54FR47944

47944 Federal Register / Vol. 54, No. 221 / Friday, November 17, 1989 / Rules and Regulations

10 CFR Part 430

[Docket No. CE-RM-87-1021

Energy Conservation Program for

Consumer Products; Energy

Conservation Standards for Two

Types of Consumer Products

AGENCY: Office of Conservation and

Renewable Energy, DOE.

ACTION: Publication of Department of

Justice Determinations and Analyses of

Competitive Impacts.

SUMMARY: In today's Federal Register,

the preamble to the final rule on energy

conservation standards for small gas

furnaces, and refrigerators, refrigeratorfreezers and freezers presented the

Attorney General's findings on the

competitive impacts of the standards in

the final rule. Section 325(1)(2)(131(ii) of

the Energy Policy and Conservation Act,

as amended, requires the Attorney

General's determinations and analyses

to be published in the Federal Register.

This notice presents the determinations

and analyses.

Issued in Washington, DC, November 15,

1989.

B. Reid Detchon,

Principal Deputy Assistant Secretary,

Conservation and Renewable Energy.

Honorable Donna R. Fitzpatrick,

Acting Secretary of Energy, United States

Department of Energy, Forrestal Building.

1000 Independence Ave., SW., Washington.

DC 20585.

Dear Ms. Fitzpatrick: By letter dated

December 9,1988, the Department of Energy

("DOE") transmitted to the Attorney General

a Notice of Proposed Rulemaking (53 FR

48798) addressing energy standards for three

classes of household appliances, Section 325

of the Energy Policy and Conservation Act,

as amended in 1987 (42 U.S.C. 6295), requires

the Attorney General to determine the

impact, if any, of any lessening of

competition likely to result from the proposed

standards. Competitive impact is one of

seven criteria to be considered by DOE in

evaluating proposed standards. This letter

contains the competitive impact

determination of the Departme nt of justice

("Department").

Summary

The evidence available to the Department

does not indicate that any significant

lessening of competition is likely to result

from the imposition of any of the proposed

standards contained in DOE's Notice of

Proposed Rulemaking. For small gas furnaces

and television sets, the available evidence

affirmatively suggests that no significant

adverse competitive impact is likely. In the

case of refrigerators, refrigerator-freezers,

and freezers, it is the Department's best

judgment based on the available evidence

that no significant adverse competitive

impact is likely; but, under certain limited

conditions described below, an

unquantifiable adverse competitive impact

would be possible.

Discussion

In appraising the competitive effect of the

proposed standards in the context of this

statute, the Department has examined the

relevant markets within which the standards

will operate. The Department has then

considered whether adoption of the

standards would be likely to contribute to

increased levels of concentration and, if so,

whether the resulting concentration levels

and other relevant market conditions would

facilitate either oligopolistic pricing or actual

price fixing. The Department also has

considered whether, independent of or in

conjunction with any increase in

concentration,'the standards would be likely

to facilitate oligopolistic pricing or price

fixing by increasing product homogeneity.

In this instance, the Department has

utilized the HW computations, commonly

employed in market analysis and described

in the Department's merger guidelines, as an

initial "screen." This screen has permitted the

Department to conclude that the proposed

standards are unlikely to have a significant

adverse impact on competition in two classes

of appliances: small gas furnaces and

television sets. In both instances, the DOE

technical support document provides

information that permits the Department to

calculate HHI figures for the tentatively

defined markets in question. For each

market--small gas furances, color television

sets, and black and white television sets-the

HHI figure is below 1,800. In other words,

none of these markets is highly concentrated.

At levels of concentration below 1,800, the

number of competitors is ordinarily sufficient

to make competitive pricing likely and to

defeat oligopolistic pricing. Even if the

standards resulted in increased costs and

reduced the number of competitors, or

increased product homogeneity in some

measure, the Department would expect that

the markets in question would continue to

enjoy a substantial measure of competition.

