The Procter & Gamble Company

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THE PROCTER & GAMBLE CO. 1465

1465 Complaint IN THE MATTER OF THE PROCTER & GAMBLE COMPANY

ORDER, OPINIONS, ETC., IN REGARD TO THE ALLEGED VIOLATION OF SEC. 7 OF THE CLAYTON ACT

Docket 6901. Complaint, Sept. 30, 1957—Decision, Nov. 26, 1963

Order requiring the leading producer in the United States of soap and detergent products and a major producer of food products, toilet goods and paper products—sold both as consumer household brands and in bulk quantities, to laundries, hotels, institutions, the baking industry and other industrial users—to divest itself absolutely, within one year, of all assets, properties, rights and privileges, tangible and intangible, acquired as a result of its acquisition in August 1957 of the Nation's leading manufacturer of household liquid bleach, whose annual sales before the acquisition represented almost 50 percent of the national total—the divestiture to be subject to the provisions in the order below set forth and upon terms and conditions approved by the Commission.

COMPLAINT

The Federal Trade Commission, having reason to believe that the party respondent named in the caption hereof, and hereinafter more particularly designated and described, has violated and is now violating the provisions of Section 7 of the Clayton Act (U.S.C., Title 15, Sec. 18) as amended and approved December 29, 1950, hereby issues its complaint, pursuant to Section 11 of the aforesaid Act (U.S.C. Title 15, Sec. 21) charging as follows: PARAGRAPH 1. Respondent, The Procter & Gamble Company (hereinafter referred to as “respondent”) is a corporation organized and existing under the laws of the State of Ohio, with its office and principal place of business at The Procter & Gamble Building, 301 East Sixth Street, Cincinnati, Ohio.

PAR. 2. The Clorox Chemical Co. (hereinafter referred to as “Clorox”) was, prior to August 1, 1957, a corporation organized and existing under the laws of the State of Delaware, with its office and principal place of business at 850 – 42nd Avenue, Oakland, California.

Complaint 63 F.T.C.

PAR. 3. Respondent, directly and through various completely owned subsidiary corporations, is engaged principally in the manufacture and sale of packaged soaps and detergents, paper products, shortening and other food products, and shampoos, dentifrices and home permanents, which are sold under advertised brand names. The respondent is the leading producer in the United States of soap and detergent products and a major producer in its other principal product fields. The most important consumer household brands which are sold by respondent to retail and wholesale grocery and drug outlets, department stores and variety stores are as follows: Soaps, Detergents and Cleansers:

Ivory Soap Ivory Flakes Ivory Snow Camay—toilet soap Lava—pumice hand soap Duz—detergent Tide—detergent Cheer—detergent Dreft—detergent Oxydol—detergent Dash—low sudsing detergent Joy—liquid detergent Comet—household scouring cleanser Cascade—automatic dishwasher detergent Spic and Span—paint and linoleum cleaner Zest—toilet detergent bar Food Products:

Crisco—shortening Golden Fluffo—shortening Big Top—peanut butter Duncan Hines—prepared mixes—16 kinds Toilet Goods:

Crest—fluoridated toothpaste Gleem—toothpaste Drene—shampoo Prell—shampoo Shasta—shampoo Lilt—home permanent Pin-It—home permanent.

Paper Products:

Charmin—toilet tissue Lady Charmin—toilet tissue Charmin—facial tissue Charmin—napkins Charmin—towels Evergreen—industrial paper products

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Respondent is also marketing "American Family" soap, flakes and detergents in the greater Chicago area. Selected market areas are being used by respondent to market "Biz" liquid detergent, "Whirl" liquid shortening, "Secret" personal deodorant, "Ivory" liquid detergent, "Jif" peanut butter and "Velvet Blend" shampoo.

Respondent also manufactures soaps, detergents, shortenings and edible oils for sale in bulk quantities to laundries, hotels, institutions, the baking industry and other industrial users; vegetable oils and chemicals chiefly for use in its own products; and by-products, such as glycerine, for sale to industrial users.

Respondent does a substantial manufacturing and marketing business abroad in consumer products similar to those manufactured and marketed in this country. Said business is conducted through completely owned subsidiary corporations located in Canada, England, Cuba, the Philippines, Indonesia, Mexico, Venezuela, and Belgium.

PAR. 4. Respondent, directly and through its completely owned subsidiaries, maintains factories for the manufacture of household and industrial soaps and detergents, shortenings, toilet goods, edible vegetable oils and food products in the United States at the following locations:

Cincinnati and St. Bernard, Ohio St. Louis, Missouri Chicago, Illinois Long Beach, California Staten Island, New York Sacramento, California Kansas City, Kansas Portsmouth, Virginia Macon, Georgia Quincy, Massachusetts Dallas, Texas Iowa City, Iowa Dayton, Ohio Jackson, Mississippi Lexington, Kentucky Omaha, Nebraska Baltimore, Maryland

In addition to the aforementioned locations, respondent and its completely-owned subsidiaries own vegetable oil mills located at Augusta and Macon, Georgia; Charlotte and Raleigh, North Carolina; Montgomery and Selma, Alabama; Corinth and Jackson, Mississippi; Memphis, Tennessee; Little Rock, Arkansas; New Madrid, Missouri; Louisville, Kentucky; Fort Worth, Texas; Baltimore, Maryland; Long Beach, California; and Toronto, Canada. Respondent and its completely-owned subsidiaries also operate chemical pulp plants at Memphis, Tennessee, and Foley, Florida; research facilities at Venice, Ohio; and paper production facilities at Green Bay and West DePere, Wisconsin, and a wood pulp plant at Green Bay.

Complaint 63 F.T.C.

PAR. 5. Respondent is engaged in the sale of products designated in Paragraphs 3 and 4 herein in commerce, as "commerce" is defined in the Clayton Act. During the fiscal year ending June 30, 1956, respondent's net sales of such products were $1,038,290,374. Estimated net sales for the fiscal year ending June 30, 1957, are $1,148,000,000.

PAR. 6. According to the latest information available, respondent accounted for the following percentages of the total United States market in its designated major product fields by value of shipments:

------------------------------------------------------------------ Product field | Percentage of | U.S. market -----------------------------------------------------|-------------- Toilet Soaps (bar soaps)------------------------------------------------| 24 Laundry Soaps (bar soaps)-----------------------------------------------| 91 Package Soap Chips------------------------------------------------------| 52 Package Soap Powders----------------------------------------------------| 51 Liquid Detergents-------------------------------------------------------| 45 Packaged Detergents-----------------------------------------------------| 58 Shampoos----------------------------------------------------------------| 24 Toothpastes-------------------------------------------------------------| 34 Vegetable Shortenings---------------------------------------------------| 36 ------------------------------------------------------------------

PAR. 7. Respondent has increased its size, operations, sales, profits, assets and earned surpluses tremendously in recent years. Since 1946 respondent's net worth, net sales and net profit have increased over 300%. Respondent now employs over 18,000 persons in the United States and over 8,000 persons abroad. Respondent is constantly diversifying its operations and manufacturing and selling new products. Respondent has also entered into the production and sale of additional products by acquiring assets and stock of existing producers of said products. Among such acquisitions in recent years have been the following:

------------------------------------------------------------------ Year | Company | Product or activity -----------------------|----------------------------------|-------------------- 1955-------------------| W. T. Young Foods, Inc-----------| "Big Top" Peanut Butter and peanut | | products. 1956-------------------| Prepared Mix Division of Nebraska| Cake mixes. | Consolidated Mills, Inc. | 1956-------------------| Hines-Park Foods, Inc------------| Distributor of food products, princi- | | pally cake mixes. 1956-------------------| Duncan Hines Institute, Inc------| Licenses for prestige eating establish- | | ments. 1957-------------------| Charmin Paper Mills, Inc---------| Paper tissues and related paper pro- | | ducts. 1957-------------------| Clorox Chemical Co---------------| Liquid Bleach. ------------------------------------------------------------------

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1465 Complaint

Respondent has also acquired numerous soap and detergent companies since 1905. Respondent was originally founded in 1837 and has constantly expanded by acquisition, by integration, and by diversification to reach its present standing. PAR. 8. Prior to August 1, 1957, Clorox was engaged in the production and sale of sodium hypochlorite liquid bleach and disinfectant. Said product was sold nationally under the trade name "Clorox," in commerce, as "commerce" is defined in the Clayton Act. In the fiscal year ending June 30, 1956, net sales of "Clorox" were $36,409,197.70. Net sales of "Clorox" for the fiscal year ending June 30, 1957, were approximately $40,000,000. Clorox is, and has been for many years, the largest producer of household liquid bleach in the United States. In 1956 Clorox produced and sold approximately 48% of all household liquid bleaches sold in the United States. The number two producer in this field accounted for approximately 16% of all household liquid bleaches sold. The remaining producers, approximately forty in number, accounted for the remaining 36% of sales of household liquid bleach in the United States in 1956. Within the latter group of producers, no single liquid bleach producer enjoyed over 5% of the national household liquid bleach market.

PAR. 9. On or after August 1, 1957, respondent acquired Clorox as a going concern, including all of Clorox's assets, trademarks, business and good will. The acquisition was achieved by respondent exchanging 8½ shares of its stock for every 10 shares of Clorox stock outstanding. The market value of respondent's exchanged stock was approximately $30,300,000. The assets of Clorox were valued at approximately $15,000,000 at the time of the acquisition. Under the terms of the acquisition agreements, respondent was given the exclusive right to the name "Clorox." Respondent formed a new Ohio corporation, The Clorox Company, as a completely owned subsidiary, to commence the manufacture and sale of "Clorox" liquid bleach and transferred the assets and intangibles obtained from Clorox to said subsidiary corporation. The Clorox Chemical Co. was dissolved after its officers distributed respondent's exchanged stock to the stockholders of Clorox Chemical Co. under the ratio of exchange.

