Court Opinion

ID: 185377
Source: CourtListenerOpinion
Date Created: 2011-02-05 02:31:17+00
Date Added: 2024-06-11T17:26:15.396633
License: Public Domain

246 F.3d 708 (D.C. Cir. 2001)
Federal Trade Commission, Appellantv.H.J. Heinz Co. and Milnot Holding Corporation, Appellees
No. 00-5362
United States Court of Appeals  FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 12, 2001Decided April 27, 2001

[Copyrighted Material Omitted]
Appeal from the United States District Court  for the District of Columbia (No. 00cv01688)
Debra A. Valentine, General Counsel, Federal Trade Commission, argued the cause for the appellant.  John F. Daly,  Assistant General Counsel, Richard G. Parker, Director, and  David A. Balto and David C. Shonka, Attorneys, Federal  Trade Commission, were on brief.
Edward P. Henneberry argued the cause for the appellees. W. Bradford Reynolds, Marc G. Schildkraut, Kenneth W.  Starr, and Mark L. Kovner were on brief.
J. Joseph Curran, Jr., Attorney General, and Ellen S.  Cooper, Assistant Attorney General, State of Maryland; Bruce M. Botelho, Attorney General, State of Alaska;  Janet  Napolitano, Attorney General, State of Arizona;  Mark  Pryor, Attorney General, State of Arkansas;  Bill Lockyer,  Attorney General, and Peter Siggins, Chief Deputy Attorney  General, State of California;  Ken Salazar, Attorney General,  State of Colorado;  Richard Blumenthal, Attorney General  and Steven Rutstein, Assistant Attorney General, State of  Connecticut;  Robert R. Rigsby, Corporation Counsel, Charles  L. Reischel, Deputy Corporation Counsel, and Bennett Rushkoff, Senior Counsel, District of Columbia;  Robert A. Butterworth, Attorney General, State of Florida;  Earl I. Anzai,  Attorney General, State of Hawaii;  Alan G. Lance, Attorney  General, State of Idaho;  James E. Ryan, Attorney General,  State of Illinois;  Karen M. Freeman-Wilson, Attorney General, State of Indiana;  Thomas J. Miller, Attorney General,  State of Iowa;  Carla J. Stovall, Attorney General, State of  Kansas;  Richard P. Ieyoub, Attorney General, State of Louisiana;  Jennifer Granholm, Attorney General, and Thomas L.  Casey, Solicitor General, State of Michigan;  Julie Ralston  Aoki, Assistant Attorney General, State of Minnesota;  Mike  Moore, Attorney General, State of Mississippi;  Frankie Sue  Del Papa, Attorney General, State of Nevada;  Philip T.  McLaughlin, Attorney General, State of New Hampshire; Eliot Spitzer, Attorney General, State of New York;  Michael  F. Easley, Attorney General, and K.D. Sturgis, Assistant  Attorney General, State of North Carolina;  Herbert D. Soll,  Attorney General, Commonwealth of the Northern Mariana  Islands;  Betty D. Montgomery, Attorney General, State of  Ohio;  W.A. Drew Edmondson, Attorney General, State of  Oklahoma;  Angel E. Rotger-Sabat, Attorney General, Commonwealth of Puerto Rico;  Mark Barnett, Attorney General,  State of South Dakota;  John Cornyn, Attorney General,  State of Texas;  Jan Graham, Attorney General, State of  Utah;  William H. Sorrell, Attorney General, State of Vermont;  Mark L. Earley, Attorney General, Commonwealth of  Virginia;  Christine O. Gregoire, Attorney General, State of  Washington;  Darrell V. McGraw, Jr., Attorney General, and  Douglas L. Davis, Assistant Attorney General, State of West  Virginia;  James E. Doyle, Attorney General, and Kevin J.  O'Connor, State of Wisconsin;  and Gay Woodhouse, Attorney  General, State of Wyoming;  were on brief for The Thirty-Six  Amici Curiae in support of the appellant.
James H. Skiles and Jan Amundson were on brief for  Grocery Manufacturers of America, Inc. et al., Amici Curiae  in support of the appellees.
C. Boyden Gray, William J. Kolasky, Jeffrey D. Ayer and  Robert H. Bork were on brief for Citizens for a Sound  Economy Foundation, Amicus Curiae, in support of the appellees.
Before:  Henderson, Randolph and Garland, Circuit  Judges.
Opinion for the court filed by Circuit Judge Henderson.
Karen LeCraft Henderson, Circuit Judge:

1
On February  28, 2000 H.J. Heinz Company (Heinz) and Milnot Holding  Corporation (Beech-Nut) entered into a merger agreement. The Federal Trade Commission (Commission or FTC) sought  a preliminary injunction pursuant to section 13(b) of the  Federal Trade Commission Act (FTCA), 15 U.S.C. 53(b), to  enjoin the consummation of the merger.  The injunction was  sought in aid of an FTC administrative proceeding which was  subsequently instituted by complaint to challenge the merger  as violative of, inter alia, section 7 of the Clayton Act, 15  U.S.C. 18.  The district court denied the preliminary injunction and the FTC appealed to this court.  For the  reasons set forth below, we reverse the district court and  remand for entry of a preliminary injunction against Heinz  and Beech-Nut.

I. Background

2
Four million infants in the United States consume 80  million cases of jarred baby food annually, representing a domestic market of $865 million to $1 billion.1  FTC v. H.J.  Heinz, Co., 116 F. Supp. 2d 190, 192 (D.D.C. 2000).  The baby  food market is dominated by three firms, Gerber Products  Company (Gerber), Heinz and Beech-Nut.  Gerber, the industry leader, enjoys a 65 per cent market share while Heinz  and Beech-Nut come in second and third, with a 17.4 per cent  and a 15.4 per cent share respectively.  Id.  The district  court found that Gerber enjoys unparalleled brand recognition with a brand loyalty greater than any other product sold  in the United States.  Id. at 193.  Gerber's products are  found in over 90 per cent of all American supermarkets.2

3
By contrast, Heinz is sold in approximately 40 per cent of  all supermarkets.  Its sales are nationwide but concentrated in northern New England, the Southeast and Deep South and  the Midwest.  Id. at 194.  Despite its second-place domestic  market share, Heinz is the largest producer of baby food in  the world with $1 billion in sales worldwide.  Its domestic  baby food products with annual net sales of $103 million are  manufactured at its Pittsburgh, Pennsylvania plant, which  was updated in 1991 at a cost of $120 million.  Id. at 192-93. The plant operates at 40 per cent of its production capacity  and produces 12 million cases of baby food annually.  Its  baby food line includes about 130 SKUs (stock keeping units),  that is, product varieties (e.g., strained carrots, apple sauce,  etc.).  Heinz lacks Gerber's brand recognition;  it markets  itself as a "value brand" with a shelf price several cents below  Gerber's.  Id. at 193.

4
Beech-Nut has a market share (15.4%) comparable to that  of Heinz (17.4%), with $138.7 million in annual sales of baby  food, of which 72 per cent is jarred baby food.  Its jarred  baby food line consists of 128 SKUs.  Beech-Nut manufactures all of its baby food in Canajoharie, New York at a  manufacturing plant that was built in 1907 and began manufacturing baby food in 1931.  Beech-Nut maintains price  parity with Gerber, selling at about one penny less.  It  markets its product as a premium brand.  Id.  Consumers  generally view its product as comparable in quality to Gerber's.  Id.  Beech-Nut is carried in approximately 45 per  cent of all grocery stores.  Although its sales are nationwide,  they are concentrated in New York, New Jersey, California  and Florida.3 Id. at 194.

