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UNITED STATES, Appellant, v. FALSTAFF BREWING CORPORATION et al. | US Law | LII / Legal Information Institute
Supreme Court aboutsearch liibulletin subscribe previews UNITED STATES, Appellant, v. FALSTAFF BREWING CORPORATION et al.
410 U.S. 526 (93 S.Ct. 1096, 35 L.Ed.2d 475)
Argued: Oct. 17, 1972.
Decided: Feb. 28, 1973.
Respondent Falstaff, the Nation's fourth largest beer producer, which was desirous of achieving national status, agreed to acquire the largest seller of beer in the New England market rather than enter de novo. The District Court dismissed the Government's resultant suit charging violation of § 7 of the Clayton Act, finding that entry by acquisition, which the court found was the only way that respondent intended to penetrate the New England market, would not result in a substantial lessening of competition. Held: The District Court erred in assuming that, because respondent would not have entered the market de novo, it could not be considered a potential competitor. The court should have considered whether respondent was a potential competitor in the sense that its position on the edge of the market exerted a beneficial infuence on the market's competitive conditions. Pp. 531583.
Alleging that Falstaff Brewing Corp.'s acquisition of the Narragansett Brewing Co., in 1965 violated § 7 of the Clayton Act, 38 Stat. 731, as amended, 15 U.S.C. 18,
the United States brought this antitrust suit under the theory that potential competition in the New England beer market may be substantially lessened by the acquisition. The District Court held to the contrary, 332 F.Supp. 970 (1971), and we noted probable jurisdiction
to determine whether the trial court applied an erroneous legal standard in so deciding, 405 U.S. 952, 92 S.Ct. 1175, 31 L.Ed.2d 229 (1972). We remand to the District Court for a proper assessment of Falstaff as a potential competitor.
compose the geographic market. While beer sales in New England increased approximately 9.5% in the four years preceding the acquisition, the eight largest sellers increased their share of these sales from approximately 74% to 81.2%. In 1960, approximately 50% of the sales were made by the four largest sellers; by 1964, their share of the market was 54%; and by 1965, the year of acquisition, their share was 61.3%. The number of brewers operating plants in the geographic market decreased from 32 in 1935, to 11 in 1957, to six in 1964.
with 5.9% of the Nation's production in 1964, having grown steadily since its beginning as a brewer in 1933 through acquisition and expansion of other breweries. As of January 1965, Falstaff sold beer in 32 States, but did not sell in the Northeast, an area composed of New England and States such as New York and New Jersey; the area being the highest beer consumption region in the United States. Between 1955 and 1966, the company's net sales and net income almost doubled, and in 1964 it was planning a 10-year, $35 million program to expand its existing plants.
Falstaff met increasingly strong competition in the 1960's from four brewers who sold in all of the significant markets. National brewers possess competitive advantages since they are able to advertise on a nationwide basis, their beers have greater prestige than regional or local beers, and they are less affected by the weather or labor problems in a particular region. Thus Falstaff concluded that it must convert from 'regional' to 'national' status, if it was to compete effectively with the national producers.
alleging that the acquisition would violate § 7 because its effect may be to substantially lessen competition in the production and sale of beer in the New England market. This contention was based on two grounds: because Falstaff was a potential entrant and because the acquisition eliminated competition that would have existed had Falstaff entered the market de novo or by acquisition and expansion of a smaller firm, a so-called 'toe-hold' acquisition.
* Section 7 of the Clayton Act forbids mergers in any line of commerce where the effect may be substantially to lessen competition or tend to create a monopoly. The section proscribes many mergers between competitors in a market, United States v. Continental Can Co., 378 U.S. 441, 84 S.Ct. 1738, 12 L.Ed.2d 953 (1964); Brown Shoe Co. v. United States, 370 U.S. 294, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962); it also bars certain acquisitions of a market competitor by a noncompetitor, such as a merger by an entrant who threatens to dominate the market or otherwise upset market conditions to the detriment of Competition, FTC v. Procter & Gamble Co., 386 U.S. 568, 578580, 87 S.Ct. 1224, 12301231, 18 L.Ed.2d 303 (1967). Suspect also is the acquisition by a company not competing in the market but so situated as to be a potential competitor and likely to exercise substantial influence on market behavior. Entry through merger by such a company, although its competitive conduct in the market may be the mirror image of that of the acquired company, may nevertheless violate § 7 because the entry eliminates a potential competitor exercising present influence on the market. Id., 386 U.S., at 580 581, 87 S.Ct., at 12311232; United States v. Penn-Olin Chemical Co., 378 U.S. 158, 173174, 84 S.Ct. 1710, 17181719, 12 L.Ed.2d 775 (1964). As the Court stated in United States v. Penn-Olin Chemical Co., supra, at 174, 84 S.Ct., at 1719, 'The existence of an aggressive, well equipped and well financed corporation engaged in the same or related lines of commerce waiting anxiously to enter an oligopolistic market would be a substantial incentive to competition which cannot be underestimated.'
