 McWane 

McWane-002124 McWane 

McWane-002125 McWane 

McWane-002346 McWane 

McWane-002357 McWane 

McWane-002441 McWane 

McWane-002443 McWane 

McWane-002537 McWane 

McWane-002545 McWane 

McWane-002660 McWane 

McWane-002693 McWane 

Mcwane-002701 McWane 

McWane-003527 McWane 

McWane-005120 McWane 

McWane-005127 McWane 

McWane-006982 McWane 

McWane-007396 McWane 

McWane-007403 McWane 

McWane-007404 McWane 

McWane-007408 McWane 

McWane-007420 McWane 

McWane-007472 McWane 

McWane-007526 McWane 

McWane-007527 McWane 

McWane-007528 McWane 

McWane-007636 McWane 

McWane-007642 McWane 

McWane-007647 McWane 

McWane-007654 McWane 

McWane-007658 McWane 

McWane-007661 McWane 

McWane-007663 McWane 

McWane-008871 McWane 

McWane-008877 McWane 

McWane-009447 McWane 

96 

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McWane-009851 McWane 

McWane-010391 McWane 

McWane-013785 McWane 

McWane-013885 McWane 

McWane 014242 McWane 

McWane-014477 McWane 

McWane-014478 McWane 

McWane-014479 McWane 

McWane-014480 McWane 

McWane-014481 McWane 

McWane-014766 McWane 

McWane-014929 McWane 

McWane-015035 McWane 

McWane-017096 McWane 

McWane-017097 McWane 

McWane-017098 McWane 

McWane-017099 McWane 

McWane-017100 McWane 

McWane-017936 McWane 

McWane 018123 McWane 

McWane-018576 McWane 

McWane-018917 McWane 

McWane-018918 McWane 

McWane-018919 McWane 

McWane-018931 McWane 

McWane-018933 McWane 

McWane-020208 McWane 

McWane--021672 McWane 

McWane-021730 McWane 

McWane-021731 McWane 

McWane-021783 McWane 

McWane-021815 McWane 

McWane-021823 McWane 

McWane-021826 McWane 

McWane-022094 McWane 

McWane-024626 McWane 

McWane-025793 McWane 

McWane-026143 McWane 

McWane-049391 McWane 

McWane-080882 McWane 

McWane-081013 McWane 

McWane-083995 McWane 

McWane-083995 McWane 

McWane-114691 McWane 

McWane-123857 McWane 

McWane-184638 McWane 

97 

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McWane-184638 McWane 

McWane-215911 McWane 

McWane-264005 McWane 

MESP0000334 Star Pipe 

MESP0000346 Star Pipe 

MESP0000405 Star Pipe 

MESP0000580 Star Pipe 

MESP0000590 Star Pipe 

MESP0000598 Star Pipe 

MESP0000729 Star Pipe 

MESP0002125 Star Pipe 

MESP0002842 Star Pipe 

MESP0003704 Star Pipe 

MESP0004043 Star Pipe 

MESP0005028 Star Pipe 

MESP0005162 Star Pipe 

MESP0005208 Star Pipe 

MESP0005560 Star Pipe 

MESP0006559 Star Pipe 

MESP0009348 Star Pipe 

MESP0010300 Star Pipe 

MESP0010381 Star Pipe 

MESP0010393 Star Pipe 

MESP0010418 Star Pipe 

MESP0010500 Star Pipe 

MESP0012118 Star Pipe 

MESP0012240 Star Pipe 

MESP0012240 Star Pipe 

Q001SP0000001 Star Pipe 

Q001SP0000971 Star Pipe 

Q002SP0000328 Star Pipe 

Q002SP0000347 Star Pipe 

Q002SP0000348 Star Pipe 

Q002SP0000351 Star Pipe 

Q002SP0000361 Star Pipe 

Q002SP0000385 Star Pipe 

Q002SP0000395 Star Pipe 

Q003SP0000070 Star Pipe 

Q003SP0000110 Star Pipe 

Q005SP0000002 Star Pipe 

Q006SP0000052 Star Pipe 

Q006SP0000111 Star Pipe 

Q006SP0000145 Star Pipe 

Q006SP0000147 Star Pipe 

Q006SP0000148 Star Pipe 

Q006SP0000789 Star Pipe 

98 

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Q006SP0000791 Star Pipe 

Q006SP0000805 Star Pipe 

Q006SP0000810 Star Pipe 

Q006SP0000811 Star Pipe 

Q006SP0000818 Star Pipe 

Q006SP0000826 Star Pipe 

Q006SP0000832 Star Pipe 

Q006sp0000845 Star Pipe 

Q006SP0000853 Star Pipe 

Q006SP0000886 Star Pipe 

Q006SP0000890 Star Pipe 

Q006SP0000892 Star Pipe 

Q006SP0000897 Star Pipe 

Q006SP0000904 Star Pipe 

Q006sp0000907 Star Pipe 

Q006SP0000922 Star Pipe 

Q006SP0000922 Star Pipe 

Q006SP0000929 Star Pipe 

Q006SP0000933 Star Pipe 

Q006SP0000940 Star Pipe 

Q006SP0000950 Star Pipe 

Q006SP0000963 Star Pipe 

Q006SP0000964 Star Pipe 

Q006SP0000966 Star Pipe 

Q006SP0001021 Star Pipe 

Q0075SP0000316 Star Pipe 

Q007SP0000056 Star Pipe 

Q007SP0000056 Star Pipe 

Q007SP0000118 Star Pipe 

Q007SP000118 Star Pipe 

Q010SP0000067 Star Pipe 

Q010SP0000375 Star Pipe 

Q010SP0000390 Star Pipe 

Q010SP0000594 Star Pipe 

Q011SP0000002 Star Pipe 

Q011SP0000214 Star Pipe 

Q011SP0000220 Star Pipe 

Q011SP0000226 Star Pipe 

Q011SP0000237 Star Pipe 

Q011SP0000253 Star Pipe 

Q011SP0000276 Star Pipe 

Q011SP0000277 Star Pipe 

Q011SP0000279 Star Pipe 

Q011SP0000280 Star Pipe 

Q011SP0000282 Star Pipe 

Q011SP0000288 Star Pipe 

99 

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Q011SP0000288 Star Pipe 

Q011SP0000292 Star Pipe 

Q011SP0000306 Star Pipe 

Q011SP0000315 Star Pipe 

Q011SP0000704 Star Pipe 

Q011SP0000706 Star Pipe 

Q012SP0000003 Star Pipe 

Q012SP0000026 Star Pipe 

Q012SP0000065 Star Pipe 

Q012SP0000479 Star Pipe 

Q014SP0000001 Star Pipe 

Q014SP0000137 Star Pipe 

Q014SP0000176 Star Pipe 

Q014SP0000196 Star Pipe 

Q014SP0000538 Star Pipe 

Q014SP0001173 Star Pipe 

SIG-00001 Sigma 

SIG-0000640 Sigma 

SIG-0000686 Sigma 

SIG-0000778 Sigma 

SIG-0000799 Sigma 

SIG-0000825 Sigma 

SIG-0001027 Sigma 

SIG-0001415 Sigma 

SIG-0001429 Sigma 

SIG-0001505 Sigma 

SIG-0001510 Sigma 

SIG-0001523 Sigma 

SIG-0001524 Sigma 

SIG-0001526 Sigma 

SIG-0001545 Sigma 

SIG-0001553 Sigma 

Sig-0001556 Sigma 

SIG-0001557 Sigma 

SIG-0001559 Sigma 

SIG-0001559 Sigma 

SIG-0001814 Sigma 

SIG-0002046 Sigma 

SIG-0002079 Sigma 

SIG-0002497 Sigma 

SIG-0002517 Sigma 

SIG-0002517 Sigma 

SIG–0002517 Sigma 

SIG-0002563 Sigma 

SIG-0002591 Sigma 

SIG-0002602 Sigma 

100 

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SIG-0002611 Sigma 

SIG-0002627 Sigma 

SIG-0002680 Sigma 

SIG-0002793 Sigma 

SIG-0002815 Sigma 

SIG-0002863 Sigma 

SIG-0003123 Sigma 

SIG-0003149 Sigma 

SIG-0003150 Sigma 

SIG-0003184 Sigma 

SIG-0003213 Sigma 

SIG-0003224 Sigma 

SIG-0003227 Sigma 

SIG-0003508 Sigma 

SIG-0003947 Sigma 

SIG-0004963 Sigma 

SIG-0005011 Sigma 

SIG-0005229 Sigma 

SIG-0005602 Sigma 

SIG-0005624 Sigma 

SIG-0005644 Sigma 

SIG-0005750 Sigma 

SIG-0005839 Sigma 

SIG-0005856 Sigma 

SIG-0005899 Sigma 

SIG-0005974 Sigma 

SIG-0006049 Sigma 

SIG-0006230 Sigma 

SIG-0006230 Sigma 

SIG-0006431 Sigma 

SIG-0006592 Sigma 

SIG-0006769 Sigma 

SIG-0006850 Sigma 

SIG-0006852 Sigma 

SIG-0006973 Sigma 

SIG-0007076 Sigma 

SIG-0007142 Sigma 

SIG-0007771 Sigma 

SIG-0007852 Sigma 

SIG-0008015 Sigma 

SIG-0008049 Sigma 

SIG-0008050 Sigma 

SIG-0008065 Sigma 

SIG-0008133 Sigma 

SIG-0008179 Sigma 

SIG-0008207 Sigma 

101 

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SIG-0008278 Sigma 

SIG-0008749 Sigma 

SIG-0008818 Sigma 

SIG-0009054 Sigma 

SIG-0009657 Sigma 

SIG-0009756 Sigma 

SIG-0009760 Sigma 

SIG-0009779 Sigma 

SIG-0009844 Sigma 

SIG-0009845 Sigma 

SIG-0009857 Sigma 

SIG-0009894 Sigma 

SIG-0009956 Sigma 

SIG-0009975 Sigma 

SIG-0010898 Sigma 

SIG-0011038 Sigma 

SIG-0011253 Sigma 

SIG-0013004 Sigma 

SIG-0013281 Sigma 

SIG-0014008 Sigma 

SIG-0014343 Sigma 

SIG-0014344 Sigma 

SIG-0014852 Sigma 

SIG-0016570 Sigma 

SIG-0016744 Sigma 

SIG-0016773 Sigma 

SIG-0016817 Sigma 

SIG-0017142 Sigma 

SIG-0017303 Sigma 

SIG-0018232 Sigma 

SIG-0018577 Sigma 

SIG-0018808 Sigma 

SIG-0019672 Sigma 

SIG-0019673 Sigma 

SIG-0020035 Sigma 

SIG-0022881 Sigma 

SIG-0023115 Sigma 

SIG-0023804 Sigma 

SIG-0023918 Sigma 

SIG-0025354 Sigma 

SIG-0025767 Sigma 

SIG-0025783 Sigma 

SIG-0025847 Sigma 

SIG-0025856 Sigma 

SIG-0026585 Sigma 

SIG-0026888 Sigma 

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SIG-0027588 Sigma 

SIG-0029504 Sigma 

SIG-0030706 Sigma 

SIG-0030709 Sigma 

SIG-0031214 Sigma 

SIG-0031373 Sigma 

SIG-0031590 Sigma 

SIG-0031981 Sigma 

SIG-0031982 Sigma 

SIG-0031983 Sigma 

SIG-0031984 Sigma 

SIG-0031985 Sigma 

SIG-0031999 Sigma 

SIG-0032461 Sigma 

SIG-0032491 Sigma 

SIG-0033417 Sigma 

SIG-0033569 Sigma 

SIG-0033686 Sigma 

SIG-0033693 Sigma 

SIG-0033698 Sigma 

SIG-0033713 Sigma 

SIG-0033723 Sigma 

SIG-0033727 Sigma 

SIG-0033727 Sigma 

SIG-0033753 Sigma 

SIG-0033768 Sigma 

SIG-0033851 Sigma 

SIG-0033854 Sigma 

SIG-0033863 Sigma 

SIG-0033880 Sigma 

SIG-0033889 Sigma 

SIG-0033893 Sigma 

SIG-0033895 Sigma 

SIG-0033899 Sigma 

SIG-0033927 Sigma 

SIG-0033929 Sigma 

SIG-0033939 Sigma 

SIG-0033947 Sigma 

SIG-0033950 Sigma 

SIG-0033951 Sigma 

SIG-0034036 Sigma 

SIG-0034050 Sigma 

SIG-0034210 Sigma 

SIG-0034406 Sigma 

SIG-0034420 Sigma 

SIG-0034424 Sigma 

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SIG-0034453 Sigma 

SIG-0034500 Sigma 

SIG-0034503 Sigma 

SIG-0034765 Sigma 

SIG-0034806 Sigma 

SIG-0034827 Sigma 

SIG-0034860 Sigma 

SIG-0036980 Sigma 

SIG-0037389 Sigma 

SIG-0038617 Sigma 

SIG-0039631 Sigma 

SIG-0039632 Sigma 

SIG-0040121 Sigma 

SIG-0040241 Sigma 

SIG-0040326 Sigma 

SIG-0052160 Sigma 

SIG-0052897 Sigma 

SIG-0053116 Sigma 

SIG-0053145 Sigma 

SIG-0053328 Sigma 

SIG-0053393 Sigma 

SIG-0053393 Sigma 

SIG-0053397 Sigma 

SIG-0053404 Sigma 

SIG-0053608 Sigma 

SIG0054441 Sigma 

SIG-0054441 Sigma 

SIG-0054525 Sigma 

SIG-0055257 Sigma 

SIG-0055257 Sigma 

SIG-0055497 Sigma 

SIG-0055586 Sigma 

SIG-0055830 Sigma 

SIG-0056075 Sigma 

SIG-0056509 Sigma 

SIG-0057822 Sigma 

SIG-0057840 Sigma 

SIG-0057850 Sigma 

SIG-0057961 Sigma 

SIG-0057981 Sigma 

SIG-0057983 Sigma 

SIG-0057997 Sigma 

SIG-0058000 Sigma 

SIG-0058090 Sigma 

SIG-0058149 Sigma 

SIG-0058296 Sigma 

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SIG-0058408 Sigma 

SIG-0058464 Sigma 

SIG-0058464 Sigma 

SIG-0058519 Sigma 

SIG-0059185 Sigma 

SIG-0059439 Sigma 

SIG-0059921 Sigma 

SIG-0060075 Sigma 

SIG-0060408 Sigma 

SIG-0060494 Sigma 

SIG-0060579 Sigma 

SIG-0060590 Sigma 

SIG-0060605 Sigma 

SIG-0060609 Sigma 

SIG-0060688 Sigma 

SIG-0060922 Sigma 

SIG-0061257 Sigma 

SIG-0061257 Sigma 

SIG-0064003 Sigma 

SIG-0068486 Sigma 

SIG-0068502 Sigma 

SIG-0068520 Sigma 

SIG-0068525 Sigma 

SIG-0068559 Sigma 

SIG-0068560 Sigma 

SIGTP00000011 Sigma 

SIGTP00000024 Sigma 

SIGTP00000025 Sigma 

SIGTP00002343 Sigma 

SIGTP00008831 Sigma 

SIGTP00016204 Sigma 

SIGTP00077529 Sigma 

SPP000083 Star Pipe 

SPP000086 Star Pipe 

SPP000087 Star Pipe 

SPP000566 Star Pipe 

SPP000595 Star Pipe 

SPP001585 Star Pipe 

SPP001586 Star Pipe 

SPP001587 Star Pipe 

SPP001588 Star Pipe 

SPP001596 Star Pipe 

SPP001611 Star Pipe 

SPP001653 Star Pipe 

SPP001913 Star Pipe 

SPP002005 Star Pipe 

105 

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SPP002165 Star Pipe 

SPP006965 Star Pipe 

SPP007112 Star Pipe 

SPP007839 Star Pipe 

SPP007943 Star Pipe 

SPP007945 Star Pipe 

SPP008017 Star Pipe 

SPP008727 Star Pipe 

SPP008831 Star Pipe 

SPP009151 Star Pipe 

SPP009416 Star Pipe 

SPP009419 Star Pipe 

SPP009421 Star Pipe 

SPP009483 Star Pipe 

SPP009486 Star Pipe 

SPP009546 Star Pipe 

SPP009547 Star Pipe 

SPP009721 Star Pipe 

SPP010967 Star Pipe 

SPP012897 Star Pipe 

SPP012920 Star Pipe 

SPP013388 Star Pipe 

SPP014402 Star Pipe 

SPP014428 Star Pipe 

SPP014993 Star Pipe 

SPP015973 Star Pipe 

SPP016030 Star Pipe 

SPP016044 Star Pipe 

SPP017011 Star Pipe 

SPP017525 Star Pipe 

SPP020348 Star Pipe 

SPP020358 Star Pipe 

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PUBLIC RECORD

ATTACHMENT B 
__________________________________________ 

 

 

 

PUBLIC

UNITED STATES OF AMERICA 

BEFORE THE FEDERAL TRADE COMMISSION 

In the Matter of ) 

) 

McWANE, INC., ) 

) 

a corporation, ) DOCKET NO. 9351 

) 

Respondent. ) 

_________________________________________ ) 

REBUTTAL EXPERT REPORT OF LAURENCE SCHUMANN, PH.D. 

CX 2265-A-001
PUBLIC

Rebuttal Expert Report of Laurence Schumann, Ph.D. 

Table of Contents 

I. Introduction and Summary .......................................................................................... 1
 

II. Dr. Normann’s “Tests” and Data Analyses Are Not Grounded or Supported by the 

Factual Record or Economic Theory and Context .............................................................. 4
 

III. Dr. Normann Bases Conclusions on Flawed and Meaningless “Price” Data .......... 9
 

IV. Dr. Normann’s Empirical Analyses Do Not Comport with Basic Statistical and 

Econometric Methods ....................................................................................................... 18
 

V. Specific Critiques of Dr. Normann’s Figures and Related Conclusions ............... 20
 

VI. Dr. Normann’s Response to the Schumann Report ............................................... 52
 

VII. Conclusions ............................................................................................................ 61
 

Appendix A ....................................................................................................................... 64
 

Appendix B ....................................................................................................................... 66 

Appendix C...........................................................................................68 

ii 

CX 2265-A-002
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Rebuttal Expert Report of Laurence Schumann 

I. Introduction and Summary 

1. I am an economist on the staff of the Federal Trade Commission. My 

qualifications, including my areas of expertise and my curriculum vitae, are set forth in the 

Expert Report of Laurence Schumann, Ph.D., filed on June 15, 2012. I incorporate that 

documentation by reference. 

2.	 In my Expert Report, I arrived at the following opinions: 

A.	 The Fittings market is highly concentrated, with few sellers of any 

significance. It has a large number of unconcentrated buyers and 

homogeneous products with inelastic demand. Further, the market had a 

trade association, DIFRA, exhibited significant barriers to entry, and faced 

a social structure conducive to regular interaction and communication 

among suppliers’ senior executives. 

B.	 Economic theory and empirical studies indicate that markets with these 

characteristics are susceptible to collusion. 

C.	 McWane, Sigma, and Star communicated with one another by a variety of 

methods for the purpose of “stabilizing” falling prices and raising prices to 

higher levels. 

D.	 McWane, Sigma, and Star established DIFRA, the Fittings trade 

association, for the express purpose of fostering coordination and 

collusion through the exchange of competitively sensitive information. 

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Confidential – Subject to Protective Order 

E.	 Participation in the DIFRA information exchange, along with certain 

communications among the companies, directly resulted in a price-fixing 

accord. 

F.	 McWane exercised monopoly power to impose its restrictive “full 

support” program for the purpose of preventing or delaying Star’s efficient 

entry into the Made in America (“MA”) Fittings market. 

G.	 By impeding Star’s access to distribution, McWane erected a significant 

antitrust barrier to entry and maintained its monopoly power by preventing 

the degree of competition between McWane and Star that otherwise would 

have occurred. 