PAR. 10. Prior to the aforementioned acquisition, Clorox was the dominant factor in the household liquid bleach market. Said posi-

Complaint 63 F.T.C.

tion had been achieved through extensive advertising which had made the product "Clorox" well known and accepted in American households. Production of "Clorox" took place at factories in Atlanta, Georgia; Boston, Massachusetts; Camden, New Jersey; Charlotte, North Carolina; Chicago, Illinois; Cleveland, Ohio; Houston, Texas; Jersey City, New Jersey; Kansas City, Missouri; Los Angeles, California; Oakland, California; Seattle, Washington; and Tampa, Florida, prior to the acquisition. These regional production plants enabled Clorox to reduce freight costs of its finished product. Said freight costs are a significant factor in the sale of household liquid bleach.

Clorox had experienced a pattern of constant growth and expansion in the five years prior to the aforementioned acquisition and its share of the household liquid bleach market had been constantly increasing. Clorox produced no product in addition to "Clorox" bleach. At the time of the aforementioned acquisition Clorox was dominant in its product market, was operating profitably and its product "Clorox" was firmly established by public acceptance. Said public acceptance and the value of the well known and widely advertised name "Clorox" is demonstrated by the fact that respondent paid Clorox far in excess of the value of Clorox's assets in the acquisition aforementioned, said excess amount representing the value of the trade-name "Clorox" and the good will of Clorox. PAR. 11. Respondent, by virtue of the acquisition of Clorox, has entered a market in which it did not formerly compete or offer a competitive product. Respondent, in so doing, has replaced the dominant factor in that market with its own dominant ability to produce and sell which threatens the household liquid bleach market with extremely adverse competitive effects. Prior to the aforementioned acquisition, Clorox—with assets of approximately $15,- 000,000; accumulated retained earnings of approximately $6,000,000; annual net income of approximately $2,000,000; and annual net sales of approximately $40,000,000—was gaining a steadily larger share of the household liquid bleach market as the market share of the other household liquid bleach producers constantly diminished. As a result of the acquisition, said household liquid bleach producers must now compete with respondent—with assets of approximately $726,000,000; accumulated retained earnings of approximately $409,-

THE PROCTER & GAMBLE CO. 1471 1465 Complaint 000,000; annual net income of approximately $60,000,000; and annual net sales of approximately 1.2 billion dollars. PAR. 12. In addition to its economic strength and ability, as delineated heretofore, respondent is a recognized leader in the merchandising of household or grocery store products. The vast majority of respondent's products, and "Clorox," are sold in grocery stores at low prices and in large volume. Such products require consumer acceptance in order to obtain critically short and valuable shelf space in the grocery stores. Such consumer acceptance of these products, especially soaps, detergents, cleansers, bleaches and toilet goods is obtained by extensive advertising. Respondent is the second largest advertiser of all products in the United States, having spent approximately $79,000,000 for advertising of its products in 1956, utilizing all media and means of reaching the consuming public. In conjunction with its advertising, respondent has been extremely successful in promoting its household products. Respondent has utilized various promotional devices—including "two-for-one" sales, free samples, price-reducing coupons, reduced prices, and premiums for purchase—to a high degree. PAR. 13. The ability of respondent to utilize advertising and promotional devices to gain shelf space and to sell its products, as set forth in Paragraph Twelve, has been vividly demonstrated in the recent past. Respondent introduced a new toothpaste, "Gleem," in 1953, and another new toothpaste "Crest," in 1956. By utilizing its advertising and promotional ability, as aforesaid, "Gleem" had acquired 25% of the toothpaste market by 1955 and "Crest" acquired an additional 13% of said market in its first year of production. In a field more directly related to liquid bleaches, the household cleanser market, respondent introduced in 1956 a new product, "Comet." By utilizing its advertising and promotional ability, as aforesaid "Comet" acquired approximately 29% of the household cleanser market by March, 1957, nine months after it was first introduced. In said promotions respondent distributed approximately 30,000,000 miniature samples of "Comet" at an estimated cost of 3.3 million dollars. These examples of the effectiveness of respondent's merchandising and advertising ability and power with new and previously un-

Complaint 63 F.T.C.

known products demonstrate the impact on the household liquid bleach market that respondent, as a result of the acquisition of Clorox, can now accomplish with the already existing, dominant, well-known and established product "Clorox." Said impact will be to the competitive disadvantage of household liquid bleach manufacturers and the household liquid bleach industry. Par. 14. Respondent, by virtue of the acquisition, has expanded its line of soaps, detergents and cleansers with a closely allied product, household liquid bleach. While respondent had not, prior to the acquisition of Clorox, produced a product competitive with household liquid bleach, respondent's soaps, detergents, and cleansers are used by housewives in conjunction with, and as a complement to, household liquid bleach. Therefore, respondent can now offer grocery stores a complete line of cleansing and laundry products. Said complete line increases respondent's ability to obtain the aforementioned valuable and difficult to obtain grocery store shelf-space and is to the competitive disadvantage of household liquid bleach companies, none of whom possess the complete line of cleansing and laundry products as respondent now does.

Par. 15. Respondent has violated Section 7 of the Clayton Act, as amended, in that the acquisition of the assets and business of Clorox, as described in Paragraph 9 hereof, may have the effect of substantially lessening competition or tending to create a monopoly in the production and sale of household liquid bleaches in the United States and in each of them.

More specifically, the aforesaid effects include the actual or potential lessening of competition and a tendency to create a monopoly in violation of Section 7 of the Clayton Act, as amended, in the following ways, among others:

1. Actual and potential competition generally in the production and sale of household liquid bleaches may be substantially lessened. 2. The Clorox Chemical Co. has been permanently eliminated as an independent competitive factor in the household liquid bleach industry.

3. Household liquid bleach producers may be unable to compete with respondent due to any one, any combination of, or all of the following factors:

(a) Respondent's market position;

(b) Respondent's financial and economic strength; (c) Respondent's advertising ability and experience; (d) Respondent's merchandising and promotional ability and experience;

(e) Respondent's "full-line" of cleansing and laundry products;

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(f) Respondent's ability to command consumer acceptance of its products and of valuable grocery store shelf space; (g) Respondent's ability to concentrate on one of its products, or on one selected section of the country, the full impact of its advertising, promotional, and merchandising experience and ability. 4. Respondent's competitive position in the production and sale of household liquid bleaches may be enhanced to the detriment of actual and potential competition. 5. Industrywide concentration of the production and sale of household liquid bleaches may be increased. 6. The acquisition gives respondent the facilities, the market position and the dominant ability to monopolize or to tend to monopolize the household liquid bleach market. PAR. 16. The foregoing acquisition, acts and practices of respondent, as hereinbefore alleged and set forth, constitute a violation of Section 7 of the Clayton Act (U.S.C. Title 15, Sec. 18) as amended and approved December 29, 1950.

Mr. J. Wallace Adair and Mr. V. Rock Grundman, Jr., for the Commission. Mr. Kenneth C. Royall, Mr. Frederick W. R. Pride and Mr. Robert D. Larsen of Royall, Koegel, Harris & Caskey, Washington, D.C., for the respondent.

OPINION OF THE COMMISSION

JUNE 15, 1961

By the Commission:

The complaint in this matter charges respondent, The Procter & Gamble Company, with violating Section 7 of the Clayton Act, as amended, by acquiring the assets and business of Clorox Chemical Co. (hereinafter referred to as Clorox). The hearing examiner has filed his initial decision holding that the acquisition violated Section 7, as alleged, and the matter is now before the Commission on cross-appeals of respondent and counsel supporting the complaint. The complaint alleges in substance that the acquisition of the dominant firm in the household liquid bleach field by the leading producer in related product fields may have the effect of substantially lessening competition or tending to create a monopoly in the production and sale of household liquid bleach. It specifically charges in this connection that producers of household liquid bleach may be unable to compete with respondent due to any one, any combination of, or all of the following factors: (a) Respondent's market position:

Opinion 63 F.T.C.

(b) Respondent's financial and economic strength; (c) Respondent's advertising ability and experience; (d) Respondent's merchandising and promotional ability and experience;

(e) Respondent's "full-line" of cleansing and laundry products; (f) Respondent's ability to command consumer acceptance of its products and of valuable grocery store shelf space; (g) Respondent's ability to concentrate on one of its products, or on one selected section of the country, the full impact of its advertising, promotional, and merchandising experience and ability. As the hearing examiner has pointed out, this case involves a conglomerate acquisition and is therefore one of first impression. In all previous Section 7 proceedings before the Commission, the challenged acquisitions were of either a vertical or horizontal nature. Here, however, the acquiring firm was neither a supplier or customer, nor a competitor of the acquired. Such a merger, therefore, does not have the effect of automatically foreclosing to competitors any market outlet or source of supply as in a vertical merger, nor does it have the effect of automatically eliminating a competitor as in a horizontal merger. Nevertheless, such a merger violates Section 7 if it has the proscribed effect. We repeat here with emphasis our recent holding in the Scott Paper case:¹ "Under Section 7, as amended, any acquisition whether it be vertical, conglomerate or horizontal is unlawful if the effect may be substantially to lessen competition or to tend to create a monopoly in any line of commerce."² Therefore, respondent's contention that this type of acquisition is not embraced by Section 7 has no merit and is rejected. The question in this proceeding thus is whether the proscribed effect may in fact result from this particular acquisition where the only immediate effect is the replacement of one competitor by another. In making this determination, the same tests apply as in any other matter coming within the purview of Section 7, but since a conglomerate acquisition does not have the above-mentioned "automatic" effects of a vertical or horizontal merger, such a determination is necessarily difficult to make from a consideration of evidence relating solely to the competitive situation existing in the relevant market prior to the acquisition and to the pre-merger status of the

¹ In the Matter of Scott Paper Company, Docket 6559 (Dec. 16, 1960) [57 F.T.C. 1415, 1440].