5
At the wholesale level Heinz and Beech-Nut both make  lump-sum payments called "fixed trade spending" (also  known as "slotting fees" or "pay-to-stay" arrangements) to  grocery stores to obtain shelf placement.  Id. at 197.  Gerber,  with its strong name recognition and brand loyalty, does not  make such pay-to-stay payments.  The other type of wholesale trade spending is "variable trade spending," which typically consists of manufacturers' discounts and allowances to  supermarkets to create retail price differentials that entice  the consumer to purchase their product instead of a competitor's.  Id.

6
Under the terms of their merger agreement, Heinz would  acquire 100 per cent of Beech-Nut's voting securities for $185  million.  Accordingly, they filed a Premerger Notification and  Report Form with the FTC and the United States Department of Justice pursuant to the Hart-Scott-Rodino Antitrust  Improvement Act of 1976, 15 U.S.C. 18a.4  On July 7, 2000 the FTC authorized this action for a preliminary injunction  under section 13(b) of the FTCA and, on July 14, 2000, it filed  a complaint and motion for preliminary injunction.  The  district court conducted a five-day hearing in late August and  early September and heard final arguments on September 21,  2000.  The record before the district court consisted of 1,267  exhibits, including 150 demonstrative exhibits, 32 depositions  and 41 affidavits. In addition, eleven witnesses testified.  On  October 18, 2000 the district court denied preliminary injunctive relief.  The court concluded that it was "more probable  than not that consummation of the Heinz/Beech-Nut merger  will actually increase competition in jarred baby food in the  United States."  H.J. Heinz, 116 F. Supp. 2d at 200.  The  FTC appealed and sought injunctive relief pending appeal,  which this court granted on November 8, 2000.  On November 22, 2000 the FTC filed an administrative complaint  against Heinz and Beech-Nut, charging that the proposed  merger violates section 5 of the FTCA and, if consummated,  would violate section 7 of the Clayton Act.  In the Matter of  H. J. Heinz, Docket No. 9295 (filed Nov. 22, 2000).

II. Analysis

7
A. Standard of Review We review a district court order denying preliminary injunctive relief for abuse of discretion, National Wildlife Fed'n  v. Burford, 835 F.2d 305, 319 (D.C. Cir. 1987), and will set  aside the court's factual findings only if they are "clearly  erroneous."  Fed. R. Civ. P. 52(a);  United States v. Marine  Bancorporation, Inc., 418 U.S. 602, 615 n.13 (1974).  If our  review of the district court order "reveals that it rests on an  erroneous premise as to the pertinent law, however, we must  examine the decision in light of the legal principles we believe  proper and sound."  Ambach v. Bell, 686 F.2d 974, 979 (D.C.  Cir. 1982).  We apply de novo review to the district court's  conclusions of law.  See FTC v. National Tea Co., 603 F.2d 694, 696-98 (8th Cir. 1979) (reviewing de novo proper standard of proof under section 13(b) of FTCA);  cf. FTC v.  Warner Communications Inc., 742 F.2d 1156, 1160 (9th Cir.  1984) (per curiam) (finding as matter of law district court  applied incorrect standard for section 7 violation).  In deciding whether to grant preliminary injunctive relief under  section 13(b), the court evaluates whether it is in the public  interest to enjoin the proposed merger.  See 15 U.S.C.  53(b).

B. Section 7 of the Clayton Act

8
Section 7 of the Clayton Act prohibits acquisitions, including mergers, "where in any line of commerce or in any  activity affecting 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;  see United States v. Philadelphia Nat'l Bank, 374 U.S. 321, 355 (1963) ("The statutory test is whether the effect of  the merger 'may be substantially to lessen competition' 'in  any line of commerce in any section of the country.' ").  The  "Congress used the words 'may be substantially to lessen  competition' (emphasis supplied), to indicate that its concern  was with probabilities, not certainties."  Brown Shoe Co. v.  United States, 370 U.S. 294, 323 (1962) (emphasis original); see S. Rep. No. 1775, at 6 (1950) ("The use of these words  ["may be"] means that the bill, if enacted, would not apply to  the mere possibility but only to the reasonable probability of  the pr[o]scribed effect....").  "Merger enforcement, like other areas of antitrust, is directed at market power.  It shares  with the law of monopolization a degree of schizophrenia:  an  aversion to potent power that heightens risk of abuse;  and  tolerance of that degree of power required to attain economic  benefits."  Lawrence A. Sullivan & Warren S. Grimes, The  Law of Antitrust 9.1, at 511 (2000).  The Congress has  empowered the FTC, inter alia, to weed out those mergers  whose effect "may be substantially to lessen competition"  from those that enhance competition.  See H.R. Rep. No.  1142, at 18-19 (1914). In section 13(b) of the FTCA, the  Congress provided a mechanism whereby the FTC may seek  preliminary injunctive relief preventing the merging parties from consummating the merger until the Commission has had  an opportunity to investigate and, if necessary, adjudicate the  matter.

9
C. Section 13(b) of the Federal Trade Commission Act

10
"Whenever the Commission has reason to believe that a  corporation is violating, or is about to violate, Section 7 of the  Clayton Act, the FTC may seek a preliminary injunction to  prevent a merger pending the Commission's administrative  adjudication of the merger's legality."  FTC v. Staples, Inc.,  970 F. Supp. 1066, 1070 (D.D.C. 1997);  see 15 U.S.C. 53(b).  Section 13(b) provides for the grant of a preliminary injunction where such action would be in the public interest--as  determined by a weighing of the equities and a consideration  of the Commission's likelihood of success on the merits.  15  U.S.C. 53(b).5  The Congress intended this standard to  depart from what it regarded as the then-traditional equity  standard, which it characterized as requiring the plaintiff to  show:  (1) irreparable damage, (2) probability of success on  the merits and (3) a balance of equities favoring the plaintiff. H.R. Rep. No. 93-624, at 31 (1971).  The Congress determined that the traditional standard was not "appropriate for  the implementation of a Federal statute by an independent  regulatory agency where the standards of the public interest  measure the propriety and the need for injunctive relief."  Id. "The courts had evolved an approach to cases in which  government agencies, acting to enforce a federal statute,  sought interim relief.  The agency, in such cases, was not  held to the high thresholds applicable where private parties  seek interim restraining orders."  FTC v. Weyerhaeuser Co.,  665 F.2d 1072, 1082 (D.C. Cir. 1981);  see FTC v. Exxon  Corp., 636 F.2d 1336, 1343 (D.C. Cir. 1980) ("In enacting  [Section 13(b)], Congress further demonstrated its concern  that injunctive relief be broadly available to the FTC by incorporating a unique 'public interest' standard in 15 U.S.C.  53(b), rather than the more stringent, traditional 'equity'  standard for injunctive relief.").  The FTC is not required to  establish that the proposed merger would in fact violate  section 7 of the Clayton Act.  Staples, 970 F. Supp. at 1071; see FTC v. Food Town Stores, Inc., 539 F.2d 1339, 1342 (4th  Cir. 1976) ("The district court is not authorized to determine  whether the antitrust laws have been or are about to be  violated. That adjudicatory function is vested in the FTC in  the first instance.").  We now consider the FTC's likelihood of  success and weigh the equities.  Accord FTC v. Freeman  Hosp., 69 F.3d 260, 267 (8th Cir. 1995);  FTC v. University  Health, Inc., 938 F.2d 1206, 1217 (11th Cir. 1991);  Warner  Communications, 742 F.2d at 1160.