A similar error was committed by the Court of Appeals in FTC v. Procter & Gamble Co., supra, where one of the reasons for the Commission's finding the acquisition in violation of § 7 was that the merger eliminated Procter as a potential entrant, not because Procter would have entered independently, but because the acquisition eliminated the procompetitive effect Procter exerted from the fringe of the market. Id., 386 U.S., at 575, 87 S.Ct., at 12281229. The Court of Appeals struck down this finding because there was no evidence that Procter ever intended de novo entry, but we held the Commission's finding was 'amply supported by the evidence,' id., at 581, 87 S.Ct., at 12311232, because the evidence 'clearly show(ed) that Procter was the most likely entrant,' id., at 580, 87 S.Ct., at 1231, and it was 'clear that the existence of Procter at the edge of the industry exerted considerable influence on the market,' id., at 581, 87 S.Ct., at 1231. Thus, the fact that Falstaff and its management had no intent to enter de novo, and would not have done so, does not ipso facto dispose of the potential-competition issue.
and if it would appear to rational beer merchants in New England that Falstaff might well build a new brewery to supply the northeastern market then its entry by merger becomes suspect under § 7. The District Court should therefore have appraised the economic facts about Falstaff and the New England market in order to determine whether in any realistic sense Falstaff could be said to be a potential competitor on the fringe of the market with likely influence on existing competition.
This does not mean that the testimony of company officials about actual intentions of the company is irrelevant or is to be looked upon with suspicion; but it does mean that theirs is not necessarily the last word in arriving at a conclusion about how Falstaff should be considered in terms of its status as a potential entrant into the market in issue.
Because we remand for proper assessment of Falstaff as an on-the-fringe potential competitor, it is not necessary to reach the question of whether § 7 bars a market-extension merger by a company whose entry into the market would have no influence whatsoever on the present state of competition in the marketthat is, the entrant will not be a dominant force in the market and has no current influence in the marketplace. We leave for another day the question of the applicability of § 7 to a merger that will leave competition in the marketplace exactly as it was, neither hurt nor helped, and that is challengeable under § 7 only on grounds that the company could, but did not, enter de novo or through 'toe-hold' acquisition and that there is less competition than there would have been had entry been in such a manner. There are traces of this view in our cases, see Ford Motor Co. v. United States, 405 U.S. 562, 567, 92 S.Ct. 1142, 1146, 31 L.Ed.2d 492 (1972); id., at 587, 92 S.Ct. at 1156 (Burger, C.J., concurring in part and dissenting in part); FTC v. Procter & Gamble Co., 386 U.S., at 580, 87 S.Ct., at 1231; Id., at 586, 87 S.Ct., at 1234 (Harlan, J., concurring); United States v. Penn-Olin Chemical Co., 378 U.S., at 173, 84 S.Ct., at 1718, but the Court has not squarely faced the qestion,
if for no other reason than because there has been no necessity to consider it. See Ford Motor Co. v. United States, supra; FTC v. Procter & Gamble Co., supra; United States v. Penn-Olin Chemical Co., supra; United States v. El Paso Natural Gas Co., 376 U.S. 651, 84 S.Ct. 1044, 12 L.Ed.2d 12 (1964).
Section 7 evidences a definite concern for protecting competitive markets. It does not require 'merely an appraisal of the immediate impact of the merger upon competition, but a prediction of its impact upon competitive conditions in the future . . ..' United States v. Philadelphia National Bank, 374 U.S. 321, 362, 83 S.Ct. 1715, 1741, 10 L.Ed.2d 915. In United States v. Penn-Olin Chemical Co., supra, 378 U.S., at 170171, 84 S.Ct., at 1717, the Court said:
Moreover, we are concerned with probabilities, not certainties. See Brown Shoe Co. v. United States, 370 U.S. 294, 323, 82 S.Ct. 1502, 15221523, 8 L.Ed.2d 510.
