In the

United States Court of Appeals

For the Seventh Circuit

No. 98-4107

Toys "R" Us, Inc.,

Petitioner-Appellant,

v.

Federal Trade Commission,

Respondent-Appellee.

On Petition for Review from a

Decision of the Federal Trade Commission.

Docket No. 9278.

Argued May 18, 1999--Decided August 1, 2000

 Before Coffey, Kanne, and Diane P. Wood,

Circuit Judges.

 Diane P. Wood, Circuit Judge. The

antitrust laws, which aim to preserve and

protect competition in economically

sensible markets, have long drawn a sharp

distinction between contractual

restrictions that occur up and down a

distribution chain--so-called vertical

restraints--and restrictions that come

about as a result of agreements among

competitors, or horizontal restraints.

Sometimes, however, it can be hard as a

matter of fact to be sure what kind of

agreement is at issue. This was the

problem facing the Federal Trade

Commission ("the Commission") when it

brought under its antitrust microscope

the large toy retailer Toys "R" Us (more

properly Toys "R" Us, but to avoid debate

we will abbreviate the company’s name as

TRU, in keeping with the parties’ usage).

 The Commission concluded, upon an

extensive administrative record, that TRU

had acted as the coordinator of a

horizontal agreement among a number of

toy manufacturers. The agreements took

the form of a network of vertical

agreements between TRU and the individual

manufacturers, in each of which the
manufacturer promised to restrict the

distribution of its products to lowpriced warehouse club stores, on the

condition that other manufacturers would

do the same. This practice, the

Commission found, violated sec. 5 of the

Federal Trade Commission Act, 15 U.S.C.

sec. 45. It also found that TRU had

entered into a series of vertical

agreements that flunked scrutiny under

antitrust’s rule of reason. TRU appealed

that decision to us. It attacks both the

sufficiency of the evidence supporting

the Commission’s conclusions and the

scope of the Commission’s remedial order.

It is hard to prevail on either type of

challenge: the former is fact-intensive

and faces the hurdle of the substantial

evidence standard of review, while the

latter calls into question the

Commission’s exercise of its discretion

to remedy an established violation of the

law. We conclude that, while reasonable

people could differ on the facts in this

voluminous record, the Commission’s

decisions pass muster, and we therefore

affirm.

I

 TRU is a giant in the toy retailing

industry. The Commission found that it

sells approximately 20% of all the toys

sold in the United States, and that in

some metropolitan areas its share of toy

sales ranges between 35% and 49%. The

variety of toys it sells is staggering:

over the course of a year, it offers

about 11,000 individual toy items, far

more than any of its competitors. As one

might suspect from these figures alone,

TRU is a critical outlet for toy manufac

turers. It buys about 30% of the large,

traditional toy companies’ total output

and it is usually their most important

customer. According to evidence before

the Commission’s administrative law

judge, or ALJ, even a company as large as

Hasbro felt that it could not find other

retailers to replace TRU--and Hasbro,

along with Mattel, is one of the two

largest toy manufacturers in the country,

accounting for approximately 12% of the

market for traditional toys and 10% of a

market that includes video games. Similar

opinions were offered by Mattel and

smaller manufacturers.

 Toys are sold in a number of different

kinds of stores. At the high end are
traditional toy stores and department

stores, both of which typically sell toys

for 40 to 50% above their cost. Next are

the specialized discount stores--a

category virtually monopolized by TRU

today--that sell at an average 30% markup. General discounters like Wal-Mart, KMart, and Target are next, with a 22%

mark-up, and last are the stores that are

the focus of this case, the warehouse

clubs like Costco and Pace. The clubs

sell toys at a slender mark-up of 9% or

so.

 The toys customers seek in all these

stores are highly differentiated

products. The little girl who wants

Malibu Barbie is not likely to be

satisfied with My First Barbie, and she

certainly does not want Ken or Skipper.

The boy who has his heart set on a figure

of Anakin Skywalker will be disappointed

if he receives Jar-Jar Binks, or a truck,

or a baseball bat instead. Toy retailers

naturally want to have available for

their customers the season’s hottest

items, because toys are also a very

faddish product, as those old enough to

recall the mania over Cabbage Patch kids

or Tickle Me Elmo dolls will attest.

 What happened in this case, according to

the Commission, was fairly simple. For a

long time, TRU had enjoyed a strong

position at the low price end for toy

sales, because its only competition came

from traditional toy stores who could not

or did not wish to meet its prices, or

from general discounters like Wal-Mart or

K-Mart, which could not offer anything

like the variety of items TRU had and

whose prices were not too far off TRU’s

mark. 

