Document: 386 U.S. 568 87 S.Ct. 1224 18 L.Ed.2d 303 FEDERAL TRADE COMMISSION, Petitioner,v.The PROCTER & GAMBLE COMPANY. No. 342. Argued Feb. 13, 1967. Decided April 11, Sol. Gen. Thurgood Marshall, for petitioner. Frederick W. R. Pride and Kenneth C. Royall, New York City, respondent. Mr. Justice DOUGLAS delivered the opinion of Court. 1 This is a proceeding initiated by Federal Trade Commission charging that respondent, Procter Gamble Co., had acquired assets Clorox Chemical Co. in violation § 7 Clayton Act, 38 Stat. 731, as amended Celler-Kefauver 64 1125. 15 U.S.C. 18.1 The charge was Procter's acquisition might substantially lessen competition or tend to create monopoly production sale household liquid bleaches. 2 Following evidentiary hearings, hearing examiner rendered his decision which he concluded unlawful ordered divestiture. On appeal, reversed, holding record then constituted inadequate, remanded additional hearings. 58 F.T.C. 1203. After again held affirmed 63 —-. Court Appeals Sixth Circuit reversed directed Commission's complaint be dismissed. 358 F.2d 74. We find findings were amply supported evidence, erred. 3 As indicated its painstaking illuminating report, it does not particularly aid analysis talk this merger conventional terms, namely, horizontal vertical conglomerate. may most appropriately described 'product-extension merger,' stated. facts are disputed, summary will demonstrate correctness decision. 4 At time merger, 1957, leading manufacturer heavily concentrated bleach industry. It agreed relevant line commerce. product used home germicide disinfectant, and, more importantly, whitening agent washing clothes fabrics. distinctive with no close substitutes. Liquid low-price, high-turnover consumer sold mainly through grocery stores supermarkets. geographical market Nation series regional markets. Because high shipping costs low sales price, feasible ship than 300 miles from point manufacture. Most manufacturers limited within single region since they have but one plant. only firm selling nationally; has 13 plants distributed throughout Nation. Purex, Clorox's closest competitor size, distribute northeast mid-Atlantic States; Purex's available less 50% national market. 5 acquisition, bleach, 48.8% sales—annual slightly $40,000,000. Its share been steadily increasing five years prior merger. nearest rival manufactures number products other bleaches, including abrasive cleaners, toilet soap, detergents. Purex accounted 15.7% industry highly concentrated; almost 65% Nation's sales, together four firms, 80%. remaining 20% divided among over 200 small producers. total $12,000,000; eight producers excess $1,000,000 very few $75,000. 6 In light territorial limitations on distribution, figures do give an accurate picture dominance various regions. Thus, seven principal competitors did business England, States, metropolitan York. those areas 56%, 72% 64% respectively. Even regions where active, maintained dominate position. Except Chicago westcentral States at least 39%, often much higher percentage, sales. Since all chemically identical, advertising promotion vital. 1957 spent $3,700,000 advertising, imprinting value mind consumer. addition, $1,700,000 promotional activities. found these heavy expenditures went far explain why so despite fact brand, though indistinguishable brands, retailed price equal or, many instances, competitors. 8 large, diversified grocery, drug, department stores. Prior Clorox, produce bleach. $1,100,000,000 realized profits $67,000,000; $500,000,000. marked rapid growth diversification. successfully developed introduced new products. primary activity general area soaps, detergents, cleansers; domestic one-half (over $500,000,000) field. dominant factor area. 54.4% packaged detergent concentrated—Procter competitors, Colgate-Palmolive Lever Brothers, account 80% 9 marketing cleansers, largest advertiser, spending $80,000,000 $47,000,000 promotion. Due tremendous volume, receives substantial discounts media. multiproduct producer enjoys advantages can feature several promotions, reducing printing, mailing, each product. also purchases network programs behalf products, enabling exposure fraction cost per advertise would incur. 10 course diversifying into lines related basic detergentsoap-cleanser business. distinct possibility detergents—Procter's line—and complementarily fabrics, cleaning. noted Commission: 11 'Packaged important category—and complementarily, cleaning, disinfectant well whitener. From consumer's viewpoint, then, detergents closely But relatedness between wider. Household cleansing agents general, like low-cost, goods marketed chiefly pre-sold mass promotions. both parties same customers, stores, merchandising methods, arises significant integration distribution levels.' —-, 12 acquire result study conducted designed determine advisability entering initial report ascendancy large expanding market, recommended purchase rather enter independently. investment needed obtain satisfactory share, industry's attractive. 