The implications of the Clayton Act, as amended by the Celler-Kefauver Act, 15 U.S.C. 18, are much, much broader than the customary restraints of competition and the power of monopoly. Louis D. Brandeis testified in favor of the bill that became the Clayton Act in 1914. 'You cannot have true American citizenship, you cannot preserve political liberty, you cannot secure American standards of living unless some degree of industrial liberty accompanies it.'
said that 'Preservation of a competitive system was seen as essential to avoid the concentration of economic power that was thought to be a threat to the Nation's political and social system.'
Control of American business is being transferred from local communities to distant cities where men on the 54th floor with only balance sheets and profit and loss statements before them decide the fate of communities with which they have little or no relationship. As a result of mergers and other acquisitions, some States are losing major corporate headquarters and their local communities are becoming satellites of a distant corporate control.
The antitrust laws favored a wide diffusion of corporate control; and that aim has been largely defeated with serious consequences. Thus, a recent Wisconsin study shows that '(t)he growth of aggregate Wisconsin employment of companies acquired by out-of-state corporations declined substantially more than that of those acquired by in-state corporations.'
'The Wisconsin study found, also, that 53 percent of acquired companies after the merger had a slower rate of payroll growth. Payroll growth, notably in large firms acquired by out-of-State corporations, was depressed by mergers. Inflation in recent years has markedly raised wages and salaries. It would be reasonable to expect that payrolls in acquired companies, because of the inflation, would have advanced more than employment. In this connection, the report states: 'The fact that this frequently did not happen in companies acquired by out-of-state firms would lead one to believe that their acquirers have transferred a portion of the higher salaried employees to a location outside Wisconsin. Such transfers mean a loss of talent, retail expenditures, and personal income taxes in the economies of Wisconsin's communities and the state." The adverse influence on local affairs of out-of-state acquisitions has not gone unnoticed in our opinions. Thus 'the desirability of retaining 'local control' over industry and the protection of small businesses' was our comment in Brown Shoe Co. v. United States, 370 U.S., at 315316, 82 S.Ct., at 15181519, on one of the purposes of strengthening § 7 of the Clayton Act through passage of the Celler-Kefauver Act.
A case in point is Goldendale in my State of Washington. It was a thriving communityan ideal place to raise a familyuntil the company that owned the sawmill was bought by an out-of-state giant. In a year or so, auditors in faraway New York City, who never knew the glories of Goldendale, decided to close the local mill and truck all the logs to Yakima. Goldendale became greatly crippled. It is Exhibit A to the Brandeis concern, which became part of the Clayton Act concern, with the effects that the impact of monopoly often has on a community, as contrasted with the beneficient effect of competition.
A nation of clerks is anathema to the American antitrust dream. So is the spawning of federal regulatory agencies to police the mounting economic power. For the path of those who want the concentration of power to develop unhindered leads predictably to socialism that is antagonistic to our system. See Blake & Jones, The Goals of Antitrust: A Dialogue on PolicyIn Defense of Antitrust, 65 Col.L.Rev. 377 (1965).
In United States v. El Paso Natural Gas Co., 376 U.S., at 660, 84 S.Ct., at 1049, we indicated that '(t)he effect on competition in a particular market through acquisition of another company is determined by the nature or extent of that market and by the nearness of the absorbed company to it, that company's eagerness to enter that market, its resourcefulness, and so on.' Falstaff's president testified below that Falstaff for some time had wanted to enter the New England market as part of its interest in becoming a national brewer. And Falstaff has conceded in its brief before this Court that 'given an acceptable level of profit it had the financial capability and the interest to enter the New England beer market.' With both the interest and the capability to enter the market, Falstaff was 'the most likely entrant.' FTC v. Procter & Gamble Co., 386 U.S., at 581, 87 S.Ct., at 1231. Thus, although Falstaff might not have made a de novo entry if it had not been allowed to acquire Narragansett,
we cannot say that it would be unwilling to make such an entry in the future when the New England market might be ripe for an infusion of new competition. At this point in time, it is the most likely new competitor. Moreover, there can be no question that replacing the leading seller in the market, a regional brewer, with a seller with national capabilities increased the trend toward concentration.
and even at this stage of the proceedings, it seemingly disclaims reliance on this theory.
The majority's departure from this self-evident proposition is all the more startling when one realizes that the Court eschews reliance on a well-established, plainly applicable body of law in order to reach questions not properly before it. As Mr. Justice DOUBLAS ably domonstrates, see ante, at 539540, many decisions of this Court hold that § 7 is violated when a merger is reasonably likely to eliminate future or potential competition. See also infra, at 560562. I know of no case suggesting that this principle is only applicable when the plaintiff can show that the merger will have present anticompetitive consequences, and the majority cites no authority for this proposition.