H.	 McWane’s exercise of monopoly power caused customers to endure 

periods in which prices were higher than they otherwise would have been 

and reduced consumer welfare. 

I.	 McWane entered the MDA with Sigma to eliminate the risk that Sigma 

would enter into the MA Fittings market as Star was doing. 

J.	 If Sigma had entered independently, competition would have been 

enhanced, prices would have been lower, and consumer welfare would 

have been increased. 

3. On June 29, 2012, McWane filed the Expert Report of Parker Normann, Ph.D. 

(“Normann Report”), which seeks to disprove or discredit my conclusions. I have been asked by 

Complaint Counsel to evaluate and comment on the Normann Report, which I have done. I 

conclude that the Normann Report is unreliable and deficient for numerous reasons. These 

include: 

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A.	 Dr. Normann’s reliance on severely flawed price data that do not reflect 

the actual transactions prices paid by McWane, Sigma, and Star 

customers. 

B.	 Dr. Normann’s use of simplistic graphical analyses that fail to control for 

the myriad of factors that affect Fittings’ prices besides the degree of 

collusion or competition. This failure undermines any attempt by Dr. 

Normann to isolate any price effects of the anticompetitive practices 

alleged in the complaint and distinguish those effects from the price 

effects of any of these other factors that affect supply and demand and, 

consequently, prices. 

C.	 Dr. Normann’s failure to follow standard and long accepted practices 

when performing statistical analysis, particularly with respect to his 

supposed “hypothesis testing.” 

D.	 Dr. Normann’s failure to either acknowledge in his analysis or indicate 

any understanding of the complexities of oligopoly theory and its effects 

on the determination of collusive cartel behavior. 

E.	 Dr. Normann’s “selective” reading of documents, testimony, and other 

sources composing the record in this matter. 

F.	 Dr. Normann’s flawed reading of, and representations of, the analysis 

contained in my report and the bases for my opinions. 

4. The factual, analytical, and methodological errors in Dr. Normann’s report 

undermine his credibility and suggest that his report is intended to advocate rather than 

enlighten. In what follows, I explain the numerous deficiencies in the Normann Report, and the 

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PUBLIC

reasons that the conclusions that I expressed in the Expert Report of Laurence Schumann, Ph.D. 

(“Schumann Report”) remain unchallenged and unchanged. 

II. Dr. Normann’s “Tests” and Data Analyses Are Not Grounded or Supported by the 

Factual Record or Economic Theory and Context 

5. Dr. Normann fails to generalize the simple economic models he implicitly applies 

to address the complexities of the Fittings marketplace. His “analysis” comprises little more 

than a summary of a multitude of graphs, based largely on meaningless price information. He 

provides little, if any, theoretical context to these summaries. He neither discusses nor 

recognizes that absent any price-fixing or anticompetitive business practices, the Fittings market 

was not a perfectly competitive market, but a tight-knit oligopoly in which just three firms 

represented more than 90 percent of all sales. Accordingly, even if Dr. Normann had meaningful 

price data and controlled for all of the factors that affect prices, which he assuredly does not, he 

provides no analysis capable of distinguishing between prices resulting from recognition of the 

mutual interdependence characteristic of oligopoly and prices resulting from anticompetitive 

facilitating practices and price fixing agreements. Yet, without this analysis, all of Dr. 

Normann’s graphs, and more generally, any use of the price and other data produced by the 

parties (which he criticizes me for not using) fails to address the price fixing allegation 

altogether. 

6. Empirical analysis is informative only when interpreted within some sort of 

theoretical framework. Otherwise, it is just plots or tables of numbers that explain nothing. It is 

remarkable that Dr. Normann uses the word “oligopoly” just once in his entire report, and that 

one time, in paragraph 110, is in the context of the MDA, not the price-fixing allegations. 

Nowhere in his report does Dr. Norman actually discuss oligopoly theory or how any of his vast 

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PUBLIC

number of graphs can distinguish between, or teach us anything about, oligopolistic 

interdependence versus price fixing. Without a rich understanding of the structure of the Fittings 

markets and the revealed incentives (and changes in incentives) and intentions of, and 

demonstrated interactions among, McWane, Sigma, Star, and others, appropriate hypotheses 

cannot be formulated and, if practicable, tested and interpreted. Indeed, without that 

understanding, one cannot determine whether proposed hypotheses can be tested consistent with 

sound economic practice, or whether, for example, the required data inputs cannot be “cleaned 

up” adequately. If not, any test results based on those data are bound to be unreliable. 

7. Dr. Normann’s reported analyses are not informed by any economic model or by 

any substantial understanding of the relevant facts. Accordingly his “tests,” even had they been 

methodologically sound, were not capable of shedding light on the conduct of McWane, Sigma, 

and Star and the performance of the Fittings markets. Beyond that, Dr. Normann’s lack of 

understanding to the limitations of his underlying data blinded him to its unreliability. 

8. Dr. Normann faults me for not, like him, doing stuff with the data—making 

tables, charts, and graphs. I thought about it, applied a hard-won understanding of the pricing 

structure and workings of the industry and the qualities of the price data produced by McWane 

and others, and recognized irremediable problems in the data. Problems like the substantial 

known errors in McWane’s production of price data in this suit (affecting both the magnitude of 

prices and the classification of sales as open-spec or domestic-spec sales); failure of invoiced 

prices to reflect inclusion or exclusion of shipping charges or to include rebates; known 

substantial, but non-systematic, lags between agreement on price terms and actual shipment and 

invoicing (undermining any effort to associate an invoiced price with an event such as a change 

in list prices or multipliers or communication among the parties); and the challenges of 

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identification of and development of statistical controls to account for factors that shift supply 

and demand. Amazingly, Dr. Normann studiously ignores the effect on output and prices of 

what has come to be called “the Great Recession,” making it impossible for him to evaluate the 

presence or causes of other possible price effects, and he ignores other factors (like, customer 

mix and job size, for example) that may change over time, across regions, and so on.1 I 

concluded that given these problems, any statistical work I might undertake, irrespective of 

whether it appeared to support the Complaint or not, necessarily would be unreliable. Having 

reviewed Dr. Normann’s Figures and the related text, I am more convinced than ever of the 

correctness of my decision. 

9. The overall Fittings market (which Dr. Normann refers to as the “open spec 

market”) and the domestic discrimination market (which Dr. Normann refers to as the “domesticspec” market) were both affected by the recession and the preceding bursting of the residential 

“housing bubble,” which started the steady decline in residential housing starts in 2006, 

approximately two years before the onset of 2008 recession. In the case of domestic Fittings, 

this effect was offset to some degree by the ARRA, which increased the demand for 

infrastructure products, some of which were Fittings used in ARRA funded waterworks projects, 

and which required that all of the Fittings used in ARRA funded projects be domestically 

manufactured. Given this material increase in demand for domestic Fittings, the entry 

conditions for the domestic niche changed materially, with both Star and Sigma considering 

entry. 

1

 Of the 32 Figures in Dr. Normann’s report, in only one, Figure 10, does he make any attempt to control 

for the problems created in his price data by differences in product mix over time. That he does so this one time 

indicates that he recognizes that the problem exists; yet, in every other analysis that he provides based on price data, 

he makes no effort to adjust for, or correct, this serious problem in his data and analysis. As discussed below 

(paragraph 45), Dr. Normann’s attempt to correct for changes in product mix over time in Figure 10 is not successful 

as it creates a very small sample size and imposes potential sample bias. 

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10. Similarly, in his discussions of the competitive effects of McWane’s “full 

support” program and McWane’s MDA, Dr. Normann’s report does not recognize the exogenous 

incentives of Star and Sigma to enter the market. Without an appreciation of Star and Sigma’s 

need to enter the domestic-spec market to avoid loss of sales of their imported Fittings,2

 one 

cannot begin to properly understand the determination of Star and Sigma to enter, even in the 

face of weak demand. But exactly that kind of entry is what may be required to shake up a 

monopolized market that does not invite entry by offering opportunity—at least short of 

collusion—for earning high profits in the market entered. Again Dr. Normann fails to apply the 

economically relevant facts, and therefore draws simplistic and wrong conclusions. 

11. Dr. Normann similarly fails to appreciate the facts surrounding Buy-American 

laws and preferences. For that reason, he rejects a domestic-spec, discrimination market, 

whether limited to purchasers for jobs requiring domestic-spec product by law or including, with 

them, purchasers for jobs in which domestic-spec product is strongly preferred. Again through 

simplistic data work, he apparently convinces himself that Buy-America requirements founded in 

law likely are not “binding,” despite a very substantial record that they are binding. Indeed, his 

own client, McWane, went to great efforts to ensure that distributors and others were well aware 

that under the ARRA, ARRA-funded waterworks projects were legally required to use only 

domestically manufactured Fittings.3

 Had he considered the reported experience of the leading 

producers of Fittings, he could not have fallen into such error.4

 Similarly, he fails to consider the 

2

 As I discussed in the Schumann Report, both business documents and testimony establish that Sigma and 

Star were concerned that if McWane was the only source for domestic Fittings for ARRA funded projects, 

McWane would exploit that fact to displace Sigma and Star’s open-spec sales. They similarly indicate that 

McWane hoped do just that. TU-FTC-0248965. 

3

 See EJ 00022, Tyler Union letter to customers regarding “Clarification on American Recovery and 

Reinvestment Act of 2009” (April 8, 2009). 

4

 Dr. Normann cites as evidence that “Importers regularly tried to ‘flip’ the spec of a customer from 

domestic to open” testimony from the investigational hearing of Dan McCutcheon. 

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facts when he asserts, based on nothing in particular, that price discrimination based on intensity 

of preference is implausible or that arbitrage would occur. Dr. Normann does not consider that 

distributors often acquire years of experience working with customers, over which time they 

have every incentive to learn the customers’ needs and preferences. Moreover, his claim of easy 

arbitrage seems to be pulled from the air alone. Thousands of different combinations of Fittings 

are offered, some with accessories and customization and some not. 

12. Dr. Normann also reaches conclusions as to McWane’s market power in the 

domestic-spec market and the ability of Star (and by implication Sigma) to compete away that 

power. Again, Dr. Normann’s analysis is insufficiently grounded in record fact and economic 

theory. Economic reasoning applied to the relevant facts leads to the conclusion that McWane 

likely had some degree of market power in a domestic-spec Fittings market even in the period 

preceding ARRA. During the period before the ARRA identifiable customers (or classes of 

customers) were subject to domestic-spec legal requirements or had enduring domestic-spec 

preferences that only McWane could satisfy. McWane testimony and documents indicate that as 

much as 20 percent of its sales before the ARRA were of domestic-spec Fittings. McWane met 

this demand at prices substantially higher than even its own prices for the very same Fittings 

when sold for open-spec use,5

 under conditions where its sales were protected by antitrust 

barriers and inelastic demand. Dr. Normann simply does not consider, or reconcile his analysis 

with, these facts. 

13. Nor does Dr. Normann reckon with well-accepted economic models that explain, 

for example, the competitive significance of Star entry into the domestic-spec market, 

5

 See Leon McCullough Deposition, May 22, 2012, pp. 175 – 176, 179; McWane Multiplier Maps. 

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notwithstanding that it has not yet caused absolute prices to fall; or his own observation that a 

not-yet-efficient Star prices at, and sometimes below, the prices set by the more efficient 

incumbent, McWane. This last point alone reflects strong economic evidence that McWane is 

charging super-competitive prices when selling its domestically manufactured Fittings in the 

domestic-spec market. 

14. In economic analysis, facts matter. A working knowledge of the facts must 

precede economic theorizing when trying to understand and explain how actual markets operate. 

Fact-based consideration of potentially relevant economic models should precede the 

formulation and testing of hypotheses and interpretation of test results. Dr. Normann reckons 

with a limited knowledge of the economically significant facts and without a workable model 

and then conducts poorly designed tests—often just eyeball comparisons without so much as a 

depiction of the trend of potentially confounding variables—using unreliable data inputs. Not 

surprisingly, his conclusions are wrong. 

III. Dr. Normann Bases Conclusions on Flawed and Meaningless “Price” Data 

15. When performing my economic analyses and writing my original report, I had 

access to the pricing data that Dr. Normann used in his report. I decided not to use those data 

because, in my opinion, the data suffer from serious flaws that render them uninformative and 

not meaningful. As I describe in detail below, these flaws include an alarmingly high error rate 

in McWane’s data as measured by the fraction of transactions in which the reported (or implied) 

transaction multiplier exceeds the list multiplier, a circumstance that McWane’s own counsel 

indicated is “most likely an order entry error” because “there is no commercial reason” for such a 

situation to exist,6

 and the omission of essential information necessary for calculating meaningful 

6

 E-mail from William Lavery of Baker & Botts to Michael Bloom, June 5, 2012. See also McCutcheon 

Deposition, May 16, 2012, pp. 19 – 21; McCutcheon IH, May 4, 2011, pp. 391 – 392. 

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transactions prices, including rebates and other discounts, and the timing of negotiation of price 

terms, order entry, and order fulfillment. 

16. The analyses of Fittings prices conducted by Dr. Normann are based on data that 

are fatally flawed. McWane’s price data alone are so seriously defective that they would cause 

any conclusions drawn from the analysis of the price data to be erroneous and misleading. 

17. The price data that Dr. Normann uses are not transactions prices. That is, they are 

not the actual prices paid by customers for the Fittings that they purchase. Moreover, they do not 

differ from actual transactions prices in any consistent and systematic way. As a result, any 

comparisons of these prices over time or in any other fashion have little relationship to economic 

decisions by McWane, Sigma, or Star or any of their customers. Consequently, the graphs and 

other analyses performed by Dr. Normann are not meaningful and cannot be interpreted as 

revealing anything with respect to competition, collusion, or any other economic characteristic of 

the Fittings market. 

18. Consider, for example, freight charges. McWane customers often pay for the 

shipment of Fittings from McWane. Accordingly, one form of discount that McWane provides 

certain customers is the absorption of all or some portion of freight charges. By paying or 

discounting freight charges, McWane effectively lowers the prices of its Fittings to a customer. 

Yet, McWane did not produce freight charges and McWane informed the FTC staff that 

McWane could not determine which transactions involved freight paid by the customer and 

which transactions involved freight paid by McWane as a discount to the customer. Without this 

information, the prices produced by McWane and used by Dr. Normann are not the actual 

transaction prices paid for Fittings by McWane’s customers. Moreover, such discounts are not 

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applied systematically; accordingly, they cannot be ignored with the excuse that they apply 

equally or proportionally to all customers for all transactions. 

19. Quarterly and/or annual rebates are a customary feature of pricing in the Fittings 

market. As discussed in the Schumann Report, McWane’s rebate programs can include quarterly 

rebates and annual rebates offered or negotiated with individual distributors, in the cases of 

relatively high volume national and regional distributors,7

 or offered as general programs to 

others. McWane’s, Sigma’s, and Star’s rebate programs effectively lower the prices that each 

distributor pays for Fittings, but they do not apply equally to all customers. Moreover, when a 

customer purchases Fittings it knows the terms on which quarterly or annual rebates will be 

based and can factor that information into its calculations of the cost of the purchase. Yet, Dr. 

Normann’s prices do not incorporate rebates, most likely because without having detailed 

information regarding the terms under which every customer’s rebates are calculated as well as 

each customer’s expected quarterly and annual Fittings purchases estimated at the time of each 

transaction, attributing quarterly and/or annual rebates to any given transaction is not possible. 

Yet, the transaction price paid by each customer for any given purchase will incorporate the 

customer’s expectations regarding the contribution of the purchase to quarterly or annual rebates. 

20. The prices used by Dr. Normann and the graphs and analyses with which he uses 

these prices are further flawed because Dr. Normann makes no effort to adjust or account for 

aggregation errors caused by month-to-month differences in both customer mix and order sizes. 

In both cases, average prices and price indices can rise or fall irrespective of any changes in the 

degree of competition or collusion. 

7 

TU-FTC-0020902. 

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21. With respect to customer mix, one must recall that customers in different regions 

of the country and of different sizes receive different actual prices (nominal prices less project 

and other discounts and rebates). Even when the extent of discounting declined as a result of 

collusion, the reductions did not eliminate all discounting.8 Accordingly, changes in the regional 

locations and relative sizes of customers from month-to-month will alter average transactions 

prices or price indices. Without controlling for differences in customer mix, therefore, 

comparing prices from month to month or over longer periods of time is not meaningful. 

22. Month-to-month differences in the mix of order sizes will also tend to cause 

month-to-month decreases or increases in average prices or price indices irrespective of any 

changes in the degree of competition or collusion. 

.

9

 Any particular month or time period in 

which orders just happen to be particularly larger than average or smaller than average will affect 

average prices or price indices independently from the price effects caused by collusion or from 

the breakdown of collusive agreements. Without controlling for changes in the mix of order 

sizes, changes in aggregated prices or price indices over time cannot distinguish the presence of 

collusion from the presence of competition. 

23. If a major city begins construction on a massive, new water treatment plant in 

which Fittings are supplied by a national distributor, discounting both on account of the large 

amount of Fittings required for the project and the involvement of a national distributor may 

cause average prices to fall.10 But competitive pricing rather than cartel pricing may have led to 

8 TU-FTC-0010113 – 10115, p. 10113. 

9 

10 Orders for specific projects can receive special “project pricing” discounts while other orders may not 

qualify for the project pricing discounts. See e.g. Ramesh Bhutada Deposition, May 14, 2012, pp. 104-106. 

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an even greater price decline. Without controlling for confounding factors, just one of many 

being the size of projects and of distributors, the price data are uninformative with respect to the 

degree of competition. 

24. The prices used by Dr. Normann are further flawed by the serious errors 

contained in the price data. As I discussed earlier in this report, the actual multiplier from a 

given transaction should not be larger than the list multiplier.11 Yet, during 2008, the prices 

reported in the data produced by McWane indicate that McWane’s (Tyler’s and Union’s) 

transaction multipliers for non-domestic Fittings often exceeded the list multipliers. For 

example, for products that are clearly identifiable as non-domestic (by the “ND” in their product 

descriptions), the actual multiplier exceeds the list multiplier 4.27 percent of the time. In 2009, 

reported transaction multipliers for the clearly identifiable non-domestic “ND” Fittings exceeded 

non-domestic list multipliers in 10.75 percent of the sales. 

25. Domestic-spec Fittings suffer a similar error, compounded by the fact that there is 

no method to unambiguously identify domestic-spec Fittings . Fittings that McWane 

manufactures domestically are sold for either domestic-spec projects or as part of blended sales 

sold for use as, and priced to compete with, imported Fittings sold for open-spec use. McWane’s 

domestically manufactured Fittings sold as part of blended shipments have lower list multipliers 

than its domestically manufactured Fittings sold for use in domestic-spec projects. Accordingly, 

I can only calculate a lower bound on the rate at which the actual multiplier of domestic-spec 

Fittings exceeds the list domestic multipliers. The lower bound is obtained by comparing (only 

for the purpose of this exercise) all products without an “ND” in their descriptions to the listed 

domestic multiplier. This set of products will include some domestically manufactured Fittings 

11 See paragraph 15 and footnote 6. 

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sold as blended Fittings, but they are nonetheless compared to the (higher) domestic list 

multipliers, thereby artificially reducing the error rate because the blended list multipliers are 

lower than the domestic-spec list multipliers. Using this classification, actual transaction 

multipliers for McWane’s domestically manufactured Fittings exceeded domestic-spec list 

multipliers in 9.10 percent of the 2008 sales. In the case of sales of domestically manufactured 

Fittings sold in 2009, transaction-based multipliers exceeded domestic-spec list multipliers in 

6.40 percent of the sales of domestically manufactured Fittings.12 

26. Although the 4.27 percent error rate in McWane’s reported 2008 non-domestic 

prices may not seem high, the distribution of these errors during 2008 is of crucial importance. 