² This holding follows both from the language of the statute and from relevant legislative history. The House Committee report stated: "* * * the bill applies to all types of mergers and acquisitions, vertical and conglomerate as well as horizontal, which have the specified effects of substantially lessening competition * * * or tending to create a monopoly." (H.R. Rep. No. 1191, 81st Cong. 1st Sess. p. 11 (1949).)

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acquired and acquiring corporations. Consequently, a consideration of post-acquisition factors is appropriate. In this case, the hearing examiner has placed considerable emphasis on evidence relating to the post-acquisition activities of Clorox. Relying primarily on this evidence, he has concluded that the dominant market position held by Clorox in the production and sale of liquid bleach has been enhanced to the detriment of actual and potential competition; that there is an increasing tendency of concentration of competitors in the liquid bleach industry and that other liquid bleach producers will be unable to expand their operations by normal methods of competition. While we are of the opinion that, in the circumstances of this case, he was correct in considering this evidence, we do not agree that it supports his conclusions with respect to the probable effects of the acquisition. The hearing examiner has found in this connection that, subsequent to the acquisition, Clorox has systematically countered the promotional activities of Purex Chemical Company, the second largest producer of liquid bleach, by its own advertising and promotional campaigns in various market areas throughout the country. With one exception, however, the effectiveness of these counter promotional activities cannot be determined from the record. The evidence discloses that in one market area, Erie, Pennsylvania, Purex was unsuccessful in its attempt to conduct a market test by reason of respondent's counter promotions. We do not believe that it can be inferred from this one showing, however, that the same results would occur in other market areas that Purex or other producers may attempt to enter or in which they may attempt to expand their operations. The hearing examiner has also found that, subsequent to the acquisition, Clorox's market share of the total household liquid bleach sales had increased substantially. This finding is based on data obtained from reports covering the period August, 1957, to November, 1958, made by the A. C. Nielsen Company Marketing Service. It appears that the increase in the Clorox market share in the first twelve months of this period was 0.3 of one Nielsen point and, in the entire sixteen months, 0.42 of one Nielsen point. This increase, however, is only about half of the average increase of 0.8 of one Nielsen point made by Clorox in each of the five years prior to the acquisition. The hearing examiner's failure to consider this pre-acquisition growth trend of Clorox detracts from his conclusion that there had been a substantial increase in the dominant market position held by Clorox as a result of the acquisition.

Opinion 63 F.T.C.

In our opinion, the post-acquisition data neither supports the hearing examiner's conclusions nor does it indicate in any manner that the acquisition will not result in a substantial lessening of competition or tendency toward monopoly. As pointed out by counsel supporting the complaint, very few of respondent's merchandising techniques were used during the first eight months after the acquisition. Thereafter, when consumer promotions were used, although only on a limited basis, the market share of Clorox increased sharply. Moreover, counsel supporting the complaint contend that, during the sixteen month period after the acquisition, respondent had put into effect only a few of the changes which it might reasonably be expected to make in the production and merchandising of liquid bleach. These changes did not extend to the use of respondent's manufacturing facilities, the use of respondent's sales force in place of independent brokers, coordination of the advertising and promotion of Clorox with respondent's full line of related products and the use of national television advertising. According to counsel supporting the complaint, it is only when respondent begins to use the merchandising techniques and methods by which it has achieved spectacular successes against major competition in the soap and detergent fields that the full impact of this financially powerful corporation will be made on competition in the liquid bleach industry.

The record as presently constituted does not provide an adequate basis for determining the legality of this acquisition. In the circumstances, we might dismiss the complaint and direct our staff to maintain continuing surveillance of this market, with the possibility of bringing another complaint in the future if we think it warranted. We believe, however, that the public interest will be better served and the respondent not unduly inconvenienced by our remanding the case for the taking of additional evidence. This is likely to obviate the necessity of a plenary proceeding in the future that would be more costly in time and money to both the Commission and respondent than adding to the present record. Moreover, this disposition of the matter, providing as it will a more complete and detailed post-acquisition picture, has the advantage of allowing the Commission an informed hindsight upon which it can act rather than placing too strong a reliance upon treacherous conjecture. The case will, therefore, be remanded to the hearing examiner for the reception of evidence relating to the competitive situation as it presently exists in the liquid bleach industry. This evidence should relate to events occurring subsequent to November 1958,

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1465 Initial Decision

and should include market share data in each of the geographical regions specified on page 17 of the initial decision, as well as information directed to more clearly delineating the production and merchandising facilities and techniques which have been utilized by Clorox under the control of respondent.

Chairman Dixon and Commissioner Elman not participating.

ORDER REMANDING PROCEEDING TO HEARING EXAMINER

JUNE 15, 1961

Counsel supporting the complaint and respondent having filed cross-appeals from the initial decision in this matter; and The Commission having determined that the record as presently constituted does not provide an adequate basis for informed determinations as to the actual or probable effects of respondent's acquisition of Clorox Chemical Co. on competition in the production and sale of household liquid bleach, and being of the opinion that the record should be supplemented in this respect to the end that all of the issues involved in the case may be finally and conclusively disposed of on their merits:

It is accordingly ordered, That the initial decision be, and it hereby is, vacated and set aside.

It is further ordered, That this proceeding be, and it hereby is, remanded to the hearing examiner for the reception of such further evidence concerning the competitive effects of the aforementioned acquisition as may be offered in conformity with the views expressed in the accompanying opinion of the Commission. It is further ordered, That after the receipt of such additional evidence the hearing examiner make and file a new initial decision on the basis of the entire record herein. By the Commission, Chairman Dixon and Commissioner Elman not participating.

SECOND INITIAL DECISION BY EVERETT F. HAYCRAFT, HEARING EXAMINER

FEBRUARY 28, 1962

INDEX

Page PRELIMINARY STATEMENT-------------------------------- 1479 A. THE PLEADINGS AND PROCEEDINGS-------------------- 1479 B. STATEMENT OF THE ISSUES AND OPINION------------ 1482 FINDINGS AS TO THE FACTS---------------------------- 1484 I. DESCRIPTION OF THE RESPONDENT AND THE IN- DUSTRIES IN WHICH IT WAS ENGAGED IN 1957---- 1484

780-018—69—94

Initial Decision 63 F.T.C. FINDINGS AS TO THE FACTS—Continued Page II. THE CLOROX CHEMICAL COMPANY---------------------- 1486 III. THE ACQUISITION OF CLOROX CHEMICAL-------------- 1487 IV. HOUSEHOLD LIQUID BLEACH IS THE LINE OF COM- MERCE IN THIS PROCEEDING---------------------- 1490 V. THE SECTIONS OF THE COUNTRY AND COMPETITORS IN EACH SECTION-------------------------------- 1490 A. The Sections of the Country Involved Herein------------ 1490 B. The Principal Competitors in each Section-------------- 1491 1. The Purex Chemical Company--------------------- 1491 2. Roman Cleanser Company------------------------- 1492 3. Linco Products Corporation--------------------- 1492 4. The Hood Chemical Company---------------------- 1492 5. Rose-Lux Chemical Company---------------------- 1492 6. The J. L. Prescott Company--------------------- 1492 7. The Savol Bleach Company----------------------- 1492 8. The Gardiner Manufacturing Company------------- 1492 9. The John Buhl Products Company----------------- 1493 10. Jones Chemicals, Incorporated------------------- 1493 11. Lady's Choice Foods----------------------------- 1493 12. The No-Worry Chemical Company------------------- 1493 13. B. T. Babbitt, Inc------------------------------ 1493 14. The Hilex Liquid Bleach Company----------------- 1493 15. The Texize Chemical Company--------------------- 1493 VI. CLOROX'S SHARE OF THE HOUSEHOLD LIQUID BLEACH MARKET IN THE UNITED STATES AND IN CERTAIN SECTIONS OF THE COUNTRY AT THE TIME OF THE ACQUISITION AND AS OF JUNE-JULY 1961------------------------------------------------------ 1494 VII. SOME HOUSEHOLD LIQUID BLEACH MANUFACTURERS SOLD A PORTION OF THEIR OUTPUT TO GROCERY CHAINS FOR RESALE UNDER PRIVATE BRAND LABELS---------------------------------------------------- 1496 VIII. RESPONDENT'S MARKET POSITION IN THE SOAP, DETERGENT, AND ABRASIVE CLEANSER MARKETS- 1498 IX. P & G's SELLING AND MERCHANDISING METHODS---- 1498 A. Method of Distribution--------------------------------- 1498 B. Shelf Space in Grocery Stores-------------------------- 1499 C. Advertising Programs----------------------------------- 1500 D. Sales Promotion Methods-------------------------------- 1501 E. P & G's "Comet" Advertising and Sales Promotion Campaign------------------------------------------ 1502 X. CHANGES MADE BY P & G SUBSEQUENT TO THE ACQUISITION OF CLOROX CHEMICAL----------------- 1502 A. As to Management Personnel of Clorox------------------- 1502 B. As to Plant Operations--------------------------------- 1503 C. As to Sales Promotion Campaigns------------------------ 1503 D. As to Advertising-------------------------------------- 1507 1. In Magazines----------------------------------- 1507 2. On Radio--------------------------------------- 1508 3. On Television---------------------------------- 1508 4. Savings in Advertising Expenditures------------- 1514