 The advent of the warehouse clubs

changed all that. They were a retail

innovation of the late 1970s: the first

one opened in 1976, and by 1992 there

were some 600 individual club stores

around the country. Rather than earning

all of their money from their mark-up on

products, the clubs sell only to their

members, and they charge a modest annual

membership fee, often about $30. As the

word "warehouse" in the name suggests,

the clubs emphasize price competition

over service amenities. Nevertheless, the

Commission found that the clubs seek to

offer name-brand merchandise, including

toys. During the late 1980s and early
1990s, warehouse clubs selected and

purchased from the toy manufacturers’

full array of products, just like

everyone else. In some instances they

bought specialized packs assembled for

the "club" trade, but they normally

preferred stocking conventional products

so that their customers could readily

compare the price of an item at the club

against the price of the same item at a

competing store.

 To the extent this strategy was

successful, however, TRU did not welcome

it. By 1989, its senior executives were

concerned that the clubs were a threat to

TRU’s low-price image and, more

importantly, to its profits. A little

legwork revealed that as of that year the

clubs carried approximately 120-240 items

in direct competition with TRU, priced as

much as 25 to 30% below TRU’s own price

levels.

 TRU put its President of Merchandising,

a Mr. Goddu, to work to see what could be

done. The response Goddu and other TRU

executives formulated to beat back the

challenge from the clubs began with TRU’s

decision to contact some of its

suppliers, including toy manufacturing

heavyweights Mattel, Hasbro, and Fisher

Price. At the Toy Fair in 1992 (a major

event at which the next Christmas

season’s orders are placed), Goddu

informed the manufacturers of a new TRU

policy, which was reflected in a memo of

January 29, 1992. The policy set forth

the following conditions and privileges

for TRU:

The clubs could have no new or

promoted product unless they carried

the entire line.

All specials and exclusives to be sold

to the clubs had to be shown first to

TRU to see if TRU wanted the item.

Old and basic product had to be in

special packs.

Clearance and closeout items were

permissible provided that TRU was

given the first opportunity to buy the

product.

There would be no discussion about

prices.
TRU was careful to meet individually with

each of its suppliers to explain its new

policy. Afterwards, it then asked each

one what it intended to do. Negotiations

between TRU and the manufacturers

followed, as a result of which each

manufacturer eventually agreed that it

would sell to the clubs only highlydifferentiated products (either

uniqueindividual items or combo packs)

that were not offered to anything but a

club (and thus of course not to TRU). As

the Commission put it, "[t]hrough its

announced policy and the related

agreements discussed below, TRU sought to

eliminate the competitive threat the

clubs posed by denying them merchandise,

forcing the clubs’ customers to buy prod

ucts they did not want, and frustrating

customers’ ability to make direct price

comparisons of club prices and TRU

prices." FTC opinion at 14. 

 The agreements between TRU and the

various manufacturers were, of course,

vertical agreements, because they ran

individually from the

supplier/manufacturer to the

purchaser/retailer. The Commission found

that TRU reached about 10 of these

agreements. After the agreements were

concluded, TRU then supervised and

enforced each toy company’s compliance

with its commitment.

 But TRU was not content to stop with

vertical agreements. Instead, the

Commission found, it decided to go

further. It worked for over a year and a

half to put the vertical agreements in

place, but "the biggest hindrance TRU had

to overcome was the major toy companies’

reluctance to give up a new, fastgrowing, and profitable channel of

distribution." FTC opinion at 28. The

manufacturers were also concerned that

any of their rivals who broke ranks and

sold to the clubs might gain sales at

their expense, given the widespread and

increasing popularity of the club format.

To address this problem, the Commission

found, TRU orchestrated a horizontal

agreement among its key suppliers to

boycott the clubs. The evidence on which

the Commission relied showed that, at a

minimum, Mattel, Hasbro, Fisher Price,

Tyco, Little Tikes, Today’s Kids, and

Tiger Electronics agreed to join in the

boycott "on the condition that their

competitors would do the same." FTC
opinion at 28 (emphasis added). 

 The Commission first noted that internal

documents from the manufacturers revealed

that they were trying to expand, not to

restrict, the number of their major

retail outlets and to reduce their

dependence on TRU. They were specifically

interested in cultivating a relationship

with the warehouse clubs and increasing

sales there. Thus, the sudden adoption of

measures under which they decreased sales

to the clubs ran against their

independent economic self-interest.

Second, the Commission cited evidence

that the manufacturers were unwilling to

limit sales to the clubs without

assurances that their competitors would

do likewise. FTC opinion at 29. Goddu

himself testified that TRU communicated

the message "I’ll stop if they stop" from

manufacturer to competing manufacturer.