Even if one ignores all of the other problems in Dr. Normann’s price data previously discussed, 

the distribution of the multiplier errors in McWane’s non-domestic sales data thoroughly 

undermines Dr. Normann’s conclusion that the prices of non-domestic Fittings fell during the 

period January 2008 through February 2009, which Dr. Normann refers to as the alleged “cartel” 

period.13 

27. Although the multiplier errors affect just 4.27 percent of the non-domestic 

transactions for all of 2008, they occur with stunning frequency at the beginning of 2008. In 

January 2008, in 21 percent of McWane’s non-domestic transactions, the reported transaction 

12 In these calculations, to ensure rounding error in the reported prices does not artificially increase the error 

rate, I count an actual multiplier as larger than a list multiplier only if the actual multiplier is at least 1.01 times as 

high as the list multiplier. Further, in instances where a state has more than one list multiplier, I use the larger list 

multiplier, thereby understating the actual error rate. 

13 It is not clear to me why Dr. Normann asserts that the cartel period extended until February 2009. The 

DIFRA reports were last distributed in January 2009 and contained shipments data through December 2008. More 

importantly, both Star and McWane documents indicate that cheating through renewed project pricing efforts was 

underway no later than the end of 2008 and possibly earlier. See Star email dated Nov. 25, 2008 (We will take 

every order we can after exhausting all avenues to document the competitors pricing. . . . Do it with a combination 

of buy plans, short term buys, and project pricing. Do this quietly and selectively and as much under the radar as 

you can but, if it is necessary, be sure to do it. Go get every order!!!!!”) E00064108-09 at 08; TU-FTC-0032428 ­

429, McWane document from January 2009 discussing the December 2008 decline in McWane’s market share as 

shown in the January 2009 DIFRA report. 

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multiplier from actual sales of non-domestic Fittings exceeds the blended list multiplier. The 

transaction multipliers were as much as 3.3 times greater than the blended list multipliers in 

January 2008.14 Not only does this characteristic of the price data indicate that the transaction 

prices were misreported in one out of every five non-domestic transactions in January 2008, but 

the misreported multipliers impose an upward bias in the reported transaction prices because the 

actual multiplier in these transactions and, accordingly, the actual prices, would have been lower 

than those reported in the data. 

28. Further, the extent of the errors might be far worse. Knowing that one out of five 

of McWane’s reported non-domestic multipliers exceeds the list multipliers and overstates Dr. 

Normann’s “transaction prices” in January 2008 suggests that a systematic, non-random factor 

may be contributing to the reporting errors. It is difficult to believe that errors in 21 percent of 

the reported multipliers would be caused by pure, random chance. Yet, we can only detect errors 

when the reported transaction multiplier exceeds the list multiplier. If these errors are caused by 

a systematic, non-random factor, there may be many additional errors in which the reported 

transaction multiplier exceeds the actual transaction multiplier, yet is still below the list 

multiplier. These errors would also cause an upward bias in prices, but we have no way of 

measuring the extent to which the January 2008 price data contain this sort of error. Figure 1 

shows the percentage of reported non-domestic multipliers from actual transactions that exceed 

the blended list multipliers. 

14 We cannot determine if Sigma’s or Star’s reported transaction multipliers were greater or less than list 

multipliers because they did not produce list multipliers for each transaction. 

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29. The upward bias in the January 2008 multipliers has a significant effect on Dr. 

Normann’s results as illustrated in his Figures 2A and 2B. Dr. Normann concludes that nondomestic prices fell in 2008 by comparing January 2008 prices to July 2008 prices and to 

February 2009 prices. He claims, therefore, that McWane, Sigma, and Star were not colluding 

during the period January 2008 through February 2009.15 Yet, because the McWane price data 

are so badly flawed and biased upward in January 2008, comparisons of prices from the 

beginning of 2008 to prices in mid-2008 and early 2009 demonstrate nothing even when we 

ignore all of the other flaws in Dr. Normann’s data. Accordingly, by using “price” data that we 

15 Normann Report, paragraphs 28 – 32, pp. 11 – 13. 

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know exceeds actual prices at least of the time in January 2008, but which does so 

only of the time in February 2009, Dr. Normann’s conclusion that non-domestic 

prices fell in 2008 is entirely unsupported by his data analysis. 

30. An additional and important flaw in the Dr. Normann’s price series relates 

specifically to Sigma. By letter dated July 3, Sigma sent counsel for McWane and Complaint 

Counsel a revised data disk, correcting errors in the data Sigma had earlier provided. My initial 

review of the revised data indicates that the earlier disk overstated Sigma’s invoice prices, and 

overstated them more in January 2008 than in June 2008 or February 2009.16 This indicates that 

even if one were to ignore all of the other sources of error in Dr. Normann’s price series, his 

Sigma price series (used in Figure 2B, among others) and all calculations and Figures that 

incorporate that series (as in Figure 3, among others) are systematically wrong: what may have 

appeared to Dr. Normann to be a decline in prices during the collusion period, when corrected 

would appear as a smaller decline or as an increase in prices during the collusion period. 

31. Dr. Normann criticizes my report for, among other things, failing to use the 

available pricing data in my analysis. Perhaps if Dr. Normann had studied the record more 

carefully and developed a minimal understanding of both how transactions are conducted in the 

relevant Fittings markets and the pricing data produced by the parties, he too would have realized 

that any analysis or conclusions based on this data would be worthless and misleading. This is 

the case even without consideration of the additional bias created by the use of Sigma’s original 

data, of which Dr. Normann would not have been aware when he prepared his report. 

16 The market shares calculated in my June 15, 2012, expert report utilized Sigma data. I, however, used 

tons rather than prices to calculate shares, and the tonnage data in the corrected data set appears to be largely 

unchanged. 

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IV. Dr. Normann’s Empirical Analyses Do Not Comport with Basic Statistical and 

Econometric Methods 

32. Even if Dr. Normann used actual transaction prices in his analysis, his failure to 

control for the many factors that directly and substantially impact prices would render his 

analysis and conclusions of no value in understanding the markets at issue. As stated by the 

preeminent economist Orley Ashenfelter and his coauthors, “The major issue faced by any 

attempt to estimate the effect of a merger on price, as with any intervention using 

nonexperimental data, is the method used to control for other confounding factors that may also 

have changed at the time of the event.”17 Although the quote refers specifically to the estimation 

of the effect of a merger on price, it notes that this issue applies “with any intervention using 

nonexperimental data.” That is, the issue of controlling for confounding factors is equally 

applicable and important when estimating the effect of any specific economic event on price. To 

do so requires that one control for all other factors that might affect price besides the event of 

interest, at least when data are generated in actual markets rather than in controlled laboratory 

settings. Only by controlling the “other confounding factors that may also have changed at the 

time of the event,” is the effect of the event of interest isolated from the confounding factors that 

also affect price. Thus, “the major issue” in measuring the impact of an event such as a pricefixing agreement on prices is to properly control for all of the other factors besides the pricefixing agreement that might impact prices. Only by doing so can the effect of the price-fixing 

agreement be determined. 

17 See Ashenfelter and Hosken, “The Effect of Mergers on Consumer Prices: Evidence from Five Mergers 

on the Enforcement Margin,” Journal of Law and Economics 53 (2010) ; Ashenfelter et al., Generating Evidence to 

Guide Merger Enforcement, CEPS Working Paper No. 183, Princeton University, available at 

http://www.princeton.edu/ceps/workingpapers/183ashenfelter.pdf; and, for further discussion on the issue, see cites 

in these articles. Emphasis added. 

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33. Simple, basic economic theory tells us that a market price is formed by supply 

and demand. Accordingly, changes in demand and supply conditions affect price. Many factors 

entirely independent of the degree of competition in a market affect supply and demand and, 

therefore, price. These include macro-economic factors such as booms and recessions, changes 

in interest rates, and currency fluctuations. They also include micro-economic factors such as 

the prices of inputs, the degree of vertical integration, and changes in technology and differences 

in the technologies used by rivals. In the Fittings market, factors such as the age of waterworks 

systems and treatment plants in municipalities, municipal finances, housing starts, prices of 

diesel fuel used by trucking, railroad, and shipping companies; and seasonal factors may affect 

demand and supply conditions and, therefore, prices. Dr. Normann’s analysis of Fittings prices 

controls for none of these factors, which makes distinguishing between their effects on prices 

and collusive effects on prices impossible. 

34. Dr. Normann’s reliance on simple price charts and plots to draw any sort of 

conclusions in this matter without making any effort to control for the multitude of factors 

discussed above that affect changes in prices independent of collusion or the degree of 

competition is simply beyond the pale. A vast economic literature exists that explores the 

statistical methods and difficulties of identifying collusive prices in light of the many factors that 

affect supply and demand and drive prices.18 The whole basis of this multitude of scholarly 

articles, books, dissertations, and conferences is to develop regression techniques that allow an 

economist to focus on a particular economic issue such as discerning the effects of alleged 

18 See, for example, Davis, Peter and Eliana Garcés, Quantitative Techniques for Competition and Antitrust 

Analysis (Princeton: Princeton University Press, 2010). A somewhat more limited, but more accessible discussion 

of these issues can be found in Baker, Jonathan B. and Timothy Bresnahan, “Economic Evidence in Antitrust: 

Defining Markets and Measuring Market Power,” in Buccirossi, Paolo ed., Handbook of Antitrust Economics 

(Cambridge: MIT Press, 2008), Chapter 1, pp. 1 – 42. 

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collusion on market prices while holding constant the numerous other factors that influence 

prices and price movements.19 

35. The full sweep and significance of methodological failings underlying Dr. 

Normann’s opinions is detailed in the next section of this report, including specific critiques of 

Dr. Normann’s Figures and the related text. These significant and pervasive errors warrant the 

rejection of Dr. Normann’s bases for his opinions, and his opinions themselves. 

V. Specific Critiques of Dr. Normann’s Figures and Related Conclusions 

36. Figure 1 

Dr. Normann’s emphasis on columns b and e in his Figure 1 is inapt, and distracts 

attention from the anticompetitive intent and consequence of McWane actions, as reflected in 

McWane own documents. In January 2008, McWane announced adjusted multipliers to increase 

transaction prices relative to then prevailing transaction prices (by removing headroom/incentive 

for discounting and thereby facilitating price coordination and price fixing).20 It conceived of its 

multiplier adjustment as an effective price increase.21 In furtherance of the price fixing 

agreement, it then further raised multipliers as announced in June 2008.22 In the table below, I 

have recreated Dr. Normann’s Figure 2, but substituted for column (b) the average effective 

multipliers realized in the fourth quarter of 2007, the referent from which McWane calculated its 

new multipliers. By doing this, I conform the analysis to the economically significant facts 

19 These issues are not unique to the use of econometric methods in antitrust and competitive analysis. To 

the contrary, they are ubiquitous in empirical studies of economic phenomena that can be estimated only through 

simultaneous equation systems such as supply and demand curves that simultaneously determine equilibrium prices 

or other economic variables that an economist may wish to study. Accordingly, the study of this issues is part of 

even the most basic, introductory econometric courses and is generally referred to as the “identification problem.” 

20 TU-FTC-0010307. The new multipliers were effective as of February 18, 2008. 

21 See TU-FTC-0013802. 

22 See e.g. TU-FTC-0010081 (announcement of price increase to Ferguson Waterworks). 

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recited above. Because Dr. Normann ignores these facts, he makes inapt comparisons and draws 

faulty conclusions. Dr. Normann concludes that, “where there are values more than half the 

states had the same, or lower multipliers in 2008 compared to 2007 contrary to the language in 

the complaint of ‘price increases.’”23 But had Dr. Normann conducted his analysis consistent 

with the way McWane saw its own actions, he ought to have seen, as McWane did at the time, 

that it was increasing prices in all but a half-dozen or so states (signified by the red highlighting). 

Similarly, he would have seen the comparison over the longer period, in column (e), showing 

price increases in more than 90 percent of the reported instances (again, signified by the red 

highlighting). McWane’s contemporaneous documents show that it found it “necessary to 

increase pricing,”24 and understood itself to have taken a 10 – 12 percent increase in nondomestic Fittings prices “above the current prevailing multiplier levels”25 effective February 18, 

2008, and another approximately eight percent increase effective July 14, 2008.26 I find 

McWane’s contemporaneous understanding of its pricing actions a more reliable basis for 

drawing economic findings than Dr. Normann’s pepared-for-litigation analysis of two years 

later. 

In addition to being inapt, Dr. Normann’s comparison ignores a variety of factors that 

affect Fittings prices, such as the likely downward pricing pressure caused by the recession of 

2008. Without considering the impact of these factors, Dr. Normann cannot speak to the relevant 

question: how do the observed multipliers compare with the multipliers that would have 

obtained absent collusion. 

23 Norman Report, paragraph 25.
 

24 TU-FTC-0010307. 

25 Ibid. 

26 TU-FTC-0010083. 

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Dr. Normann's Figure 1 Revised

FIGURE 2

Effective Mul tiplier

per Invoiced Prices Mul tiplier Maps Effective As of:

Sta te La s t 4 Months of 2007 2/18/2008 7/14/2008 La st 4 Months 2007 vs. 7/14/08

[a] [b] [c] [d] [e]

AL 0.2327 0.25 0.28 Increa sed

AK ‐ 0.42 0.42

AZ 0.2836 0.30 0.33 Increa sed

AR 0.3014 0.27 0.30 Decreased

CA 0.2982 0.33 0.33 Increa sed

CO 0.3039 0.33 0.33 Increa sed

CT 0.2991 0.31 0.33 Increa sed

DE 0.2885 0.28 0.28 Decreased

FL 0.2369 0.25 0.28 Increa sed

GA 0.2169 0.25 0.28 Increased

HI 0.3600 0.36 0.36 Uncha nged

ID 0.3586 0.33 0.42 Increa sed

IL 0.2381 / 0.2823 0.27 / 0.32 0.30 / 0.32 Increa sed

IN 0.2206 0.25 0.28 Increa sed

IA 0.2667 0.28 0.30 Increa sed

KS 0.2387 0.27 0.30 Increa sed

KY 0.2411 0.25 0.28 Increa sed

LA 0.2622 0.27 0.30 Increa sed

ME ‐ 0.31 0.33

MD 0.2808 0.28 0.28 Decrea sed

MA 0.2567 0.31 0.33 Increa sed

MI 0.3100 0.33 0.33 Increa sed

MN 0.2640 0.28 0.32 Increa sed

MS 0.2531 0.27 0.30 Increa sed

MO 0.2509 0.27 0.30 Increa sed

MT 0.3039 0.33 0.42 Increa sed

NE 0.2381 0.27 0.30 Increa sed

NV 0.2561 0.28 0.33 Increa sed

NH 0.3103 0.31 0.33 Increa sed

NJ 0.3244 0.31 0.33 Increa sed

NM 0.2799 0.30 0.33 Increa sed

NY 0.2806 0.31 0.33 Increa sed

NC 0.2321 0.25 0.28 Increa sed

ND 0.2503 0.28 0.32 Increa sed

OH 0.2155 0.25 0.28 Increased

OK 0.2323 0.27 0.30 Increased

OR 0.3206 0.42 0.42 Increased

PA 0.3494 0.38 0.40 Increased

RI 0.2800 0.31 0.33 Increased

SC 0.2283 0.25 0.28 Increa sed

SD 0.2897 0.28 0.32 Increa sed

TN 0.2435 0.25 0.28 Increased

TX 0.2587 0.28 0.30 / 0.33 Increa sed

UT 0.3600 0.48 0.48 Increased

VT 0.2600 0.31 0.33 Increa sed

VA 0.2884 0.28 0.28 Decreased

WA 0.3101 0.42 0.42 Increased

WV 0.2502 0.28 0.28 Increa sed

WI 0.2994 0.32 0.32 Increa sed

WY 0.3003 0.33 0.33 Increa sed

Notes:

Multipliers highlighted in green indicate a multiplier decrease.

Multipliers highlted in red indicate a multiplier increase.

Sources:

Dr. Normann Expert Report, Figure 1

TU‐FTC‐0013802

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37. Figure 2 

Dr. Normann’s “price series” is wholly unreliable for reasons described in the body of 

this report, including substantial errors in transaction price data furnished by McWane, which 

errors were known to Dr. Normann; potential biases in selection of Fittings for his price index; 

the inability to correct for varied and at times substantial lags between negotiation of price terms 

and delivery and invoicing of sales, which lags are or should have been known to Dr. Normann; 

lack of testing of robustness and statistical significance of findings, etc. Every Figure of Dr. 

Normann’s that incorporates his price series is unreliable as a result. See Section III of this 

report. 

Figure 2B adds to this underlying infirmity the fact that different errors and biases may 

infect the McWane, Sigma, and Star data, such that not even the relative movements of Dr. 

Normann’s price series can be trusted. Finally, Dr. Normann substitutes a naive comparison for 

a meaningful economic analysis, which would have included econometric consideration of the 

several variables that might affect sales. Dr. Normann implicitly recognizes the importance of 

considering these variables when he graphs changes in metal and energy costs alongside his price 

series. Dr. Normann undoubtedly knew that those costs were rising during his relevant period, 

which would suggest that prices should have been rising, all other things being equal. 

But we all know that all other things rarely are equal. That is why Dr. Normann’s failure 

to consider the impact of changes in other variables of interest, some of which might have 

exerted equal or greater downward pressure on Fittings prices, would be a grievous error even if 

one were prepared to accept naive comparisons as analytical aids. Consider housing starts, for 

example. As Dr. Normann undoubtedly knew, housing starts correlate strongly with Fittings 

demand and fell precipitously during much of his relevant period. All other things being equal, 

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this would have resulted in a sharp decline in Fittings prices. Dr. Normann does not so much as 

acknowledge the importance of variables other than metal and energy costs. And he certainly 

does not offer an econometric analysis to explain the predicted interaction of the variables of 

interest, to enable a comparison of observed transaction prices with transaction prices that would 

have obtained absent collusion. His one-sided and naive comparison is analytically empty and 

must be rejected. 

38. Figure 3 

Here, Dr. Norman appears to have attempted some statistical analysis. Using a “fixed 

basket of Fittings” of his own devise, he purports to have calculated the slopes of the ratios of the 

average price of open-spec Fittings sold by McWane, Sigma, and Star, and the average price of 

domestic-spec Fittings sold by McWane. He does this, he says, to perform his “testable 

hypothesis” that if there were collusion, the price of non-domestic-spec Fittings relative to the 

price of domestic-spec Fittings should have risen during the collusion period, which would be 

seen as an upward slope in Figure 3. He finds that it does not, and, therefore, he says, there 

cannot have been effective collusion. 

To begin, Figure 3 incorporates Dr. Normann’s unreliable price series, and so is itself 

unreliable. See Section III of this report. Upon examination of the data underlying Figure 3, I 

find that Dr. Normann’s entire “fixed basket of top selling Fittings” consists of about 25 Fittings, 

only six of which he codes as medium-sized.27 Consider what this means: Dr. Normann asks us 

to reach important conclusions about the entire universe of medium-sized Fittings – consisting of 

27 Dr. Normann does not disclose just how and why he chose these particular Fittings for his sample. Both 

the absence of that disclosure and the insubstantial size of his sample indicate that the risk of sampling bias in Figure 

3 is profound. 

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literally thousands of Fittings – from “noisy” data relating to just six.28 And there is no 

indication that his findings with respect to small-sized Fittings ultimately have any greater 

validity. Competent hypothesis testing requires that when performing regressions of the kind 

conducted by Dr. Normann one assess and report standard errors or confidence intervals of the 

slopes.29 Dr. Normann reports neither. His lack of statistical testing means, among other things, 

that he cannot determine whether his slopes are estimated with precision or are wildly inaccurate, 

nor can he distinguish systematic changes in slope from period to period from random changes.30 

28 I am not aware of anything that might have limited Dr. Normann to so small a sample in relation to the 

total number of small and medium Fittings. His choice to do so seems, at best, odd . 

