Opinion ID: 108196
Heading Depth: 1
Heading Rank: 3

Heading: the relevant geographic market

Text: In determining the relevant geographic market, we held in Philadelphia Bank, supra, at 357, that [t]he proper question to be asked . . . is not where the parties to the merger do business or even where they compete, but where, within the area of competitive overlap, the effect of the merger on competition will be direct and immediate. . . . This depends upon `the geographic structure of supplier-customer relations.'  More specifically we stated that the `area of effective competition in the known line of commerce must be charted by careful selection of the market area in which the seller operates, and to which the purchaser can practicably turn for supplies . . . .'  Id., at 359. The District Court selected as the relevant geographic market an area approximately four times as large as Phillipsburg-Easton, with a 1960 population of 216,000 and 18 banks. The area included the city of Bethlehem, Pennsylvania. 306 F. Supp., at 652-653, 656-658. The court explicitly rejected the claim of the United States that Phillipsburg-Easton constitutes the relevant market. We hold that the District Court erred. Commercial realities in the banking industry make clear that banks generally have a very localized business. We observed in Philadelphia Bank, supra, at 358, that [i]n banking, as in most service industries, convenience of location is essential to effective competition. Individuals and corporations typically confer the bulk of their patronage on banks in their local community; they find it impractical to conduct their banking business at a distance. . . . The factor of inconvenience localizes banking competition as effectively as high transportation costs in other industries. In locating the market area in which the seller operates, it is important to consider the places from which it draws its business, the location of its offices, and where it seeks business. As indicated, the appellee banks' deposit and loan statistics show that in 1967 they drew over 85% of their business from the Phillipsburg-Easton area and, of that, only about 10% from Easton. It has been noted that nearly every family in Phillipsburg deals with one of the city's three banks, and the town's businessmen prefer to do the same. All of PNB and SNB's banking offices are located within Phillipsburg or its immediate suburbs; although the city is sufficiently small that there is easy access to its down-town area where the banks have their main offices, the banks found it necessary to open branches in the suburbs because, as a witness testified, that is where the customers are. See also Philadelphia Bank, supra, at 358 n. 35. The one town banks generally compete for deposits within a radius of only a few miles. The localization of business typical of the banking industry is particularly pronounced when small customers are involved. We stated in Philadelphia Bank, supra, at 361, that in banking the relevant geographical market is a function of each separate customer's economic scalethat the smaller the customer, the smaller is his banking market geographically, id., at 359 n. 36. Small depositors have little reason to deal with a bank other than the one most geographically convenient to them. For such persons, geographic convenience can be a more powerful influence than the availability of a higher rate of interest at a more distant, though still nearby, bank. The small borrower, if he is to have his needs met, must often depend upon his community reputation and upon his relationship with the local banker. PNB, for instance, has made numerous unsecured loans on the basis of character, which are difficult for local borrowers to get elsewhere. And, as we said in Philadelphia Bank, supra, at 369, [s]mall businessmen especially are, as a practical matter, confined to their locality for the satisfaction of their credit needs. . . . If the number of banks in the locality is reduced, the vigor of competition for filling the marginal small business borrower's needs is likely to diminish. Thus, the small borrower frequently cannot practicably turn for supplies outside his immediate community; and the small depositorbecause of habit, custom, personal relationships, and, above all, convenienceis usually unwilling to do so. See id., at 357 n. 34. The patrons of PNB and SNB, of course, are small customers: almost 75% of the banks' deposits are for amounts less than $1,000, and virtually all of their loans are for less than $10,000, most falling below $2,500. We observed in Philadelphia Bank, supra, at 361, that we were helped to our conclusion regarding geographic market by the fact that the three federal banking agencies regard the area in which banks have their offices as an `area of effective competition.'  Here the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Attorney General found that a relevant banking market exists in the Phillipsburg-Easton area and that the proposed merger's competitive effect should be judged within it. [5] We agree. We find that the evidence shows that Phillipsburg-Easton constitutes a geographic market in which the proposed merger's effect would be direct and immediate. It is the market area in which PNB and SNB operate, and, as a practical matter, it is the area in which most of the merging banks' customers must, or will, do their banking. Thus, we hold that the District Court mistakenly rejected the Government's contention that Phillipsburg-Easton is an appropriate section of the country under § 7. Appellee banks argue that Phillipsburg-Easton cannot conceivably be considered a `market' for antitrust purposes, on the ground that it is not an economically significant section of the country. They cite our language in Brown Shoe, supra, at 320, that [t]he deletion of the word `community' in the original [Clayton] Act's description of the relevant geographic market is another illustration of Congress' desire to indicate that its concern was with the adverse effects of a given merger on competition only in an economically significant `section' of the country. In Brown Shoe, however, we found relevant geographic markets in cities with a population exceeding 10,000 and their environs. Id., at 339. Phillipsburg-Easton and their immediate environs had a population of almost 90,000 in 1960. Seven banks compete for their business. This market is clearly an economically significant section of the country for the purposes of § 7.