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FINDINGS AS TO THE FACTS—Continued Page XI. EFFORTS OF CLOROX UNDER P & G OWNERSHIP AND CONTROL TO PREVENT A COMPETITOR FROM ENTERING OR EXPANDING IN THE LIQUID BLEACH MARKET------------------------------------------------ 1515 1. In Erie County, Pennsylvania------------------------- 1515 2. In Evansville, Indiana------------------------------- 1517 3. In Other Markets------------------------------------- 1517 XII. SUBSEQUENT TO THE ACQUISITION BY P & G ON AUGUST 1, 1957, CLOROX'S MARKET SHARE OF THE TOTAL HOUSEHOLD LIQUID BLEACH SALES (ON BOTH A QUART EQUIVALENT BASIS AND A CON- SUMER DOLLAR BASIS) HAS INCREASED SUBSTAN- TIALLY------------------------------------------------ 1518 XIII. CLOROX AND PUREX MARKET SHARES IN PACIFIC, SOUTHWEST AND WEST CENTRAL REGIONS COM- BINED------------------------------------------------- 1522 XIV. THE EFFECT OF THE ACQUISITION OF CLOROX CHEM- ICAL BY THE RESPONDENT P & G MAY BE TO SUP- PRESS THE COMPETITION OF NOT ONLY PUREX BUT OTHER SMALL COMPETITORS------------------------- 1523 A. As to the Purex Company----------------------------- 1523 B. As to the Linco Products Corporation----------------- 1523 C. As to the Rose-Lux Chemical Company------------------ 1524 D. As to the J. L. Prescott Company--------------------- 1524 E. As to the Sunlight Chemical Corporation-------------- 1524 F. As to the Savol Company------------------------------ 1524 G. As to the Gardiner Manufacturing Company------------- 1525 H. As to Jones Chemicals, Inc--------------------------- 1525 I. As to B. T. Babbitt Company-------------------------- 1525 XV. THE ADDITION OF CLOROX TO THE P & G LINE OF SOAPS, DETERGENTS, AND CLEANSERS WILL ADD MERCHANDISING STRENGTH AND SUPPORT TO CLOROX WHICH WAS NOT AVAILABLE TO THE CLOROX CHEMICAL COMPANY----------------------------- 1526 XVI. THE INDUSTRY-WIDE CONCENTRATION OF THE PRODUCTION AND SALE OF HOUSEHOLD LIQUID BLEACH MAY BE INCREASED----------------------------- 1527 XVII. THE MARKET SHARE POSITION OF CLOROX LIQUID BLEACH BEFORE AND AFTER ACQUISITION---------- 1527 CONCLUSIONS------------------------------------------------- 1529 ORDER OF DIVESTITURE---------------------------------------- 1533

PRELIMINARY STATEMENT

A. THE PLEADINGS AND PROCEEDINGS.

The Commission, on September 30, 1957, issued a complaint against The Procter & Gamble Company, an Ohio corporation, sometimes hereinafter referred to as P & G, with its principal office and place of business located in Cincinnati, Ohio, charging it with violation

Initial Decision 63 F.T.C. of Section 7 of the Clayton Act, as amended December 29, 1950, through the acquisition on August 1, 1957, of the assets, trademarks, business and goodwill of the Clorox Chemical Company, a Delaware corporation, sometimes hereinafter referred to as Clorox Chemical, with its principal office and place of business located in Oakland, California.

Specifically, the complaint alleges that the effect of the acquisition of the assets and business of Clorox Chemical, "may have the effect of substantially lessening competition or tending to create a monopoly in the production and sale of household liquid bleaches in the United States and in each of them."

More specifically it is alleged that the effect of the acquisition was the actual or potential lessening of competition and a tendency to create a monopoly in the following ways, among others: 1. In the production and sale of household liquid bleach. 2. The elimination of Clorox Chemical as an independent, competitive factor in the household liquid bleach industry. 3. Household liquid bleach producers may be unable to compete with the respondent due to one or more of the following: a. Respondent's market position.

b. Respondent's financial and economic strength. c. Respondent's advertising ability and experience. d. Respondent's merchandising and promotional ability and experience. e. Respondent's "full line" of cleansing and laundry products. f. Respondent's ability to command consumer acceptance of its products and of valuable grocery store shelf space. g. Respondent's ability to concentrate on one of its products, or on one selected section of the country, the full impact of its advertising, promotional, and merchandising experience and ability. 4. Enhancement of respondent's competitive position in the production and sale of household liquid bleach to the detriment of actual and potential competition.

5. The industry-wide concentration of the production and sale of household liquid bleach may be increased. 6. The respondent is given the facilities, the market position and the "dominant ability" to monopolize, or tend to monopolize, the household liquid bleach market.

In its answer, filed November 4, 1957, respondent denied all charges of illegality contained in the complaint. The taking of evidence commenced in Cincinnati, Ohio, on December 16, 1957. Additional hearings were held in San Francisco, Los Angeles, Chicago, Philadelphia, New York, Boston, Buffalo, Detroit, and Washington, D.C., at which testimony was taken in

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support of the allegations of the complaint. Counsel in support of the complaint closed their case-in-chief on August 26, 1958. Counsel for respondent presented evidence in opposition to the allegations of the complaint at hearings held in Washington, D.C., on November 17-26, 1958, and January 5-9, 1959. Rebuttal testimony was received in Washington, D.C., commencing January 26, 1959. The hearings were concluded on February 12, 1959, when each party stipulated that its case was closed. Proposed findings were filed by the opposing parties in May 1959, and oral argument was held on June 16, 1959. Numerous briefs have been filed both before and after the oral argument, the last one having been filed in November 1959. The record consists of approximately 6,300 pages of transcript and several hundred exhibits, many of which consist of several pages.

Consideration having been given to the proposed findings and all the reliable, probative and substantial evidence in the record upon all material issues of fact, law or discretion, the examiner was of the opinion that the material allegations of the complaint had been proven by substantial and reliable evidence, and that the Commission should take remedial action in the premises. Appropriate findings as to the facts, conclusions and order of divestiture were issued by the examiner on June 17, 1960.

Thereafter, an appeal was taken to the Commission from the initial decision and oral argument was had before the Commission. On June 15, 1961, the Commission entered an order remanding the proceeding to the hearing examiner for the reception of such further evidence concerning the competitive effects of the aforementioned acquisition as may be offered in conformity with the views expressed in the accompanying opinion of the Commission. It was further ordered that after the receipt of such additional evidence, the hearing examiner should make and file a new initial decision on the basis of the entire record. The following statement was made in the order as the basis for the remand:

The Commission having determined that the record as presently constituted does not provide an adequate basis for informed determinations as to the actual or probable effects of respondent's acquisition of Clorox Chemical Co. on competition in the production and sale of household liquid bleach, and being of the opinion that the record should be supplemented in this respect to the end that all of the issues involved in the case may be finally and conclusively disposed of on their merits:

In the course of the opinion, the following appears as further indication of the extent of the remand:

The case will, therefore, be remanded to the hearing examiner for the reception of evidence relating to the competitive situation as it presently exists

Initial Decision 63 F.T.C.

in the liquid bleach industry. This evidence should relate to events occurring subsequent to November 1958, and should include market share data in each of the geographical regions specified on page 17 of the initial decision, as well as information directed to more clearly delineating the production and merchandising facilities and techniques which have been utilized by Clorox under the control of respondent.

Pursuant to the foregoing order of the Commission, hearings were held in Washington, D.C., on December 1, 1961, for the purpose of taking testimony and other evidence submitted by counsel in support of the complaint, and on December 12, 1961, at which testimony and other evidence was received in opposition to testimony presented by counsel in support of the complaint on December 1, 1961. At the December 12 hearing, both counsel rested and the hearing examiner closed the taking of testimony and allowed both counsel until January 15, 1962, within which to file proposed findings based on the testimony and evidence submitted at these hearings and both counsel were also allowed until February 1, 1962, within which to file reply, if desired.

B. STATEMENT OF THE ISSUES AND OPINION

Section 7 of the Clayton Act, as amended December 29, 1950, provides in part as follows:

That 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 any such acquisition may be substantially to lessen competition, or to tend to create a monopoly.

The House Report accompanying the bill amending Section 7, as above, stated:

Under (Section 7) a merger or acquisition will be unlawful if it may have the effect of either (a) substantially lessening competition, or (b) tending to create a monopoly. These two tests of illegality are intended to be similar to those which the courts have applied in interpreting the same language as used in other sections of the Clayton Act. Thus, it would be unnecessary for the Government to speculate as to what is in the "back of the minds" of those who promote a merger: or to prove that the acquiring firm had engaged in actions which are considered unethical or predatory; or to show that as a result of a merger the acquiring firm had already obtained such a degree of control that it possessed the power to destroy or exclude competitors or fix prices.¹

¹ H.R. Report No. 1191 of 81st Congress, 1st Session, Page 8.