See United States v. Falstaff Brewing Corp., 332 F.Supp. 970 (RI 1971).
These national trends are reflected in the six New England States, which constitute the relevant geographic market. In the four years preceding Falstaff's acquisition of Narragansett, New England beer sales increased 9.5%a substantial gain, although somewhat below the increase in national sales for the same period. At the same time, however, the number of brewers operating plants in the region declined precipitately. Thus, in 1957, there were 11 breweries in the New England States, but by 1964 the number had declined to six, and of those six, two of the three smallest had publicly expressed an interest in merging with a larger competitor.
At the same time, however, the concentration of the market does not yet seem to have produced blatantly anti-competitive effects. In recent years, prices have remained fairly stable despite rising costs, and competition seems relatively intense among the few large firms which dominate the market. Still, there is no doubt that the seeds of anti-competitive conduct are present, since '(a)s (an oligopolistic) condition develops, the greater is the likelihood that parallel policies of mutual advantage, not competition, will emerge.' United States v. Aluminum Co. of America, 377 U.S. 271, 280, 84 S.Ct. 1283, 1289, 12 L.Ed.2d 314 (1964). One commentator's description of the national beer market aptly characterizes the situation in New England: 'The increasing concentration . . . and the unlikely entrance of new rivals poses a threat to the future level of competition in this industry. Thus far, there is no evidence of collusion in the beer industry. But as the industry becomes populated by fewer and fewer companies, the possibility and likelihood will be enhanced of their engaging in tacit or direct collusiongiven the inelastic nature of demandto establish a joint profit maximizing price and output. Similarly, the chances will become slimmer that individual firms in the industry will follow a truly independent price and production strategy, vigorously striving to take sales away from rival brewers. With only a few sellers will come the increasing awareness that parallel business behavior might be feasible.' Elzinga, The Beer Industry, in W. Adams, The Structure of American Industry 189, 213 (4th ed. 1971).
The corporation was closely held by the Haffenreffer family, and the stockholders apparently concluded that it was in their interest to diversify their personal holdings by selling Narragansett.
Yet, despite this encouraging trend, Falstaff, like Narragansett, was to some extent handicapped by the competitive advantagesin particular, national advertisingenjoyed by national distributors. For years, the company had publicly expressed the desire to become a national brewer, and the logical region for market extension was the Northeast. New England seemed a particularly appropriate area to initiate expansion. As indicated above, seven of the 10 largest manufacturers already sold beer in New England, and Falstaff was the largest of the three remaining outside the market. The New England market was expanding at a healthy rate, and it appeared to be a fertile area for growth.
Falstaff argued at trial that it needed a strong, pre-existing distribution system to make a profitable entry. But cf. n. 7, supra. An independent economist, Dr. Ira Horowitz, testified on behalf of Falstaff that de novo entry would result in a 6.7% return which he characterized as 'a very, very poor investment indeed.' However, it should be noted that the 6.7% figure failed to account for the increment in Falstaff's profit margin which would result from its newly gained status as a national brewer with modern plants to serve the eastern part of the Nationthe very increment which provided the primary motivation for expansion in the first place. While Dr. Horowitz apparently recognized that such an increment might materialize, he stated that he was unable to estimate its size.
In any event, whatever the abstract merits of this dispute, it is clear that Falstaff's management personnel determined that entry by acquisition offered the preferable avenue for expansion. Beginning in 1962, the company held discussions with Liebmann, P. Ballantine & Sons,
But § 7 does more than prohibit mergers with immediate anticompetitive effects. The Act by its terms prohibits acquisitions which 'may . . . substantially . . . lessen competition, or . . . tend to create a monopoly.' The use of the subjunctive indicates that Congress was concerned with the potential effects of mergers even though, at the time they occur, they may cause no present anticompetitive consequences. See, e.g., FTC v. Procter & Gamble Co., 386 U.S. 568, 577, 87 S.Ct. 1224, 12291230, 18 L.Ed.2d 303 (1967). To be sure, remote possibilities are not sufficient to satisfy the test set forth in § 7. Despite substantial concern with halting a trend toward concentration in its incipiency, Congress did not intend to prohibit all expansion and growth through acquisition and merger. The predictive judgment often required under § 7 involves a decision based upon a careful scrutiny and a reasonable assessment of the future consequences of a merger without unjustifiable, speculative interference with traditional market freedoms. As we stated in Brown Shoe Co. v. United States, 370 U.S. 294, 323, 82 S.Ct. 1502, 1522, 8 L.Ed.2d 510 (1962): 'Congress used the words 'may be substantially to lessen competition' (emphasis supplied), to indicate that its concern was with probabilities, not certainties. Statutes existed for dealing with clear-cut menaces to competition; no statute was sought for dealing with ephemeral possibilities. Mergers with a probable anticompetitive effect were to be proscribed by this Act.' See also United States v. Pabst Brewing Co., 384 U.S., at 552, 86 S.Ct., at 1669; United States v. Penn-Olin Chemical Co., 378 U.S. 158, 171, 84 S.Ct. 1710, 1717, 12 L.Ed.2d 775 (1964).