FTC opinion at 30. He specifically

mentioned having such conversations with

Mattel and Hasbro, and he said more

generally "We communicated to our vendors

that we were communicating with all our

key suppliers, and we did that I believe

at Toy Fair 1992. We made a point to tell

each of the vendors that we spoke to that

we would be talking to our other key

suppliers." Id. at 31. 

 Evidence from the manufacturers

corroborated Goddu’s account. A Mattel

executive said that it would not sell the

clubs the same items it was selling to

TRU, and that this decision was "based on

the fact that competition would do the

same." Id. at 32. A Hasbro executive said

much the same thing: "because our

competitors had agreed not to sell loaded

[that is, promoted] product to the clubs,

that we would . . . go along with this."

Id. TRU went so far as to assure

individual manufacturers that no one

would be singled out. 

 Once the special warehouse club policy

(or, in the Commission’s more pejorative

language, boycott) was underway, TRU

served as the central clearinghouse for

complaints about breaches in the

agreement. The Commission gave numerous

examples of this conduct in its opinion.

See id. at 33-37.

 Last, the Commission found that TRU’s

policies had bite. In the year before the

boycott began, the clubs’ share of all
toy sales in the United States grew from

1.5% in 1991 to 1.9% in 1992. After the

boycott took hold, that percentage

slipped back by 1995 to 1.4%. Local

numbers were more impressive. Costco, for

example, experienced overall growth on

sales of all products during the period

1991 to 1993 of 25%. Its toy sales

increased during same period by 51%. But,

after the boycott took hold in 1993, its

toy sales decreased by 1.6% even while

its overall sales were still growing by

19.5%. The evidence indicated that this

was because TRU had succeeded in cutting

off its access to the popular toys it

needed. In 1989, over 90% of the Mattel

toys Costco and other clubs purchased

were regular (i.e. easily comparable)

items, but by 1993 that percentage was

zero. Once again, the Commission’s

opinion is chock full of similar

statistics. 

 The Commission also considered the

question whether TRU might have been

trying to protect itself against free

riding, at least with respect to its

vertical agreements. It acknowledged that

TRU provided several services that might

be important to consumers, including

"advertising, carrying an inventory of

goods early in the year, and supporting a

full line of products." FTC opinion at

41-42. Nevertheless, it found that the

manufacturers compensated TRU directly

for advertising toys, storing toys made

early in the year, and stocking a broad

line of each manufacturer’s toys under

one roof. A 1993 TRU memorandum confirms

that advertising is manufacturer-funded

and is "essentially free." FTC opinion at

42. In 1994, TRU’s net cost of

advertising was a tiny 0.02% of sales, or

$750,000, out of a total of $199 million

it spent on advertising that year. As the

Commission saw it, "[a]dvertising . . .

was a service the toy manufacturers

provided for TRU and not the other way

around." Id. (emphasis in original). TRU

records also showed that manufacturers

routinely paid TRU credits for

warehousing services, and that they

compensated it for full line stocking. In

short, the Commission found, there was no

evidence that club competition without

comparable services threatened to drive

TRU services out of the market or to harm

customers. Manufacturers paid each

retailer directly for the services they

wanted the retailer to furnish.
 Based on this record, the Commission

drew three central conclusions of law:

(1) the TRU-led manufacturer boycott of

the warehouse clubs was illegal per se

under the rule enunciated in Northwest

Wholesale Stationers, Inc. v. Pacific

Stationery & Printing Co., 472 U.S. 284

(1985); (2) the boycott was illegal under

a full rule of reason analysis because

its anticompetitive effects "clearly

outweigh[ed] any possible business

justification"; and (3) the vertical

agreements between TRU and the individual

toy manufacturers, "entered into seriatim

with clear anticompetitive effect,

violate section 1 of the Sherman Act."

FTC opinion at 46. These antitrust

violations in turn were enough to prove a

violation of FTC Act sec. 5, which for

present purposes tracks the prohibitions

of the Sherman and Clayton Acts. After

offering a detailed explanation of these

conclusions (spanning 42 pages in its

slip opinion), it turned to the question

of remedy and affirmed the order the ALJ

had entered. 

 In the Commission’s words, its order:

. . . prohibits TRU from continuing,

entering into, or attempting to enter

into, vertical agreements with its

suppliers to limit the supply of, or

refuse to sell, toys to a toy discounter.

See para. II.A. The order also prohibits

TRU from facilitating, or attempting to

facilitate, an agreement between or among

its suppliers relating to the sale of

toys to any retailer. See para. II.D.

Additionally, TRU is enjoined from

requesting information from suppliers

about their sales to any toy discounter,

and from urging or coercing suppliers to

restrict sales to any toy discounter. See

para.para. II.B, C. These four elements

of relief are narrowly tailored to stop,

and prevent the repetition of, TRU’s

illegal conduct.