29 When performing statistical regression analysis, a researcher is measuring the effect of one or more 

“independent” variables on a particular “dependent variable.” That is, one hypothesizes that the dependent variable 

is a function of one or more independent variables. In the case of Figure 3 in Dr. Normann’s report, his slope 

parameter (or slope “coefficient”) measures a time trend – the effect of time on the dependent variable, in this case, 

Dr. Normann’s Fittings price indices based on his baskets of small- and medium-sized Fittings and the ratio of their 

respective imported price index to their domestic price index. His slope coefficient is the mean (or average) effect 

of time on this price ratio. That is, it measures how the ratio of imported to domestic price indices of the prices for 

his baskets of small- and medium-sized Fittings changes over time. To calculate whether the estimated time trend, 

i.e., the estimated coefficient on the independent variable, time, is statistically different from zero (that is, 

statistically significant), one requires a the standard error of the estimated coefficient, which is a measure of the 

dispersion of time around the its mean, the estimated coefficient on time. Accordingly, when economists perform 

statistical regression analysis, they report not only the estimated coefficient(s), but also the standard error of the 

coefficient (or the appropriate test statistic, which is a function of the standard error). Alternatively, an economist 

can provide a confidence interval that shows the range of possible coefficient estimates that can occur with a 

particular probability. Typically, researchers report the range of coefficients that can be estimated with a 95 percent 

probability, which is referred to as a 95 percent confidence interval. If zero lies within a 95 percent confidence 

interval, the estimated coefficient is not generally considered to be statistically significant. If the dependent variable 

is normally distributed and the regression model includes all of the independent factors that determine the value of 

the dependent variable, a 95 percent confidence interval around each estimated coefficient will equal approximately 

the coefficient plus and minus twice its standard error For a basic introduction to regression analysis and hypothesis 

testing see Economics Committee, Section of Antitrust Law, American Bar Association, Econometrics: Legal, 

Practical, and Technical Issues (Chicago: American Bar Association, 2005), Appendix II: The Basics of Multiple 

Regression, Parts A – E, pp. 397 – 408. 

30 Given its methodological limitations, even if it were an empirical fact that McWane and other producers 

had fixed prices, hypothesis testing given Dr. Normann's data very likely would fail to reject the false hypothesis 

that McWane and the others had not colluded (referred to as the "null” hypothesis in statistics). Specifically, Dr. 

Normann could have conducted a test of the hypothesis that the slopes across the three periods in Figure 3 are equal, 

and interpreted a failure to reject that hypothesis as evidence that McWane and other producers had not fixed prices. 

However, given his data, this test would have what statisticians call "low power," a limited ability to reject false 

hypotheses. As such, any purported confirmation of the null hypothesis, like Dr. Normann’s, is unreliable. 

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Most statistical testing (of confidence intervals and for other purposes) is based on “the 

Central Limit Theorem,”31 and requires far more “observations” than Dr. Normann made. 

Typically, statisticians prefer at least 30 observations for each time period under consideration, 

and for some applications prefer still more observations.32 The slopes upon which Dr. Normann 

rests his conclusions appear to have been calculated by him using only about a dozen 

observations for each of the three time periods he considers (pre-collusion, collusion, and postcollusion. Given so few observations, Dr. Normann cannot validly compare the estimated slopes 

in different time periods unless his data are Normally distributed.33 

There is a procedure for assessing statistical significance when too few observations are 

available to apply ordinary procedures based on the Central Limit Theorem. These tests are 

based on what statisticians refer to as the t-distribution.34 Dr. Normann does not report having 

applied any of these either to slopes estimated in Figure 3. But even if he had, tests using the tdistribution are useful only if the underlying data are Normally distributed.35 There is a 

statistical test for whether or not data are Normally distributed, a Normal Probability Plot. Dr. 

Normann does not report having used this or any other test for Normality of distribution, but had 

31 Morris DeGroot, Probability and Statistics, 2nd ed., pp. 274 – 275; William H. Greene, Econometric 

Analysis, 3rd ed., pp. 275-277. 

32 See, for example, Peter Kennedy, A Guide to Econometrics, 5th ed. page 33, section 2.8; Gerald Keller, 

Statistics for Management and Economics, 9th ed., p. 312. 

33 For a discussion of the Normal distribution, see Appendix A. 

34 The t-distribution is similar in shape to and gives similar confidence intervals and hypothesis tests results 

as the normal distribution. The t-distribution gives wider standard confidence intervals and less likelihood finding 

statistical significance than the Normal distribution. The t-distribution is useful when sample sizes are too small to 

invoke the Central Limit Theorem and use the normal distribution to construct confidence intervals and hypothesis 

tests. The t-distribution is validly applied only when the underlying data are normally distributed. See, e.g., Gerald 

Keller, Statistics for Management and Economics, 9th ed., p 400, Orley Ashenfelter, Phillip Levine, and David 

Zimmernan, Statistics and Econometrics: Methods and Applications, pp. 146 - 148 (sections 10.3.4 through 10.5). 

35 See footnote 34. 

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he done so, he would have found that his price ratios are not Normally distributed. See my 

Appendix A. 

Accordingly, Dr. Normann’s report does not give any indication that the slopes of either 

of his graphed lines are significantly different from zero in any time period, let alone 

significantly different from time period to time period. For that reason alone, his analysis is 

meaningless. But even had Dr. Normann reported adequate significance findings, his results 

would remain highly uninformative because, absent Normality and with so few observations, Dr. 

Normann’s test lacks the necessary statistical properties to permit meaningful inferences 

regarding collusion. For each one of these reasons, his conclusions must be disregarded. 

Finally, Dr. Normann is “testing” against a cartel model in which coordination is either entirely 

missing or entirely perfect. That does not describe the collusion I have found. 

39. Figure 4 

While the question of variation over time of transaction prices from published prices 

would, if the underlying data were adequate, be an interesting one, Figure 4 incorporates Dr. 

Normann’s unreliable price series. For that reason alone Figure 4, and the conclusions Dr. 

Normann draws from it, is unreliable and not meaningful. See Section III of this report. 

Further, Dr. Normann inexplicably applies his test to only three Fittings out of the 100s 

offered. Even with adequate underlying data and otherwise flawless methodology, accurately 

generalizing from these three products to Fittings generally is impossible. Finally, Dr. Normann 

misunderstands the import of the standard deviation plots. In particular, he fails to appreciate 

that an increase in standard deviation during the relevant period is not inconsistent with an 

increase in prices due to collusion. Dr. Normann rightly notes that increased pricing uniformity 

tends to reduce standard deviation, but he completely ignores the other important determinant of 

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standard deviation: absolute prices. For example, if prices are rescaled by a factor of two, the 

standard deviation also would be rescaled by a factor of two.36 Any change in standard deviation 

over time is a function of both change in uniformity of price and change in price itself. In sum, a 

larger standard deviation during the collusion period than other periods is as likely to indicate 

increased pricing as it is to indicate greater variation in pricing, and, for that reason alone, Dr. 

Normann’s test cannot lead to any useful conclusion. 

40. Figure 5 

Assuming Dr. Normann correctly calculated inventories as displayed in Figure 5, Figure 

5 is probative of nothing in particular. To begin, given the inelasticity of Fittings demand, a very 

slight reduction in available product would support a relatively large reduction in discounting. 

Such slight reductions may be very difficult to detect. Further, the quantity of Fittings available 

for purchase can be restricted by means other than inventory build-up. Dr. Normann apparently 

recognizes as much when, albeit only parenthetically, he notes that his “inventory test” would be 

meaningless if short-run production is not fixed. For each of these reasons, Dr. Normann’s 

“inventory test” in Figure 5 is meaningless. 

Once again, Dr. Normann’s hypothesis is ill-suited to the known facts. Dr. Normann 

graphs McWane’s inventory of imported Fittings for June 2007 through June 2008, planning to 

draw inferences from potentially subtle slopes in his graphed line. But no inferences properly 

could be drawn from inventory changes during that period because McWane inventories were at 

that time way out of kilter and undergoing radical adjustments. According to McWane’s Ruffner 

Page, McWane had built up an absurdly large domestic Fittings inventory in the months leading 

up to August 2007—at which time the McWane senior manager responsible for the build-up and 

36 Greene, William, Econometric Analysis, 6th ed., (2008), p. 1021. 

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McWane parted ways. This distorted McWane’s inventorying and sale of imported Fittings 

through the balance of the year, as McWane found it relatively profitable to burn off its domestic 

inventory by selling it in lieu of imported Fittings, at imported Fittings prices.37 

41. Figure 6 

In Figure 6, Dr. Normann purports to test for short-term quantity limitation by McWane, 

Sigma, and Star by examining monthly sales from 2007 - 2010. But what Dr. Normann appears 

to have done is to cobble together an interpretation of his data that supports his position rather 

than to have 1.) Articulated a testable hypothesis based on a basic understanding of how the 

market works in fact; 2.) Formed appropriately modest conclusions based on the test results; and 

3.) Confirmed these conclusions through tests of robustness and statistical significance. 

Dr. Normann acknowledges that month-to-month comparisons are difficult because of 

seasonality and changes in demand conditions (differences in market size in different years), but 

his efforts to control for these variables are simplistic and ineffective. Accordingly, his Figure 6 

cannot yield a sound interpretation.38 An appropriate economic analysis would have 

incorporated specific variables that in any given month might have affected sales, including, for 

example, temperature and precipitation, housing starts, information relating to municipal 

budgets, and so on. Dr. Normann apparently knows this. When his graph shows a large decline 

in open-spec volume – which might be thought consistent with the withholding quantity 

hypothesis he seeks to debunk – he identifies (but does not test the impact of) a potentially 

confounding variable so as to dismiss an inconvenient finding: “this [decline in quantity] for the 

second half of 2008, . . . is not surprising given the financial crisis.” Supply and demand 

considerations matter, and they are not incorporated in Figure 6, which should be disregarded. 

37 Page Deposition, May 24, 2012, pp. 165-168, 177-178.
 

38 In addition, all but the last criticism of Figure 5 are applicable to Figure 6. 

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42. Figure 7 

Figure 7 simply shows the undisputed fact that domestic-spec sales have declined as a 

percentage of total Fittings sales. 

43. Figure 8 

Figure 8 required classification of McWane sales as being for open-spec or domestic-spec 

sales. Dr. Normann’s classification of sales was subject to substantial errors in transaction price 

data furnished by McWane, which errors were known to Dr. Normann.39 Even so, his 

conclusion is less than clear. He apparently concludes that “much”– he does not suggest how 

much – of the domestic spec market is based on preference rather than legal obligation. 

Certainly, some buyers of domestic-spec Fittings buy them because of preference rather than 

legal obligation; and others buy them because of legal obligation.40 As to preference buyers, 

their number is of less importance than the strength of their preferences.41 Dr. Normann reported 

39 As Dr. Normann’s Appendix B indicates, he recognized that an appreciable portion of McWane sales 

were identified by McWane as having been sold at transaction prices that were plainly not the true transaction prices 

(as where identified transaction prices exceeded the published list prices, i.e., the products of the catalog prices and 

the applicable published multipliers). Dr. Normann reported no effort to understand the importance of these errors, 

in themselves or as reflections of an unknown quantity of other mistaken sales entries. Instead, he somewhat 

arbitrarily assigned them to either the open-spec set or the domestic-spec set by determining whether their reported 

“transaction prices” were less than or equal to the domestic open-spec average price or greater than the domestic 

open-spec average price and less than, equal to, or greater than the domestic average price. Additionally, although 

Dr. Norman calculated the average domestic open-spec price and the domestic average price for the same year, 

month, and size range as the unclassified domestic transaction, he did not do so for the state in which the transaction 

took place. Because open-spec multipliers and domestic-spec multipliers can vary widely by state, the reliability of 

this method of classifying the Fittings as either open-spec or domestic-spec Fittings is highly questionable for that 

reason too. 

40 For example, the American Recovery and Reinvestment Act of 2009 (Pub. L. No. 111-5), at Section 

1605. Also, the Pennsylvania Steel Products Procurement Act, 73 Pa. Stat. §§ 1881-1887, requires that iron and 

steel products made in America be used in all construction, repair, and maintenance contracts let by public bodies, 

including the Commonwealth, its political subdivisions, and authorities. A New Jersey Statute requires that “every 

contract for the construction, alteration or repair of any public work in this state shall contain a provision that in the 

performance of the work the contractor and all subcontractors shall use only domestic materials in the performance 

of the work.” N.J. Stat. § 52:33-3. (The statute does provide for an exception if “it would unreasonably increase the 

cost.”) 

41 Also relevant is whether an appreciable number of preference buyers at the margin can be identified and 

favored with discriminatorily low prices. In my reports, I present information supporting a price discrimination 

market. Dr. Normann has presented no contrary information of substance. 

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no effort to determine the strength of preference of today’s preference buyers, but given that 

historical preference buyers for years now have been shifting to open-spec purchases in response 

to high domestic-spec prices, it is highly likely that mostly, if not only, high-preference domestic 

spec buyers remain. Whatever the facts with respect to preference buyers, however, it is 

important to note that legally obliged purchasers would remain a relevant market. Figure 8 

simply does not address that fact. 

44. Figure 9 

Figure 9 is infected by the previously-discussed errors in the sales data provided by 

McWane. 

Beyond that, Dr. Normann’s reasoning from his plot is fatally flawed. Dr. Normann 

claims that if McWane has market power, that market power would be reflected in higher prices 

for domestic Fittings in states in which domestic Fittings accounted for a majority of sales, and 

lower prices for domestic Fittings in states in which only minimal sales of domestic Fittings were 

made. That is just wrong. Dr. Normann simply assumes away the fact that, as I have indicated 

elsewhere, we have two well-defined markets. Instead, he reasons as if we were discussing 

customers with different preferences within a single market. All that Dr. Normann’s plot in 

Figure 9 actually shows is that the relative size of the open-spec market and the domestic-spec 

market varies from state to state. The number of people in a relevant market, whether absolutely 

or in comparison with the number of people in another relevant market, is simply unrelated to 

whether market power exists or the amount of monopoly power that can be exercised in any 

state. Indeed, Dr. Normann’s efforts notwithstanding, one cannot make valid cross-sectional 

comparisons across states given likely variations in supply and demand conditions from state to 

state. Rather than acknowledging the problem, Dr. Normann simply ignores it. If it shows 

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anything, Dr. Normann’s plot may enable us to infer how many people are subject to McWane’s 

monopoly power, and nothing else. 

45. Figure 10 

Figure 10 incorporates all of the infirmities of Figure 9: use of Dr. Normann’s unreliable 

price series; failure to account for variation in supply and demand conditions from state to state; 

and the fundamental illogic of the exercise, because the number of people in a relevant market, 

whether absolutely or in comparison with the number of people in another relevant market, is 

simply unrelated to the presence or extent of monopoly power in any state. Nevertheless, Dr. 

Normann makes an effort to improve Figure 10 by controlling for product mix, reflecting 1.) a 

shortcoming in Figure 9 that I had not previously mentioned and 2.) Dr. Normann’s apparent 

recognition that product mix is a problem, but, as I have previously pointed out, one that Dr. 

Normann entirely ignores in his previous analyses. Although Dr. Normann recognizes the 

problem of product mix in Figure 10, his attempt to address this problem only creates additional 

ones. These problems arise from Dr. Normann’s use of only 16 out of thousands of products 

from over 40 states to create this plot of average prices. Dr. Normann’s report is silent, but the 

problems of potential sample bias and small sample size are substantial and important. They 

need to be acknowledged. 

46. Figure 11 

Dr. Normann’s Figure 11 tracks the net income of Tyler Union Waterworks Division of 

McWane. Dr. Normann apparently believes that the plotted net income is “inconsistent with 

McWane being able to exercise market power for the sale of Fittings over the relevant time 

period.” But Dr. Normann’s measure of net income is for all products of the Waterworks 

Division, which include not only Fittings of foreign and domestic manufacture, but glands, valve 

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boxes, jobbing castings, and perhaps other products. Nowhere in his report does Dr. Normann 

provide or analyze net income attributable to domestic Fittings sales, nor does he attempt to 

control for shifting product mix either within the domestic Fittings category or across the several 

Fittings and non-Fittings product categories aggregated in the McWane data he relies on. The 

upshot of this is that Dr. Normann has not tracked McWane’s net income from domestic Fittings 

sales at all, and for that reason alone Figure 11 should be disregarded as meaningless. 

Nonetheless, even had Dr. Normann’s graph been of net income from domestic-spec 

Fittings and controlled for shifting product mix, his conclusion that net average income is 

trending to "unsustainable negative levels by the end of the decade" would baseless. Dr. 

Normann arbitrarily assumes, contrary to fact, that the trend in net income is linear over the 

period 2004-2010. The trend in Figure 11 in the period covering mid-2009-2010 is clearly 

positive. Apart from this, is an enormous outlier that assuredly lowers the slope 

of the trend. Yet, Dr. Norman provides no explanation for this, nor does he account for effect of 

the recession and economic stagnation that began in 2008, or the severe decline in residential 

housing starts that began in 2006.42 

Business cycles are called business cycles for a reason: they are cyclical. Accordingly 

they affect such economic variables as housing starts and municipal revenues in a cyclical 

fashion, not a linear one. Because the factors that affect Fittings sales and profits are procyclical, Dr. Normann’s estimation of a linear time trend is misspecified and, therefore, entirely 

meaningless. His trend is further misspecified because again Dr. Norman fails to consider any of 

the multitude of economic factors that might affect profitability in the Fittings industry. Any 

student that has taken an introductory econometrics class has been taught that the exclusion of 

any relevant independent (or “explanatory”) variable that has any effect on the dependent 

42 See Housing Starts, http://www.census.gov/const/www/newresconstindex_excel.html.
 

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variable (in this case, the profitability of McWane’s Waterworks Division) in a regression 

analysis results in biased estimates of the effects of the included variables except in one extreme 

circumstance.43 That Dr. Normann excludes all economic variables that might affect the 

profitability of Fittings besides time would bias his estimated time trend. For this reason alone, 

Dr. Normann’s analysis should be disregarded. 

Further, while Dr. Normann purports to track net income, it is the wrong measure in 

assessing whether a firm is earning monopoly rents. By doing so, Dr. Normann apparently 

rejects the longstanding, commonly accepted, and fundamental tenet of price theory that under 

competitive conditions price equals marginal cost.44 Because under competitive conditions price 

equals marginal cost, the better measure of profit would have been gross income attributable to 

domestic Fittings, the revenue generated by the sale of domestic-spec Fittings (net of rebates, 

freight discounts, and so forth) minus the cost of goods sold for domestic-spec Fittings. 

47 

Dr. Normann simply fails to consider economically relevant facts indicating that 

McWane likely enjoyed market power even pre ARRA: the fact that McWane was the sole 

43 Even in this one circumstance in which omitted variables are “orthogonal” to the included variables so 

that the estimated coefficients are not biased (a condition that is unlikely to occur, especially when a large number of 

relevant independent variables are omitted, but which requires a highly technical mathematical explanation, which is 

well beyond the scope of this report) the estimated variances and, accordingly the standard errors of the estimated 

coefficients, are biased. Thus, when relevant independent variables are omitted from the estimated model, even 

under the unlikely, single circumstance in which the estimated coefficients are unbiased, biased standard errors “we 

are still precluded from drawing valid inferences about [the estimated coefficients]. Of course, it is unlikely that in 

practice the regressors would be orthogonal.” See Greene, William H., Econometric Analysis, 2nd edition (New 

York: Macmillan Publishing Co., 1993), pp. 246 - 249. The quote is from p. 247. 

an article by Drs. Baumol and Swanson is inapt, as the question addressed by Baumol and Swanson is quite 

different. 45
 

46
 

47
 

44 See, for example, Buccirossi, Paolo, ed., Handbook of Antitrust Economics, MIT Press, 2008. p. 18; 

Viscusi W.K., Vernon, J.M., Harrington, J.E., Economics of Regulation and Antitrust, 3rd Ed., MIT Press, 2000. p. 