1. Likelihood of Success

11
To determine likelihood of success on the merits we measure the probability that, after an administrative hearing on  the merits, the Commission will succeed in proving that the  effect of the Heinz/Beech-Nut merger "may be substantially  to lessen competition, or to tend to create a monopoly" in  violation of section 7 of the Clayton Act. 15 U.S.C. 18.  This  court and others have suggested that the standard for likelihood of success on the merits is met if the FTC "has raised  questions going to the merits so serious, substantial, difficult  and doubtful as to make them fair ground for thorough  investigation, study, deliberation and determination by the  FTC in the first instance and ultimately by the Court of  Appeals."  FTC v. Beatrice Foods Co., 587 F.2d 1225, 1229  (D.C. Cir. 1978) (Appendix to Statement of MacKinnon &  Robb, JJ.)6;  Staples, 970 F. Supp. at 1071;  Warner Communications, 742 F.2d at 1162 (quoting National Tea, 603 F.2d  at 698);  see University Health, 938 F.2d at 1218.  This  specific standard was articulated by the court below, see H.J. Heinz, 116 F. Supp. 2d at 194, and it is a standard to which  the appellees have not objected.

12
In United States v. Baker Hughes Inc., 908 F.2d 981, 98283 (D.C. Cir. 1990), we explained the analytical approach by  which the government establishes a section 7 violation.  First  the government must show that the merger would produce "a  firm controlling an undue percentage share of the relevant  market, and [would] result[ ] in a significant increase in the  concentration of firms in that market."  Philadelphia Nat'l  Bank, 374 U.S. at 363.  Such a showing establishes a "presumption" that the merger will substantially lessen competition.  See Baker Hughes, 908 F.2d at 982.  To rebut the  presumption, the defendants must produce evidence that  "show[s] that the market-share statistics [give] an inaccurate  account of the [merger's] probable effects on competition" in  the relevant market.  United States v. Citizens & S. Nat'l  Bank, 422 U.S. 86, 120 (1975).7  "If the defendant successfully  rebuts the presumption [of illegality], the burden of producing  additional evidence of anticompetitive effect shifts to the  government, and merges with the ultimate burden of persuasion, which remains with the government at all times."  Baker Hughes Inc., 908 F.2d at 983;  see also Kaiser Aluminum, 652 F.2d at 1340 & n.12.  Although Baker Hughes was  decided at the merits stage as opposed to the preliminary  injunctive relief stage, we can nonetheless use its analytical  approach in evaluating the Commission's showing of likely hood of success.  Accordingly, we look at the FTC's prima  facie case and the defendants' rebuttal evidence.

13
a. Prima Facie Case

14
Merger law "rests upon the theory that, where rivals are  few, firms will be able to coordinate their behavior, either by  overt collusion or implicit understanding, in order to restrict  output and achieve profits above competitive levels."  FTC v.  PPG Indus., 798 F.2d 1500, 1503 (D.C. Cir. 1986).8  Increases  in concentration above certain levels are thought to "raise[ ] a  likelihood of 'interdependent anticompetitive conduct.' "  Id.  (quoting General Dynamics, 415 U.S. at 497);  see FTC v.  Elders Grain, 868 F.2d 901, 905 (7th Cir. 1989).  Market  concentration, or the lack thereof, is often measured by the  Herfindahl-Hirschmann Index (HHI).  See Staples, 970 F. Supp. at 1081 n.12.9

15
Sufficiently large HHI figures establish the FTC's prima  facie case that a merger is anti-competitive.  See Baker  Hughes, 908 F.2d at 982-83 & n.3;  PPG, 798 F.2d at 1503. The district court found that the pre-merger HHI "score for  the baby food industry is 4775"--indicative of a highly concentrated industry.10  H.J. Heinz, 116 F. Supp. 2d at 196;  see  PPG, 798 F.2d at 1503;  Horizontal Merger Guidelines, supra,  1.51.  The merger of Heinz and Beech-Nut will increase  the HHI by 510 points.  This creates, by a wide margin, a  presumption that the merger will lessen competition in the  domestic jarred baby food market.  See Horizontal Merger  Guidelines, supra, 1.51 (stating that HHI increase of more  than 100 points, where post-merger HHI exceeds 1800, is  "presumed ... likely to create or enhance market power or  facilitate its exercise");  see also Baker Hughes, 908 F.2d at  982-83 & n.3;  PPG, 798 F.2d at 1503.11  Here, the FTC's market concentration statistics12 are bolstered by the indisputable fact that the merger will eliminate competition between the two merging parties at the wholesale level, where  they are currently the only competitors for what the district  court described as the "second position on the supermarket  shelves."  H.J. Heinz, 116 F. Supp. 2d at 196.  Heinz's own  documents recognize the wholesale competition and anticipate  that the merger will end it.  JA 2680;  see also JA 2185. Indeed, those documents disclose that Heinz considered three  options to end the vigorous wholesale competition with  Beech-Nut:  two involved innovative measures while the third  entailed the acquisition of Beech-Nut.  JA 2184.  Heinz  chose the third, and least pro-competitive, of the options.

16
Finally, the anticompetitive effect of the merger is further  enhanced by high barriers to market entry.13  The district  court found that there had been no significant entries in the  baby food market in decades and that new entry was "difficult and improbable."  H.J. Heinz, 116 F. Supp. 2d at 196. This finding largely eliminates the possibility that the reduced competition caused by the merger will be ameliorated  by new competition from outsiders and further strengthens  the FTC's case.  See University Health, 938 F.2d at 1219 &  n.26.

17
As far as we can determine, no court has ever approved a  merger to duopoly under similar circumstances.

18
b. Rebuttal Arguments

19
In response to the FTC's prima facie showing, the appellees make three rebuttal arguments, which the district court  accepted in reaching its conclusion that the merger was not  likely to lessen competition substantially.  For the reasons  discussed below, these arguments fail and thus were not a  proper basis for denying the FTC injunctive relief.

1. Extent of Pre-Merger Competition

20
The appellees first contend, and the district court agreed,  that Heinz and Beech-Nut do not really compete against each  other at the retail level.  Consumers do not regard the  products of the two companies as substitutes, the appellees  claim, and generally only one of the two brands is available on  any given store's shelves.  Hence, they argue, there is little  competitive loss from the merger.

21
This argument has a number of flaws which render clearly  erroneous the court's finding that Heinz and Beech-Nut have  not engaged in significant pre-merger competition.  First, in  accepting the appellees' argument that Heinz and Beech-Nut  do not compete, the district court failed to address the record  evidence that the two do in fact price against each other, see,  e.g., 8/31/2000 Tr. 247-48, and that, where both are present in  the same areas,14 they depress each other's prices as well as  those of Gerber even though they are virtually never all found  in the same store.  See, e.g., 8/30/2000 Tr. 147-48, 172;  PX  531 at p 8;  PX 481 at p 12;  PX 479 at p p 6-7;  PX 478 at p 6; DX 14 at RP-110.  This evidence undermines the district  court's factual finding.

22
Second, the district court's finding is inconsistent with its  conclusion that there is a single, national market for jarred  baby food in the United States.  The Supreme Court has  explained that "[t]he outer boundaries of a product market  are determined by the reasonable interchangeability of use  [by consumers] or the cross-elasticity of demand between the  product itself and substitutes for it."  Brown Shoe, 370 U.S.  at 325;  see also United States v. E.I. du Pont de Nemours &  Co., 351 U.S. 377, 395 (1956).15  The definition of product market thus "focuses solely on demand substitution factors,"  i.e., that consumers regard the products as substitutes.  Horizontal Merger Guidelines, supra, 1.0;  Sullivan & Grimes,  supra, 11.2b1, at 579.  By defining the relevant product  market generically as jarred baby food, the district court  concluded that in areas where Heinz's and Beech-Nut's products are both sold, consumers will switch between them in  response to a "small but significant and nontransitory increase in price (SSNIP)."  Horizontal Merger Guidelines,  supra, 1.11;  H.J. Heinz, 116 F. Supp. 2d at 195.  The  district court never explained this inherent inconsistency in  its logic nor could counsel for the appellees explain it at oral  argument.