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It will be noted from the foregoing that among the first things to be determined in this case, and the necessary issues, are: 1. The Statutory "Line of Commerce" involved in the transaction. 2. The Statutory "Section of the Country" involved in the transaction. 3. The effect on competition in such "Line of Commerce" and/or such "Section of the Country". a. Does the acquisition tend to substantially lessen competition, or b. Tend to create a monopoly in the line of commerce or section of the country where the respondent and the acquired corporation are engaged in business. In the Senate report accompanying the amendment to Section 7 of the Clayton Act in 1950, the following language is found: What constitutes a section (of the country) will vary with the nature of the product. (Emphasis supplied.) Owing to the difference in size and character of markets, it would be meaningless, from an economic point of view, to attempt to apply for all products a uniform definition of section, whether such a definition was based on miles, population, income, or any other unit of measurement. A section which would be economically significant for a heavy, durable product, such as large machine tools, might well be meaningless for a light product such as milk, and * * * Hence, an acquisition is not to be interpreted merely in terms of either its effect on competition or its tendency to create a monopoly "in the Nation as a whole." The act is to be violated if, as a result of the acquisition, there would be a substantial lessening of competition or a tendency to create a monopoly in any section of the country. (Emphasis supplied.)² Another issue is whether or not the acquisition involved in this case, a so-called conglomerate merger, comes within the language of the statute, since there was no competition between P & G and Clorox Chemical prior to the acquisition. The House Report (supra) states as follows: Because Section 7, as passed in 1914, prohibited, among other things, acquisitions which substantially lessened competition between the acquiring and acquired firms, it has been thought by some that this legislation applies only to the so-called horizontal mergers. But in the proposed bill, as has been pointed out above, the test of the effect on competition between the acquiring and the acquired firm has been eliminated. One reason for this action was to make it clear that this bill is not intended to prohibit all acquisitions among competitors. But there is a second reason, which is to make it clear that the bill applies to all types of mergers and acquisitions, vertical and conglomerate as well as horizontal, which have the specified effects of substantially lessening competition * * * or tending to create a monopoly. (Emphasis supplied.)³

² Senate Report 1775, 81st Congress, 2nd Session, Pages 5 and 6. ³ Ibid, Page 11.

Initial Decision 63 F.T.C.

Consideration has been given to the proposed findings and all the reliable probative and substantial evidence in the record upon all material issues of fact, law or discretion, including the evidence received at hearings held pursuant to the Commission's order of June 15, 1961, remanding the proceeding to the Hearing Examiner for the taking of additional evidence. Each of those proposed findings which has been accepted, has been, in substance, incorporated into this initial decision. All proposed findings not so incorporated are hereby rejected.

The examiner is of the opinion that the material allegations of the complaint have been proven by substantial and reliable evidence and that the Commission should take remedial action in the premises. Appropriate Findings as to the Facts, Conclusions and Order of Divestiture are hereinafter set forth.

FINDINGS AS TO THE FACTS

I. DESCRIPTION OF THE RESPONDENT AND THE IN- DUSTRIES IN WHICH IT WAS ENGAGED IN 1957

Respondent P & G and various of its subsidiaries in 1957 were engaged principally in the manufacture and sale in interstate commerce of soaps, synthetic detergents and cleansers. It also manufactured and sold some food products, including meat food products, paper products, shampoos, dentifrices and home permanents. P & G was, and now is, the largest producer in the United States of soap and synthetic detergent products, and one of the major producers in its other principal product fields. The more important consumer household brands manufactured by P & G and its subsidiaries are sold to retail and wholesale grocery and drug outlets, department stores and variety stores. P & G was, and now is, one of the leading national advertisers in the United States and expends large sums of money in advertising and promoting many of its products in the household soap, detergent, food and toilet goods fields. P & G's overall expenditures for advertising in the United States of approximately thirty-five products manufactured by it and sold under its brand names were somewhat in excess of $79,000,000 for its fiscal year ended June 30, 1957. There is no evidence in the record relating to P & G advertising expenditures subsequent to that date. As of June 30, 1957, P & G had total assets of $688,272,623 and total capital and retained earnings of $462,097,281. For the fiscal year 1957, consolidated net sales amounted to $1,156,389,726, and consolidated net earnings were $67,807,376.

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As of June 30, 1961, P & G had total assets of $1,022,525,434 and total capital and retained earnings of $677,686,077. For the fiscal year 1961, consolidated net sales amounted to $1,541,904,779, and consolidated net earnings were $106,632,804.

Since 1946, P & G's net sales have increased approximately 400%, and total assets have increased more than 400%. A large percentage of this growth is attributable to the development of new products. For instance, it has developed and brought on the market a new detergent, a new deodorant toilet soap bar, two new brands of toothpaste, and an abrasive cleanser, all of which have proved very popular. P & G's president testified that approximately 70% of P & G's household product volume comes from products not in existence in 1946.

P & G has also grown by acquiring going businesses and, in so doing, entered new fields and diversified its operations. For instance, in August 1955 P & G acquired S. T. Young Foods, Incorporated, which manufactured peanut butter; in August 1956 P & G acquired the Duncan Hines prepared cake mixes from Nebraska Consolidated Mills, Incorporated, of Omaha; and in January 1957 it acquired Charmin Paper Mills, Incorporated, manufacturer of paper products.

The Duncan Hines and Charmin products were added to the P & G list of consumer brands during the fiscal year ended June 30, 1957. In P & G's annual report of 1957 the following statement appears:

Procter & Gamble's technical knowledge and manufacturing experience fit very well into the development and production of these types of products. In addition, both prepared mixes and paper tissue products are low priced, rapid turnover, household items sold primarily through grocery, drug and department stores—the type of goods which the company is accustomed to market.

A further explanation is made of such acquisitions in the following language by the P & G Board Chairman:

Since our recent purchase of the Duncan Hines Cake Mix business, and our interest in the paper products field, it would be natural for any shareholder to ask, "Why do we go into businesses like cake and other flour and shortening mixes, peanut butter and paper tissues?" Our answer would be simply that we feel our experience and marketing skill qualify us carefully to diversify our operations, and that by choosing subsidiaries well and applying Procter & Gamble's merchandising methods to related consumer products businesses, we add to the stability and profits of the business. (Emphasis supplied.)

The Executive Vice President of P & G at the time of the acquisition of Clorox Chemical, in a press release, stated:

While this is a completely new business for us, taking us for the first time into the marketing of a household bleach and disinfectant, we are thoroughly at home in the field of manufacturing and marketing low priced, rapid turn-over consumer products. [Emphasis supplied.]

Initial Decision 63 F.T.C.

II. THE CLOROX CHEMICAL COMPANY

The Clorox Chemical Company was, prior to August 1, 1957, a Delaware Corporation, with its office and principal place of business in Oakland, California, and was engaged in the production and sale in the interstate commerce of 5¼% sodium hypochlorite liquid bleach and disinfectant under the trade name of "Clorox". At that time, and certainly since 1952, Clorox Chemical was the largest producer of household liquid bleach in the United States. It had thirteen plants for the manufacture and bottling of household liquid bleach, located at Atlanta, Georgia; Boston, Massachusetts; Camden, New Jersey; Charlotte, North Carolina; Chicago, Illinois; Cleveland, Ohio; Houston, Texas; Jersey City, New Jersey; Kansas City, Missouri; Los Angeles, California; Oakland, California; Seattle, Washington; and Tampa, Florida.

Net sales and net income of Clorox Chemical for the fiscal years ending June 30, 1952, through June 30, 1957, were as follows:

| Net sales | | Net income | | |---|---|---|---| | 1952--------------------------------- | $23,625,026 | 1952--------------------------------- | $1,255,005 | | 1953--------------------------------- | 27,714,435 | 1953--------------------------------- | 1,348,618 | | 1954--------------------------------- | 30,284,650 | 1954--------------------------------- | 1,343,511 | | 1955--------------------------------- | 33,874,181 | 1955--------------------------------- | 2,041,251 | | 1956--------------------------------- | 36,409,197 | 1956--------------------------------- | 2,032,861 | | 1957--------------------------------- | 39,999,114 | 1957--------------------------------- | 2,569,166 |

As of June 30, 1957, Clorox Chemical had total assets of $12,629,425 and an earned surplus of $7,127,015.

The foregoing net sales figures represent almost entirely sales of household liquid bleach which, with the exception of a small amount of industrial bleach, has always been Clorox Chemical's only product. It will be seen from the foregoing table that the net sales of Clorox Chemical reflect a steady, continuous and substantial growth in each of the fiscal years from June 30, 1952, through June 30, 1957. In each of the years during the period from August 1, 1952, through July 31, 1957, there was also a steady and continuous growth in Clorox Chemical's market share of all household liquid bleach sold in the United States through grocery stores. Such market shares were as follows:

| Year ending July 31 | Clorox brand share | |---|---| | | Percent | | 1953---------------------------------------------------------- | 45.3 | | 1954---------------------------------------------------------- | 46.4 | | 1955---------------------------------------------------------- | 47.1 | | 1956---------------------------------------------------------- | 47.8 | | 1957---------------------------------------------------------- | 48.4 |

THE PROCTER & GAMBLE CO. 1487 1465 Initial Decision Clorox Chemical sold its product through approximately 80 distributors, acting as principals, to the grocery trade—shipments being made direct to the retail customer as well as to the distributor, with the freight paid by Clorox Chemical.