258; and Tirole, Jean. The Theory of Industrial Organization, MIT Press, 1988. p. 66. Dr. Normann’s reference to 

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provider of a product for which demand was inelastic and that was protected by antitrust barriers; 

the fact that it charged significantly more for its domestic-spec Fittings than for its open-spec 

Fittings; and the fact that a not-yet-efficient Star could price at, and sometimes below, the prices 

set by the more efficient incumbent, McWane. 

47. Figure 12 

Although far from clear, I think Dr. Normann seeks through Figure 12 to argue that there 

has been a shift over time from domestic-spec to open-spec Fittings and that this somehow has 

market definition or market power implications. Setting aside the substantial counter-shift 

during the ARRA period (as shown in Figure 12 itself), that appears to be a historical fact. But it 

has no market definition or market power implications. As I have indicated elsewhere, we have 

two well-defined markets. All that Dr. Normann’s table shows is that the relative size of the 

open-spec market and the domestic-spec market varies over time. The number of people in a 

relevant market, whether absolutely or in comparison with the number of people in another 

relevant market, is simply unrelated to whether, or the amount of, pricing power that can be 

exercised in that market. Dr. Normann’s Figure 12 is incapable of making any contribution to 

our understanding of the issues here and should be disregarded. 

48. Figure 13 

In Figure 13, Dr. Normann purports to show a negative correlation between a state’s 

receipt of stimulus funding and increases in domestic-spec Fittings sales relative to open-spec 

Fittings sales. Dr. Normann’s methodology is flawed in that he fails to control for the variety of 

variables that might influence the relative growth of the domestic-spec and open-spec markets in 

any given state; variables like prior maintenance of infrastructure, housing starts, and presence of 

pre-existing domestic-spec preferences and laws. Further, Dr. Normann does not report the 

magnitude, variation around, or statistical significance of his claimed “negative correlation.” 

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Without such information, Dr. Normann’s work is entitled to little if any consideration. I frankly 

cannot follow his claims from his purported finding of a negative correlation, but what seems 

obvious is that, contrary to Dr. Normann’s claims elsewhere that ARRA was inconsequential, 

ARRA likely caused substantial growth in the domestic-spec Fittings sales, both absolutely and 

relative to sales of open-spec Fittings; and that Figure 13 is in no way a useful test for assessing 

market definition or market power. 

In the text accompanying Figure 13 (see paragraph 90 of his report), Dr. Normann states: 

"If the stimulus funds becomes a large portion of total funding, and the Buy American 

requirement was binding, greater stimulus dollars should result in a greater domestic share . . . ." 

By that logic, Dr. Normann should have examined the change in domestic-spec share of all 

Fittings sales as a function of the ratio of ARRA-funded Fittings purchases to total Fittings 

purchases. In neither Figure 13 nor Figure 14, which is derived from Figure 13, does Dr. 

Normann test what he described as his relevant, testable hypothesis. 

49. Figure 14 

“To be conservative,” Dr. Normann says, he ran figure 14, changing his horizontal axis. 

Now his correlation apparently flips from negative to positive. Rather than recognizing that this 

result tends to undermine his conclusions from Figure 13, Dr. Normann simply writes it off 

because “the largest states such as California, Texas, [and] New York all have very modest 

changes in share.” 

50. Figure 15 

In Figure 15 Dr. Normann illustrates the fact that ARRA waterworks funds accounted for 

only a small part of total public spending. That is surely correct, but of no economic 

consequence in examining the issues here.48 

48 In his text, Dr. Normann then misstates the terms of the so-called de minimis waiver, which is applicable 

only for items that comprise a small portion of project cost and that are “incidental" components, such as nuts, 

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51. Figure 16 

Dr. Normann’s Figure 16 is intended to support his statement that demand for domestic 

Fittings would not have supported multiple dedicated plants, and that therefore Sigma and Star 

would not have built or bought a dedicated foundry for the production of domestic Fittings. 

Star's determination to build or buy a foundry for the production of domestic Fittings belies the 

notion that rivals of McWane would not have invested in plant. Dr. Normann's finding that if it 

did so capacity would outstrip demand only means that competition then would have then been 

especially intense, as each company fought to load and maintain its foundry. As a result, 

consumer welfare would have increased markedly. Moreover, Sigma entry independent of 

McWane through means other than ownership of a foundry – through an arrangement with a 

foundry operator that did not then manufacture Fittings, for example,49 or an alliance with Star, 

for further example – also could have injected substantial competition into the domestic-spec 

market.50 

52. Figure 17 

Figure 17 incorporates Dr. Normann’s unreliable price series, and so is itself unreliable. 

See Section III of this report. In addition, Dr. Normann again undertakes a naive comparison of 

McWane prices, as he calculates them, and a single variable, a primary input cost index of his 

bolts, other fasteners, tubing, gaskets, etc. [Federal Register Notice, Vol. 74, No. 152 April 10, 2009], and asserts 

that given that Fittings do constitute a small portion of project cost, “it is reasonable to expect that [they] would be 

used.” In forming that expectation Dr. Normann here, as often elsewhere in his report, simply ignores the wealth of 

information contrary to his “expectation.” Deponents had little or no awareness of any instances in which nondomestic Fittings were sold into domestic-spec jobs under a de minimis waiver. See, for example, 

Michael Coryn 

Deposition, May 16, 2012, p. 90; Mark Meyer (Metalfit) Deposition, May 14, 2012, p. 140; Thomas Morton (US 

Pipe) Deposition, May 30, 2012, p. 131. 

49 

50 And participation in the domestic-spec market was important to Sigma not merely in its own right, but 

because it believed that inability to provide domestic Fittings to distributors would make it less likely that they 

would purchase Sigma’s imported Fittings. See, for example, Rona Deposition, May 18, 2012, pp. 219-221;

 For that reason, after passage of ARRA Sigma assured its customers that it 

would be able to supply them with domestic Fittings. See, for example, Pais IH, July 23, 2010, pp. 140-145. 

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devise. As I have previously shown, an econometric analysis accounting for the interplay of 

variables affecting price, including demand as well as cost shifters, is needed to draw any valid 

conclusions. Even as a naive comparison, Dr. Normann’s failure to identify and plot demand 

shifters means that he gives an incomplete and, given that demand was dropping or slack during 

the relevant period, biased impression. Finally, Dr. Normann’s analysis seeks to address only 

whether McWane gained additional market power during the relevant period. As I have 

explained, McWane enjoyed monopoly power well prior to ARRA, which simply expanded the 

number of projects subject to its monopoly power. 

53. Figure 18 

There does not appear to be a Figure 18. 

54. Figure 19 

Figure 19 is nothing more than an enlarged segment of one of the elements graphed in 

Figure 11, and is offered for much the same point. Dr. Normann’s Figure 19 tracks the net 

income of Tyler Union Waterworks Division of McWane. Dr. Normann apparently believes that 

the plotted net income is “inconsistent with McWane being able to exercise market power for the 

sale of Fittings over the relevant time period.” But, as I previously discussed when examining 

Figure 11, Dr. Normann’s measure of net income is for all products of the Waterworks Division, 

which include not only Fittings of foreign and domestic manufacture, but glands, valve boxes, 

jobbing castings, and perhaps other products. Dr. Normann nowhere separately reports on net 

income attributable to domestic Fittings sales, nor does he attempt to control for shifting product 

mix either within the domestic Fittings category or across the several Fittings and non-Fittings 

product categories aggregated in the McWane data he relies on. The upshot of this is that Dr. 

Normann has not tracked McWane’s net income from domestic Fittings sales at all, and for that 

reason alone Figure 19 should be disregarded. 

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Further, Dr. Normann purports to track net income, but that is the wrong measure in 

assessing whether a firm is earning monopoly rents. In so doing, Dr. Normann apparently rejects 

the longstanding, commonly accepted, and fundamental tenet of price theory, that under 

competitive conditions price equals marginal cost.51 Because under competitive conditions price 

equals marginal cost, the better measure of profit would have been gross income (attributable to 

domestic-spec Fittings), net revenue from the sale of domestic-spec Fittings minus their cost of 

goods sold. 

55. Figure 20 

Figure 20 purports to be a graph of Star’s share of domestic-spec sales over time. Dr. 

Normann acknowledges that it is “difficult to establish a metric for measuring the effectiveness 

of entry based on share,” and then proceeds to set up just such a metric based on inapt 

comparisons of entry by Star into sale of domestic-spec Fittings and other companies’ entries 

into radically different markets. Star had participated competitively and well in the adjacent 

open-spec Fittings market for years prior to seeking to enter the domestic-spec market. On 

entering it was seeking to use distribution channels it already had established in the sale of openspec Fittings. And its entry was into a market in which customers previously had had no 

alternative seller to McWane. Under those circumstances, it is not surprising that Star grew quite 

a bit more rapidly than a company seeking to enter the unconcentrated used car market, to take 

one example. Star’s growth, whether looked at in absolute terms or in comparison to that of 

entrants into very different markets, can tell us little, if anything, about what its growth would 

51 See footnote 43 herein. 

52 

53 

54 

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have been had it not been constrained by McWane’s restrictive agreements and practices. 

Finally, Dr. Normann simply ignores all of the information – beginning with the cancellation by 

distributors of millions of dollars of invitations to Star to bid as an immediate result of 

McWane’s announcement of its “full support” program – that conflicts with the slant he places 

on his share graph.55 

56. Figure 21 

Dr. Normann’s Figure 21 purports to show Star’s share of domestic-spec sales in the ten 

states in which its share is greatest. The relevance of this information is not apparent: in fact, it 

means that in the forty unlisted states, Star’s share is never greater than and may be 

as low as And Figure 21 tells us nothing about the dollar value or distribution of 

Star’s sales within any state (which I would think would be particularly important to Dr. 

Normann given his opinion that markets may be local). In particular, it does not alter the fact 

that Star’s share of the U.S. market for domestic-spec product—and I have explained elsewhere 

why the relevant market is nationwide—was just in 2010 despite Star’s much greater 

share of the open-spec market. 

Appendix B provides McWane’s and Star’s sales in tons of domestic-spec Fittings for all 

50 states (plus the District of Columbia and Puerto Rico (for convenience, in this paragraph I 

will refer to all of them as “states.”)). The states, the District of Columbia, and Puerto Rico are 

listed in descending order of Star’s share of sales in tons of domestic-spec Fittings. Star’s 

largest share is in Oklahoma in which its sales represent of the total tons of domesticspec Fittings sold in the state. Iowa is the tenth state when ranked by Star’s share, with 

 of the total tons of domestic-spec Fittings sold in the state. Although Star’s shares in 

these states may look relatively high, looks can be deceiving. The total tons of domestic-spec 

55 For a discussion of this record information, see paragraph 147 of my previous expert report in this matter 

(Expert Report of Laurence Schumann, Ph.D., filed on June 15, 2012). 

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Fittings sold by Star in the 10 states in which it has its highest shares represents just 

of the total tons of domestic-spec Fittings sold in the U.S. Star sold of domestic Fittings 

in Oklahoma in 2010, its top state in which it has a share. Yet, all of the tons of 

domestic-spec Fittings sold in Oklahoma, , represent just of the tons of 

domestic-spec Fittings that were sold in the U.S. in 2010. It is clear from Appendix B that the 

market shares in each state are irrelevant. Having a large share of the sales in states that have 

very small shares of the U.S. market does not mean much. It is still the case that Star’s sales 

represent just under of the domestic-spec market. 

57. Figures 22 through 24 

In Figure 22, Dr. Normann indicates that of distributors purchased domesticspec Fittings solely from McWane and that of distributors purchased domestic-spec 

Fittings from Star or Star and McWane both.56 

In Figure 23, Dr. Normann charts his calculation–unreliable insofar as it incorporates his 

unreliable price series, that distributors that purchased from McWane alone accounted for 

of all domestic-spec Fittings purchases and that distributors that purchased from Star or 

Star and McWane both purchased of all domestic-spec Fittings purchases. 

In Figure 24, Dr. Normann performs the same calculation–using the same unreliable price 

series, but limits his universe to distributors that purchased more than of 

domestic-spec Fittings summed across Star and McWane. He calculates that of the 

56 Remarkably, in Figures 22 and 24, Dr. Normann weights every distributor equally. HD Supply, with its 

215 branches spanning much of the country, and Ferguson , with 161 branches across the country are, for him, just 

two distributors, no different from any other distributor irrespective of the number of its branches, the scope of its 

geographic coverage, the number or size of customers to which it has meaningful access Every distributor counts as 

“1.” In Figure 23, Dr. Normann may have tried to proxy for this by looking at dollar sales rather than number of 

distributors, but that proxy is at best incomplete. Further, insofar as Figure 24 is intended as a check on Figure 23 

by limiting the analysis to distributors that purchased more than $50,000 of domestic-spec Fittings from Star and/or 

McWane in 2010, it is anomalous that Dr. Normann doesn't include a similar proxy, at the least, in Figure 24. 

Again, he treats every distributor, so long as it has the requisite minimum domestic-spec purchases, like every other 

distributor despite his knowledge of the tremendous variation in distributors’ size and scope. 

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distributors in this universe purchased domestic Fittings only from McWane, and that 56 of the 

distributors in it purchased domestic Fittings from Star or Star and McWane. 

From these Figures, Dr. Normann concludes that Star sold some domestic-spec Fittings to 

numerous distributors, many of which purchased domestic-spec Fittings from McWane as well.57 

But from this, Dr. Normann claims that it must be that McWane did not materially constrain 

Star’s entry (and, by implication, its growth toward efficient scale). This simply does not follow. 

Dr. Normann does not report any effort to determine whether purchasers of both Star and 

McWane domestic-spec Fittings tend to purchase significant quantities of Star domestic-spec 

Fittings or whether, as appears more likely, most purchasers of both Star and McWane domesticspec Fittings purchase only trivial amounts of Star domestic-spec Fittings.58 His data are fully 

consistent with the latter. 

Table 1 below illustrates this point, and shows how misleading Dr. Normann’s Figures 

22, 23, 24 and the related text are. Even if every number that Dr. Normann reports in connection 

with these Figures is correct, it remains true, as my Table 1 shows, that McWane’s 2010 sales, 

measured in tons of domestic-spec Fittings, were greater than Star’s, and that 

irrespective of the number of distributors purchasing Star’s domestic-spec Fittings, their 

purchases were trivial. This and the remainder of information conveyed in my Table 1 is entirely 

consistent with my opinion that McWane’s “full support” program prevented Star from 

57 The impact of McWane’s “full support” program may have been more complete in early 2010 than in the 

latter part of 2010, when some distributors may have been emboldened to purchase at least some Star domestic-spec 

Fittings by knowledge of the FTC’s investigation in this matter. See e.g. Thomas Morton (VP of Purchasing at US 

Pipe) Deposition, May 30, 2012, pp. 152-155; Edward Morrison, Jr. IH, February 4, 2011, pp. 78-79. Since Dr. 

Normann’s data are presented for the entire year rather than by month, he obscures any such variation over time. 

58 Nor, for example, does he report any effort to measure Star’s access to customers located in specific 

localities. This seems an odd omission given Dr. Normann’s opinion that relevant markets here may include states 

and localities. In fact, elsewhere in his report Dr. Normann indicates that in 2010 “Star made no domestic sales to 

DC, HI, ME, NH, VT and no sales of the fixed basket of Fittings to NE and WI. See Notes to Figure 27 in Dr. 

Normann’s Report. 

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participating in major domestic-spec waterworks projects in 2010 despite the substantial increase 

in the sales of domestically manufactured Fittings for use to ARRA projects in 2010. 

. 

TABLE 1 

McWane's and Star's Sales of Domestic-Spec Fittings in 2010 

Tons Share Tons

Total Tons 

Tons Sold to Overlapping Customers 

Tons Sold to Exclusive Customers

McWane Star 

Share

 Includes Fittings up to 24". 

Dr. Normann seems nonplussed by this possibility, which he seems to acknowledge but 

somehow concludes that it would be evidence of the ineffectiveness of McWane’s “full support” 

program. That seems quite a stretch. The more plausible explanation is that most of those 

distributors that purchase domestic-spec Fittings from Star and McWane purchase substantially 

all of their Fittings from McWane, but a few from Star when McWane is unable to timely 

provide the specific Fittings required,59 and that some of them have made furtive purchases of 

small quantities of Star domestic-spec Fittings, to see if they might gain sufficient confidence in 

Star to enable them later to openly switch their purchases from McWane to Star.60 Dr. 

59 McWane’s policy allowed for this: “Exceptions are where Tyler Union or Clow Water products are not 

readily available within normal lead times . . .” TU-FTC-0255188. 

60 The deposition testimony of Dennis Sheley of Illinois Meter is illustrative: 

Q. And the stuff that you purchased from Star, 

is it all still in inventory for you?
 

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Norman’s data simply do not address the real-world adequacy of the distribution opportunities 

remaining to Star following McWane’s announcement of its “full support” program. 

58. Figure 25 

Figure 25 incorporates Dr. Normann’s unreliable price series, and so is itself unreliable. 

See Section III of this report. 

In Figure 25, Dr. Normann presents a purported list of what he calls common domesticspec Fittings sold both by Star and McWane (subject to the substantial difficulties he 

acknowledges in matching up Star and McWane Fittings). So to begin, he limits his analysis to 

domestic-spec Fittings of which Star sold more than nine tons in the period 2009 through 2011 

and for which he could find a McWane match. In so doing, he excludes the overwhelming 

majority of Star and McWane domestic-spec Fittings from his analysis.61 He finds that as a 

percentage of its domestic-spec Fittings sales, Star is more concentrated on “the common 

Fittings” than McWane, although he does not report whether the difference he notes is 

statistically significant or his findings robust (which is to say, how his findings would be affected 

if he used somewhat different inclusion/exclusion criteria). For that reason alone, one cannot 

properly make inferences from the finding. Nevertheless, Dr. Normann concludes that his 

A. No. We've sold it here and there. 

Q. Did you ever send Star any bids to respond 

to for domestic fittings?
 

A. No. 

Q. Why not? 

A. Because I don't want to lose the Tyler line. 

Sheley Deposition, April 24, 2012, p. 134. 

See also, R. Edward Gibbs Deposition (WinWholesale), May 29, 2012, pp. 37-38. 

61 In addition, Dr. Normann’s representation that he is examining sales for the period 2009 through 2011 is 

improper in two very different respects. First, it is misleading in that he implies that he is reviewing three years of 

data, whereas Dr. Normann knows there were only trivial Star domestic-spec sales in 2009, all occurring at the very 

end of that year. Second, because he lumps all sales together rather than examining them at various points in time, 

he obscures the effect of ordinary product mix variation within each company over time, which might further call in 

to question his conclusion. 

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finding is “consistent with” McWane’s “prevention-of-cherry-picking” justification for its “full 

support” program. This is an underwhelming finding, and all the more so given that Dr. 

Normann’s methodology likely purged most of Star’s sales of less common Fittings from 

consideration. 

59. Figure 26 

In Figure 26, Dr. Normann graphs quarterly Hajoca purchases of domestic-spec Fittings 

from McWane and from Star for the period 2008 through 2011 and Hajoca’s aggregate share of 

domestic-spec Fittings purchases in the states in which Hajoca made purchases. Dr. Normann 

claims that if Hajoca was harmed by McWane’s “full support” program, that harm would be 

reflected in lower total volume and share. But Dr. Normann does not correctly answer the 

question, “lower than what?”. The correct answer to that question is, “lower than the volume 

and share that would have obtained given Star entry but absent the McWane “full support” 

program and/or its enforcement.” But Star’s entry and McWane’s announcement and 

enforcement of its “full support” program are substantially contemporaneous events, or at least 

nearly so.62 Hence, Dr. Normann has failed to provide a framework in which his hypothesis can 

be tested meaningfully. 

