Opinion ID: 3009958
Heading Depth: 3
Heading Rank: 2

Heading: Advo and the Philadelphia Market for Preprint

Text: Advertising Advo is a national MC services company and is the largest full-service direct mail marketing company in the country. It distributed at least three billion advertising packages in 1992, generating nearly a billion dollars in revenue. Advo began operating in the eight-county area that comprises the Philadelphia market1 in the mid-1960s, and appears to have grown 1 . The parties stipulate that the relevant geographical market in this suit consists of the following eight counties: Philadelphia, Bucks, Montgomery, Chester, and Delaware counties in Pennsylvania; Camden, Burlington, and Gloucester counties in New Jersey. This is the same area as the Census Bureau's Philadelphia Primary Metropolitan Statistical Area. rapidly since obtaining the Acme supermarket chain as a base advertiser for shared mailings in 1983. Ironically, Advo faced a Sherman Act section 2 suit as a result of capturing the Acme account and expanding its business in Philadelphia. Cassidy Distrib. Serv. v. Advo-Sys., Inc., No. 84-3464 (E.D. Pa. 1984). A small competitor that previously had serviced Acme sued Advo charging predatory conduct in furtherance of a plan to monopolize the market for distributing advertising circulars in the region. In the course of countering this charge, Advo argued that there are few, if any, barriers to entering the business of marketing communications, and thus there is little, if any, chance that a predator could recoup the costs of illegally obtaining a monopoly. See app. at 1772-1908, 23172340, 2341-2348. The market for circular advertising distribution appears to have become more competitive in recent years. When Advo changed its delivery schedule in 1989 to accommodate Acme, other major customers became dissatisfied and invited CBA, a MC services company from outside the area, to enter the Philadelphia market. Despite start-up costs of over $3,000,000, CBA turned a profit within 14 months. In a move admittedly taken to avert a price war, Advo acquired CBA's Philadelphia preprint distribution operations in 1992. This acquisition apparently encountered no antitrust scrutiny. 3. The Effect of Marketing Communications Services on Major Philadelphia Newspapers, and Their Response Much of Advo's growth has come at the expense of PNI, publisher of the Philadelphia market's major daily newspapers, The Philadelphia Daily News and The Philadelphia Inquirer. PNI estimates that it has lost at least $4,000,000 per year in ROP and circular advertising to Advo and similar competitors. To counter Advo's advantages in market penetration and the ability to target specific neighborhoods, PNI in 1991 began working on a total market coverage (TMC) program to supplement ROP advertising with alternate delivery to nonsubscriber households. PNI started implementing the program in small stages by 1992. Although it faced substantial start-up costs, PNI claims that it hoped to turn a profit on its TMC program by 1995. Facing the same cost structure as Advo, PNI needed a base player to help cover the high fixed costs of delivering preprinted advertising packets door-to-door. In September 1992, and again in January of 1993, PNI offered to distribute circulars for the Super Fresh supermarket chain, a major Advo customer, for about $30 per thousand circulars. As part of its proposal, PNI offered discounts on ROP advertising tied to the total volume of advertising that Super Fresh purchased. Advo retained the account by cutting its rate by about 37%, from $58 to $36 per thousand circulars. Thus, Super Fresh retained Advo despite its base rate exceeding that in PNI's proposal by about 20%. Although the expert opinion testimony is conflicting, there appears to be no factual basis to Advo's claim that PNI's proposed prices were below its costs. There is also no support for Advo's claim that PNI tendered Super Fresh prices below those offered to comparable advertisers. PNI made similar efforts to wrest the accounts of Acme and Fleming Foods supermarkets, Bradlees department stores, and Circuit City consumer electronics stores from Advo; in each case Advo retained the accounts after cutting its rates substantially. In fact no major account has switched from Advo. Thus, it is clear that to date PNI's activities have been pro-competitive, as they have resulted in lower prices.