FTC opinion at 88. TRU complained that

the order trampled on its ability to

exercise its rights under United States

v. Colgate & Co., 250 U.S. 300 (1919), to

choose unilaterally the companies with

which it wanted to deal. The Commission

rejected the point, because it found that

TRU had repeatedly crossed the line from

unilateral to concerted behavior in

illegal ways, and that it was entitled to
include remedial provisions that were

necessary to prevent recurrence of the

illegal behavior, citing FTC v. National

Lead Co., 352 U.S. 419, 430 (1957).

 Commissioner Swindle concurred in part

and dissented in part. He agreed with the

majority’s determination that TRU had

engaged in a series of anticompetitive

vertical agreements, and he thus agreed

with the remedial provisions designed to

proscribe those practices and their

effects. He was unconvinced, however,

that TRU had orchestrated a horizontal

combination as well, believing that the

evidence was too thin to support that

conclusion. TRU appealed from the

Commission’s final order of October 13,

1998, to this court, under 15 U.S.C. sec.

45(c), as it carries on business in this

circuit (as well as every other circuit,

to the best of our knowledge).

II

 On appeal, TRU makes four principal

arguments: (1) the Commission’s finding

of a horizontal conspiracy is contrary to

the facts and impermissibly confuses the

law of vertical restraints with the law

of horizontal restraints; (2) whether the

restrictions were vertical or horizontal,

they were not unlawful because TRU has no

market power, and thus the conduct can

have no significant anticompetitive

effect; (3) the TRU policy was a

legitimate response to free riding; and

(4) the relief ordered by the Commission

goes too far. We review the Commission’s

legal conclusions de novo, but we must

accept its findings of fact if they are

supported by such relevant evidence as a

reasonable mind might accept as adequate

to support a conclusion. FTC v. Indiana

Fed’n of Dentists, 476 U.S. 447, 454

(1986).

 A. Horizontal Conspiracy

 As TRU correctly points out, the

critical question here is whether

substantial evidence supported the

Commission’s finding that there was a

horizontal agreement among the toy

manufacturers, with TRU in the center as

the ringmaster, to boycott the warehouse

clubs. It acknowledges that such an

agreement may be proved by either direct

or circumstantial evidence, under cases
such as Matsushita Electric Indus. Co. v.

Zenith Radio Corp., 475 U.S. 574 (1986)

(horizontal agreements), Monsanto Co. v.

Spray-Rite Service Corp., 465 U.S. 752

(1984) (vertical agreements), and

Interstate Circuit, Inc. v. United

States, 306 U.S. 208 (1939). When

circumstantial evidence is used, there

must be some evidence that "tends to

exclude the possibility" that the alleged

conspirators acted independently.

Monsanto, 465 U.S. at 764, quoted in

Matsushita, 475 U.S. at 588. This does

not mean, however, that the Commission

had to exclude all possibility that the

manufacturers acted independently. As we

pointed out in In re Brand Name

Prescription Drugs Antitrust Litigation,

186 F.3d 781 (7th Cir. 1999), that would

amount to an absurd and legally unfounded

burden to prove with 100% certainty that

an antitrust violation occurred. Id. at

787. The test states only that there must

be some evidence which, if believed,

would support a finding of concerted

behavior. In the context of an appeal

from the Commission, the question is

whether substantial evidence supports its

conclusion that it is more likely than

not that the manufacturers acted

collusively.

 In TRU’s opinion, this record shows

nothing more than a series of separate,

similar vertical agreements between

itself and various toy manufacturers. It

believes that each manufacturer in its

independent self-interest had an

incentive to limit sales to the clubs,

because TRU’s policy provided strong

unilateral incentives for the

manufacturer to reduce its sales to the

clubs. Why gain a few sales at the clubs,

it asks, when it would have much more to

gain by maintaining a good relationship

with the 100-pound gorilla of the

industry, TRU, and make far more sales?

 We do not disagree that there was some

evidence in the record that would bear

TRU’s interpretation. But that is not the

standard we apply when we review

decisions of the Federal Trade

Commission. Instead, we apply the

substantial evidence test, which we

described as follows in another case in

which the Commission’s decision to stop a

hospital merger was at issue:

Our only function is to determine whether
the Commission’s analysis of the probable

effects of these acquisitions on hospital

competition in Chattanooga is so

implausible, so feebly supported by the

record, that it flunks even the

deferential test of substantial evidence.

Hospital Corp. of America v. F.T.C., 807

F.2d 1381, 1385 (7th Cir. 1986). There,

as here, the Commission painstakingly

explained in a long opinion exactly what

evidence in the record supported its

conclusion. We need only decide whether

the inference the Commission drew of

horizontal agreement was a permissible

one from that evidence, not if it was the

only possible one.