Although price fixing can occur in less

concentrated markets, the conditions that

accompany this threat do not appear to be

present in the markets in question.

The analysis of refrigerators, refrigeratorfreezers, and freezers is more complex

because the risk of an adverse competitive

impact is not diminished by the existing

market structure as reflected in the Hill

figures. Based on data contained in the

technical support document, refrigerators and

freezers have HHI figures, respectively, of

over 2,200 and over 3,000. These figures

reflect high levels of concentration, albeit at

the lower end of the highly concentrated

range (whose maximum is 10,000). It is thus

prudent to examine more closely the

possibility that the standards could increase

concentration within a market, increase

product homogeneity, or both.

The possibility that concentration might

Increase depends primarily on whether

compliance with the standards both (1)

increases costs significantly and (2 ) results in

 CE-RM-87-102 COMMENT 11

54FR47944 

47944 Federal Register I Vol. 54, No. 221 I Friday, November 17, 1989 I Rules and Regulations 

10 CFR Part 430 

[Docket No. CE-RM-87-102] 

Energy Conservation Program for 

Consumer Products; Energy 

Conservation Standards for Two 

Types of Consumer Products 

AGENCY: Office of Conservation and 

Renewable Energy. DOE. 

ACTION: Publication of Department of 

Justice Determinations and Analyses of 

Competitive Impacts. 

SUMMARY: In today's Federal Register. 

the preamble to the final rule on energy 

conservation standards for small gas 

furnaces. and refrigerators. refrigeratorfreezers and freezers presented the 

Attorney General's findings on the 

competitive impacts of the standards in 

the final rule. Section 325(1)(2)(B)[ii) of 

the Energy Policy and Conservation Act. 

as amended. requires the Attorney . General's determinations and analyses 

to be published in the Federal Register. 

This notice presents .the determinations 

and analyses. 

Issued in Washington. DC, November 15. 

1989. . 

B. Reid Detmon. 

Prin~jpal Deputy Assistant Secretary. 

Conservation and,Renewable Energy. . . ... 

Honorable Donna R. Fitzpatrick, ' 

Acting Secretary of Energy. United States 

Department of Energy. Forrestal Building. 

1000 Independence Ave .• SW •• Washington. 

DC 20585. 

Dear Ms. Fitzpatrick: By letter dated 

December 9, 1988. the Department of Energy 

("DOE") transmitted to the Attorney General 

a Notice of Proposed Rulemaking (53 FR 

48798) addressing energy standards for three 

classes of household appliances, Section 325 

of the Energy Policy and Conservation Act. 

as amended in 1987 (42 U.S.C. 6295), requires 

the Attorney General to determine the 

impact, if any. of any lessening of 

com pe tition likely to result from the proposed 

standards. Competitive impact is one of 

seven criteria to be considered by DOE in 

evaluating proposed standards. This letter 

contains the competitive impact 

determination of the Depa~~.llt of Justice 

("Department"). 

Summary 

The evidence available to the Department 

does not indicate that any Significant 

lessening of competition is likely to result 

from the imposition of any of the proposed 

standards contained in DOE's Notice of 

Proposed Rulemaking. For smsll gas furnaces 

and television sets. the availa ble evidence 

affirmatively suggests that no significant 

adverse competitive impact is likely. In the 

case of refrigerators. refrigera tor-freezers. 

and freezers. it is the Department's best 

judgment based on the available evidence 

that no significant adverse competitive 

impact Is likely; but, under certain limited 

conditions described below. an 

unquantifiable adverse competitive impact 

would be possible, 

Discussion 

In appraising the competitive effect of the 

proposed standards in the context of this . 

statute. the Department has examined the 

relevant markets within which the standards 

will operate. The Department has then 

considered whether adoption of the' 

standards would be likely to contribute to 

increased levels of concentration and, if so. 

whether the resulting concentration levels 

and other relevant market conditions would 

facilitate either oligopolistic pricing or actual 

price fixing. The Department also has 

considered whether. independent of or in 

conjunction with any increase in 

concentration,'the standards would be likely 

to facilitate oligopolistic pricing or price 

fixing by increasing product homogeneity. 