Clorox Chemical's success in the household liquid bleach industry had been achieved through extensive national advertising which had made the name Clorox well-known and accepted in American households as a quality product at a reasonable price. The record indicates that Clorox Chemical was generally considered the price leader in the household liquid bleach industry. While a few brands, such as Purex, Linco, Prescott, 101, Hilex, and Roman Cleanser, sold at substantially the same premium price as Clorox, most of the brands manufactured by regional manufacturers sold for less than Clorox. Most private label and local brands generally sold for even lower prices. There is evidence that in a few isolated regional situations, certain competitive bleaches have been sold at a higher price than Clorox.

Clorox Chemical spent approximately $1,750,000 for newspaper advertising, $560,000 for magazine advertising, $1,150,000 for television, $113,000 for radio, and $145,000 for billboard advertising during the fiscal year ended June 30, 1957. It began to use TV spot advertising in July 1956, which was intended to add "extra impact to the tremendous selling support provided by Clorox national advertising."

During the period 1952 through July 31, 1957, Clorox Chemical had utilized no so-called consumer promotional devices or methods, such as the distribution of price-off coupons, free samples, premiums, contests or tie-in sales, although many of its competitors had utilized some or all of these devices.

Clorox Chemical commenced to use what is known as special spring and fall housecleaning campaigns in 1956. These campaigns were directed primarily to the grocer and offered nothing special to the consumer. These campaigns lasted approximately six weeks, the spring campaign beginning in March, and the fall campaign in September. They were continued during 1957, the fall campaign being announced in a letter to the trade dated July 31, 1957, just prior to its acquisition by P & G.

III. THE ACQUISITION OF CLOROX CHEMICAL Respondent considered entering the household liquid bleach market by purchasing the Clorox Chemical Company approximately two years prior to the date of acquisition. In a confidential study of that market, by employees of respondent P & G in October 1955, it was

Initial Decision 63 F.T.C.

reported that liquid bleaches would continue to dominate the market volumewise since they were by far the most economical for the consumer to use. It was believed at that time that the household liquid bleach market would continue to grow for the following reasons:

a. 75% of the homes now use a bleach.

b. Younger women bleach more than do older women. c. Automatic washing machine homes use more bleach than do conventional washing machine homes.

It was estimated in this report that the total household liquid bleach market in 1955 amounted to about 44,000,000 (3-gallon case) cases, and the market was divided as follows:

Clorox (National), 44% Purex (Sectional), 16% All others, 40%

This report, which was prepared by a man in the promotional department of respondent, recommended that the company should acquire the Clorox business rather than try to enter the market by introducing a new brand, or by trying to expand a sectional brand. This was because it was felt that the latter course would require "a very heavy investment" to achieve a major volume in the field. It was recommended that:

taking over the Clorox business, however, could be a way of achieving a dominant position in the liquid bleach market quickly which would pay out reasonably well.

The report contained a history of the net sales and earnings of Clorox Chemical with the following comment:

We understand that Clorox sells through a broker jobber setup, and that while they are No. 1 nationally, there are many important markets where their share of the bleach market is quite low. We feel that with our sales, distribution and manufacturing setup, we could effect a number of savings that could possibly increase the net profit of their business considerably—say to a net profit of $3,000,000 on net sales of $33,000,000.

In a later report by another member of the promotional department of respondent P & G, dated February 28, 1957, it was definitely recommended that P & G purchase the Clorox Chemical Company at a price of approximately $30,000,000 of P & G stock. Among the reasons for recommending the purchase were the following:

First, the total bleach market was then a "large and expanding one." Liquid bleaches account for approximately 95% of the total volume, and it was believed that the bleach market would continue to grow for the same reasons assigned in the previous 1955 report hereinbefore mentioned.

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Second, Clorox was the nation's dominant bleach brand, with a total market share, reported by Neilson, in excess of 42%, or approximately half of the total household liquid bleach market. Third, it was unlikely that the growth of dry bleaches would cut into the liquid bleach volume for many years to come. Other factors taken into consideration were as follows: We are advised that Clorox spent $2,660,000 in the last half of 1956 for advertising, or at the rate of $5,320,000 a year. We believe that P & G advertising philosophies and economies applied to an advertising expenditure of this size can be expected to further advance the Clorox business. (Emphasis supplied.) It is conceivable that the profitability of the Clorox business may be improved. Recognizing that Procter & Gamble overhead charges, if applied to the Clorox P & L statement, might appear to reduce the profitability or at least to off-set any economies under P & G operation, there remains such possibilities as a 5 cent to 10 cent increase in the price per case (using Clorox 12 quart case as a base), which could conceivably be accomplished without an increase in the retail price, thereby expanding profit. We may be able to derive additional value from the Clorox name for other new and related products, which may not perhaps be measurable in exact dollars, but should nevertheless be considered a value returned on the investment. Pursuant to an agreement dated May 28, 1957, between Clorox Chemical and P & G, Clorox Chemical agreed to exchange and transfer substantially all of its assets and business as a going concern to P & G on the terms, conditions and provisions set forth in said agreement, which provided, among other things, that the closing of such exchange and transfer, subject to prior approval by Clorox Chemical stockholders, would be August 1, 1957. To implement the transaction, P & G caused a wholly owned subsidiary named The Clorox Company to be incorporated under the laws of the State of Ohio. On August 1, 1957, this subsidiary, pursuant to the plan of reorganization set forth in the said agreement, exchanged 639,578 shares of P & G's fully paid and non-assessable two-dollar par value common stock (about 3.1% of the issued and outstanding stock) for substantially all of the assets and business of Clorox Chemical as a going concern. Clorox Chemical was then dissolved and the P & G stock received by it was distributed among Clorox Chemical's stockholders. The market value of the P & G stock exchanged was approximately $30,000,000.

Initial Decision 63 F.T.C.

IV. HOUSEHOLD LIQUID BLEACH IS THE LINE OF COMMERCE IN THIS PROCEEDING

The product involved in this case is household liquid bleach, which quite uniformally consists of 5¼% sodium hypochlorite solution with 94¾% water. It is either manufactured from basic chemicals (chlorine and caustic soda) or it is converted by the producer from bleach concentrate by the addition of water. Household liquid bleach is used by the housewife principally in the laundry as an adjunct to soaps and detergents to bleach cottons and fine fabrics. It is also used extensively as a germicide, to disinfect garbage cans, toilets, kitchen sinks, etc. It is sold principally through grocery stores, in various sized glass containers, including pint, quart, half gallon and gallon bottles, packed in cases as follows: 24 pints, 12 quarts, 6 half gallons, and 4 gallons to a case, respectively. It is contended by the respondent that the line of commerce involved in this proceeding should include dry bleach as well as liquid bleach, asserting that approximately 10% of the total household bleach market consists of dry bleach. Dry bleach is not competitive with liquid bleach because, among other reasons, it has differing functional uses. Liquid bleaches are quicker and more thorough than dry bleaches, and they are considered more in the heavy duty category, while dry bleaches are in the light duty area. In addition, dry bleach is more expensive to use, is much less effective than liquid bleach for laundry purposes, and accounts for only about 5% of all laundry functions. Clorox Chemical did not manufacture dry bleach, and the evidence indicates that dry bleach will not materially cut into the liquid bleach market in the forseeable future or ever replace liquid bleach in the home. It is, therefore, found that the line of commerce in this case is household liquid bleach.

V. THE SECTIONS OF THE COUNTRY AND COMPETI- TORS IN EACH SECTION

A. The Sections of the Country Involved Herein

There is a national market for household liquid bleach in the sense that it is universally sold throughout the United States in grocery and drug stores. However, this national market is made up of a series of regional and local markets, the geographical confines of which cannot be fixed with any exactitude. There are in the household liquid bleach industry a substantial number of small

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producers which are located and sell in various local or regional areas. The weight of household liquid bleach, packed in cases of glass or plastic containers for shipment, results in high freight costs, and necessarily restricts the region served by any one production facility. In the main, each producer markets its products in the region in which it has manufacturing facilities, and which it considers can be economically served by such facilities. In consequence, different competitive factors and conditions are to be found to some degree in each regional market.

Clorox Chemical was the only household liquid bleach manufacturer which sold its product throughout the United States. Purex Ltd., the second largest household liquid bleach producer, marketed its brand in areas of the United States containing approximately 48% of the population at the time of the acquisition of Clorox Chemical by P & G. In October 1958, Purex acquired the plants of John Buhl Products Company, a subsidiary of Sterling Drug, Inc., manufacturing and selling a brand of household liquid bleach known as "Fleecy-White", and, as a result, Purex now markets household liquid bleach in areas of the United States containing approximately 64% of the population. With the possible exception of one or two other producers, all of the other members of the industry sold only in smaller regional or local areas.

In all but two of those regional areas, Clorox Chemical, prior to the acquisition by P & G, was a strong competitive factor. However, in two of the regional areas one of the competitive manufacturers occupied a market position comparable to that of Clorox Chemical in the sale of household liquid bleach.