 The Commission’s theory, stripped to its

essentials, is that this case is a modern

equivalent of the old Interstate Circuit

decision. That case too involved actors

at two levels of the distribution chain,

distributors of motion pictures and

exhibitors. Interstate Circuit was one of

the exhibitors; it had a stranglehold on

the exhibition of movies in a number of

Texas cities. The antitrust violation

occurred when Interstate’s manager,

O’Donnell, sent an identical letter to

the eight branch managers of the

distributor companies, with each letter

naming all eight as addressees, in which

he asked them to comply with two demands:

a minimum price for first-run theaters,

and a policy against double features at

night. The trial court there drew an

inference of agreement from the nature of

the proposals, from the manner in which

they were made, from the substantial

unanimity of action taken, and from the

lack of evidence of a benign motive; the

Supreme Court affirmed. The new policies

represented a radical shift from the

industry’s prior business practices, and

the Court rejected as beyond the range of

probability that such unanimity of action

was explainable only by chance.

 The Commission is right. Indeed, as it

argues in its brief, the TRU case if

anything presents a more compelling case

for inferring horizontal agreement than

did Interstate Circuit, because not only

was the manufacturers’ decision to stop

dealing with the warehouse clubs an

abrupt shift from the past, and not only

is it suspicious for a manufacturer to

deprive itself of a profitable sales

outlet, but the record here included the

direct evidence of communications that
was missing in Interstate Circuit. Just

as in Interstate Circuit, TRU tries to

avoid this result by hypothesizing

independent motives. 306 U.S. at 223-24.

If there were no evidence in the record

tending to support concerted behavior,

then we agree that Matsushita would

require a ruling in TRU’s favor. But

there is. The evidence showed that the

companies wanted to diversify from TRU,

not to become more dependent upon it; it

showed that each manufacturer was afraid

to curb its sales to the warehouse clubs

alone, because it was afraid its rivals

would cheat and gain a special advantage

in that popular new market niche. The

Commission was not required to disbelieve

the testimony of the different toy

company executives and TRU itself to the

effect that the only condition on which

each toy manufacturer would agree to

TRU’s demands was if it could be sure its

competitors were doing the same thing.

 That is a horizontal agreement. As we

explain further below in discussing TRU’s

free rider argument, it has nothing to do

with enhancing efficiencies of

distribution from the manufacturer’s

point of view. The typical story of a

legitimate vertical transaction would

have the manufacturer going to TRU and

asking it to be the exclusive carrier of

the manufacturer’s goods; in exchange for

that exclusivity, the manufacturer would

hope to receive more effective promotion

of its goods, and TRU would have a large

enough profit margin to do the job well.

But not all manufacturers think that

exclusive dealing arrangements will

maximize their profits. Some think, and

are entitled to think, that using the

greatest number of retailers possible is

a better strategy. These manufacturers

were in effect being asked by TRU to

reduce their output (especially of the

popular toys), and as is classically true

in such cartels, they were willing to do

so only if TRU could protect them against

cheaters. 

 Northwest Stationers also demonstrates

why the facts the Commission found

support its conclusion that the essence

of the agreement network TRU supervised

was horizontal. There the Court described

the cases that had condemned boycotts as

"per se" illegal as those involving

"joint efforts by a firm or firms to

disadvantage competitors by either
directly denying or persuading or

coercing suppliers or customers to deny

relationships the competitors need in the

competitive struggle." 472 U.S. at 294

(internal citations omitted). The

boycotters had to have some market power,

though the Court did not suggest that the

level had to be as high as it would

require in a case under Sherman Act sec.

2. Here, TRU was trying to disadvantage

the warehouse clubs, its competitors, by

coercing suppliers to deny the clubs the

products they needed. It accomplished

this goal by inducing the suppliers to

collude, rather than to compete independ

ently for shelf space in the different

toy retail stores. See also NYNEX Corp.

v. Discon, Inc., 525 U.S. 128 (1998);

Klor’s, Inc. v. Broadway-Hale Stores,

Inc., 359 U.S. 207 (1959).

 B. Degree of TRU’s Market Power

 TRU’s efforts to deflate the

Commission’s finding of market power are

pertinent only if we had agreed with its

argument that the Commission’s finding of

a horizontal agreement was without

support. Horizontal agreements among

competitors, including group boycotts,

remain illegal per se in the sense the

Court used the term in Northwest

Stationers. We have found that this case

satisfies the criteria the Court used in

Northwest Stationers for condemnation

without an extensive inquiry into market

power and economic pros and cons: (1) the

boycotting firm has cut off access to a

supply, facility or market necessary for

the boycotted firm (i.e. the clubs) to

compete; (2) the boycotting firm

possesses a "dominant" position in the

market (where "dominant" is an undefined

term, but plainly chosen to stand for

something different from antitrust’s term

of art "monopoly"); and (3) the boycott,

as we explain further below, cannot be

justified by plausible arguments that it

was designed to enhance overall

efficiency. 472 U.S. at 294. We address

the market power point here, therefore,

only in the alternative.