Even were that not so, Dr. Normann’s analysis founders on known errors in the 

classification of McWane sales as open-spec or domestic spec, as I indicated previously, and on 

Dr. Normann’s continued, but improper, insistence on making inferences from inter-temporal 

comparisons without controlling for varying supply and demand conditions over time. For these 

reasons too, Dr. Normann’s analysis should be rejected. 

62 Further, because there is an unsystematic lag between negotiation of purchases by distributors and order 

entry and fulfillment by suppliers, one cannot assign effects to specific causes based on temporal relationship (as we 

often casually do by observing that A always follows immediately upon B, and therefore may be the cause of B). 

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Finally, and once again, Dr. Normann fails to fully understand and take any guidance 

from the facts in determining what analyses might be meaningful or in interpretation of his “test” 

findings. During the relevant period, only two Hajoca branches required domestic-spec Fittings, 

one in Pennsylvania and the other in Oklahoma.63 The Pennsylvania branch had a longstanding 

relationship with McWane, because of Pennsylvania’s statutory commitment to Buy-American 

and McWane’s longstanding position as the monopoly supplier of domestic-spec Fittings.64 The 

Oklahoma branch, however, decided it would buy Star domestic-spec Fittings. McWane then 

informed Hajoca that if it did so, McWane would cut Hajoca (not just the Oklahoma branch) off 

and withhold certain rebates.65 Hajoca stood by its corporate policy of allowing its branches 

purchasing autonomy and permitted its Oklahoma branch to buy the Star Fittings.66 It did, and 

McWane then informed Hajoca that it was cut-off. 

Hajoca was able to negotiate with McWane for fulfillment of outstanding orders from 

Hajoca’s Pennsylvania branch as of about December 23, 2009, but not for acceptance of new 

orders from any Hajoca branch thereafter or for payment of fourth quarter rebates for domesticspec purchases, which McWane withheld.67 It was not until April of 2010 that McWane further 

relented and allowed Hajoca branches other than the offending Oklahoma branch to again 

purchase McWane’s domestic-spec Fittings.68 And McWane’s willingness to relent may have 

been a reaction to the fact that it was by then aware that it was under investigation by the FTC 

for its monopolistic practices. 

63 HAJ000055-56.
 

64 Roy Pitts IH, October 29, 2010, p. 57. 

65 Roy Pitts Deposition, April 11, 2012, pp. 152-153. 

66 Roy Pitts IH, October 29, 2010, pp. 68-70. 

67 HAJ000046. 

68 Roy Pitts Deposition, April 11, 2012, pp. 155-158; HAJ00001. 

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In paragraph 143 of his Report, Dr. Normann seeks to transmute these facts into 

something else by claiming that Hajoca’s Roy Pitts testified that McWane “came around to our 

thinking” and did not enforce its “full support” program against Hajoca. According to Dr. 

Normann, Mr. Pitts’ concluded, “no harm, no foul.” Of course, Mr. Pitts’ testimony indicates, 

despite Mr. Pitt’s wish to placate a critical supplier, that McWane cut off order fulfillment to all 

Hajoca branches for a period of time during the ARRA period, and continued to refuse to fulfill 

Oklahoma branch orders beyond that. And as for “No harm, no foul, Dr. Normann ignores the 

following exchange between Mr. Pitts and McWanes counsel at Mr. Pitts’ deposition at page 

165: 

Mr. Pitts: I need to clarify something so I can get it right. No harm, no foul, 

we did lose the first quarter rebate, just to clear that up. 

McWane’s Counsel: Let's look at that. 

Mr. Pitts: That would be the foul. 

60. Figure 27 

Figure 27 incorporates Dr. Normann’s unreliable price series, and so is itself unreliable. 

See Section III of this report. 

In Figure 27, Dr. Normann plots, by state, the ratio of Star to McWane prices “for a fixed 

basket” of domestic-spec Fittings and Star’s share of domestic-spec Fittings sales.69 He finds 

that the lower Star’s prices for the basket of Fittings was relative to McWane’s prices for a 

similar basket of Fittings, the greater was Star’s share of domestic-spec Fittings sales.70 Then, 

in a footnote (see his footnote 158), he acknowledges that his observed correlation actually is 

“marginally insignificant” and possibly “spurious.” Nevertheless, Dr. Normann infers from his 

observed (but marginally insignificant and possibly spurious) correlation that Star could have 

69 Or is it, sales of the basket of Fittings? It is not entirely clear from Dr. Normann’s narrative. 

70 Ibid. 

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picked up additional sales by pricing in a “more aggressive” way. Dr. Normann does not report 

the quantity of additional sales that he believes would have been available to Star nor the size of 

the difference between Star and McWane prices that would have been necessary to induce those 

sales notwithstanding McWane’s “full support” program. 

Again, Dr. Normann’s analysis is fraught with methodological problems, including 

failures to control for differences in supply and demand conditions across states, without which 

his purported correlation is meaningless, and questions of significance and robustness of his 

findings. Moreover, in concluding that Star could have obtained additional sales by pricing 

“more aggressive[ly],” Dr. Normann seemingly forgets that his data concern the difference 

between Star and McWane prices, not Star prices themselves. For that reason, his failure to 

consider how McWane would have responded to more aggressive Star pricing further 

undermines his conclusion. Finally, Dr. Normann’s exercise simply does not address the 

question of relevance here: whether McWane’s imposition of its “full support” program 

improperly raised Star’s costs of entry and delayed its emergence as an efficient competitor able 

to constrain McWane’s monopoly of domestic-spec Fittings. 

61. Figure 28 

Figure 28 incorporates Dr. Normann's unreliable price series, and so is itself unreliable. 

See Section III of this report. 

In Figure 28, Dr. Normann purports to show that Star entry did not affect McWane’s 

domestic-spec Fittings prices during the period 2008 through 2011 (odd in itself in that Star did 

not announce its entry until June 15, 2009, and had no appreciable 2009 sales). Dr. Normann 

here makes the same kinds of methodological errors he makes elsewhere, but let us assume that 

he nevertheless is correct: that Star entry did not affect McWane prices. That is entirely 

consistent with McWane’s continued monopolization of the market through imposition of its 

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“full support” program. McWane’s intent was to avoid undermining its pricing by responding to 

any competition from Star. That is why it imposed the “full support” program.71 Dr. Normann’s 

Figure 28 and related text is consistent with McWane’s having consigned Star to the margins 

during 2009 and to date. By not more thoroughly considering the facts and relevant economic 

theory before setting up his “tests,” Dr. Normann is again unable to effectively interpret his own 

data. If one accepted Dr. Normann’s Figure 28 as reliable, one would note that it matches up 

with a dominant firm model in which the marginalized Star most often will sell what it can at or 

near prices set by the market leader, here McWane. Once free of the marginalizing restraint of 

McWane’s “full support” program and able to acheive scale efficiencies, Star’s incentives will 

change as will supply conditions relative to demand, exerting substantial downward pricing 

pressure on both Star and McWane. 

62. Figure 29 

Dr. Normann’s Figure 29 and related text incorporates the same errors as Figure 28 (and 

numerous other Figures), and should be disregarded as unreliable. 

From Figure 29, Dr. Normann finds that McWane’s prices, at least for his fixed basket of 

domestic-spec Fittings, did not vary from state to state with variations in Star’s market 

penetration. From that, he illogically concludes that McWane’s “full support” program had no 

competitive effect.72 To lend credibility to his test, Dr. Normann claims that there “is a wide 

71 See TU-FTC-0257851 (“To protect our domestic brands and market position we are going to adopt a 

distributor exclusivity program . . .”); TU-FTC-0255284 (“Avoids the job by job auction scenario within a particular 

distributor”). 

72 He apparently seeks to borrow credibility from elsewhere by claiming that his analysis is similar to the 

analysis presented by the FTC’s expert in Staples/Office Depot. While not entirely incorrect, Dr. Normann fails to 

point out that, while the FTC’s expert did perform an analysis based on similar intuition, this type of analysis may 

suffer from serious deficiencies that could render the results highly unreliable. It is well-known in the economics 

profession such cross-sectional comparisons suffer from what is known as “omitted variable bias” and may be 

fundamentally misleading. (See, for example, Hausman, J. A., and Taylor, W. E., “Panel Data and Unobservable 

Individual Effects”, Econometrica, Vol. 49 N. 6 (1981) pp. 1377-1398; Baker, Jonathon, “Econometric Analysis in 

FTC v. Staples”, March 31, 1998, available at http://www.ftc.gov/speeches/other/stspch.shtm.)) Therefore, in 

Staple/Office Depot, the FTC’s expert performed additional analysis that compared price changes before and after 

changes in market structure in select markets with price and market structure changes during the same time period in 

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range in Star’s share, ranging from zero in a few states, to as high as in others. Nontheless, 

greatly undermining Dr. Normann’s ability to draw reasonable inferences, even were his test 

otherwise is well-conceived, is the fact that there are very few data points reflective of morethan-slight Star shares of domestic-spec sales.73 

Moreover, again, Dr. Normann is unable to effectively interpret his own data because of 

his disregard of the facts and relevant economic theory. McWane was determined to slow Star’s 

emergence as an efficient competitor; not to start reactively pricing and undercutting its own 

margins.74 As long as McWane could inhibit Star’s growth and prevent it from acheiving 

efficient scale, Star’s adherence to the dominant firm model made sense. But Star’s ability to 

achieve that scale is a function of its sales nationwide, not its share in any state or locality. In 

looking at variations in state shares, Dr. Normann entirely misses the point. 

63. Figure 30 

Dr. Normann’s Figure 30 re-runs his Figure 29 analysis, substituting for McWane’s 

domestic-spec prices some kind of average domestic-spec price. The analysis is subject to every 

flaw I identified in my discussion of Figure 29, and should be disregarded. 

64. Figure 31 

control markets. The use of times series and cross-sectional data (referred to as “panel data”) enabled the expert to 

separate out any price effects attributable to entry (the variable of interest) from any attributable to other variables 

(so-called “confounding varriables”). 

confounding variables, one simply cannot assess the impact of a variable of interest: here, the imposition of 

Dr. Normann performs no such analysis here. Without controlling for 

McWane’s “full support” program.

sectional comparison of McWane prices and Star market shares by state without controlling for any attributes that 

 Instead of a carefully controlled analysis, Dr. Normann serves up a crossmay also affect prices. In Staples/Office Depot, the results in the cross-sectional and panel data studies performed 

by the FTC’s expert were very similar, but that does nothing to mitigate concerns about Dr. Normann’s crosssectional analysis in this matter. 

73 As far as I can tell given the tight packing of observations at shares between zero and five percent, Dr. 

Normann’s “few states” in which Star had a zero share actually number six, whereas his “as high as in others”– 

the emphasis is mine–applies to only one state, New York, with the next highest share dropping quite far, to about

 No other share exceeds In all, it appears that in not fewer than 33 instances Star’s share does not exceed 

 and in more than half of those it does not exceed 

74 See TU-FTC-0257851 (“To protect our domestic brands and market position we are going to adopt a 

distributor exclusivity program . . .”); TU-FTC-0255284 (“Avoids the job by job auction scenario within a particular 

distributor”). 

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In Figure 31, Dr. Normann plots McWane and Star average prices per ton for “a fixed 

basket” of domestic-spec Fittings. Quite apart from the applicability of many of my previouslynoted methodological criticisms, Dr. Normann’s data seem to show only that in most, but not all, 

instances, Star prices its domestic-spec Fittings at or slightly above the prices set by McWane. 

But he then claims that this somehow shows that McWane lacks monopoly power. That is 

wrong. It implies, as Dr. Normann did in his discussion of earlier Figures, that it cannot be that 

an entrant in a monopolized market would be cautious in initiating a price-war with a monopolist 

with all of the advantages of incumbency. Again, Dr. Normann ignores the facts and relevant 

economic theory. As previously indicated, Dr. Normann’s data are consistent with a dominant 

firm model in which the marginalized Star most often will sell what it can at or near prices set by 

the market leader, here McWane. Once free of the marginalizing restraint of McWane’s “full 

support” program and able to acheive scale efficiencies, Star’s incentives will change as will 

supply conditions relative to demand, exerting substantial downward pricing pressure on both 

Star and McWane. 

65. Dr. Normann’s Final, Unnumbered Figure 

In this Figure on page 81 and in the related text, Dr. Normann looks at all distributors 

who purchase any Fittings of any origin from either McWane or Star. He finds that among these 

distributors, six percent purchased domestic spec Fittings only from McWane. Based on that, he 

concludes that “only six percent of distributors could be considered foreclosed . . . .” In reaching 

that conclusion, Dr. Normann ignores another six percent of distributors, apparently because the 

McWane rebates they stood to forfeit if they violated McWane’s “full support” policy were less 

than each. 

Again, Dr. Normann works his data without regard for the facts. Every one of those 

distributors faced the prospect of being cut off from access to needed McWane domestic-spec 

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Fittings if they purchased other domestic-spec Fittings from Star. Such a lack of access is a 

daunting prospect–perhaps more so than loss of rebates. Another of the distributors 

purchased some domestic-spec Fittings from both McWane and Star, but Dr. Normann does not 

report on the quantity of these Fittings each purchased from Star. Dr. Normann ignores the fact 

that some, perhaps many or most, of these distributors purchased small quantities of Star 

domestic-spec Fittings, to fill in where McWane could not timely provide the Fittings needed 

and/or to gain familiarity with Star’s domestic-origin capabilities while seeking to escape 

McWane’s notice. 

The largest group of distributors that Dr. Normann includes as not foreclosed are firms 

that made no McWane purchases and so were not affected by McWane’s imposition of its “full 

support” program. That sounds impressive, until one considers that the time period of Dr. 

Normann’s analysis is 2007 through 2010. The significance of that time period is that these 

distributors appear not to have been material purchasers in the relevant domestic-spec market at 

all. They cannot have been, or they would have had to purchased domestic-spec Fittings from 

McWane in 2007, 2008, and 2009, during which time McWane was the only supplier available 

to them. Saying that these distributors (if that is a proper characterization at all) were not 

foreclosed by McWane’s “full support” program is like saying that distributors of groceries were 

not foreclosed by McWane’s program: true, but ninformative and irrelevant. Dr. Normann’s 

Final, Unnumbered Figure simply does not speak meaningfully to the issues in this suit. 

VI. Dr. Normann’s Response to the Schumann Report 

66. Dr. Normann criticizes my report for not offering testable theory or analysis with 

respect to collusion or exclusive distribution. Ironically, these criticisms include my failure “to 

examine actual transaction prices” in addition to my failure to examine the incidence of job 

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pricing or prices relative to input costs.75 Among other things, he also criticizes my failure to 

provide “graphs, charts, or analyses of any kind regarding pricing.”76 He goes so far as to assert 

that my “entire conclusion rests on his opinion derived from a review of the documents.” 

67. I have already discussed at length the extensive deficiencies in the price data 

produced by the parties. Just as I have not examined, studied, analyzed, graphed , or charted 

transaction prices, Dr. Normann has failed to examine, study, analyze, graph, or chart transaction 

prices. Perhaps if Dr. Normann had reviewed, examined, and studied the documents and 

testimony more carefully he would not have submitted an 85 page summary of, among other 

things, his failure to understand how transactions are undertaken in the relevant markets and why 

actual transaction prices bear no relation to the prices that he has examined, analyzed, graphed, 

and charted. 

68. I freely admit that without meaningful price data, I relied heavily on facts 

developed by the record in this case to test if the economic theories of oligopoly and collusion 

that I discussed at length in my report were applicable to the relevant markets and consistent with 

the business practices adopted by McWane, Star, and Sigma. Indeed, throughout my career I 

have found that facts can be extremely informative with regard to markets and the competitive 

behavior of firms operating in those markets. 

69. Dr. Normann also criticizes my report for my analysis of market definition. This 

criticism is based on Dr. Normann’s mischaracterization of the markets that I define and the 

analysis on which I base my opinions regarding market definition. Dr. Normann views appear 

inconsistent with the discussion in the 2010 Horizontal Merger Guidelines on Product Market 

75 Normann Report, paragraph 164. 

76 Ibid. 

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Definition with Targeted Customers.77 Dr. Normann claims that I conclude that domestic 

Fittings represent a separate product market from imported Fittings.78 That characterization of 

my opinion is not true. 

70. In my report, I conclude that two markets are relevant in this matter. One consists 

of both domestic and imported Fittings when a project’s specifications allow Fittings 

manufactured in any location to be used in a waterworks project. The second relevant market 

consists of domestic Fittings, but only when project specifications require that only domestically 

manufactured Fittings can be used in the waterworks project. Such domestic-only specifications 

can be required by law. For example, the American Recovery and Reinvestment Act of 2009 

(“ARRA”) required that only domestically manufactured Fittings could be used in ARRA funded 

waterworks projects.79 In the Commonwealth of Pennsylvania, only iron and steel products 

made in America can be used in all construction, repair, and maintenance contracts let by public 

bodies, including the Commonwealth, its political subdivisions, and authorities.80 Similarly, a 

New Jersey statute requires that “every contract for the construction, alteration or repair of any 

public work in this state shall contain a provision that in the performance of the work the 

contractor and all subcontractors shall use only domestic materials in the performance of the 

work.”81 Domestic-only specifications are also be required by certain municipalities and can be 

required purely as a result of the strong preferences of regional or state authorities or private 

77 U.S. Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines, August 19, 

2010, Section 4.1.4. 

78 Norman Report, paragraph 170. 

79 See ARRA (2009), Section 1605. 

80 The Pennsylvania Steel Products Procurement Act, 73 Pa. Stat. §§ 1881-1887. The definition of “steel 

products” includes cast iron products. When required by law, such as in Pennsylvania or under the ARRA, public 

waterworks projects will require MA Fittings under virtually all circumstances. Nonetheless, in certain cases, some 

negotiations over the extent of a MA Fittings specification may occur. 

81 N.J. Stat. § 52:33-3. 

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businesses.82 Dr. Normann does not seem to understand that when domestically manufactured 

Fittings are the only Fittings that can be used in a waterworks project, then imported Fittings are 

not a substitute product. Because imported Fittings cannot substitute for domestic Fittings when 

only domestic Fittings can be used in a project, the ability of a hypothetical monopolist to price 

discriminate defines a separate Made in America Fittings market when only domestically 

manufactured Fittings can be used in a project. 

71. Dr. Normann discusses at length how imported and domestic Fittings are 

essentially identical; that imported Fittings replaced domestic Fittings when they entered the U.S. 

market; and that, in my report, the only state that I mention as having a law requiring the use of 

domestic Fittings in public waterworks projects is Pennsylvania. Each of these points is 

absolutely correct and absolutely irrelevant. In some cases in which preferences rather than law 

resulted in domestic-only specifications in waterworks projects, Fittings importers have 

successfully persuaded municipalities, water authorities, and businesses responsible for the 

domestic-only specifications to change the specifications to allow for the use of imported 

Fittings. This is also irrelevant. If a waterworks project requires that only domestically 

manufactured Fittings be used, for whatever reason such a requirement may exist, imported 

Fittings do not and cannot substitute for domestic Fittings. If an importer can have the 

specification changed, then it is no longer the case that only domestically manufactured Fittings 

can be used in the project. But, as long as it is the case that only domestically manufactured 

Fittings can be used in a particular waterworks project, then imported Fittings are not substitutes 

82 See also the testimony of several witnesses in this matter, who in addition to Pennsylvania, identify the 

Northeast, Maryland, Utah, Illinois, and Texas as areas with domestic specifications, including Ramesh Bhutada IH, 

October 12, 2010, pp. 31-32; 

Dan McCutcheon IH, October 12, 2010, pp. 83-84; Richard 

Tatman IH, July 21, 2010 pp. 46-48; and Bill Thees IH, November 16, 2010, p. 48; “Buy America Works: 

Longstanding United States Policy Enhances the Job Creating Effect of Government Spending,” February 2010, 

available at http://www.mcwanebuyamerican.com/pdfs/buyamericanworks.pdf (“To date, more than 500 local, state 

and municipal governments have passed “Buy America” resolutions of their own, pledging to ensure that Americanmade materials are used to the fullest extent possible in infrastructure projects funded by the Recovery Act.” p. 4.) 