23
Third, and perhaps most important, the court's conclusion  concerning pre-merger competition does not take into account  the indisputable fact that the merger will eliminate competition at the wholesale level between the only two competitors  for the "second shelf" position.  Competition between Heinz  and Beech-Nut to gain accounts at the wholesale level is  fierce with each contest concluding in a winner-take-all result. JA 2680.  The district court regarded this loss of competition  as irrelevant because the FTC did not establish to its satisfaction that wholesale competition ultimately benefitted consumers through lower retail prices.  The district court concluded  that fixed trade spending did not affect consumer prices and  that "the FTC's assertion that the proposed merger will  affect variable trade spending levels and consumer prices is  ... at best, inconclusive."16  H.J. Heinz, 116 F. Supp. 2d at  197.  Although the court noted the FTC's examples of con sumer benefit through couponing initiatives, the court held  that it was "impossible to conclude with any certainty that the  consumer benefit from such couponing initiatives would be  lost in the merger."  Id.

24
In rejecting the FTC's argument regarding the loss of  wholesale competition, the court committed two legal errors.  First, as the appellees conceded at oral argument, no court  has ever held that a reduction in competition for wholesale  purchasers is not relevant unless the plaintiff can prove  impact at the consumer level.  Oral Arg. Tr. at 22, 28;  see  Hospital Corp. of Am. v. FTC, 807 F.2d 1381, 1389 (7th Cir.  1986) ("Section 7 does not require proof that a merger or  other acquisition has caused higher prices in the affected  market.  All that is necessary is that the merger create an  appreciable danger of [collusive practices] in the future. A  predictive judgment, necessarily probabilistic and judgmental  rather than demonstrable, is called for.") (citation omitted).  Second, it is, in any event, not the FTC's burden to prove  such an impact with "certainty."  To the contrary, the antitrust laws assume that a retailer faced with an increase in the  cost of one of its inventory items "will try so far as competition allows to pass that cost on to its customers in the form of  a higher price for its product."  In re Brand Name Prescription Drugs Antitrust Litig., 123 F.3d 599, 605 (7th Cir. 1997),  reh'g and suggestion for reh'g en banc denied (Oct. 8, 1997).  Section 7 is, after all, concerned with probabilities, not certainties.  United States v. El Paso Natural Gas Co., 376 U.S. 651, 658 (1964);  Brown Shoe, 370 U.S. at 323;  Baker Hughes, 908 F.2d at 984).17

2. Post-Merger Efficiencies

25
The appellees' second attempt to rebut the FTC's prima  facie showing is their contention that the anticompetitive  effects of the merger will be offset by efficiencies resulting  from the union of the two companies, efficiencies which they  assert will be used to compete more effectively against Gerber.  It is true that a merger's primary benefit to the  economy is its potential to generate efficiencies.  See generally 4A Phillip E. Areeda, Herbert Hovenkamp & John L.  Solow, Antitrust Law p 970 at 22-25 (1998).  As the Merger  Guidelines now recognize, efficiencies "can enhance the  merged firm's ability and incentive to compete, which may  result in lower prices, improved quality, or new products." Horizontal Merger Guidelines, supra, 4.

26
Although the Supreme Court has not sanctioned the use of  the efficiencies defense in a section 7 case, see Procter &  Gamble Co., 386 U.S. at 580,18 the trend among lower courts  is to recognize the defense.  See, e.g., FTC v. Tenet Health  Care Corp., 186 F.3d 1045, 1054 (8th Cir. 1999), reh'g and  reh'g en banc denied (Oct. 6. 1999);  University Health, 938 F.2d at 1222;  FTC v. Cardinal Health, Inc., 12 F. Supp. 2d 34, 61 (D.D.C. 1998);  Staples, 970 F. Supp. at 1088-89;  see  also ABA Antitrust Section, Mergers and Acquisitions:  Understanding the Antitrust Issues 152 (2000) ("The majority of  courts have considered efficiencies as a means to rebut the  government's prima facie case that a merger will lead to  restricted output or increased prices.  These courts, however,  generally have found inadequate proof of efficiencies to sustain a rebuttal of the government's case.").  In 1997 the  Department of Justice and the FTC revised their Horizontal  Merger Guidelines to recognize that "mergers have the potential to generate significant efficiencies by permitting a  better utilization of existing assets, enabling the combined  firm to achieve lower costs in producing a given quantity and  quality than either firm could have achieved without the  proposed transaction."  Horizontal Merger Guidelines, supra,  4.

27
Nevertheless, the high market concentration levels present  in this case require, in rebuttal, proof of extraordinary efficiencies, which the appellees failed to supply.  See University  Health, 938 F.2d at 1223 ("[A] defendant who seeks to  overcome a presumption that a proposed acquisition would  substantially lessen competition must demonstrate that the  intended acquisition would result in significant economies and  that these economies ultimately would benefit competition  and, hence, consumers.");  Horizontal Merger Guidelines, supra, 4 (stating that "[e]fficiencies almost never justify a  merger to monopoly or near-monopoly");  4A Areeda, et al.,  Antitrust Law p 971f, at 44 (requiring "extraordinary" efficiencies where the "HHI is well above 1800 and the HHI  increase is well above 100").  Moreover, given the high con centration levels, the court must undertake a rigorous analysis of the kinds of efficiencies being urged by the parties in  order to ensure that those "efficiencies" represent more than  mere speculation and promises about post-merger behavior. The district court did not undertake that analysis here.

28
In support of its conclusion that post-merger efficiencies  will outweigh the merger's anticompetitive effects, the district  court found that the consolidation of baby food production in  Heinz's under-utilized Pittsburgh plant "will achieve substantial cost savings in salaries and operating costs."  H.J. Heinz, 16 F. Supp. 2d at 199.  The court also credited the appellees'  promise of improved product quality as a result of recipe  consolidation.19  The only cost reduction the court quantified  as a percentage of pre-merger costs, however, was the socalled "variable conversion cost":  the cost of processing the  volume of baby food now processed by Beech-Nut.  The  court accepted the appellees' claim that this cost would be  reduced by 43% if the Beech-Nut production were shifted to  Heinz's plant, see JA 4619, a reduction the appellees' expert  characterized as "extraordinary."

29
The district court's analysis falls short of the findings  necessary for a successful efficiencies defense in the circumstances of this case.  We mention only three of the most  important deficiencies here.  First, "variable conversion cost"  is only a percentage of the total variable manufacturing cost. A large percentage reduction in only a small portion of the  company's overall variable manufacturing cost does not necessarily translate into a significant cost advantage to the merger.  Thus, for cost reduction to be relevant, we must at least consider the percentage of Beech-Nut's total variable manufacturing cost that would be reduced as a consequence of the  merger.  At oral argument, the appellees' counsel agreed.  Oral Arg. Tr. at 43.  This correction immediately cuts the  asserted efficiency gain in half since, according to the appellees' evidence, using total variable manufacturing cost as the  measure cuts the cost savings from 43% to 22.3%.  See JA  4620.

30
Second, the percentage reduction in Beech-Nut's cost is still  not the relevant figure.  After the merger, the two entities  will be combined, and to determine whether the merged  entity will be a significantly more efficient competitor, cost  reductions must be measured across the new entity's combined production--not just across the pre-merger output of  Beech-Nut.  See 4A Areeda, et al., supra, p 976d at 93-94. The district court, however, did not consider the cost reduction over the merged firm's combined output.  At oral argument the appellees' counsel was unable to suggest a formula  that could be used for determining that cost reduction.  See  Oral Arg. Tr. at 45-47.