B. The Principal Competitors in each Section

There is some conflicting testimony as to the actual number of household liquid bleach manufacturers in the United States. It was estimated by the president of respondent that there were between 100 and 200 such liquid bleach manufacturers. The president of Purex estimated there were approximately 40 to 50 such manufacturers who sell their products under their own label to grocery stores in competition with Clorox liquid bleach. The December 1955 edition of the Thomas Register of American Manufacturers contains the names of 20 companies known as liquid bleach manufacturers that were competitors of Clorox Chemical. The following household liquid bleach manufacturers were the principal competitors of Clorox Chemical at the time of the acquisition:

1. Purex Chemical Company, hereinbefore mentioned, which had the largest distribution of household liquid bleach of any manufac-

Initial Decision 63 F.T.C.

turer except Clorox Chemical, sold its said product to customers in areas west of the Mississippi River and south of the Ohio River, plus portions of Wisconsin, Southern Illinois, and Southern Indiana. It did not sell in Pennsylvania, West Virginia, Virginia, the Carolinas, or Southern Florida. Since its acquisition in 1958 of the John Buhl Products Company, the manufacturer of "Fleecy-White" brand of household liquid bleach, it has added to its sales territory most of Virginia, West Virginia, Ohio, North Carolina, and parts of Michigan and Wisconsin.

2. Roman Cleanser Company, located in Detroit, Michigan, sold its household liquid bleach from its plants in Detroit; Griffin, Georgia; Tampa and Miami, Florida. Deliveries were made to customers located within a radius of about 150 miles of each plant. The territory generally covered by such sales are the States of Michigan, Ohio, part of Pennsylvania, parts of Indiana, Illinois, Georgia, Florida, and very little in Virginia and West Virginia. 3. Linco Products Corporation, sold its household liquid bleach principally to customers in and around the City of Chicago where its factory is located. Its sales territory also included the States of Illinois, Indiana, Michigan, Wisconsin, and parts of Iowa and Ohio. 4. The Hood Chemical Company, with its principal place of business in Ardmore, Pennsylvania, sold its household liquid bleach produced at its plants in South Plainfield, New Jersey; Charlotte, North Carolina; Jacksonville, Florida; and Lisbon, Ohio, to customers in the sales areas surrounding the Cities of Philadelphia and Pittsburgh, Pennsylvania, the States of Florida, North Carolina, and South Carolina.

5. Rose-Lux Chemical Company, sold its household liquid bleach under the trade name or brand "Rose-X", manufactured in its factory located in Brooklyn, New York, to customers in the metropolitan area of New York City, including two counties in New Jersey, and one county in Connecticut.

6. The J. L. Prescott Company, with its factory located in Passaic, New Jersey, sold its "Dazzle" brand of household liquid bleach to customers in the States of Massachusetts, Connecticut, Rhode Island, and portions of Maine, New Hampshire, New Jersey, New York, Pennsylvania, and Maryland.

7. The Savol Bleach Company, from its factory in East Hartford, Connecticut, sold its household liquid bleach to customers located within a radius of 35 miles around Hartford. 8. The Gardiner Manufacturing Company sold its household liquid bleach "101" brand from its plant located in Buffalo, New York, to customers in western New York and western Pennsylvania,

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which included Erie and Bradford, Pennsylvania, Olean, Rochester, and Niagara Falls, New York, and points between those areas. 9. The John Buhl Products Company, hereinbefore mentioned, sold its "Fleecy-White" brand of household liquid bleach to customers in and around the City of Chicago, Illinois, where its factory was located, and in parts of Wisconsin, Michigan, Ohio, Iowa, Illinois, Indiana, West Virginia, Virginia, and North Carolina; and also in some portions of Kentucky, Tennessee, Alabama, Georgia, Texas and Louisiana.

10. Jones Chemicals, Incorporated, sold its household liquid bleach under the trade name "Sunny Sol" from its factory in Caledonia, New York, to chain stores and jobbers in Utica, Binghamton, Norwich, and Albany, New York, and under the same trademark, it sold in bulk to franchised distributors in Buffalo, Rochester, Syracuse, Elmira, New York, and in Erie, Pennsylvania, who in turn sold to retailers in those areas.

11. Lady's Choice Foods, a corporation with plants located in San Francisco and Los Angeles, California, manufactured and sold household liquid bleach under the trade names "Saniclor" and "Hypo" to customers throughout the State of California, and portions of Arizona and Nevada.

12. The No-Worry Chemical Company manufactured a household liquid bleach at its factory in Newark, New Jersey, and sold it to customers in Essex and Hudson Counties, New Jersey, under the trade name "No Worry Bleach".

13. B. T. Babbit, Inc., whose principal household product is "Bab-O" also, since 1956 when it acquired Chemicals, Inc., manufactured household liquid bleach at its factory in Oakland, California, under the trade name "Vano", which it sold to customers in the immediate area around San Francisco and Oakland, California. 14. The Hilex Liquid Bleach Company, with its factory located in Minneapolis, Minnesota, sold household liquid bleach to customers in the States of Minnesota, North and South Dakota, and part of Colorado.

15. The Texize Chemical Company is listed in Dunn & Bradstreet as a manufacturer of household bleach having a financial strength of more than $1,000,000. It is located in Greenville, South Carolina, and apparently sold its products in that general area, although the record does not contain detailed information with respect to the business of this company. It is of sufficient importance, however, that the Nielsen Food Index includes it in household liquid bleach market studies that have been made.

In addition to the foregoing-named manufacturers, the record contains evidence of another local company in New England, the

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Sunlight Chemical Corp., of East Providence, Rhode Island, engaged in the manufacture of a line of chemicals for household cleaning and laundry in the home, including a household liquid bleach. From the foreoing facts, it is found that the sections of the country involved in this case are the United States as a whole, as well as those local and regional markets within the United States where Clorox is sold in substantial competition with one or more other household liquid bleach producers, and as recognized by the A. C. Nielsen Company Marketing Service to be as follows: New England, Metropolitan New York City, Middle Atlantic, East Central, Metropolitan Chicago, West Central, Southeast, Southwest, and Pacific.

VI. CLOROX'S SHARE OF THE HOUSEHOLD LIQUID BLEACH MARKET IN THE UNITED STATES AND IN CERTAIN SECTIONS OF THE COUNTRY AT THE TIME OF THE ACQUISITION AND AS OF JUNE-JULY 1961

The following Table I sets forth the market share of various brands of household liquid bleach, on a consumer dollar basis, for the United States as a whole, and for certain regions such as New England, Metropolitan New York, Middle Atlantic, etc., as reported by the A. C. Nielsen Company in its bi-monthly reports covering the two-month periods June-July 1957 and June-July 1961.

TABLE I.—Market Shares, Bi-monthly Periods, June-July 1957 and June-July 1961 Percent of Total Sales, Liquid Bleach on Consumer Dollar Basis

| | | Clorox | Purex | Fleecy White | Purex & Fleecy White¹ | Hilex | Linco | Ro-man Cleanser | Sani-Clor | Texize | All others² | |---|---|---|---|---|---|---|---|---|---|---|---| | Total, United States.. | 1957 | 48.8 | 15.7 | 4.0 | 19.7 | 3.3 | 2.1 | 5.9 | 0.8 | 0.5 | 18.9 | | | 1961 | 51.5 | 14.2 | 4.0 | 18.2 | (²) | 1.5 | 4.1 | (²) | 1.1 | 23.6 | | New England........... | 1957 | 56.0 | — | — | — | — | — | — | — | — | 44.0 | | | 1961 | 67.5 | — | — | — | (²) | — | — | (²) | — | 32.5 | | Metropolitan New | 1957 | 64.3 | — | — | — | — | — | — | — | — | 35.7 | | York.................. | 1961 | 65.4 | — | — | — | (²) | — | — | (²) | — | 34.6 | | Middle Atlantic........ | 1957 | 71.6 | — | — | — | — | — | — | — | — | 28.4 | | | 1961 | 71.7 | — | — | — | (²) | — | — | (²) | — | 28.3 | | East Central............ | 1957 | 42.4 | 5.0 | 5.2 | 10.2 | 0.9 | 0.7 | 27.2 | — | — | 18.6 | | | 1961 | 46.5 | 4.8 | 7.0 | 11.8 | (²) | 0.8 | 21.4 | (²) | 0.5 | 19.0 | | Metropolitan Chicago.. | 1957 | 28.6 | 0.1 | 18.9 | 19.0 | 0.1 | 50.3 | — | — | — | 2.0 | | | 1961 | 32.4 | — | 20.5 | 20.5 | (²) | 35.9 | — | (²) | — | 11.2 | | West Central............ | 1957 | 34.5 | 20.6 | 9.0 | 29.6 | 25.8 | 2.1 | — | — | — | 8.0 | | | 1961 | 41.7 | 18.7 | 9.2 | 27.9 | (²) | 0.9 | 0.1 | (²) | — | 29.4 | | Southeast............... | 1957 | 52.6 | 16.0 | 5.7 | 21.7 | — | — | 5.3 | — | 3.1 | 17.3 | | | 1961 | 54.2 | 12.5 | 4.2 | 16.7 | (²) | — | 3.0 | (²) | 5.6 | 20.5 | | Southwest............... | 1957 | 48.4 | 39.6 | 3.9 | 43.5 | — | — | — | — | — | 8.1 | | | 1961 | 46.5 | 38.0 | 2.7 | 40.7 | (²) | — | — | (²) | 0.3 | 12.5 | | Pacific.................. | 1957 | 39.2 | 42.4 | — | 42.4 | — | — | — | 6.0 | — | 12.4 | | | 1961 | 38.0 | 38.6 | — | 38.6 | (²) | — | — | (²) | — | 23.4 |

¹ Purex acquired Fleecy White in October 1958. ² Hilex and SaniClor included in "All Others" in 1961. — Indicates no sales in the area.

Source: CX 325, p. 77; CX 721 Z-38-Z-44.