The legislative history of § 7 makes plain that this was the intent of Congress. Before 1950, § 7 prohibited only those mergers which lessened competition 'between the corporation whose stock is so acquired and the corporation making the acquisition.'
The Celler-Kefauver Amendment, added in 1950, deleted these words and provided instead that all mergers which substantially lessened competition 'in any line of commerce in any section of the country' were to be outlawed. See 64 Stat. 1126. Thus, whereas before 1950, § 7 proscribed only those mergers which eliminated present, actual competition between the merging firms, the Celler-Kefauver Amendment reached cases where future or potential competition in the entire relevant market might be adversely affected by the merger.
'Section 7 of the Clayton Act was intended to arrest the anticompetitive effects of market power in their incipiency. The core question is whether a merger may substantially lessen competition, and necessarily requires a prediction of the merger's impact on competition, present and future. . . . The section can deal only with probabilities, not with certainties. . . . And there is certainly no requirement that the anticompetitive power manifest itself in anticompetitive action before § 7 can be called into play. If the enforcement of § 7 turned on the existence of actual anticompetitive practices, the congressional policy of thwarting such practices in their incipiency would be frustrated.' FTC v. Procter & Gamble Co., 386 U.S., at 577, 87 S.Ct., at 1229.
1. The Dominant Entrant.In some situations, a firm outside the market may have overpowering resources which, if brought to bear within the market, could ultimately have a substantial anticompetitive effect. If such a firm were to acquire a company within the relevant market, it might drive other marginal companies out of business, thus creating an oligopoly, or it might raise entry barriers to such an extent that potential new entrants would be discouraged from entering the market. Cf. Ford Motor Co. v. United States, 405 U.S. 562, 567568, 92 S.Ct. 1142, 11461147, 31 L.Ed.2d 492 (1972); FTC v. Procter & Gamble Co., 386 U.S., at 575, 87 S.Ct., at 12281229.
2. The Perceived Potential Entrant.Even if the entry of a firm does not upset the competitive balance within the market, it may be that the removal of the firm from the fringe of the market has a present anticompetitive effect. In a concentrated oligopolistic market, the presence of a large potential competitor on the edge of the market, apparently ready to enter if entry barriers are lowered, may deter anticompetitive conduct within the market. As we pointed out in United States v. Penn-Olin Chemical Co., 378 U.S., at 174, 84 S.Ct., at 17181719: 'The existence of an aggressive, well equipped and well financed corporation engaged in the same or related lines of commerce waiting anxiously to enter an oligopolistic market (is) a substantial incentive to competition which cannot be underestimated.' From the perspective of the firms already in the market, the possibility of entry by such a lingering firm may be an important consideration in their pricing and marketing decisions. When the lingering firm enters the market by acquisition, the competitive influence exerted by the firm is lost with no offsetting gain through an increase in the number of companies seeking a share of the relevant market. The result is a net decrease in competitive pressure.
Cf. United States v. El Paso Natural Gas Co., 376 U.S. 651, 659660, 84 S.Ct. 1044, 10481049, 12 L.Ed.2d 12 (1964).
3. The Actual Potential Entrant.Since the effect of a perceived potential entrant depends upon the perception of those already in the market, it may in some cases be difficult to prove. Moreover, in a market which is already competitive, the existence of a perceived potential entrant will have no present effect at all.
The entry by acquisition of such a firm may nonetheless have an anticompetitive effect by eliminating an actual potential competitor. When a firm enters the market by acquiring a strong company within the market, it merely assumes the position of that company without necessarily increasing competitive pressures. Had such a firm not entered by acquisition, it might at some point have entered de novo. An entry de novo would increase competitive pressures within the market, and an entry by acquisition eliminates the possibility that such an increase will take place in the future. Thus, even if a firm at the fringe of the market exerts no present procompetitive effect, its entry by acquisition may end for all time the promise of more effective competition at some future date.