31
Finally, and as the district court recognized, the asserted  efficiencies must be "merger-specific" to be cognizable as a  defense.20  H.J. Heinz, 116 F. Supp. 2d at 198-99;  see  Horizontal Merger Guidelines, supra, 4;  4A Areeda, et al.,  supra, p 973, at 49-62.  That is, they must be efficiencies that  cannot be achieved by either company alone because, if they  can, the merger's asserted benefits can be achieved without  the concomitant loss of a competitor.  See generally 4A  Areeda, et al., supra, p 973.  Yet the district court never  explained why Heinz could not achieve the kind of efficiencies  urged without merger.  As noted, the principal merger benefit asserted for Heinz is the acquisition of Beech-Nut's better  recipes, which will allegedly make its product more attractive  and permit expanded sales at prices lower than those charged  by Beech-Nut, which produces at an inefficient plant.  Yet,  neither the district court nor the appellees addressed the  question whether Heinz could obtain the benefit of better  recipes by investing more money in product development and  promotion--say, by an amount less than the amount Heinz  would spend to acquire Beech-Nut.  At oral argument,  Heinz's counsel agreed that the taste of Heinz's products was  not so bad that no amount of money could improve the  brand's consumer appeal.  Oral Arg. Tr. at 54.  That being  the case, the question is how much Heinz would have to spend  to make its product equivalent to the Beech-Nut product and  hence whether Heinz could achieve the efficiencies of merger  without eliminating Beech-Nut as a competitor.  The district  court, however, undertook no inquiry in this regard.  In  short, the district court failed to make the kind of factual  determinations necessary to render the appellees' efficiency  defense sufficiently concrete to offset the FTC's prima facie  showing.

3. Innovation

32
The appellees claim next that the merger is required to  enable Heinz to innovate, and thus to improve its competitive  position against Gerber.  Heinz and Beech-Nut asserted, and  the district court found, that without the merger the two  firms are unable to launch new products to compete with  Gerber because they lack a sufficient shelf presence or ACV. See H.J. Heinz, 116 F. Supp. 2d at 199-200.  This kind of  defense is often a speculative proposition.  See 4A Areeda, et  al., supra, p 975g (noting "truly formidable" proof problems  in determining innovation economies).  In this case, given the  old-economy nature of the industry as well as Heinz's position  as the world's largest baby food manufacturer, it is a particularly difficult defense to prove.  The court below accepted the  appellees' argument principally on the basis of their expert's  testimony that new product launches are cost-effective only  when a firm's ACV is 70% or greater (Heinz's is presently  40%;  Beech-Nut's is 45%). That testimony, in turn, was  based on a graph that plotted revenue against ACV.  According to the expert, the graph showed that only four out of 27  new products launched in 1995 had been successful--all for  companies with an ACV of 70% or greater.

33
The chart, however, does not establish this proposition and  the court's consequent finding that the merger is necessary  for innovation is thus unsupported and clearly erroneous.  All  the chart plotted was revenue against ACV and hence all it  showed was the unsurprising fact that the greater a company's ACV, the greater the revenue it received.  Because the  graph did not plot the profitability (or any measure of "costeffectiveness"), there is no way to know whether the expert's  claim--that a 70% ACV is required for a launch to be  "successful" in an economic sense--is true.21  Moreover, the number of data points on the chart were few;  they were  limited to launches in a single year;  and they involved  launches of all new grocery products rather than of baby food  alone.  Assessing such data's statistical significance in establishing the proposition at issue, i.e., the necessity of 70% ACV  penetration, is thus highly speculative.  The district court did  not even address the question of the data's statistical significance and the appellees' counsel could offer no help at oral  argument.  See Oral Arg. Tr. at 39 ("I'm not aware of the  statistical significance of the underlying study.").22  In the  absence of reliable and significant evidence that the merger  will permit innovation that otherwise could not be accomplished, the district court had no basis to conclude that the  FTC's showing was rebutted by an innovation defense.

34
Moreover, Heinz's insistence on a 70-plus ACV before it  brings a new product to market may be largely to persuade  the court to recognize promotional economies as a defense. Heinz argues that to profitably launch a new product, it must  have nationwide market penetration to recoup the money  spent on advertising and promotion.  It wants to spread  advertising costs out among as many product units as possible, thereby lowering the advertising cost per unit.  It does  not want to "waste" promotional expenditures in markets  where its products are not on the shelf or where they are on  only a few shelves.  For example, in a metropolitan area in  which Heinz has a 75 per cent ACV, every dollar spent on  advertising is two or three times more "effective" than in a  market in which it has only a 25 per cent ACV.  As one  authority notes, however, "[t]he case for recognizing a defense based on promotional economies is relatively weak." 4A Areeda, et al., supra, p 975f, at 77.  The district court  accepted Heinz's claim that it could not introduce new products without at least a 70 per cent ACV because it would be  unable to adequately diffuse its advertising and promotional  expenditures.  But the court failed to determine whether  substantial promotional scale economies exist now and, if they  do, whether Heinz and Beech-Nut "for that reason operate at  a substantial competitive disadvantage in the market or markets in which they sell" or whether there are effective alternatives to merger by which the disadvantage can be overcome.  Id. at p 975f2, at 78.

4. Structural Barriers to Collusion

35
In a footnote the district court dismissed the likelihood of  collusion derived from the FTC's market concentration data. "[S]tructural market barriers to collusion" in the retail market for jarred baby food, the court said, rebut the normal  presumption that increases in concentration will increase the  likelihood of tacit collusion.  H.J. Heinz, 116 F. Supp. 2d at  198 n.7.  The court's sole citation, however, was to testimony  by the appellees' expert, Jonathan B. Baker, a former Director of the Bureau of Economics at the FTC, who testified  that in order to coordinate successfully, firms must solve  "cartel problems" such as reaching a consensus on price and  market share and deterring each other from deviating from  that consensus by either lowering price or increasing production.  He opined that after the merger the merged entity  would want to expand its market share at Gerber's expense,  thereby decreasing the likelihood of consensus on price and  market share.  9/8/2000 Tr. 1010-1013.  In his report, Baker  elaborated on his theory, explaining that the efficiencies  created by the merger will give the merged firm the ability  and incentive to take on Gerber in price and product improvements.  DX 617.  He also predicted that policing and monitoring of any agreement would be more difficult than it is  now, due in part to a time lag in the ability of one firm to detect price cuts by another.  But the district court made no  finding that any of these "cartel problems" are so much  greater in the baby food industry than in other industries  that they rebut the normal presumption.  In fact, Baker's  testimony about "time lag" is refuted by the record which  reflects that supermarket prices are available from industrywide scanner data within 4-8 weeks.  See DX 617 at p 86  (report of appellees' expert Jonathan Baker);  see also Oral  Arg. Tr. at 30 (statement by appellees' counsel that nothing in  record reflects time lag is greater in baby food industry than  in other industries).  His testimony is further undermined by  the record evidence of past price leadership in the baby food  industry.23

36
The combination of a concentrated market and barriers to  entry is a recipe for price coordination.  See University  Health, 938 F.2d at 1218 n.24 ("Significant market concentration makes it 'easier for firms in the market to collude,  expressly or tacitly, and thereby force price above or farther  above the competitive level.' "  (citation omitted)).  "[W]here  rivals are few, firms will be able to coordinate their behavior, either by overt collusion or implicit understanding, in order to  restrict output and achieve profits above competitive levels." PPG, 798 F.2d at 1503.  The creation of a durable duopoly  affords both the opportunity and incentive for both firms to  coordinate to increase prices.  The district court recognized  this when it questioned Baker on whether the merged entity  will, up to a point, expand its market share but "then [with  Gerber will] find a nice equilibrium and they'll all get along  together."  9/8/2000 Tr. 1014.  Tacit coordination

37
is feared by antitrust policy even more than express collusion, for tacit coordination, even when observed, cannot easily be controlled directly by the antitrust laws. It is a central object of merger policy to obstruct the creation or reinforcement by merger of such oligopolistic market structures in which tacit coordination can occur.