In this instance, the Department has 

utilized the HHI computations. commonly 

employed jn market aniilysia and described 

in the Department's merger guidelines. as an 

inillal "screen." This screen has permitted the 

Department to conclude that the proposed 

standards are unlikely to have a significant 

adverse impact on competition in two classes 

of appliances; small gas furnaces and . 

teleVision Bets. In both instances. the DOE 

technical support document provides 

information that permits the Department to 

calculate HHI figures for the tentatively 

defined markets in question. For each 

market-smaU gaa furances. color television 

siets. and black and white television sets-the 

IllD figure is below 1.800. In other words, 

none of these markets is highly concentrated. 

At levels of concentration below 1,800. the 

number of competitors is ordinarily sufficient 

to make competitive pricing likely and to 

defeat oligopolis!lc pricing. Even if the 

standards resulted in increased costs and 

reduced the number of competitors. or 

increased product homogeneity in Borne 

measure, the Department would expect that 

the markets in question would continue to 

enjoy a substantial measure of competition. 

Although price fIXing can occur in less 

concentrated markets. the conditions that 

accompany this threat do not appear to be 

present in the markets in question. 

The analysis of refrigerators. refrigeratorfreezers. and freezers is more compJex 

because the risk of an adverse competitive 

impact is not diminished by the existing 

market structure as reflected in the HHl 

figures. Based on data contained in the 

technical support document. refrigerators and 

freezers have HHI figures. respectively, of 

over 2,200 and over 3.000. These figures 

reflect bigh levels of concentration. albeit al 

the lower end of the highly concentrated 

range (whose maximum is 10,000). It is thus 

prudent to examine more closely the 

possibility that the standards could increase 

concentration within a market. increase 

product homogeneity. or both. 

The possibility that concentration might 

Increase depends primarily on whether 

compliance with the standards both (1) 

increases costs significantly and (2) resu Its in 
54FR47944

I

Federal Register / Vol. 54, No. 221 / Friday, November 17, 1989 / Rules and Regulations

such increased costs being felt more severely

by some firms than others. Although

increased costs may reduce demand, that

alone would not necessarily affect market

structure. However, concentration could

increase if the cost increases are both

significant and affect smaller firms more

severely than large ones; costs that vary with

output (e.g., added insulation) should not

disadvantage smaller firms while costs

independent of output (e.g., redesign of a

freezer}might disadvantage a smaller firm

with a lesser number of units across which to

spread the same fixed costs.

Nevertheless, before such asymmetrical

cost increases could affect competition

adversely, the increases would have to be

sufficiently severe and asymmetrical that

they would force from the market one or

more significant competitors. In addition,

levels of concentration would have to rise

substantially because of such exits; yet the

more common result of exits is that each of

the remaining significant competitors would

be likely to improve its market share to a

limited extent (unlike a merger where the

acquiring firm is likely to become

substantially larger). Finally, other market

conditions (e.g., entry barriers) would have to

be conducive to oligopolistic pricing or price

fixing.

The available evidence in this instance

does not demonstrate to the Department that

such a lessening of competition would be

likely to occur if DOE adopts the proposed

standards for refrigerators, refrigeratorfreezers, or freezers. This evaluation is based

on information concerning the identity and

size of the principal competitors and other

market conditions. However, for these three

products, the evidence does not wholly

foreclose the possibility of an anticompetitive

impact. There is, for example, some evidence

that increases in fixed costs may occur and

affect smaller competitors more severely than

larger ones. If DOE concluded that its

standards for refrigerators, refrigeratorfreezers, or freezers would cause a reduction

in the number of significant competitors, then

a further review of the competitive impact

would be warranted.

There does not appear to be a substantial

threat that the standards for refrigerators,

refrigerator-freezers, and freezers would

threaten competition by increasing product

homogeneity. The standards are performance

47945

rather than design standards, so that they can

be met by different combinations of features.