'Taking * could way achieving position quickly, pay out reasonably well.' F.T.C., predicted 'sales, manufacturing setup' increase markets low. final confirmed conclusions emphasized make effective use budget facilitate economies. A months later, name wholly owned subsidiary, Company, exchange stock. competition. reasoning need briefly summarized. substitution huge already dissuade entrants discourage active firms due fear retaliation Procter. thought retailers induced preferred shelf space manufactured Procter, produced retailers. There danger underprice order drive competition, subsidize underpricing revenue carefully reviewed effect structure industry, noting '(t)he practical tendency transform arena big only, disappeared eventually falling wayside, unable compete their giant rivals.' Further, seriously diminish potential eliminating entrant found, likely prospective entrant, absent remained periphery, restraining exercising power. If actually entered, eroded concentration reduced. stated placed reliance post-acquisition evidence unlawful. 14 said finding illegality based 'treacherous conjecture,' mere suspicion. 74, 83. dismissed controlled two 65%, six observation addition sharing eighty cent there hundred smaller seem indicate anything unhealthy about conditions.' Id., 80. hugh resources prowess, leverage statement 'knowhow' finances adequate purposes. Ibid. volume push court 'it difficult base advertising.' 81. rejected eliminated because '(t)here reasonable probability entered merger.' F.2d, 'There tending prove ever intended field own.' 82. Finally, any past engaged predatory practices, future.' relied 'evidence subsequent money before' (358 80), (had) change merger' (ibid.), (t)his certainly anticompetitive effects Appeals, our view, misapprehended standards review applicable proceeding. 16 Section Act arrest power incipiency. core question whether necessarily requires prediction merger's impact present future. See Brown Shoe v. United 370 294, 82 1502, 510; Philadelphia National Bank, 374 321, 83 1715, 915. section deal probabilities, certainties. supra, 323, 1522; Penn-Olin 378 158, 84 1710, 775. And requirement manifest itself action before called play. enforcement turned existence actual congressional policy thwarting such practices incipiency frustrated. 17 All mergers reach 7, must tested standard, classified horizontal, vertical, conglomerate2 other. Commission, neither nor company complementary acquiring similar facilities, channels manner, advertised media, aptly merger': 'By interests sense different, unfamiliar Rather, adjoins, were, established, virtually them inso problems techniques ultimate concerned. official put it, commenting 'While completely us, taking us first we thoroughly priced, turn-over products." 19 product-extension fraught easily seen: (1) powerful smaller, dominant, reduce competitive raising entry barriers dissuading aggressively competing; (2) eliminates firm. 20 oligopolistic vigorous if competitive. enjoyed nationally, approached proportions certain areas. some fringe belie fact. Nor fact, upon below, that, after 'were before.' period, increased 52%. interjection considerably changed situation. every reason assume become cautious competing probable leader oligopoly rigid. 21 entry. major weapon successful advertising. relatively inability discounts. By contract, larger; although devote entire divert portion meet short-term threat entrant. able advantage Clorox. reluctant face Clorox.3 22 Possible economies cannot defense illegality. Congress aware struck balance favor protecting 344, 1534. 23 competitor. declared management independently never attempted enter. however, clearly shows recently launched cleaner wrested leadership brand even larger program natural avenue diversification customers channels, merchandised manner. promotion, which, seen, vital success No patent manufacture, necessary information relating methods processes readily available, shortage raw material, machinery equipment required plant efficient capacity cost. experienced producing considered decided against enable capture commanding 24 clear edge exerted considerable influence First, behavior influenced firm's predictions potential. Second, size significant. indication above maximize existing firms. Third, elimination insignificant. Few temerity challenge solidly entrenched Fourth, These evidence. 