 TRU seems to think that anticompetitive

effects in a market cannot be shown

unless the plaintiff, or here the

Commission, first proves that it has a

large market share. This, however, has

things backwards. As we have explained
elsewhere, the share a firm has in a

properly defined relevant market is only

a way of estimating market power, which

is the ultimate consideration. Ball

Memorial Hospital, Inc. v. Mutual

Hospital Insurance, 784 F.2d 1325, 1336

(7th Cir. 1986). The Supreme Court has

made it clear that there are two ways of

proving market power. One is through

direct evidence of anticompetitive

effects. See FTC v. Indiana Fed’n of

Dentists, 476 U.S. 447, 460-61 (1986)

("the finding of actual, sustained

adverse effects on competition in those

areas where IFD dentists predominated,

viewed in light of the reality that

markets for dental services tend to be

relatively localized, is legally

sufficient to support a finding that the

challenged restraint was unreasonable

even in the absence of elaborate market

analysis."). The other, more conventional

way, is by proving relevant product and

geographic markets and by showing that

the defendant’s share exceeds whatever

threshold is important for the practice

in the case. See, e.g., United States v.

E.I. duPont de Nemours & Co., 351 U.S.

377 (1956); United States v. Grinnell

Corp., 384 U.S. 563 (1966); United States

v. Aluminum Co. of America, 148 F.2d 416

(2d Cir. 1945) (suggesting that more than

90% is enough to constitute a monopoly

for purposes of Sherman Act sec. 2 and

33% is not); Jefferson Parish Hospital

Dist. No. 2 v. Hyde, 466 U.S. 2 (1984)

(indicating that something more than 30%

would be needed to show the kind of power

over a tying product necessary for a

violation of Sherman Act sec. 1).

 The Commission found here that, however

TRU’s market power as a toy retailer was

measured, it was clear that its boycott

was having an effect in the market. It

was remarkably successful in causing the

10 major toy manufacturers to reduce

output of toys to the warehouse clubs,

and that reduction in output protected

TRU from having to lower its prices to

meet the clubs’ price levels. Price

competition from conventional discounters

like Wal-Mart and K-Mart, in contrast,

imposed no such constraint on it, or so

the Commission found. In addition, the

Commission showed that the affected

manufacturers accounted for some 40% of

the traditional toy market, and that TRU

had 20% of the national wholesale market

and up to 49% of some local wholesale
markets. Taking steps to prevent a price

collapse through coordination of action

among competitors has been illegal at

least since United States v. SoconyVacuum Oil Co., 310 U.S. 150 (1940).

Proof that this is what TRU was doing is

sufficient proof of actual

anticompetitive effects that no more

elaborate market analysis was necessary.

 C. Free Riding Explanation

 TRU next urges that its policy was a

legitimate business response to combat

free riding by the warehouse clubs. We

think, however, that it has fundamentally

misunderstood the theory of free riding.

Briefly, that theory is as follows. The

manufacturer of a product, say widgets,

has an incentive to distribute as many

widgets as it can, while keeping its

costs of distribution down as low as

possible. In many instances, this means

that the manufacturer will want to sell

its widgets for a particular wholesale

price and it will want its retailer to

apply as low a mark-up as possible (i.e.

put the product on the market for as

little extra expense as possible).

Sometimes, however, the manufacturer will

want the retailer to provide special

services or amenities that cost money,

such as attractive premises, trained

salespeople, long business hours, fullline stocking, or fast warranty service.

But the costs of providing some of those

amenities (usually pre-sale services) are

hard to pass on to customers unless some

form of restricted distribution is

available. What the manufacturer does not

want is for the shopper to visit the

attractive store with highly paid,

intelligent sales help, learn all about

the product, and then go home and order

it from a discount warehouse or (today)

on-line discounters. The shopper in that

situation has taken a "free ride" on the

retailer’s efforts; the retailer never

gets paid for them, and eventually it

stops offering the services. If those

services were genuinely useful, in the

sense that the product plus service

package resulted in greater sales for the

manufacturer than the product alone would

have enjoyed, there is a loss both for

the manufacturer and the consumer. Hence,

antitrust law permits nonprice vertical

restraints that are designed to

facilitate the provision of extra
services, recognizing that a manufacturer

in a competitive market who has guessed

wrong will eventually be forced by the

market to abandon the restrictions. See

Business Electronics Corp. v. Sharp

Electronics Corp., 485 U.S. 717, 724

(1988), quoting Continental T.V., Inc. v.

