## 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 

# 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 ofConservation and Renewable Energy. DOE.

ACTION: 

### Publication ofDepartment 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 ofthe 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 inWashington. DC, November 15. 1989.

. B. Reid Detmon.

### Prin~jpalDeputyAssistantSecretary. Conservation and,RenewableEnergy.

. . ... Honorable Donna R. Fitzpatrick, ' Acting Secretary of Energy. United States Department of Energy. Forrestal 

### Building. 1000 Independence Ave.• SW •• Washington. DC 20585.

DearMs. Fitzpatrick: 

### By letter dated December 9, 1988. the Department ofEnergy ("DOE") transmitted to the Attorney General

a Notice ofProposed Rulemaking (53 FR 48798) addressing energy standards for three classes ofhousehold 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, ifany. 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**Depa~~.llt** ofJustice ("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 available evidence affirmatively suggests that no significant adverse competitive impact is likely. In the

case ofrefrigerators. refrigerator-freezers. and freezers. itis 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 otherrelevant 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 HHIfigures 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 ishighly concentrated.

At levels of concentration below 1,800. the number ofcompetitors 

### is ordinarily sufficient
to make competitive pricing likely and to defeat oligopolis!lcpricing. 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 ofcompetition. 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 ismore compJex because the risk ofan 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 ofconcentration. albeit al the lower end ofthe highly concentrated range (whose maximumis 10,000). It is thus prudent to examine more closely the possibility that the standards could increase concentration within a market. increase product homogeneity. orboth.

The possibility that concentration might Increase depends primarily on whether compliance with the standards both (1) increases costs significantly and (2) resuIts 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 proposedstandards 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 itsstandards 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 AssistantAttorney General.

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

l1LLWNG CODE 6450-01-M 

## 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 ofoutput (e.g., redesign ofa freezer)-might disadvantage a smaller firm with a lesser number ofunits 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 ofconcentration would have to rise substantially because of such exits; yet the

more common result ofexits 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 orprice fixing.

The available evidence in this instance does nol demonstrate to the Department that such a lessening ofcompetition would be likely to occur ifDOE adopts the proposed standards Cor refrigerators, refrigeratorfreezers. orfreezers. This evaluation is based

.Qn information concerning the identity and size ofthe principal competitors and other market conditions. However, for these three products. the evidence does not wholly

,foreclose the possibility ofan 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 ofsignificant competitors, then

a further review ofthe 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 offeatures. In 

### addition, the energy-using characteristics ofthe appliances represent only one aspect ofthe 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 ofcompulsory process. The DepartmelTt'does not. however. accept the assertion in the Notice ofProposed 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, 

### ActingAssistantAttorneyGeneral. (FR Doc. 89-27254 Filed 11-16-89; 

### 8:45 am]

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### so

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