Thus, mere entry by acquisition would not prima facie establish a firm's status as an actual potential entrant. For example, a firm, although able to enter the market by acquisition, might, because of inability to shoulder the de novo start-up costs, be unable to enter de novo. But where a powerful firm is engaging in a related line of commerce at the fringe of the relevant market, where it has a strong incentive to enter the market de novo, and where it has the financial capabilities to do so, we have not hesitated to ascribe to it the role of an actual potential entrant. In such cases, we have held that § 7 prohibits an entry by acquisition since such an entry eliminates the possibility of future actual competition which would occur if there were an entry de novo.
C. Problems of ProofThe Role of Subjective Evidence
The reasons for so limiting the role of subjective evidence are not difficult to discern. Such evidence should obviously be given no weight if it is not credible. But it is in the very nature of such evidence that in the usual case it is not worthy of credit.
First, any statement of future intent will be inherently self-serving. A defendant in a § 7 case such as this wishes to enter the market by acquisition and its managers know that its ability to do so depends upon whether it can convince a court that it would not have entered de novo if entry by acquisition were prevented. It is thus strongly in management's interest to represent that it has no intention of entering de novoa representation which is not subject to external verification and which is so speculative in nature that it could virtually never serve as the predicate for a perjury charge.
The trier of fact should, therefore, look with great suspicion upon a suggestion that a company with an opportunity to expand its market and the means to seize upon that opportunity will follow a deliberate policy of self-abnegation if the route of expansion first selected is legally foreclosed to it.
Thus, in most cases, subjective statements contrary to the objective evidence simply should not be believed. But even if the threshold credibility gap is breached, it still does not follow that subjective statements of future intent should outweigh strong objective evidence to the contrary. Even if it is true that management has no present intent of entering the market de novo, the possibility remains that it may change its mind as the objective factors favoring such entry are more clearly perceived. Of course, it is possible that management will adamantly continue to close its eyes to the company's own self-interest. But in that event, the chance remains that the stockholders will install new, more competent officers who will better serve their interests. All of these possibilities are abruptly and irrevocably aborted when the firm is allowed to enter the market by acquisition. And while it is conceivable that none of the possibilities will materialize if entry by acquisition is prevented, it is absolutely certain that they will not materialize if such entry is permitted. All that is necessary to trigger a § 7 violation is a finding by the trial court of a reasonable chance of future competition. In most cases, strong objective evidence will be sufficient to create such a chance despite even credible subjective statements to the contrary.
The Court remands this case to the District Court to consider 'whether Falstaff was a potential competitor in the sense that it was so positioned on the edge of the market that it exerted beneficial influence on competitive conditions in that market.' Ante, at 532533. The antitrust theory underlying the remand is that the competitors in the relative geographic market, aware of Falstaff's presence on the periphery, would not exercise their ostensible market power to raise prices because of the possibility that Falstaff, sufficiently tempted by the high prices in that market, would enter. A Government suit challenging a merger or acquisition can, of course, be premised on this theory, and, if sufficient evidence to convince the trier of fact is introduced, the determination that the merger or acquisition violated § 7 would not be reversed on appeal.
'In our opening statement we attempted to show that the Government would proveand I believe we havethat Falstaff, the fourth largest brewing corporation in the nation, had a continuous intensive interest in entering New England; that it carried on negotiations for five years with companies serving New England; that alternative methods of entry other than the acquisition of the largest New England brewer were available to Falstaff; and that it was in fact one of a few and the most likely entrant into this market; that its entrance into this market was especially important because the market is concentrated; that is, the sales of beer in New England are highly concentrated in the hands of the relatively few number of brewers.
'. . . There is no exception (to the 'clearly erroneous' rule of appellate review) which permits (the Government), even in an antitrust case, to come to this Court for what virtually amounts to a trial de novo on the record of such findings as intent, motive and design.' United States v. Yellow Cab Co., 338 U.S., at 341342, 70 S.Ct., at 179.
'No corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no corporation subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another corporation engaged also in commerce, where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.' 15 U.S.C. 18.
For the legislative history of the amendment in 1950 that greatly expanded the section's scope, 64 Stat. 1125, see Brown Shoe Co. v. United States, 370 U.S. 294, 311323, 82 S.Ct. 1502, 15161523, 8 L.Ed.2d 510 (1962).
Jurisdiction lies under § 2 of the Expediting Act, 32 Stat. 823, as amended, 15 U.S.C. 29.