GTE Sylvania Inc., 433 U.S. 36, 52 n.19

(1977).

 Here, the evidence shows that the freeriding story is inverted. The

manufacturers wanted a business strategy

under which they distributed their toys

to as many different kinds of outlets as

would accept them: exclusive toy shops,

TRU, discount department stores, and

warehouse clubs. Rightly or wrongly, this

was the distribution strategy that each

one believed would maximize its

individual output and profits. The

manufacturers did not think that the

alleged "extra services" TRU might have

been providing were necessary. This is

crucial, because the most important

insight behind the free rider concept is

the fact that, with respect to the cost

of distribution services, the interests

of the manufacturer and the consumer are

aligned, and are basically adverse to the

interests of the retailer (who would

presumably like to charge as much as

possible for its part in the process).

See Premier Electrical Construction Co.

v. Nat’l Electrical Contractors Ass’n,

814 F.2d 358, 369-70 (7th Cir. 1987)

("[the rationale for permitting

restricted distribution policies] depends

on the alignment of interests between

consumers and manufacturers. Destroy that

alignment and you destroy the power of

the argument.").

 What TRU wanted or did not want is

neither here nor there for purposes of

the free rider argument. Its economic

interest was in maximizing its own

profits, not in keeping down its

suppliers’ cost of doing business.

Furthermore, we note that the Commission

made a plausible argument for the

proposition that there was little or no

opportunity to "free" ride on anything

here in any event. The consumer is not

taking a free ride if the cost of the

service can be captured in the price of

the item. As our earlier review of the

facts demonstrated, the manufacturers

were paying for the services TRU

furnished, such as advertising, full-line
product stocking, and extensive

inventories. These expenses, we may

assume, were folded into the price of the

goods the manufacturers charged to TRU,

and thus these services were not

susceptible to free riding. On this

record, in short, TRU cannot prevail on

the basis that its practices were

designed to combat free riding.

 D. Remedy

 Last, we consider TRU’s challenge to the

remedial provisions the Commission

ordered. TRU’s basic point here is that

the Commission has commanded it to do

things that it would have been free to

refuse, and conversely to refrain from

actions it would have been free to take,

in the absence of its violation of FTC

Act sec. 5. So that its arguments can be

fully understood, we set forth Section II

of the decree in its entirety here:

 IT IS ORDERED that respondent, directly

or indirectly, through any corporation,

subsidiary, division or other device, in

connection with the actual or potential

purchase or distribution of toys and

related products, in or affecting

commerce, as "commerce" is defined in the

Federal Trade Commission Act, forthwith

cease and desist from:

 A. Continuing, maintaining, entering

into, and attempting to enter into any

agreement or understanding with any

supplier to limit supply or to refuse to

sell toys and related products to any toy

discounter.

 B. Urging, inducing, coercing, or

pressuring, or attempting to urge,

induce, coerce, or pressure, any supplier

to limit supply or to refuse to sell toys

and related products to any toy

discounter.

 C. Requiring, soliciting, requesting or

encouraging any supplier to furnish

information to respondent relating to any

supplier’s sales or actual or intended

shipments to any toy discounter.

 D. Facilitating or attempting to

facilitate agreements or understandings

between or among suppliers relating to

limiting the sale of toys and related

products to any retailer(s) by, among

other things, transmitting or conveying
complaints, intentions, plans, actions,

or other similar information from one

supplier to another supplier relating to

sales to such retailer(s).

 E. For a period of five years, (1)

announcing or communicating that

respondent will or may discontinue

purchasing or refuse to purchase toys and

related products from any supplier

because that supplier intends to sell or

sells toys and related products to any

toy discounter, or (2) refusing to

purchase toys and related products from a

supplier because, in whole or in part,

that supplier offered to sell or sold

toys and related products to any toy

discounter.

PROVIDED, however, that nothing in this

order shall prevent respondent from

seeking or entering into exclusive

arrangements with suppliers with respect

to particular toys.

 TRU makes a perfunctory, one-paragraph

argument that paragraphs II(B), II(C),

II(D), and II(E)(1) impose a "gag order"

that contravenes the Supreme Court’s

recognition in Monsanto Co. v. Spray-Rite

Corp., supra, that manufacturers and

distributors have a legitimate need for a

free flow of information between them.

This order, they claim, will create an

irrational dislocation in the market to

the detriment of toy suppliers,

retailers, and consumers. With respect to

paragraph II(E)(2), it argues that the

five-year restriction on refusals to deal

impermissibly cabins its Colgate rights

to choose the suppliers with which it

wants to deal. In effect, it claims, the

decree will force it to purchase all toys

that are offered to anyone, unless it can

somehow prove that its refusal was

because of a safety defect or other

similar flaw. 

