Opinion ID: 3009958
Heading Depth: 3
Heading Rank: 1

Heading: General Features of the Market for Retail

Text: Advertising Before presenting the specific facts of this case, we find it useful to provide general information on the relevant advertising markets. Until recent decades, grocery stores, discount stores, hardware stores, and other large retailers promoted their goods primarily through newspapers. They used two kinds of advertisements. Those appearing directly on newspaper editorial pages are called run of press (ROP) advertising. Separate pieces of paper included with the newspaper (e.g. supermarket multi-page ads) are called circulars or preprints. Retailers found newspaper advertising wanting in two ways. First, it provides only limited penetration into an area's households. For example, in Philadelphia the major daily newspapers reach only 25.4% percent of the households and even the Sunday paper reaches only 49.1%. Second, newspaper advertising cannot focus on specific neighborhoods within a large metropolitan area. To give a concrete example of both of these shortcomings, a supermarket chain understandably wants its advertisements to reach every household within close proximity to its stores. Newspaper advertising, be it ROP or preprint, cannot provide such targeted saturation coverage. In response to these shortcomings, literally hundreds of marketing communications services (MC services) have sprung up over the last 30-odd years. Taking advantage of comprehensive computer databases containing the addresses of every household in a region, they have been able to provide almost complete penetration in delivering advertising materials, be it in an entire metropolitan area or within, e.g., specific zip code areas. These services, of course, deliver only preprints since they do not publish any sort of newspaper. The dispute in this case involves the delivery of print advertising for retailers targeted at consumers within a metropolitan area. MC services deliver either by United States mail or by hiring delivery people to walk door-to-door and hang bags of preprints on doorknobs. The former is often called shared mail; the latter is known as alternate delivery. Some costs are common to both methods; e.g. computerized mailing lists, and labor to stuff preprints into packets and sort the packets in order of delivery. Alternate delivery involves other significant fixed costs. In addition to hiring delivery persons and planning their routes, management must employ a second tier of verifiers to perform spot-checks and ensure that delivery employees simply are not dumping their packets into the first available dumpster. Because mail rates increase with the weight of the advertising packets, alternate delivery becomes attractive, despite these high fixed costs, as an MC service attracts more customers. Once delivery and verification staff are in place, the incremental costs of adding more advertising material to the packet are minimal. To cover the high fixed costs of alternate delivery, or even the lower but still significant fixed costs incurred in mail delivery, MC services need base players that distribute large numbers of circulars on a routine basis. Supermarket chains, which depend on multi-page weekly circulars to attract shoppers, are one of the most important types of base players. Large discount chains, such as K-Mart, also play this role. There are, of course, only a small set of such base players in a given metropolitan area.