In FTC v. Procter & Gamble Co., 386 U.S. 568, 581, 87 S.Ct. 1224, 12311232, 18 L.Ed.2d 303 (1967), we found the acquiring company at the edge of the market exerted 'considerable influence' on the market because 'market behavior . . . was influenced by each firm's predictions of the market behavior of its competitors, actual and potential'; because 'barriers to entry . . . were not significant' as to the acquiring company; because 'the number of potential entrants was not so large that the elimination of one would be insignificant'; and because the acquiring firm was the most likely entrant.
The Government did not produce direct evidence of how members of the New England market reacted to potential competition from Falstaff, but circumstantial evidence is the lifeblood of antitrust law, see Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 89 S.Ct. 1562, 23 L.Ed.2d 129 (1969); Interstate Circuit, Inc. v. United States, 306 U.S. 208, 221, 59 S.Ct. 467, 472, 83 L.Ed. 610 (1939); Frey & Son, Inc. v. Cudahy Packing Co., 256 U.S. 208, 210, 41 S.Ct. 451, 452, 65 L.Ed. 892 (1921), especially for § 7 which is concerned 'with probabilities, not certainties,' Brown Shoe Co. v. United States, 370 U.S., at 323, 82 S.Ct., at 15221523. As was stated in United States v. Penn-Olin Chemical Co., 378 U.S. 158, 174, 84 S.Ct. 1710, 1718 1719, 12 L.Ed.2d 775 (1964), '(p)otential competition cannot be put to a subjective test. It is not 'susceptible of a ready and precise answer."
entering the Northeast, and had, among other ways, see n. 8, supra, made its interest known by prior-acquisition discussions. Moreover, there were, as my Brother Marshall would put it, objective economic facts as to Falstaff's capability to enter the New England market; and the same facts which he would have the District Court look to in determining whether the particular theory of potential competition we do not reach has been violated, would be probative of violation of § 7 through loss of a procompetitive on-the-fringe influence. See FTC v. Procter & Gamble Co., supra, 386 U.S., at 580581, 87 S.Ct., at 12311232; United States v. Penn-Olin Chemical Co., supra, 378 U.S., at 173 177, 84 S.Ct., at 17181720; United States v. El Paso Natural Gas Co., 376 U.S. 651, 660, 84 S.Ct. 1044, 1049, 12 L.Ed.2d 12 (1964).
'If there is any sense to this total theory at all it must be that the acquiring company was in fact so closely located to the market served by the acquired company that its entrance into the market unilaterally, under its own steam, without motivation was a distinct threat to those who were competing in the market.' App. 182183 (Emphasis added.) Falstaff then proceeded to state why it felt that the on-the-fringe influence theory did not apply in this case.
Id., at 5253.
Significantly, the majority cites no evidence at all from the record indicating that firms within the New England market were deterred from anticompetitive practices by Falstaff's presence at the market fringe. Indeed, my Brethren concede that '(t)he Government did not produce direct evidence of how members of the New England market reacted to potential competition from Falstaff,' ibid. While the majority contends that there was 'circumstantial evidence' relevant to determining whether there was a loss of procompetitive influence, the evidence it points to suggests only that Falstaff might have been perceived as a potential entrantnot that this perception produced a present procompetitive effect. In fact, the little evidence on the question which does appear in the record strongly suggests that Falstaff was exerting no procompetitive influence. Thus, an economist testifying for the defense stated that, in his expert judgment, Falstaff's presence on the fringe of the market 'had no effect' on the practices of firms within the market (App. 257). Similarly, the director of marketing for Narragansett testified that those within the market did not view Falstaff as a threat and that it never occurred to them that Falstaff would attempt a de novo entry (App. 376).
'The theory of the suit was that potential competition in the New England beer market may be substantially lessened by the acquisition.' Brief for United States 23.
See Fed.Rule Civ.Proc. 52(a). Cf. United States v. El Paso Natural Gas Co., supra, 376 U.S., at 656657, 84 S.Ct., at 1047 1048.