In addition, the energy-using characteristics

of the appliances represent only one aspect

of the products, and variation in other

features would be expected to continue.

In making Its determination, the

Department has relied on the facts set forth

in DOE's technical support document, as well

as other information that could be collected

by the Department in the time allowed and

without the benefit of compulsory process.

The Departmerrt-does not, however, accept

the assertion in the Notice of Proposed

Rulemaking that competitive concerns are

mitigated by the likelihood that the standards

will result in increased profits for

manufacturers. Apart from other difficulties

with this inference, the evidence does not

persuade the Department that the proposed

standards will increase profits.

Sincerely,

Michael Boudin,

Acting Assistant Attorney General.

[FR Doc. 89-27254 Filed 11-18-89-,8:45 am]

l1LLWNG CODE 6450-01-M

 CE-RM-87-102 COMMENT 11

54FR47944 

Federal Register I Vol. 54, No. 221 I Friday, November 17, 1989 I Rules and Regulations 47945 

such increased costs being felt more severely 

by some firms than others. Although 

increased costs may reduce demand, that 

alone would not necessarily affect market . structure. However, cpncentration could 

increase if the cost increases are both 

Significant and /!ffect smaller firms more 

severely than large ones; costs that vary with 

output (e.g., added insulation) should not 

disadvantage smaller firms while costs 

independent of output (e.g., redesign of a 

freezer)-might disadvantage a smaller firm 

with a lesser number of units across which to 

spread the same fixed costs. 

Nevertheless, before such Hymmetrical 

cost increases could affect competition 

adversely, the increases would have to be 

sufficiently severe and asymmetrical that 

they would force from the market one or 

more significant competitors. In addition, 

levels of concentration would have to rise 

substantially because of such exits; yet the 

more common result of exits is that each of 

the remaining significant competitors would 

be likely to improve its market share to a limited extent (unlike a merger where the 

acquiring firm is likely to b,ecome 

substantially larger). Finally. other market 

conditions (e.g., entry barriers) would have to 

be conducive to oligopolistic pricing or price 

fixing. 

The available evidence in this instance 

does nol demonstrate to the Department that 

such a lessening of competition would be 

likely to occur if DOE adopts the proposed 

standards Cor refrigerators, refrigeratorfreezers. or freezers. This evaluation is based . Qn information concerning the identity and 

size of the principal competitors and other 

market conditions. However, for these three 

products. the evidence does not wholly , foreclose the possibility of an anticompetitive 

·impact. There is. for example, some evidence 

that increases in fixed costs may occur and 

affect smaller competitors more severely than 

larger ones. If DOE concluded that its 

standards for refrigerators, refrigeratorfreezers, or freezers would cause a reduction 

in the number of significant competitors, then a further review of the competitive impact 

would be warranted. . There does not appear to be a substantial 

threat that the standards for refrigerators, 

refrigerator-freezers, and freezers would 

threaten competition by increasing product 

homogeneity. The standards are performance 

rather than design standards. 80 that they can 

be met by different combinations of features. 

In addition, the energy-using characteristics 

of the appliances represent only one aspect 

of the products. and variation in other 

features would be expected to continue. 

In making its determination, the 

Department has relied on the facts set lorth 

in DOE's technical support document, as well 

8S other information that could be collected 

by the Department in the time allowed and 

without lJle benefit of compulsory process. 

The DepartmelTt'does not. however. accept 

the assertion in the Notice of Proposed 

Rulemaking that competitive concerns are 

mitigated by the likelihood that the standards 

will result in increased profits for 

manufacturers. Apart from other difficulties 

with this inference. the evidence does not 

persuade the Department that the proposed 

standards will increase profits. 

Sincerely, 

Michael Boudin, 

Acting Assistant Attorney General. 

(FR Doc. 89-27254 Filed 11-16-89; 8:45 am] 

IIIWNG CODE ... so .. e" ....