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for domestically manufactured Fittings. In such a case, a hypothetical monopolist of domestic 

Fittings can charge higher prices than it would be able to charge if it faced competition from 

imported Fittings. Accordingly, for those waterworks projects in which only domestically 

manufactured Fittings can be used, domestic Fittings compose a second market. This basic 

application of the hypothetical monopolist analysis of market definition in the presence of price 

discrimination does not suggest that imported Fittings do not compete with domestic Fittings, as 

Dr. Normann falsely characterizes my opinion. It does indicate, however, that when imported 

Fittings cannot compete with domestic Fittings because only domestic Fittings can be used in a 

project then, in that case, domestic Fittings compose a distinct market.83 

72. Dr. Normann is also badly confused on geographic market definition. He claims 

that the use of local preference or law in the determination of product market mandates a local 

geographic market.84 This is simply wrong. Any domestic manufacturer can sell in any local 

community mandating domestic product and thus the appropriate geographic market is national 

irrespective of either local laws or preferences that govern product market definition. 

73. Dr. Normann argues that I am wrong in concluding that there are substantial 

antitrust barriers to entry in the Fittings markets, and that these barriers facilitate collusion. He 

seemingly disregards all of the IH and deposition testimony indicating the importance and 

difficulty of establishing a distribution network.85 He instead asserts that there are no such 

barriers, basing that assertion on his claim that Sigma and Star combined Fittings sales grew 

from about 30 percent of the market to about 50 percent between 2003 and 2008, and on his 

claim that Star “captured almost a 15 percent share [of domestic-spec sales] within 18 months [of 

83 Dr. Normann also criticizes my analysis of market definition 

84 Norman Report, paragraph 173. 

85 See, for example, Coryn IH, Jan. 13, 2011, pp. 44, 102 – 103; Groeniger IH, Dec. 14, 2010, pp. 61 – 63, 

82; Groeniger Deposition, May 11, 2012, pp. 155 – 158; Prescott Deposition, May 8, 2012, p.24; Sheley IH, Jan. 11, 

2010, pp. 60, 116. 

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entry into that market], reached 20 percent or more for several states, and sold domestic product 

to more than 100 distributors in 2010.” This is a liberal mix of misstatement and misdirection. 

Sigma and Star did not achieve their “modest”—Dr. Normann’s characterization—2003 shares 

of the Fittings market until some 18 and 26 years, respectively, after entry. That is hardly 

consistent with ease of entry. Dr. Normann’s statement that Star “reached 20 percent or more [of 

domestic-spec sales] in several states” is belied by his own Figure 21, which shows that only in 

two states did its share exceed , and only in five, did it exceed . Figure 21 

shows that in 43 states its share was not greater than and possibly as low as 

Moreover, such domestic-spec sales as Star has been able to gather is a function of the widereaching distribution system it has built up in its nearly 30 years of Fittings sales in the U.S. 

Only two firms other than McWane enjoy such Fittings distribution capability, Sigma and Star. 

That is what distinguishes them from other Fittings providers, like Electrosteel, which, though 

substantial international firms, have been unable to develop U.S. distribution and so failed to 

become a noteworthy market participant.86 

74. Dr. Normann also criticizes my report by claiming to show that prices did not 

increase following McWane’s January 11, 2008 letter announcing its price increase effective 

February 18, 2008. As I have already discussed, Dr. Normann’s analysis purporting to show that 

prices did not increase in 2008 is based on extraordinarily flawed and meaningless price data. 

On the other hand, Rick Tatman states in the Tyler/Union Executive Report for 1st Quarter 2008, 

“Based upon our competitive feedback log, the level of multiplier discounting by both Star and 

Sigma appears to have died down significantly.”87 Significant reductions in discounting tend to 

suggest increases in transaction prices. Moreover, in my view, the opinions expressed by Mr. 

Tatman in documents created in the course of business in 2008 are considerably more credible 

86 See Swalley Deposition, May2, 2012, pp. 41, 108, 126 , and 152 - 153. 

87 TU-FTC-0010113 – l 0115, at 10113. 

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descriptions of the state of the Fittings market in early 2008 than any graph created in 2012 by 

Dr. Normann, particularly in light of the meaningless “price” data on which Dr. Norman bases 

his opinions. 

75. Dr. Normann claims that my report has no testable theory re: collusion or 

exclusive distribution and no pricing analysis or graphs. I discussed the reliability of pricing data 

earlier. Documents and testimony paint a compelling picture of attempts to coordinate pricing 

and belief of success, albeit temporary. Furthermore, each section of the report does have 

testable implications. For example, the exclusive distribution policy, if effective, implies Star’s 

share of the domestic market in 2010 and 2011 was lower than it would have been absent the 

policy. Neither Dr. Normann nor I can observe the “but-for” world directly, so there is no direct 

test on this point. I find it compelling that Star testified it had/has trouble getting distribution, 

that at least one distributor testified he would have bought from Star but for the policy, and that 

other distributors reduced or eliminated their domestic purchases from Star after McWane 

announced its distribution policy. In contrast, Dr. Normann concludes that the policy had no 

effect because Star’s market share “grew steadily” (para. 124), had “strong sales in some states” 

(para. 129) and “had access to distributors” (section heading, p. 59). None of these are sufficient 

to show that McWane’s policy had little to no effect on Star. 

76. Dr. Normann claims I do not discuss market power in a meaningful way or test 

for market power. Market power is the ability to maintain price above the competitive level for a 

material period of time. It can be measured by direct evidence or inferred from structural 

analysis. Market power is created in the overall Fittings market when McWane, Sigma, and Star 

agreed to coordinate their pricing policy, an agreement policed by an exchange of share data 

through DIFRA. Not surprisingly, this market power dissipated when the Big Three cheated on 

their agreement. Market power is inferred for the domestic niche from the monopoly share of 

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McWane. Given the significant difference in price between the blended and the domestic-only 

Fittings evidence in McWane’s documents, some market power is exercised in this market. 

77. Dr. Normann claims that the DIFRA data are not sufficient to allow McWane, 

Sigma, and Star to collude. As pricing is extremely complicated, the firms cannot reach a price 

agreement unless it is possible to police the agreement with share information. As the product is 

reasonably standardized, unit sales are sufficient to allow the calculation of market shares. Each 

competitor only needs to know if its share has declined materially to detect competitive behavior 

on the part of its rivals. McWane’s demand for participation in DIFRA and Sigma and Star’s 

acquiescence to it facilitated the price agreement. In fact, on the very day the DIFRA data 

arrived at McWane, a price increase was announced.88 

78. Dr. Normann claims I provide no evidence on size of domestic market or the 

strength of preferences. This allegation fails to recognize the clear evidence in the record that 

customers paid more for domestic Fittings when jobs required domestic Fittings than they did 

when the bids were open (and McWane sent a domestic fitting priced as an imported fitting (as a 

blended product). The size of the domestic market was well defined by the tons of product sold 

as domestic. McWane tracks this number in their business. 

79. Dr. Normann claims I ignore the large number of non-McWane distributors. All 

of these ignored distributors were not accepted as McWane customers prior to Star’s entry. 

Hence none of the firms had much experience dealing with the customers that required domestic 

product. No evidence exists to suggest that these entrant distributors were as effectively as the 

distributors with a long history of selling domestic Fittings. Star’s sales of 2-24 inch Fittings to 

these non-McWane distributors were relatively small. Dr. Normann also argues that purchasers 

88 See Q006SP0000810 (email of June 17, 2008 containing transmission of the DIFRA report); TU-FTC0266469 (Tatman email of June 17, 2008 at 3:20 pm sent to his colleagues at McWane summarizing DIFRA data); 

TU-FTC-0010081 (Tatman email of June 17, 2008 at 6:26 pm sent to Ferguson announcing price increase). 

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of small amounts of Star domestic Fittings should have been most vulnerable to McWane’s 

exclusive dealing program. My report was clear that the restrictive dealing policy was considered 

exclusive by a range of customers. Under an exclusive program, purchasing from Star would 

lead to termination from McWane’s distribution system. Exceptions existed in the 

restrictive/exclusive distribution program and these were understood by the customers. 

80. Dr. Normann claims that McWane had no monopoly power in domestic-spec 

Fittings because distributors could have turned to fringe suppliers or entrants for 100 percent of 

required domestic product. This is totally unclear. In the broader Fittings market the testimony is 

clear a price fixing agreement was needed to raise price. McWane had no market power. Fringe 

distributors existed, but for the reasons detailed above would be unable to offset the immediate 

effects of a price fixing agreement. It was the presence of Sigma and Star that prevented 

McWane from imposing exclusive distribution on the broad market. 

81. With regard to the MDA, whether or not Sigma would have entered the domesticspec market but for the MDA certainly is a question of interest. But McWane’s intent in 

entering the MDA also is a question of interest. McWane entered the MDA to head off a 

competitive threat from Sigma. Although the intensity of McWane’s concern varied over time, 

even at the last, McWane recognized that Sigma might enter and disrupt its monopoly. 

McWane’s Tatman, writing McWane EVP McCullough and Sr. VP Walton, indicates that 

“Unless there’s something going on with [Sigma and] Mueller, I’m not picking up any strong 

sense that [Sigma has] a strong alternate path at this point that they’d be willing to invest 

significant $ into.”89 But he sees enough risk of Sigma entry to buy an “insurance policy” 

against independent (of McWane) Sigma entry in the form of the MDA, provided that McWane 

89 TU-FTC-0265821. 

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does not have to “throw[] too much $ at” it.90 McWane senior management considered Tatman’s 

email and all other available information and went ahead and bought that insurance policy. They 

headed off a meaningful risk of independent Sigma entry, however one assesses its magnitude. 

And in concluding that Sigma could not have entered expeditiously, Dr. Normann ignores both 

the example of Star and the possibility that Sigma entry 

(as Tatman recognized), and the possibility that Sigma might have entered in alliance with Star 

or perhaps others. 

82. Neither I nor Dr. Normann perform any statistical test to calculate the precise 

impact on market prices that would have resulted from independent Sigma entry. That could not 

be done without making a variety of assumptions about speed, scope, and scale of that entry. It 

requires no such tests, however, to observe that increased capacity chasing essentially fixed 

demand tends to result in reduced prices. That says nothing of the added service competition an 

independent Sigma would have introduced to the market. 

VII. Conclusions 

83. Dr. Normann formulates and tests various hypotheses and interprets his test 

results without grounding either in relevant economic theory and known facts. As a result, his 

hypotheses typically are poorly matched to the questions of importance in this litigation, and his 

interpretations often are flawed. In effect, he often asks the wrong questions and even as to them 

provides the wrong answers, as reflected in a wealth of conflicting real-time documents and 

substantial testimony that he just ignores. 

90 Ibid. 

91 

see also Victor Pais IH, July 23, 2010, p. 140 (Q. So 

would it be fair to say, sir, that you had two important customers that owned foundries, that had expertise casting 

fittings domestically that were working cooperatively with you as part of the effort to set up domestic production? 

A. Yes. Q. Is all that fair to say? A. Yes.) 

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84. Setting these objections to the side for the moment, Dr. Normann’s “hypothesis 

testing” is methodologically flawed in numerous and important ways, and is wholly unreliable. 

Much of it rests on Dr. Normann’s price series, which he knew or should have known did not 

accurately measure actual Fittings sales prices, whether for open-spec Fittings or domestic-spec 

Fittings (between which it cannot accurately discriminate). Given the numerous sources of 

measurement error underlying these price series that I have identified in this report, every finding 

derived from them is inherently unreliable and should be rejected. 

85. Further, Dr. Normann, in all but one instance, limits his testing to naïve 

comparisons that do not even identify, never mind address, numerous other sources of gross 

error, again identified in this report. Among these, he does not control for any of the variables 

that can be causes of the effect he purports to observe. Without controls for such things as the 

impact of the crushing decline in housing starts leading and continuing into the Great Recession, 

one simply cannot discern the effects of other variables of interest, like collusion or monopolistic 

practices. Earlier in this report, I further detailed the many flaws infecting each of the “Figures” 

and related text in Dr. Normann’s report. The upshot of my critique is that they are not relevant 

or, to the extent relevant, otherwise unreliable several times over. 

86. Dr. Normann’s criticisms of my report are based on his own deeply flawed 

analyses and on his failure to understand or account for the relevant economic models, 

economically significant facts, and my contentions. 

87. Nothing in Dr. Normann’s report undermines the opinions that I reached in my 

initial report. Most importantly, I remain of the opinion that McWane, Sigma, and Star agreed to 

facilitating and price fixing accords, to reduce discounting and increase prices for Fittings, and 

that McWane used its monopoly power in the domestic-spec Fittings market to inhibit 

competitively significant entry, using its “full support” program to restrain competition with Star 

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Appendix A 

Prices of Dr. Normann’s “Fixed Basket of Fittings” Are Not Normally Distributed 

A simple construct that allows one to judge whether data are normally distributed is a 

normal probability plot. If data are normal, the normal probability plot should lie on a straight 

line. The figure below shows a normal probability plot for the prices in Dr. Normann’s basket, 

along with a straight line. As can be seen, the plot is anything but straight, indicating that prices 

are not normal. Further, the Shapiro-Wilk test for normality rejects the hypothesis that the prices 

are normally distributed. 

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Table: Shapiro-Wilk Test for Normality on Actual Prices 

. swilk prc if basket == 1

 Shapiro-Wilk W test for normal data 

 Variable | Obs W V z Prob>z 

-------------+-------------------------------------------------- 

 prc | 231417 0.46643 2.8e+04 28.952 0.00000 

. 

. swilk prc 

 Shapiro-Wilk W test for normal data 

 Variable | Obs W V z Prob>z 

-------------+-------------------------------------------------- 

 prc |1923703 0.32411 9.3e+04 32.429 0.00000 

Because the actual input into Dr. Normann’s regressions is monthly aggregated prices, I 

also tested whether the monthly aggregated prices are normally distributed. For both small and 

medium Fittings, the Shapiro-Wilk test rejects that the monthly aggregated prices are normally 

distributed. Therefore, statistical tests and confidence intervals based on the t-distribution are 

invalid. 

Table: Shapiro-Wilk Test for Normality on Dr. Normann’s Aggregated Prices, 

Small and Medium Fittings 

. swilk small

 Shapiro-Wilk W test for normal data 

 Variable | Obs W V z Prob>z 

-------------+-------------------------------------------------- 

 small | 48 0.91593 3.829 2.856 0.00214 

. swilk medium 

 Shapiro-Wilk W test for normal data 

 Variable | Obs W V z Prob>z 

-------------+-------------------------------------------------- 

 medium | 48 0.93470 2.974 2.319 0.01021 

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Appendix B 

Star’s and McWane’s 2010 Sales of Domestic-Spec Fittings by State 

pp

Star and	McWane’s	2010	Sales	o c‐Spec F ngs, by StittiiDomestf ate

2010 State Sales National Sales 

State Tons Share Tons Share Tons Share 

McWane Star 

Includes fittings up to 24"

Sources: Sources: 

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 McWane sales: McWane-007664.xlsx through 

McWane-007685.xlsx; 

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Appendix C 

Materials Considered 

Books and Articles 

 Ashenfelter and Hosken, “The Effect of Mergers on Consumer Prices: Evidence from Five 

Mergers on the Enforcement Margin,” Journal of Law and Economics 53 (2010). 

 Ashenfelter, Orley, Phillip Levine, and David Zimmerman, Statistics and Econometrics: Methods 

and Applications (2006). 

	 Ashenfelter et al., “Generating Evidence to Guide Merger Enforcement,” CPES Working Paper 

No. 183, Princeton University, available at 

http://www.princeton.edu/ceps/workingpapers/183ashenfelter.pdf. 

 Baker, Jonathon, “Econometric Analysis in FTC v. Staples,” March 31, 1998, available at 

http://www.ftc.gov/speeches/other/stspch.shtm. 

 Baumol, William J. and Daniel G. Swanson, “The New Economy and Ubiquitous Competitive 

Price Discrimination: Identifying Defensible Criteria of Market Power,” Antitrust Law Journal, 

v. 70, 2003. 

 Buccirossi, Paolo, ed., Handbook of Antitrust Economics, MIT Press, 2008. 

 Economics Committee, Section of Antitrust Law, American Bar Association, Econometrics: 

Legal, Practical, and Technical Issues (Chicago: American Bar Association, 2005). 

 Greene, William H., Econometric Analysis, 2nd edition (New York: Macmillan Publishing Co., 

1993). 

 Hausman, J. A., and Taylor, W. E., “Panel Data and Unobservable Individual Effects,” 

Econometrica, Vol. 49 N. 6 (1981). 

 Hurdle, Gloria J. and Henry B. McFarland, “Criteria for Identifying Market Power: A Comment 

on Baumol and Swanson,” 70 Antitrust Law Journal 687 (2003). 

 Davis, Peter and Eliana Garces, Quantitative Techniques for Competition and Antitrust Analysis 

(Princeton: Princeton University Press, 2010). 

 DeGroot, Morris, Probability and Statistics, 2nd ed., pp. 274-275. 

 Greene, William H., Econometric Analysis, 3rd ed., pp. 275-277. 

 Keller, Gerald, Statistics for Management and Economics, 9th ed. 

 Kennedy, Peter, A Guide to Econometrics, 5th ed., p. 33, section 2.8. 

 Page, William H. (General Editor), “Proving Antitrust Damages: Legal and Economic Issues,” 

Section of Antitrust Law, American Bar Association (Chicago: American Bar Association, 

1996). 

 Tirole, Jean, The Theory of Industrial Organization, MIT Press, 1988. 

 Viscusi W.K., Vernon, J.M., Harrington, J.E., Economics of Regulation and Antitrust, 3rd Ed., 

MIT Press, 2000. 