38
4 Phillip E. Areeda, Herbert Hovenkamp & John L. Solow,  Antitrust Law p 901b2, at 9 (rev. ed. 1998).  Because the  district court failed to specify any "structural market barriers  to collusion" that are unique to the baby food industry, its  conclusion that the ordinary presumption of collusion in a  merger to duopoly was rebutted is clearly erroneous.24

39
* * * * *

40
Although we recognize that, post-hearing, the FTC may  accept the rebuttal arguments proffered by the appellees,  including their efficiencies defense, and permit the merger to  proceed, we conclude that the FTC succeeded in "rais[ing]  questions going to the merits so serious, substantial, difficult  and doubtful as to make them fair ground for thorough  investigation, study, deliberation and determination by the  FTC."  Warner Communications, 742 F.2d at 1162.  The  FTC demonstrated that the merger to duopoly will increase  the concentration in an already highly concentrated market; that entry barriers in the market make it unlikely that any  anticompetitive effects will be avoided;  that pre-merger competition is vigorous at the wholesale level nationwide and present at the retail level in some metropolitan areas;  and  that post-merger competition may be lessened substantially. These substantial questions have not been sufficiently answered by the appellees.  As we said in Baker Hughes, "[t]he  more compelling the prima facie case, the more evidence the  defendant must present to rebut it successfully." 908 F.2d at  991.  In concluding that the FTC failed to make the requisite  showing, the district court erred in a number of respects. Regarding the contention of lack of pre-merger competition,  it made a clearly erroneous factual finding and misunderstood  the law with respect to the import of competition at the  wholesale level.  Regarding the proffered efficiencies defense,  the court failed to make the kind of factual findings required  to render that defense sufficiently concrete to rebut the  government's prima facie showing.  Finally, as to the contention that the merger is necessary for innovation, the court  clearly erred in relying on evidence that does not support its  conclusion. Because the district court incorrectly assessed the  merits of the appellees' rebuttal arguments, it improperly  discounted the FTC's showing of likelihood of success.

2. Weighing of the Equities

41
Although the FTC's showing of likelihood of success creates a presumption in favor of preliminary injunctive relief,  we must still weigh the equities in order to decide whether  enjoining the merger would be in the public interest.  15  U.S.C. 53(b);  see PPG, 798 F.2d at 1507;  Weyerhaeuser, 665 F.2d at 1081-83.  The principal public equity weighing in  favor of issuance of preliminary injunctive relief is the public  interest in effective enforcement of the antitrust laws.  University Health, 938 F.2d at 1225.  The Congress specifically  had this public equity consideration in mind when it enacted  section 13(b).  See Food Town Stores, 539 F.2d at 1346  (Congress enacted section 13(b) to preserve status quo until  FTC can perform its function).  The district court found, and  there is no dispute, that if the merger were allowed to  proceed, subsequent administrative and judicial proceedings  on the merits "will not matter" because Beech-Nut's manufacturing facility "will be closed, the Beech-Nut distribution channels will be closed, the new label and recipes will be in  place, and it will be impossible as a practical matter to undo  the transaction."  H.J. Heinz, 116 F. Supp. 2d at 201. Hence, if the merger were ultimately found to violate the  Clayton Act, it would be impossible to recreate pre-merger  competition.  See Warner Communications, 742 F.2d at 1165  ("A denial of a preliminary injunction would preclude effective  relief if the Commission ultimately prevails and divestiture is  ordered.").  Section 13(b) itself embodies congressional recognition of the fact that divestiture is an inadequate and unsatisfactory remedy in a merger case, 119 Cong. Rec. 36612  (1973), a point that has been emphasized by the United States  Supreme Court.  See, e.g., FTC v. Dean Foods Co., 384 U.S. 597, 606 n.5 (1966) ("Administrative experience shows that the  Commission's inability to unscramble merged assets frequently prevents entry of an effective order of divestiture.").

42
On the other side of the ledger, the appellees claim that the  injunction would deny consumers the procompetitive advantages of the merger.  See FTC v. Pharmtech Research, Inc.,  576 F. Supp. 294, 299 (D.D.C. 1983) (explaining that public  equities include "beneficial economic effects and procompetitive advantages for consumers").  The district court found  that if the merger were preliminarily enjoined, the injury to  competition would also be irreversible, that is, the merger  would be abandoned and could not be consummated if ultimately found lawful.  By contrast to its first finding, however,  for the latter conclusion the court relied not on the facts of  this case but on our statement in Exxon that--as a general  matter--temporarily blocking a tender offer is likely to end  an attempted acquisition, "as a result of the short life-span of  most tender offers."  Id.  (quoting Exxon, 636 F.2d at 1343). In their brief in this court, the appellees offer nothing more  to support the finding that the merger would never be  consummated were an injunction to issue.  Indeed, they  devote only a single sentence, without any citation, to the  point.  The district court's finding that an injunction would  "kill this merger" is thus not a factual finding supported by  record evidence.  This case does not involve a short-lived  tender offer as did the case cited by the court for its "kill the Merger" conclusion.  The appellees acknowledge that there is  no alternative buyer for Beech-Nut and the court found that  it is not a failing company but rather a "profitable and  ongoing enterprise."  H.J. Heinz, 116 F. Supp. 2d at 201 n.9. If the merger makes economic sense now, the appellees have  offered no reason why it would not do so later.  Moreover,  Beech-Nut's principal assets of value to Heinz are, assertedly, its recipes and brand name.  Nothing in the record leads  us to believe that both will not still exist when the FTC  completes its work.  It may be that Beech-Nut will have to  sell its recipes to Heinz at a lower price than the price of  today's merger.  But that is at best a "private" equity which  does not affect our analysis of the impact on the market of  the two options now before us and which has not in any event  been urged by the appellees.25  See id.

43
In sum, weighing of the equities favors the FTC.  If the  merger is ultimately found to violate section 7 of the Clayton  Act, it will be too late to preserve competition if no preliminary injunction has issued.  On the other hand, if the merger  is found not to lessen competition substantially, the efficiencies that the appellees urge can be reclaimed by a renewed  transaction.  Our conclusion with respect to the equities  necessarily lightens the burden on the FTC to show likelihood  of success on the merits, a burden which the FTC has met  here.

III. Conclusion

44
It is important to emphasize the posture of this case.  We  do not decide whether the FTC will ultimately prove its case  or whether the defendants' claimed efficiencies will carry the  day.26  Our task is to review the district court's order to  determine whether, under section 13(b), preliminary injunctive relief would be in the public interest.  We have considered the FTC's likelihood of success on the merits. We have  weighed the equities.  We conclude that the FTC has raised  serious and substantial questions.  We also conclude that the  public equities weigh in favor of preliminary injunctive relief  and therefore that a preliminary injunction would be in the  public interest.  Accordingly, we reverse the district court's  denial of preliminary injunctive relief and remand the case for  entry of a preliminary injunction pursuant to section 13(b) of  the Federal Trade Commission Act.

45
So ordered.

Notes:

1
 The facts as set forth herein are based on the district court's  factual findings and the record material submitted by the parties.

2
 Product volume in retail stores throughout the country is measured by the product's All Commodity Volume (ACV).  Gerber's  near 100 per cent ACV is impressive because virtually all supermarkets stock at most two brands of baby food.  In at least one area of  the country as many as 80 per cent of supermarket retailers stock  only Gerber.