 We consider first TRU’s challenges to

parts II(B) through II(D) of the order.

(It has not mentioned II(A) in its brief,

and thus it has waived any challenge to

that part of the order.) In general, if a

retailer had some kind of restricted

distribution arrangement with a

manufacturer, Monsanto holds that it is

permissible for the retailer to urge the

manufacturer to respect the limits of

that agreement. The retailer may

communicate complaints about the
provision of product to discounters, if

that runs afoul of the promises in the

distribution agreement. Colgate indicates

that the retailer would also be within

its rights to tell the manufacturer that

it will no longer stock the

manufacturer’s product, if it is unhappy

with the company it is keeping (i.e. if

the manufacturer is sending too many

goods to discounters, stores with a

reputation for rude and sloppy service,

or other undesirables). 

 Two facts distinguish these general

rules from the situation in which TRU

finds itself. First, unilateral actions

of the sort protected by Monsanto and

Colgate are not the same thing as a

retailer’s request to the manufacturer to

change the latter’s business practice.

Under paragraph II(B) of the decree, TRU

must not tell the manufacturer what to

do; it is still permitted to decide which

toys it wants to carry and which ones to

drop, based on business considerations

such as the expected popularity of the

item. Second, to the extent paragraph

II(B) might indirectly inhibit TRU from

exercising its unilateral judgment, TRU

must confront the fact that the FTC is

not limited to restating the law in its

remedial orders. Such orders can restrict

the options for a company that has

violated sec. 5, to ensure that the

violation will cease and competition will

be restored. See National Lead Co.,

supra, 352 U.S. at 430; FTC v. Cement

Institute, 333 U.S. 683, 726-27 (1948);

Corning Glass Works v. FTC, 509 F.2d 293,

303 (7th Cir. 1975). See also FTC v.

Colgate-Palmolive Co., 380 U.S. 374, 392

(1965) (making the same point, in context

of the Commission’s deceptive practices

authority).

 The second point also applies to TRU’s

objections to paragraphs II(C) and II(D).

In addition, we note that the retailer

should not have any reason to obtain its

suppliers’ business records about

shipments to the retailer’s competitors.

That is the supplier’s concern. TRU is

protected as long as it can ensure that

it receives what was promised to it.

Also, of course, the decree preserves

TRU’s right to enter into exclusive

arrangements with respect to particular

toys. In so doing, it also implicitly

allows TRU to engage in communications

that are necessary for the implementation
and enforcement of such agreements.

Paragraph II(D) directly addresses the

Commission’s finding of a horizontal

agreement, and it orders TRU not to go

out and create a new one. The Commission

was certainly acting within the bounds of

its discretion when it included these

provisions.

 Paragraph II(E) appears to be the one

that causes the greatest concern to TRU.

This strikes us as a closer call, but in

this connection the standard of review

becomes important. The Commission has

represented in its brief to this court

that the decree "leaves [TRU] free to

make stocking decisions based on a wide

range of business reasons; it must simply

make those decisions--for a period of

five years--independent of whether clubs

or other discounters are carrying the

same item." FTC Brief at 58. The attempt

to use its market clout to harm the

warehouse clubs lies at the heart of this

case, and so it is easy to see why the

Commission chose to prohibit reliance on

the supplier’s practices vis e vis the

clubs as a reason for TRU’s own

purchasing decisions. At bottom, TRU is

really just worried that it will be

difficult to prove that any particular

purchasing decision was free from the

prohibited taint. It will be easy to

refrain from announcements or

communications about refusals to deal,

which is what II(E)(1) prohibits. With

respect to II(E)(2), if TRU implements

adequate internal procedural safeguards,

it should be possible to demonstrate that

its buying decisions were not influenced

by anything the manufacturers were doing

with discounters like the clubs. These

refusals to deal were the means TRU used

to accomplish the unlawful result, and as

such, they are subject to regulation by

the Commission. See National Lead, 352

U.S. at 425. Under the abuse of

discretion standard that governs our

review of the Commission’s choice of

remedy, see Siegel Co. v. FTC, 327 U.S.

608, 612-13 (1946), this does not appear

to be a remedy that "has no reasonable

relation to the unlawful practices found

to exist." We therefore have no warrant

to set it aside. If, however, it becomes

clear in practice that this provision is

unworkable, TRU is free to return to the

Commission to petition for a modification

of the order.
III

 We conclude that the Commission’s

decision is supported by substantial

evidence on the record, and that its

remedial decree falls within the broad

discretion it has been granted under the

FTC Act. The decision is hereby Affirmed.