The legislative history of the 1950 amendment was traced in detail in our opinion in Brown Shoe Co. v. United States, 370 U.S. 294, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962). 'The deletion of the 'acquiring-acquired' test was the direct result of an amendment offered by the Federal Trade Commission. In presenting the proposed change, Commission Counsel Kelley made the following points: this Court's decisions had implied that the effect on competition between the parties to the merger was not the only test of the illegality of a stock merger; the Court had applied Sherman Act tests to Clayton Act cases and thus judged the effect of a merger on the industry as a whole; this incorporation of Sherman Act tests, with the accompanying 'rule of reason,' was inadequate for reaching some mergers which the Commission felt were not in the public interest; and the new amendment proposed a middle ground between what appeared to be an overly restrictive test insofar as mergers between competitors were concerned, and what appeared to the Commission to be an overly lenient test insofar as all other mergers were concerned. Congressman Kefauver supported this amendment and the Commission's proposal was then incorporated into the bill which was eventually adopted by the Congress. See Hearings (before Subcommittee No. 2 of the House Committee on the Judiciary) on H.R. 515, (80th Cong., 1st Sess.) at 23, 117119, 238240, 259; Hearings before a Subcommittee of the Senate Judiciary Committee on H.R. 2734, 81st Cong., 1st Sess. . . . 147.' 370 U.S., at 317 n. 30, 82 S.Ct., at 1519. CI B. Modes of Potential Competition
Still, even if the market is presently competitive, it is possible that it might grow less competitive in the future. For example, a market might be so concentrated that even though it is presently competitive, there is a serious risk that parallel pricing policies might emerge sometime in the near future. In such a situation, an effective competitor lingering on the fringe of the marketwhat might be called a potential perceived potential entrantcould exert a deterrent force when anti-competitive conduct is about to emerge. As its very name suggests, however, such a firm would be still a further step removed from the exertion of actual, present competitive influence, and the problems of proof are compounded accordinglyparticularly in light of the showing of reasonable probability required under § 7.
However, if the acquired firm is strengthened to such an extent that it upsets the market balance and drives its competitors out of the market, the acquiring firm takes on the characteristics of a dominent entrant, and the merger may therefore violate § 7 under that theory. See supra, at 558560 and n. 14.
economic data is futile. If this observation means that different people reach different conclusions from the same objective data, then the point must, of course, be conceded. Similarly, if the point is that economic predictions are difficult and fraught with uncertainty, it is well taken. As we recognized in United States v. Philadelphia National Bank, such questions are 'not . . . susceptible of a ready and precise answer in most cases.' 374 U.S., at 362, 83 S.Ct., at 1741. But although the factual controversies in § 7 cases may prove difficult to resolve, the statutory scheme clearly demands their resolution. As this Court held years ago, in response to a similar argument: 'So far as the arguments proceed upon the conception that in view of the generality of the statute it is not susceptible of being enforced by the courts because it cannot be carried out without a judicial exertion of legislative power, they are clearly unsound. The statute certainly generically enumerates the character of acts which it prohibits and the wrong which it was intended to prevent. The propositions therefore but insist that . . . it never can be left to the judiciary to decide whether in a given case particular acts come within a generic statutory provision. But to reduce the propositions, however, to this, their final meaning, makes it clear that in substance they deny the existence of essential legislative authority and challenge the right of the judiciary to perform duties which that department of the government has exerted from the beginning.' Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, 6970, 31 S.Ct. 502, 519, 55 L.Ed. 619 (1911). Section 7 by its terms requires the trial judge to make a prediction, and it is entirely possible that others may reasonably disagree with the conclusion he reaches. But a holding that the fact of such disagreement requires the judge to delegate his decision-making authority to one of the parties would strike at the heart of the very notion of judicial conflict resolution. While it may be true that different people see economic facts in different light, § 7 gives federal judges and juries the responsibility to reach their conclusions as to the economic facts. And '(i)f justice requires the fact to be ascertained, the difficulty of doing so is no ground for refusing to try.' O. Holmes, The Common Law 48.
The distinction between subjective statements of intent and objectively verifiable facts is not unknown in other areas of the law. See, e.g., Wright v. Council of City of Emporia, 407 U.S. 451, 460462, 92 S.Ct. 2196, 2202, 33 L.Ed.2d 51 (1972); NLRB v. Erie Resistor Corp., 373 U.S. 221, 227228, 83 S.Ct. 1139, 1144 1145, 10 L.Ed.2d 308 (1963). Indeed, perhaps the oldest rule of evidencethat a man is presumed to intend the natural and probable consequences of his actsis based on the common law's preference for objectively measurable data over subjective statements of opinion and intent. Nor have we hesitated to apply this principle to antitrust law. See, e.g., Utah Pie Co. v. Continental Baking Co., 386 U.S. 685, 702703, 87 S.Ct. 1326, 13351336, 18 L.Ed.2d 406 (1967); United States v. United States Gypsum Co., 333 U.S. 364, 394, 68 S.Ct. 525, 541, 92 L.Ed. 746 (1948).