3
 Although Heinz and Beech-Nut introduced evidence showing  that in areas that account for 80% of Beech-Nut sales, Heinz has a  market share of about 2% and in areas that account for about 72%  of Heinz sales, Beech-Nut's share is about 4%, the FTC introduced  evidence that Heinz and Beech-Nut are locked in an intense battle  at the wholesale level to gain (and maintain) position as the second  brand on retail shelves.

4
 Section 18a requires pre-merger notification for a merger in  which either the acquiring or the acquired firm has total net sales  or assets of at least $10 million and the other firm has annual sales  or total assets of at least $100 million.  The acquirer must have at  least 15 per cent or $15 million worth of the target firm's voting  securities or assets.  15 U.S.C. 18a(a).  Filers must disclose  specific financial and market data and pay a filing fee.

5
 Section 13(b) of the FTCA provides that "[u]pon a proper  showing that, weighing the equities and considering the Commission's likelihood of ultimate success, such action would be in the  public interest, ... a preliminary injunction may be granted."  15  U.S.C. 53(b).

6
 In Beatrice Foods, two members of the court, writing separately  from a denial of en banc review, included the quoted language from  an unpublished judgment and memorandum issued earlier in the  litigation.

7
 To rebut the defendants may rely on "[n]onstatistical evidence  which casts doubt on the persuasive quality of the statistics to  predict future anticompetitive consequences" such as "ease of entry  into the market, the trend of the market either toward or away  from concentration, and the continuation of active price competition."  Kaiser Aluminum & Chem. Corp. v. FTC, 652 F.2d 1324,  1341 (7th Cir. 1981).  In addition, the defendants may demonstrate  unique economic circumstances that undermine the predictive value  of the government's statistics.  See United States v. General Dynamics Corp., 415 U.S. 486, 506-10 (1974) (fundamental changes in  structure of coal market made market concentration statistics inaccurate predictors of anticompetitive effect);  see also University  Health, 938 F.2d at 1218.

8
 A "horizontal merger" involves firms selling the same or similar  products in a common geographical market.

9
 "The FTC and the Department of Justice, as well as most  economists, consider the measure superior to such cruder measures  as the four-or eight-firm concentration ratios which merely sum up  the market shares of the largest four or eight firms."  PPG, 798 F.2d at 1503.  The Department of Justice and the FTC rely on the  HHI in evaluating proposed horizontal mergers.  See United States  Dep't of Justice & Federal Trade Comm'n, Horizontal Merger  Guidelines 1.5, 1.51 (1992), as revised (1997).  The HHI is  calculated by totaling the squares of the market shares of every  firm in the relevant market.  For example, a market with ten firms  having market shares of 20%, 17%, 13%, 12%, 10%, 10%, 8%, 5%,  3% and 2% has an HHI of 1304 (202 + 172 + 132 + 122 + 102 +  102 + 82 + 52 +32 +22).  If the firms with 13% and 5% market  shares were to merge, the HHI would increase by 130 points,  expressed by the formula 2ab, which is derived from (a+b)2 or a2 +  2ab + b2.  Under the Merger Guidelines a market with a postmerger HHI above 1800 is considered "highly concentrated" and  mergers that increase the HHI in such a market by over 50 points  "potentially raise significant competitive concerns."  Id. at 1.51. Mergers "producing an increase in the HHI of more than 100 points  [in such markets] are [presumed] likely to create or enhance market  power or facilitate its exercise."  Id.  Although the Merger Guidelines are not binding on the court, they provide "a useful illustration  of the application of the HHI."  PPG, 798 F.2d at 1503 n.4.

10
 To determine the HHI score the district court first had to  define the relevant market.  The court defined the product market  as jarred baby food and the geographic market as the United  States.  H.J. Heinz, 116 F. Supp. 2d at 195.  The parties do not  challenge the court's definition.

11
 The FTC argues that this finding alone--that it is certain to  establish a prima facie case--entitles it to preliminary injunctive  relief under PPG.  We disagree with the Commission's reading of  PPG.  In PPG, the Commission appealed the district court's denial  of its request for a preliminary injunction to prevent PPG Industries, the world's largest producer of glass aircraft transparencies,  from acquiring Swedlow, Inc., the world's largest manufacturer of  acrylic aircraft transparencies. 798 F.2d at 1502.  After defining  the relevant market and determining market share, the district  court found that the merger would significantly increase the concentration in an already highly concentrated market.  It also "found  high market-entry barriers that would prolong high market concentration."  Id. at 1503.  On appeal, this court stated:  "There is no  doubt that the pre-and post-acquisition HHI's and market shares  found in this case entitle the Commission to some preliminary  relief."  Id.  This statement came, however, in the context of a case  in which the appellants offered no rebuttal (other than the observation of rapid and continuing technological changes in the industry)  to the presumption generated by the market concentration data on  which the FTC based its prima facie showing.  Id. at 1506.  The  court then noted the rule established in Weyerhaeuser that the FTC  is entitled to a "presumption in favor of a preliminary injunction  when [it] establishes a strong likelihood of success on the merits." Id. at 1507.

12
 The Supreme Court has cautioned that statistics reflecting  market share and concentration, while of great significance, are not  conclusive indicators of anticompetitive effects.  See General Dynamics, 415 U.S. at 498;  Brown Shoe, 370 U.S. at 322 n.38  ("Statistics reflecting the shares of the market controlled by the  industry leaders and the parties to the merger are, of course, the  primary index of market power;  but only a further examination of  the particular market--its structure, history and probable future-can provide the appropriate setting for judging the probable anticompetitive effect of the merger.").  In General Dynamics the  Supreme Court held that the market share statistics the Commission used to seek divestiture of the merged firm were insufficient  because, in failing to take into account the acquired firm's long-term  contractual commitments (coal contracts), the statistics overestimated the acquired firm's ability to compete in the relevant market in  the future.  General Dynamics, 415 U.S. at 500-504.

13
 Barriers to entry are important in evaluating whether market  concentration statistics accurately reflect the preand likely postmerger competitive picture.  Cf.  Baker Hughes, 908 F.2d at 987. If entry barriers are low, the threat of outside entry can significantly alter the anticompetitive effects of the merger by deterring the  remaining entities from colluding or exercising market power.  See  United States v. Falstaff Brewing Corp., 410 U.S. 526, 532-33  (1973);  Baker Hughes, 908 F.2d at 987 ("In the absence of significant barriers, a company probably cannot maintain supracompetitive pricing for any length of time.");  Horizontal Merger Guidelines, supra, 3.0 ("A merger is not likely to create or enhance  market power or to facilitate its exercise, if entry into the market is  so easy that market participants, after the merger, either collectively or unilaterally could not profitably maintain a price increase  above premerger levels.").  Low barriers to entry enable a potential  competitor to deter anticompetitive behavior by firms within the  market simply by its ability to enter the market.  FTC v. Procter &  Gamble Co., 386 U.S. 568, 581 (1967) ("It is clear that the existence  of Procter at the edge of the industry exerted considerable influence on the market.").  Existing firms know that if they collude or  exercise market power to charge supracompetitive prices, entry by  firms currently not competing in the market becomes likely, thereby increasing the pressure on them to act competitively.  See Baker  Hughes, 908 F.2d at 988;  Byars v. Bluff City News Co., 609 F.2d 843, 851 n.19 (6th Cir. 1979).

14
 There are at least ten metropolitan areas in which Heinz and  Beech-Nut both have more than a 10 per cent market share and  their combined share exceeds 35 per cent.  PX 781 at Ex. 1B.

15
 Interchangeability of use and cross-elasticity of demand look to  the availability of products that are similar in nature or use and the  degree to which buyers are willing to substitute those similar  products for one another.  See E.I. du Pont de Nemours, 351 U.S.  at 393.