25 judgment instructions affirm enforce order. 26 ordered. 27 Reversed remanded. 28 STEWART FORTAS took part consideration case. 29 HARLAN, concurring. 30 I agree should sustained, majority opinion's view 'summary decision' frought seen.' consider case own corners, beyond portents future administrative judicial application kind far-reaching. standpoints refined putting stamp approval what done regrettable see enters comparatively economic adjudication starting off res ipsa loquitur approach antitrust cases. 31 type represented transaction becoming increasingly corporations seek diversify operations, Blair, Conglomerate Merger Economics Law, 46 Geo.L.J. 672, '(c)ompanies looking buy fields degree familiarity, efficiencies assimilation possible.' Turner, Mergers 78 Harv.L.Rev. 1313, 1315. Application troubling lower courts. author exhaustive later explained elaborateness reflected awareness uncharted territory.' General Foods Corp., Reg.Rep. 17,46 (Commissioner Elman, dissenting, 22,745). equally troubled lack difficulty perceiving 'Procter merely stepped shoes Clorox.' somewhat situation presented Seventh Ekco Products 347 745, comprehensive problem laid bare. narrowly possible refused formulate principles control said: 32 'If different standard set rules, aside applying combinations, test conglomerate acquisitions cases brought under feel compelled look Supreme guidance.' 751. 33 thus believe incumbent careful opinions below case, embark formulation previously depth Court.1 especially divisions arisen one. supra; Tea 17,463. My prime Court's makes effort direction all, leaves lawyers, businessmen expected kind. I. 34 rests three separate effect. declares here 'oligopolistic' 'more rigid' '(t) Procter.' Court, exactly reasons lie behind assumption deemed 'reasonably probable.' assumed aggressive otherwise ultimately absorb field, vulnerable attack. 35 substitute measure 1522, 510, mandated courts 'to campaign 'superconcentration' absence harm competition.' 1395. Moreover, predictable, demands. substantiality ignored, economist warned: 36 society intervene possibly lead reduction regulation ubiquitous whole purpose public frustrated.' Stigler, Preventive Antitrust Policy, 104 U.Pa.L.Rev. 176, 177. 37 next stresses caused primarily, thought, capabilities Economic theory heightening taken place. considers significance when how affect example, difficulties introducing nationally great finds believed 'pay out.'2 Why further incalculable lessens competition? Such conclusion needs support reasoned analysis.3 places emphasis loss Two entirely traced loss, fails distinguish them. simply increases operative decreasing likelihood attempt surmount them.4 reinforces previous entry-barrier argument, convincing presented. second excluded lost. Certainly exclusion promise independent sufficient, itself, El Paso Natural Gas 376 651, 1044, 12, expressly own, emphatic agreement. mean concurrent seems me consequence attached competitor.5 Cf. 175, 1719, 39 Thus believe, respect, failed presented, vote aside. II. 40 following points pure 'conglomerate' labelled 'product-extension' explanation, offered distinction mergers, whatever nature, 'must standard'. matter label transaction, recognized vastly concerned Shoe, proper assert words work, recognize sets circumstances call fundamentally tests Compare Consolidated 380 592, 85 1220, 95. 41 outset, serious state knowledge sufficiently advanced sure-footed determination made priori enough desired scrutiny, versed economists argued scrutiny valid 42 'Where concern buys (a product) competing, material extinguished, fewer alternatives customer supplier anywhere. Perhaps stop act not.' Adelman, quoted 674. 43 Bowman, Contrasts Theory: II, 65 Col.L.Rev. 417, 421. 44 Lending strength provide benefits argue excessive controls being imposed ability merge brings capital encourages development incentive easy profitable liquidation others. Here, owners who built business, liquefy terms without dismantling enterprise created. Also allows move rapidly bringing intervention stimulation innovation. permits corporation protect shareholders fluctuation diversification, introduction resources, allowing scale, stagnating See, 1317. 45 end spectrum, destructive Edwards, Bigness Source Power, Business Concentration Price Report Bureau Research, p. 331. 'outbid, outspend, outlose *.' 