Transcripts and Exhibits	 Type 

10.11.16 Thees, Bill IH Tr and Exhibits 

11.01.11 Sheley, Dennis	 IH Tr and Exhibits 

11.02.11 Morrison, Edward	 IH Tr and Exhibits 

10.12.14 Groeniger, Michael	 IH Tr and Exhibits 

11.01.13 Coryn, Michael	 IH Tr and Exhibits 

10.10.29 Pitts, Roy IH Tr and Exhibits 

10.08.12 McCullough, Leon	 IH Tr and Exhibits 

10.07.21 Taman, Richard	 IH Tr and Exhibits 

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10.08.06 Rona, Mitchell IH Tr and Exhibits 

10.07.23 Pais, Victor IH Tr and Exhibits 

10.06.04 Agarwal, Bharat IH Tr and Exhibits 

10.10.12 McCutheon, Dan IH Tr and Exhibits 

10.10.12 Bhutada, Ramesh IH Tr and Exhibits 

11.05.04 McCutheon, Dan IH Tr and Exhibits 

12.04.11 Pitts, Roy Depo Tr and Exhibits 

12.04.17 Fairbanks, Richard Depo Tr and Exhibits 

12.04.24 Sheley, Dennis Depo Tr and Exhibits 

12.04.30 Morrison, Edward Depo Tr and Exhibits 

12.05.02 Swalley, Danny Depo Tr and Exhibits 

12.05.10 Tatman, Richard Depo Tr and Exhibits 

12.05.11 Groeniger, Michael Depo Tr and Exhibits 

12.05.14 Meyer, Mark Depo Tr and Exhibits 

12.05.14 Bhutada, Ramesh Depo Tr and Exhibits 

12.05.16 Coryn, Michael Depo Tr and Exhibits 

12.05.16 McCutcheon, Dan Depo Tr and Exhibits 

12.05.17 Burns, Jerry Depo Tr and Exhibits 

12.05.18 Rona, Mitchell Depo Tr and Exhibits 

12.05.22 McCullough, Leon Depo Tr and Exhibits 

12.05.24 Page, Ruffner Depo Tr and Exhibits 

12.05.25 Bharat, Agarwal Depo Tr and Exhibits 

12.05.29 Gibbs, R. Edward Depo Tr and Exhibits 

12.05.30 Morton, Thomas Depo Tr and Exhibits 

12.05.31 Pais, Victor Depo Tr and Exhibits 

Correspondence 

 2012.04.18 1:33 pm E-mail to Holleran from Lavery
 

 2012.05.14 9:36 am E-mail to Bloom from Lavery
 

 2012.06.05 12:05 pm E-mail to Bloom from Lavery 

Data Company 

FTC-SIGMA-000001 (Audit Data).mdb Sigma 

McWane-007664.xlsx through McWane-007685.xlsx McWane 

http://www.census.gov/const/www/newresconstindex_excel.htm Census Department 

McWane Multiplier Maps: McWane-007594 - 007662 McWane 

Sigma corrected sales data (Jul 3, 2012), “FTC-Sales Data Reworked” Sigma 

SalesData.mdb Sigma 

Tu-Ftc-0013802.xls McWane 

Top 46 Star Domestic Products Edited for Input.xlsx Normann file 

McWane and Star Price by Ton by size - Fixed Basket.xlsx Normann file 

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Commission Documents/ALJ Filings 

 McWane-Star Complaint 

 Expert Report of Laurence Schumann, Ph.D. (June 15, 2012) 

 Expert Report of Parker Normann, Ph.D. (June 29, 2012) 

Miscellaneous 

 U.S. Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines, 

August 19, 2010. 

 New Jersey Statute - Title 52:33-3, Provision in contract; exception of particular materials. 

 The Pennsylvania Steel Products Procurement Act, 73 Pa. Stat. §§ 1881-1887. 

 H.R. 1, American Recovery and Reinvestment Act of 2009 (ARRA), Public Law 111-5, Feb. 17, 

2009. 

 Federal Register Notice, Vol. 74, No. 152 at 39959, April 10, 2009. 

 Buy America Works: Longstanding United States Policy Enhances the Job Creating Effect of 

Government Spending, February 2010, available at 

http://www.mcwanebuyamerican.com/pdfs/buyamericanworks.pdf. 

Documents (Beginning Bates Number) Company 

EJ 00022 EJ Group - East Jordan 

E00064108 Star Pipe
 

HAJ000046 Hajoca 

McWane-010391 McWane
 

Q006SP0000810 Star Pipe
 

STAR0286859 Star Pipe
 

STAR0255981 Star Pipe
 

STAR0274293 Star Pipe
 

TU-FTC-0010081 McWane
 

TU-FTC-0010083 McWane
 

TU-FTC-0010113 McWane
 

TU-FTC-0010145 McWane
 

TU-FTC-0010147 McWane
 

TU-FTC-0010201 McWane
 

TU-FTC-0010307 McWane
 

TU-FTC-0011285 McWane
 

Tu-Ftc-0013802 McWane
 

TU-FTC-0020902 McWane
 

TU-FTC-0031436 McWane
 

TU-FTC-0032360 McWane
 

TU-FTC-0032428 McWane
 

TU-FTC-0248965 McWane
 

TU-FTC-0255188 McWane
 

TU-FTC-0255284 McWane
 

TU-FTC-0257851 McWane
 

TU-FTC-0265821 McWane
 

TU-FTC-0266469 McWane
 

Tyler Union Waterworks Fittings Fin. Stmts US Pipe/Mueller 

USP-FTC_00000041 US Pipe/Mueller 

70 

CX 2265-A-072
CERTIFICATE OF SERVICE 

This is to certify that on July 12, 2012, I served via electronic mail a copy of the 

foregoing expert report and related materials to: 

July 12, 2012 

Joseph A. Ostoyich 

William C. Lavery 

Baker Botts L.L.P. 

The Warner 

1299 Pennsylvania Ave., N.W. 

Washington, D.C. 20004 

(202) 639-7700 

joseph.ostoyich@bakerbotts.com 

william.lavery@bakerbotts.com 

J. Alan Truitt 

Thomas W. Thagard III 

Maynard Cooper and Gale PC 

1901 Sixth Avenue North 

2400 Regions Harbert Plaza 

Birmingham, AL 35203 

(205) 254-1000 

atruitt@maynardcooper.com 

tthagard@maynardcooper.com 

Counsel for Respondent Mc Wane, Inc. 

BY: £~---=",==,~ Michaef J 0m 

Federal T raae Commission 

Bureau of Competition 

CX 2265-A-073 PUBLIC
PUBLIC RECORD

ATTACHMENT C 
REBUTTAL TESTIMONY OF

LAURENCE SCHUMANN, PH

In the Matter of McWane, Inc.

FTC Docket No. 9351
Conclusions: The Normann Rep

Unreliable and Deficient

• Relies on severely flawed price data tha

not reflect actual transaction prices

• Simplistic graphical analyses fail to cont

other factors that affect Fittings’ prices

• Fails to follow standard and long accept

practices when performing data analysi

testing
Conclusions: The Normann Rep

Unreliable and Deficient

• Fails to address oligopoly theory and its

effects on determination of collusive be

• Flawed reading of, and representations 

analyses contained in my June 15, 2012

report and bases for my opinion
Critique of Normann Report Te

and Data Analyses

• No theoretical framework within which 

interpret Normann’s empirical analyses

• Normann does not discuss oligopoly th

oligopolistic interdependence and its ro

price fixing

• Without an appropriate theory, hypoth

cannot be formulated and tested
Critique of Normann Report Te

and Data Analyses

• A fact‐based consideration of potential

relevant economic models should prece

formulation and testing of hypotheses ainterpretation of test results

• Fails to use a working knowledge of the 

for this purpose
Problems with the Price Da

• Not transaction data

– Does not reflect discounts below multiplier d

• E.g. freight, cash discounts, extended terms, rebat

• Timing issue

– Prices are set weeks, months, sometimes man

months before shipments

• Month to month changes in product or cu

mix
Errors in the Data

• Substantial known error rates in the price 

for products marked “ND” for non domest

– 2008: actual multiplier exceeds list 4.27 % of 

– 2009: actual multiplier exceeds list 10.75 % of 

• Known errors are not evenly distributed th

the years

– January 2008: 21% known error rate

• Errors create upward bias in January 2008 

data
Errors in Data

• McWane’s Counsel wrote:

. . . there is no commercial reason as to why an order wo

booked above the published multiplier at the time of ord

This was most likely an order entry error where the insidapplied the incorrect price policy to the order. In that ca

would most likely be a credit applied as [sic] some future 

when the error was caught during payment processing. 

• LS Rebuttal Report Figure 1 shows serious January 

known error rate (21%)

• Dr. Normann only looked at errors in which multip

greater than or equal to 1 but didn’t consider multgreater than list
Errors in Data

• Substantial known error rates in the pri

data; for domestically manufactured p

(which can be sold at domestic or impo

prices):

– 2008: Actual transaction multipliers for do

exceed list for domestic 9.10 % of the time

– 2009: Actual transaction multipliers for do

exceed list for domestic 6.40 % of the time
Other Notes on Errors in Da

• I can only detect errors where the repo

transaction multiplier exceeds the listmultiplier

• I can’t detect errors where transaction

multiplier exceeds the actual transactio

multiplier yet is still below the list mult

• Such errors also would create an upwar

on price
Errors in Classification of Dome

vs. Non Domestic

• There is no method to unambiguously i

domestic‐spec Fittings

– Leads to errors in classification of domesti

non domestic

• If product is incorrectly classified, that w

average price
Problems with Technique

• Fails to report tests for robustness

– E.g. Figure 2A/B, timing of collusion

• Problems in hypothesis testing

– Fails to report test statistics and confidenc

intervals

• Fails to identify and control for other fa

that shift supply and demand
Econometric Analysis

• To measure impact of an event (such as 

fixing agreement) on prices, one must c

for all other factors besides the agreemthat might impact prices

• Only by doing so can the effect of price

agreement be determined

• Dr. Normann uses no acceptable metho

controlling for confounding factors
Analyses Fail to Control for

Confounding Factors

• Market price is formed by supply and dem• Change in supply and demand affect price• Factors other than the degree of competit

market affect price

– E.g. macroeconomic factors such as booms an

recessions, changes in interest rates, currency

fluctuations

– E.g. microeconomic factors such as input pric

changes in technology, changes in prices ofcomplementary goods
Factors Specific to Fittings Ma

• Many factors can affect supply and dem

and therefore prices in the Fittings mar

– E.g. age of waterworks systems and treatm

plants, municipal finances, housing starts, 

of diesel fuel used by trucking, railroad, an

shipping companies, and seasonal factors

• Dr. Normann’s analysis of Fittings prices

controls for none of these factors
Figure 1

• Compares new 2008 list multipliers to 200

multipliers

• I recreated Dr. Normann’s Figure 1 with th

average effective multipliers in 4th quarter 

(CX 1664) instead of the list multipliers of 

• I show prices were increasing in 39 states 

Normann’s 14 states)

– See LS Rebuttal Report Figure 2
Figures 2A and 2B

• Shows indices of price changes over time• Price series data is wholly unreliable

– Substantial known errors in transaction price 

– Potential biases in selection of Fittings for his 

index

– No correction for varied and unknown lags be

negotiation of prices and invoicing

– Lack of control variables– No reported robustness testing– No reported statistical testing
Correction to Sigma data

• By letter dated July 3, 2012, counsel for 

sent corrected Sigma data

– Corrected data was received after Dr. Norm

submitted his expert report

• Dr. Normann’s initial analysis showed 1

decline from January 2008 to February 

corrected data shows a price increase in 

period
Figures 2A and 2B

• In Figure 2B, different errors and biases m

infect the data

– Relative movements of the price series canno

trusted

– LS Rebuttal Report Figure 1 demonstrates Jan 

known McWane errors

• Graph of changes in metal and energy cos

with price series does nothing to explain p

series

– Fails to consider changes in other variables of 

(i.e. demand factors)

– LS Report Figure 2 shows housing starts
Figures 2A and 2B

• When one changes date of collusion pe

be consistent with complaint allegation

evidence, data show McWane, Sigma, a

price increases
Figure 3

• Plots ratio of average price of open spec to dom

spec to check for a price increase

• Incorporates unreliable price series data and ig

confounding factors

• Data from a fixed basket of only 24 “top selling

Fittings” only 6 of which are medium

– Small non random sample creates risk of bias

• Does not assess and report standard errors or

confidence intervals of the slopes

– Cannot determine if slopes are estimated with pr

are wildly inaccurate

– Cannot distinguish between systematic and rando

changes from period to period
Figure 4

• Purports to show variation of transaction • Incorporates unreliable price series data a

ignores confounding factors

• Reports application of test to only 3 Fitting

of more than a thousand

• An increase in standard deviation is not

inconsistent with an increase in prices due 

collusion

– Any change in price over time could indicate

uniformity in price OR change in price itself
Figure 5

• Probative of nothing in particular

• Plots McWane’s non domestic inventory

• Given inelasticity of demand for Fittings, a 

reduction in available product can support reduction in discounting

– May be undetectable using even sophisticate

methodology

• Dr. Normann acknowledges if short‐run

production is not fixed, this figure is mean

– Short‐run production is not fixed
Figure 6

• Compares monthly open‐spec sales; pu

to test for short‐term quantity limitatio

• No controls for changes in demand and 

conditions across years

• Doesn’t report robustness and statistica

significance tests
Figure 7

• Shows domestic share of market• If domestic‐spec sales declined as a

percentage of total Fittings sales, so wh
Figure 8

• Shows cumulative volume of McWane’s domestic 

2008, ranked by state share of domestic product

• Hypothesis that much of market is preference base

flawed

• Requires classification of McWane sales as open‐s

domestic

– Classification of sales subject to substantial errors in p

data

• Strength of preference more important than numb

preference buyers

– Size of the market tells us nothing about competition 

• Figure does not show anything about purchasers le

obliged to purchase domestic
Figure 9

• Purports to show slight negative correlation betwe

McWane’s prices and market share

• Hypothesis is flawed

– Presupposes single market

– Faulty logic that the number of people in a relevant m

related to the presence of monopoly power in a state

• Incorporates unreliable McWane price series data

• Plot only shows that domestic share varies from st

state

• Ignores fact that supply and demand conditions va

state to state

– Dr. Normann acknowledges failure to control for prod
Figure 10

• Purports to improve Figure 9 by controlling for 

mix

• Hypothesis is flawed

– Presupposes single market– Faulty logic that the number of people in a releva

is related to the presence of monopoly power in 

• Incorporates unreliable McWane price series d

• Fails to account for variation in supply and dem

from state to state

• Uses only 16 out of thousands of products to a

to control for acknowledged product mix probl
Figure 11

• Plots net income for all products of Waterwork

Division (Fittings of both foreign and domestic

manufacture, glands, valve boxes, jobbing cast

– Does not control for shifting product mix

• Should study gross income attributable to dom

Fittings; increases by over 50 percent from 200

2009

• Does not control for business cycle; trend is po

late period

• Fails to consider facts indicative of monopoly p
Figure 12

• Purports to show a decrease in market 

due to a shift over time from domestic‐

open‐spec

• Only shows that relative size of the ope

and domestic‐spec market varies over t

• Market size tells us nothing about mark

power
Figure 13

• Purports to show negative correlation between 

receipt of stimulus funding and increases in do

spec sales relative to open‐spec sales

• Figure not useful test for market definition or m

power

• Fails to control for variables that influence rela

growth of domestic‐spec and open‐spec markegiven state

– E.g. prior maintenance of infrastructure, housing 

presence of domestic‐spec preferences and laws

• Does not report magnitude, variation around, 

statistical significance of his claimed “negative

correlation”
Figure 14

• Repeats Figure 13 but changes horizont

to ARRA SRF receipts as % of state GDP

• Figure not useful test for market definit

market power

• Correlation flips from negative to positi

undermining Dr. Normann’s conclusions 

Figure 13
Figure 15

• Illustrates the fact that ARRA waterwor

funds accounted for only a small part o

public spending

• This fact is of no economic consequenc

examining relevant market and market issues
Figure 16

• Purports to support claim that Sigma and 

would not have built or bought dedicatedfoundries for domestic production

• Ignores Star’s determination to build or bu

foundry

• If capacity outstripped demand, price com

would have been intense

– Consumer welfare would have increased

• Sigma entry through arrangement with co

foundry or with Star would have increased

competition
Figure 17

• Analysis purports to examine whether

McWane gained additional market pow

during the ARRA period, but McWane a

had monopoly power

• Uses the unreliable price series data

• Compares domestic prices to only a sin

variable – a cost index

• Does not conduct an econometric analy

including demand and cost shifters
Figure 19

• Plots net profits for all products of Waterworks 

(Fittings of both foreign and domestic manufac

glands, valve boxes, jobbing castings)

– Does not control for shifting product mix

• Purports to show that the plotted net profits is

inconsistent with exercise of market power

• Should study gross income attributable to dom

Fittings; increases by over 50 percent from 200

2010

• Does not control for business cycle; trend is po

late period
Figure 20

• Purports to show Star’s share of domestic

sales and equates growth with absence ofimposed restraint

• Dr. Normann acknowledges difficulty in

measuring effectiveness of entry based on 

– But then purports to do just that

• Star’s growth tells little, if anything, about 

growth would have been absent constrain
Figure 21

• Shows Star’s share of domestic‐spec sales 

states in which its share is the greatest

• Total tons of domestic‐spec Fittings sold b

the 10 states represent just { } of the totons of domestic‐spec Fittings sold in U.S.

– Having large share of state that is small part o

market does not mean much

– Appendix B (in camera) of LS Rebuttal Report 

data on Star’s sales of domestic spec
Figures 22, 23, and 24

• Figures show variations on a theme abo

2010 domestic purchases from Star orMcWane

– Figure 22 – number of customers

– Figure 23 – sales to distributors

– Figure 24 – number of customers purchasi

$50,000

• Uses unreliable price series data and ig

confounding factors
Figures 22, 23, and 24

• Does not report whether purchasers of 

Star and McWane domestic tend to pur

substantial quantities or trivial quantitie

Star domestic

• In Figure 24, $50,000 is purchases summ

across Star and McWane

• Data are consistent with purchasing ver

quantities from Star and ultimately

uninformative
Figures 22, 23, and 24

• McWane’s 2010 sales of domestic‐spec

Fittings were 19 times greater than Star

• LS Rebuttal Report Table 1 contains furt

detail on McWane and Star’s 2010 sales
Figure 25

• List of common domestic‐spec Fittings purport

show Star is more concentrated on common Fi

• Subject to open‐spec/domestic‐spec classificat

• Limits analysis to domestic‐spec of which Star 

more than 9 tons and for which Dr. Normann c

a McWane match

• Excludes the majority of Fittings (including Star

of less common Fittings) from his analysis

• Finding not surprising given that Dr. Normann’s

methodology likely purged from consideration 

Star’s sales of less common Fittings
Figure 26

• Purports to show that Hajoca was not har

full support program because volume and were not lower

• Subject to open‐spec/domestic‐spec class

error

• Ignores confounding demand and supply f

• What was “but for world?” Was Hajoca’s 

lower than it otherwise would have been?

– Need to consider what volume Hajoca would 

reached given ARRA and Star’s entry in absen

support program
Figure 27

• Purports to show that if Star had lowere

prices, it would have increased its volum

• Incorporates unreliable price series dat

• Fails to control for differences in supply 

demand conditions across states

• Acknowledges correlation is “marginally

insignificant” and possibly “spurious”
Figure 28

• Purports to show Star entry did not affe

McWane’s domestic‐spec prices

• Incorporates unreliable price series dat

ignores confounding factors

• Finding consistent with McWane’s cont

monopolization of the market through 

support program
Figure 29

• Purports to find that McWane’s prices for fixed 

of domestic‐spec did not vary from state to sta

variations in Star’s share in the state

• Incorporates unreliable price series data and ig

confounding factors

• Finding consistent with monopolization

– With the full support policy, McWane was not rea

pricing but slowing Star’s emergence as a compet

• Obtaining scale to be efficient is a function of a

sales nationwide, not in any state or locality
Figure 30

• Re‐runs Figure 29 analysis with an avera

domestic‐spec price

• Criticisms applicable to Figure 29 apply 

as well
Figure 31

• Purports to show McWane lacks monopol

by plotting McWane and Star average pric

ton for fixed basket of domestic‐spec

• Incorporates unreliable price series data a

ignores confounding factors

• Ignores economic theory:

– In a market with a dominant firm, a marginali

competitor will sell what it can at prices near 

set by the market leader
Un‐numbered Figure (page 

• Purports to find that { } purchased domestic‐

only from McWane

• Ignores another { } of distributors who stood 

only small rebates but faced the risk of losing a

• Ignores for { } the extent of purchases from 

– Excepted purchases under policy

– Small under‐radar purchases

• Remaining { } are distributors who did not

materially participate in domestic spec market 

least last months of 2009 and perhaps through

2010
Conclusions

• Dr. Normann’s “tests” are not grounded 

relevant economic theory

• Uses unreliable price series data

• Does not control for relevant variables• The conclusions expressed in my June 1

2012, Expert Report remain unchalleng

unchanged