16
 Fixed trade spending consists of "slotting fees," "pay-to-stay"  arrangements, new store allowances and other payments to retailers in exchange for shelf space and desired product display.  H.J.  Heinz, 116 F. Supp. 2d at 197.  Variable trade spending includes  payments to retailers tied to sales volume and intended to insure a  specific sales volume and lower shelf price.  Id.

17
 Although the merger's effects on the wholesale market for baby  food are important to a determination of whether the merger is  likely to reduce competition in the baby food market overall, we  reject the FTC's argument here that the "wholesale competition"  between Heinz and Beech-Nut is an entirely distinct "line of  commerce" within the meaning of section 7 of the Clayton Act such  that it must be analyzed independently from "retail competition." The Congress amended section 7 in 1950 "to make the measure of  anticompetitive acquisitions the extent to which they lessened competition 'in any line of commerce,' rather than the extent to which  they lessened competition 'between' the two companies."  Citizen  Publishing Co. v. United States, 394 U.S. 131, 137 n.3 (1969). Courts interpret "line of commerce" as synonymous with the relevant product market.  See General Dynamics, 415 U.S. at 510; Falstaff Brewing, 410 U.S. at 531-32.  The district court defined  only one market--jarred baby food sold throughout the line of  commerce in the United States.  Thus, the proper "line of commerce" for analysis in this case is the overall market for jarred  baby food, which includes both retail and wholesale levels.  At this  point in the proceedings, the wholesale market cannot be separated  out for analysis without regard to the merger's effect on other  levels of competition.

18
 In Procter & Gamble Co., 386 U.S. at 580, the Supreme Court  stated that "[p]ossible economies cannot be used as a defense to  illegality" in section 7 merger cases.  The issue is, however, not a  closed book.  See Staples, 970 F. Supp. at 1088 (collecting cases). Areeda and Turner explain that "[i]n interpreting the Clorox language, moreover, observe that the court referred only to 'possible'  economies and to economies that 'may' result from mergers that  lessen competition.  To reject an economies defense based on mere  possibilities does not mean that one should reject such a defense  based on more convincing proof."  4 Phillip Areeda & Donald  Turner, Antitrust Law p 941b, at 154 (1980).  They conclude that  "[t]he Court's brief and unelaborated language [in Clorox] cannot  reasonably be taken as a definitive disposition of so important and  complex an issue as the role of economies in analyzing legality of a  merger."  Id.

19
 In addition, the district court described Heinz's distribution  network as much more efficient than Beech-Nut's.  H.J. Heinz, 116 F. Supp. 2d at 199.  It failed to find, however, a significant  diseconomy of scale in distribution from which either Heinz or  Beech-Nut suffers.  4A Areeda, et al., supra, p 975e1, at 73.  In  other words, although Beech-Nut has an inefficient distribution  system, it can make that system more efficient without merger. Heinz's own efficient distribution network illustrates that a firm the  size of Beech-Nut does not need to merge in order to attain an  efficient distribution system.

20
 The Horizontal Merger Guidelines explain that "merging firms  must substantiate efficiency claims so that the Agency can verify by  reasonable means the likelihood and magnitude of each asserted  efficiency, how and when each would be achieved (and any costs of  doing so), how each would enhance the merged firm's ability and  incentive to compete, and why each would be merger-specific. Efficiency claims will not be considered if they are vague or  speculative or otherwise cannot be verified by reasonable means." Horizontal Merger Guidelines, supra, 4.  Regarding the types of  efficiencies asserted here, the Guidelines state:
The Agency has found that certain types of efficiencies are more likely to be cognizable and substantial than others.  For example, efficiencies resulting from shifting production among facilities formerly owned separately, which enable the merging firms to reduce the marginal cost of production, are more likely to be susceptible to verification, merger-specific, and substantial, and are less likely to result from anticompetitive reductions in output.  Other efficiencies, such as those relating to research and development, are potentially substantial but are generally less susceptible to verification and may be the result of anticompetitive output reductions.  Yet others, such as those relating to procurement, management, or capital cost are less likely to be merger-specific or substantial, or may not be cognizable for other reasons.
Id.

21
 For example, a 5 cent piece of bubble gum introduced with a  90% ACV could appear as a failure on the graph because of low  revenue but nonetheless be profitable.  On the other hand, a high  priced grocery product introduced with the same ACV could generate a lot of revenue (and thus appear as a "success" on the graph)  yet be unprofitable.

22
 The graph evidence is also not useful unless we know the  "sunk" costs in bringing the product to market and the manufacturer's fixed and variable costs in producing the product.  Sunk costs  are costs that have already been incurred such as research and  development and promotional expenses, including brand name development.  See Henry N. Butler, Economic Analysis for Lawyers  935 (1998).  Fixed costs refer to those expenses that do not vary  with output and will be incurred as long as the firm continues in  business.  Variable costs are those that change with the rate of  output such as wages paid to workers and payments for raw  materials.  See id. at 920, 936;  E. Thomas Sullivan & Jeffrey L.  Harrison, Understanding Antitrust and its Economic Implications  19-21 (3d ed. 1998).

23
 In an oligopolistic market characterized by few producers, price  leadership occurs when firms engage in interdependent pricing,  setting their prices at a profit-maximizing, supracompetitive level  by recognizing their shared economic interests with respect to price  and output decisions.  See Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 227 (1993);  see also Jesse W.  Markham, The Nature and Significance of Price Leadership, 41  Amer. Econ. Rev. 891 (1951);  Richard A. Posner, Oligopoly and the  Antitrust Laws:  A Suggested Approach, 21 Stan. L. Rev. 1562, 1582  (1969);  Donald Arthur Washburn, Price Leadership, 64 Va. L. Rev.  691, 693-697 (1978).  In a duopoly, a market with only two competitors, supracompetitive pricing at monopolistic levels is a danger. See Edward Hastings Chamberlin, The Theory of Monopolistic  Competition:  A Re-orientation of the Theory of Value 46-55 (8th  ed. 1962).

24
 Contrary to the appellees' claims, nothing in Baker Hughes  suggests otherwise.  In that case, the sophisticated nature of the  purchasers of the industry's product and the "volatile and shifting"  nature of each firm's market share rendered the HHI figures an  unreliable measure of concentration.  See 908 F.2d at 986-87.  No  such circumstances exist in this case.

25
 The district court noted that "[t]he parties have not stressed  private equities" but the court nonetheless considered them.  It  concluded that while "the corporate interests of Heinz and Milnot  and especially the interests of Dearborn Capital Partners LP, which  presumably acquired Milnot through a leveraged buyout with the  purpose and intent of selling its interest at a profit" were important  to the private parties, they should not affect the outcome of the  proceeding.  H.J. Heinz, 116 F. Supp. 2d at 200 n.9.  We agree. "While it is proper to consider private equities in deciding whether  to enjoin a particular transaction, we must afford such concerns  little weight, lest we undermine section 13(b)'s purpose of protecting the 'public-at-large, rather than the individual private competitors.' "  University Health, 938 F.2d at 1225 (citation omitted);  cf.  Weyerhaeuser, 665 F.2d at 1083 ("Private equities do not outweigh  effective enforcement of the antitrust laws.  When the Commission  demonstrates a likelihood of ultimate success, a countershowing of  private equities alone would not suffice to justify denial of a  preliminary injunction barring the merger.").

26
 "The most difficult mergers to assess may be those that  combine both negative and positive effects:  creating market power  that increases the risk of oligopolistic pricing while at the same time  creating efficiencies that reduce production or marketing costs." Sullivan & Grimes, supra, 9.1, at 511.