335. contended adversely affecting operation accruing elsewhere.6 generates psychological pressure my force ones follow pricing policies, presence lending institutions unwilling finance 348; Bok, Merging Law Economics, 74 226, 275.7 While 'business too complex varied permit generalized explanation,' Stocking, Comment, 352, observations dangers mergers. enacting extended particular markets, companies grown while fully agreeing regarded something apart am undertake establish judging legality, proceed utmost circumspection. Meanwhile, escape necessity venturing views governing standards. III. adjudicating combinations obvious key issue, responsible agencies moved away adopted precise rules thumb convenience predictability world. Brodley, Oligopoly Power Under Sherman Acts—From Theory Legal Stan.L.Rev. 285.8 experience allow simple involves 'concepts still largely unformulated.' 'full investigation analysis, delay immediate ineffectiveness.' Tests Probable Effect Bull. 369, 377. cf. 700. full scale considerations adverted Part II 'the statute leave free strike down basis sheer speculation bigness.' 22,749 dissenting.) 47 contending broadest here, relative poverty (economic) industrial relations complexes, sketchiness understanding specific industries markets,' Bock, Relativity Evidence Cases—Emerging Decisions Force Issue, Mich.L.Rev. 1355, 1369, insisted proved post-merger applied. gives little attention contention, think seriously, arguable was, sense, main source difference Circuit. 48 decision, Examiner express contained rely, insufficient violation. opinion, handed generally irrelevant 'proper unusual radically -. Market changes, behavior, analysis. 49 position, dependence evaded dissimulation during period observation. For date merger,9 unrealistic, pendency 50 unscrambling completed legality actions formulating plans. Bromley, Business' View du Pont-General Motors Decision, 646, 653—654. pointed strain assemble amounts data. 51 disagreement view. '(a)ny *. extent inquiry conditions depend obtained ignored.' characterized 'pure conjecture' 52 serve purposes must, think, stand issue.10 Only focusing begin plan fair certainty. recent amendments Bank premerger conditions,11 agency decisions hinging benefit post-combination results. offset encountered obtaining it. best inconclusive. 53 Deciding toward changes not, narrowed focused. isolate structural elements, 'condition entry.' interplay factors power, entry' determines limits noted, teaches unless sufficient real possibility.12 So long keep point, marginal regulator. easiest discover entry,' workings indeed, critical visible significance. 54 pinned exclusively concentration, doing path cases, e.g., favored weight authority. Bain, Industrial Organization. discounted bases agreement rejection Appeals' alleged domination elusive term, percentage equivalent aspects behavior. Just sellers determinative operation, group similarly conclusive. issue is, instead, interact pattern measurement determined variable opening 55 record, entitled regard properly ignore hasten add, 'economic dissents' stronger arguments 'are justified 292. questions context apt crucial, would, therefore, defendant show accord theory, desires apply. words, defendants proceedings entitled, build proposition impair 56 go demonstrating prices unadvertised bleaches cost-determined ceiling mechanism acceptable differential,13 obliged receive evaluate proof. effectively presumption draw present, contradictory cogent explanation 57 proof establishes exercised market—that raised run prices—then legitimately focus role Barriers Competition 5, 27. doing, encountered. affects range extends. Potential compel striving advance social goal passing 7.14 questioned creates lessening 7. justifications determinant given. contrary mandate Congress' word 'competition' shorthand invocation average leads weighed consequences net adverse. Bork Crisis Antitrust, 363. justification tendency-to-monopoly clause clearest evil monopolist price. 'antitrust operates forestall concentrations allowed develop unhindered, intrusive government supervision economy,' Blake Jones, Defense 377, 383, attackable S.Rep. 1775, 81st Cong., 2d Sess., 4—5. conclude illegal 59 Given area, faced. attempts brush asserting economies, neglects inherent idea conceded, be, favoring true achieve enhances adverse distinguished 320, 1521. Economies achieved stimulate matching innovation others, essence They always output expenditure resources. market-structure demonstration increased, examine weigh arising whether, balance, lessened.15 Where detriments 'highly speculative' wisest 'possibilities worth worrying involve 1354. caution lest 'over deter stifle seeks foster.' Von's Grocery 384 270, 301, 86 1478, 1495, 555 (Stewart, J., dissenting). 60 To summarize guides come forward. rest resort understood foundation presume accepted open alternative operational formulations. exercise greater prima facie merging countervailing effects. IV. 61 did, conform required. 62 catalogue psychological.' 'effects' speculations financial Others said, speculative place reaching conclusion. hold unlawful, convinced 'substantial' expected. 'significant real, discernible theorists scholars practical, hard-headed businessmen.' disparity (3) (4) competitor, (5) nature 'economies' involved, condition sustained attempted. aided supporting hypothesis. Officials appearing testified established uniformly indisputably times qualified quantity media expensive advantageous outlets. showed 'pre-selling' requisite operations,16 undertaken vary tenacity response required, commanded undertaken.17 change. 66 strong attach importance extensive bring bear hard pressed along fronts safely provoke response, diverted purpose. conducting operations demonstrated intensive campaigns Comet cleanser toothpastes nationwide scale. Proof mobilize utilize effect.18 exists record. 67 related, 'no occasion speculate pattern, policies favorably situaded prevailing level attract remote limitation depends facing insulation stem costly class whose high. 21. 68 blush, inconsistency arise expressed turn inducing shown decreased hardly attacked Although talismanic 275, 1481. dynamic, well-managed desirable form. However, nothing discussion speculation, 69 involved regret refrains Commission—in quite correctly seemed accept defend '(a) results efficiency production, may, vigor market.' classification 'only 'offensive spirit, letter, laws.' Advertising seller entrenching 70 overstated over-simplifed. Proper serves legitimate educating alternatives. process contributes demand production. advertiser's assurance quality, willingness consumers premium brands. Undeniably sometimes irrational preferences mislead differences products,19 ceases aspect healthy Bork, Anti-trust I, 401, 411, n. 11. function decide lawful elements 'product' useful symptoms 'sickness.' election purchasing assessing process, sort here. 71 command dollar peculiarly demonstrated, premised solely figures, accounting controversies proceedings. employed 'real' applied accomplishment objective. reason, discounting defense. 72 forth Procter-Clorox entails enhancement upheld. 'No commerce shall acquire, directly indirectly, stock subject jurisdiction another commerce, country, monopoly.' relationships latter lesson Erie, Pennsylvania. October selected Pennsylvania—where previously—as salability, conditions, brands Erie 52%, '101' Gardner Manufacturing 29% broad short time, captured 33% dropped 35% 101's 17%. responded offering reduced prices, added offer $1-value ironing board cover 50¢ television spots. restore lost slightly. fell 7%. fourth John Puhl 'Fleecy White' geographic anxious One according president, that: 'Purex unsuccessful geographically economics illustrated Pennsylvania, impossible, judgment, expand bleach.' Aluminum America, 377 271, 1283, 314, Continental Can 441, 1738, 953, essentially chose treat 285, 303—308. memorandum stated: 'We recommend Company trying sectional brand. require 'available,' reference profit margin) payout unattractive.' clearer nonadvertised, locally easy. technological entry, requirements exception costs, small. predominant, unaffected, form either minimize imPortance Bain's pioneering Competition, surmounted levels entrants. themselves, insulated rise induce determining 1, 332. 1340. '(T)he belief hence unverified studies Cook, Big Business: Look Ahead, N.Y.U.L.Rev. 710, 713. 'Of course, examples exotic restraints. Here common judiciously infer apparently prevent reads growing incredulity. imply businesses deep pockets lose statistical survey know world is.' original recommendations Attorney General's Committee Study Laws, analyze detail, given effect.' Report, 123. criteria exist detail sound. consummated August 1957. filed FTC 95, history, outside challenge, conclusive negation (80 7) challenged days approval. negates 1828(c). noteworthy laws. upheld outweighed interest meeting community served.' 1828(c)(5)(B) (1964 ed., Supp. II). Bain presumed cost-based considering whole. marketwide effect, limit optimum return entry-triggering levels, (Clorox Purex), third local testimony officials costs. Some witnesses extremely elastic, soap lend Appendix D, 283. argument consciousness greatly exceed therefore served hand, maintain differential 'a business,' 1481, 555, desirable. placing inefficient others accede practices. intimate Cir., eliminate had, purchased supra. 'lesson' incident repel assault captured, beachhead continued expenses. Unless high, sustained. Commissioner dissenting 17,463, 22,708. 'The answer (in case) detailed overall chain markets.' identical contended, concluded, superior quality controls. similar, strength.

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