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It will be noted from the foregoing table that the sales of Clorox, during the period June-July 1957 represented 48.8% of the total sales of household liquid bleach in the United States, and that such sales had increased to 51.5% during the period of June-July 1961. It will also be noted that Clorox's nearest competitor, Purex, which ranked second in sales nationally with a market share of approximately 15.7% in the June-July 1957 period, decreased to approximately 14.2% in the June-July 1961 period, and that although Purex acquired the fourth ranking competitor, "Fleecy-White" in October 1958, the combined sales of Purex and "Fleecy-White" in 1961, which amounted to approximately 18.2% of the national market, represented barely one-third of the amount of household liquid bleach sold by Clorox during that period. The third largest seller of household liquid bleach, Roman Cleanser, whose sales of this product in the 1957 period represented approximately 5.9% of the national market, had decreased to approximately 4.1% in the 1961 period; such sales amounting to less than one-tenth of Clorox's sales during this latter period. The fifth ranking brand in 1957, Hilex, with approximately 3.3% of the national market was not shown separately in the June-July 1961 Nielsen report, but was included in the "All Others" category, as was the Sani-Clor brand whose sales represented less than 1% of the national sales in 1957. Two other companies whose brands of liquid bleach are not named in the report but are included in the "All Others" category are the Hood Chemical Company and the J. L. Prescott Co. each of whose sales of household liquid bleach for the year 1957 exceeded the sales of the Linco brand but were less than those of Roman Cleanser. It is noted that Clorox not only increased its market share of the total sales of household liquid bleach in the United States as a whole between the June-July 1957 and the June-July 1961 periods from 48.8% to 51.5% as indicated above, it also increased its market share even more substantially, at the expense of its competitors, in at least four of the nine sections of the country covered in the accompanying table; namely, New England, East Central, Metropolitan Chicago and West Central. In the New England region, Clorox's increase in its market share was particularly significant, having risen from 56% in the 1957 period to 67.5% in the 1961 period, an increase of 11.5 percentage points in the four year period since the acquisition of Clorox by P & G, while the market share of all other household liquid bleach producers in that area decreased from 44% to 32.5%. During this same period, Clorox's market share increased in the East Central region from 42.4% to 46.5%; in the Metropolitan Chicago area from 28.6% to 32.4%; and in the West Central

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region from 34.5% to 41.7%. Also during this same period, the market share of Purex and "Fleecy-White" combined was decreasing in four of the six regions in which they operated, namely: West Central, from 29.6% to 27.9%; Southeast, from 21.7% to 16.7%; Southwest, from 43.5% to 40.7%; and Pacific, 42.4% to 38.6%. The increase in market share of the combined Purex, "Fleecy-White" sales during this period in the other two regions was insignificant, amounting to only 1.6 percentage points in one region and 1.5 percentage points in the other, namely, East Central and Metropolitan Chicago, respectively. The market share of Roman Cleanser, the next largest competitor of Clorox was also decreasing during this same period from 5.9% to 4.1% in the United States as a whole, and from 27.2% to 21.4% in the East Central region, and from 5.3% to 3% in the Southeast. In the only other area in which Roman Cleanser was sold, the West Central region, it showed a market share of only 0.1% in the 1961 period where it apparently had no sales in the 1957 period.

The market share of Clorox in the United States as a whole and in the nine sections of the country reflected in Table I above is shown for the bi-monthly periods June-July 1957 and June-July 1961 on a Consumer Dollar Basis, and, as indicated in the preceding discussion, shows an increase of 2.7 percentage points. Respondent's Exhibit 135 shows that Clorox's average annual market share, on the same Consumer Dollar Basis increased 3.5 percentage points from August 1, 1957 to August 1, 1961 and Respondent's Exhibit 134 shows that Clorox's average annual market share, on a 32 oz. Equivalent Unit Basis, increased 3.3 percentage points during the same period of time. It will also be noted that, while Table I shows an increase in Clorox's market share in the New England region from the June- July 1957 period to the comparable 1961 period of 11.5 percentage points, Respondent's Exhibit 136 shows that Clorox's average annual market share in this region increased 15.5 percentage points from August 1, 1957 to August 1, 1961. Respondent's Exhibit 136 also shows somewhat greater increases in three of the other regional markets than the increases shown in those markets in Table I, and lesser increases in three of the remaining regional markets.

VII. Some Household Liquid Bleach Manufacturers Sold a Portion of Their Output to Grocery Chains for Resale Under Private Brand Labels

Respondent introduced into evidence a list of more than 200 private brand labels of household liquid bleaches being manufactured

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and sold.* It appears, however, that the household liquid bleach represented by these 200 odd private brand labels, was manufactured by only 54 manufacturers or suppliers. One label, that of Safeway Stores, represented a private brand manufactured by Safeway, and not by any other manufacturer. Of the 54 manufacturers, six have been mentioned hereinbefore as competitors of Clorox Chemical at the time of the acquisition. The record indicates that certain of the testifying liquid bleach competitors of the respondent manufactured household liquid bleach for sale by others under private brand labels, in addition to manufacturing and selling bleach under their own brand names. Some of such competitors, and the number of private brand labels of household liquid bleach manufactured by them, for sale by others, were as follows: Purex—34; J. L. Prescott Company—41; and Hood—7. Other competitors, hereinbefore mentioned, which also manufacture private brand labels for sale by others are Lady's Choice Foods, Linco Products Corporation, and Roselux Chemical Company. The following named household liquid bleach producers apparently do not manufacture private brand labels: No-Worry Chemical Company; Sunlight Chemical Company; Savol Bleach Company; and Gardiner Manufacturing Company. The Jones Chemical Company began to sell household liquid bleach under a private brand label to a chain store in 1958. The record does not contain any figures with respect to volume, but from the testimony of officials of these companies it appears that the Hood Chemical Company and the J. L. Prescott Company sold a substantial portion of their household liquid bleach to chain stores under private brand labels. The Linco Products Corporation sold about 12% of its volume to chain stores under private brand labels during the past few years, while the sales of household liquid bleach of other producers to the chain stores under private labels were de minimis. There is not sufficient evidence in the record to determine or find that the sale of private brand labels of household liquid bleach to grocery chain stores has increased since the year 1955. Except for the Purex Company, the known manufacturers of private brand label liquid bleach for chain stores are not themselves important factors in the household liquid bleach industry, from the standpoint of their volume of sales. For instance, the combined total sales of such product by Hood Chemical and J. L. Prescott do not represent more than 5% of the industry. It also appears from the record that most of Hood Chemical Company sales of private

* Respondent's Exhibit 69 A-Z.

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brand label liquid bleach to chain stores was in the metropolitan New York area; the Linco Product Corporation in the Chicago metropolitan area; and most of J. L. Prescott Company's sales under private brand labels were in and around Boston, Massachusetts, and in the New York City metropolitan area.

Furthermore, it will be noted that in the table appearing on page 1494 hereof, containing Neilsen data for the two-month period, June-July 1957, the respective percentages of sales by the different manufacturers do not include their sales of private label brands. However, such sales are included under the heading "All Others" which for those two months were less than 19% throughout the United States which, of course, would include, in addition to private label brands, all household liquid bleach sold throughout the country by all other manufacturers not listed in the table, including the J. L. Prescott Company and the Hood Chemical Company. In view of the foregoing, it is found that the volume of sales of liquid bleach under private brand labels to grocery chains is not a substantial competitive factor in the household liquid bleach industry.

VIII. RESPONDENT'S MARKET POSITION IN THE SOAP, DETERGENT, AND ABRASIVE CLEANSER MARKETS

According to Nielsen Food Index reports, P & G is the leading producer in the United States of soap and synthetic detergents, and is one of the two leading producers of abrasive cleanser products. In 1957, P & G sales of packaged detergents in grocery stores was approximately 54.3% of total value on a consumer dollar basis, and 55% on a consumer unit basis, of the total national sales of such products. P & G consumer sales of toilet soaps in grocery stores in 1957 accounted for approximately 31.2% of total sales on a dollar basis and 37.3% on a unit basis of total national sales. In the abrasive cleanser grocery store consumer sales market, sales of P & G's "Comet", on a dollar basis, represented approximately 36.5% of the national market in February and March 1958.

IX. P & G'S SELLING AND MERCHANDISING METHODS

A. Method of Distribution

P & G sells all its products, except Clorox, through a subsidiary, Procter and Gamble Distributing Company, which has its own sales-

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men who call on wholesale jobber and retail outlets in the grocery, drug, department, and variety store fields. The P & G sales force is divided into sales departments or divisions, each division selling a line of closely related products. For instance, the Case Soaps Sales Department sells all P & G packaged household soaps, cleansers, and synthetic detergents. The Case Food Sales Department sells P & G household edible products, including the acquired Duncan Hines and Big Top products. The Toilet Goods Sales Department sells the toiletries products manufactured by the Company, which includes shampoos, home permanents, and dentifrices. There is also a division which handles paper products.

P & G has approximately 1800 salesmen selling its products, and all of P & G sales personnel, practices and policies are under one man, the P & G Vice President of Sales.

B. Shelf Space in Grocery Stores

The obtaining and retention of adequate shelf space in retail outlets, particularly in self-service grocery stores, is a fundamental objective of P & G salesmen. In January 1957 P & G inaugurated a "Chain Supermarket Retail Operation" devoted exclusively to shelf space. This program basically sought to realign soap, detergent and cleanser shelf space by grouping products into departments, and dividing said departments into proper classifications, alloting shelf space in ratio to sales movement.

There is an acute shortage of shelf space for all products, including respondent's, in the nation's grocery stores because of the greatly increased number and types of items carried by grocers in recent years. Adequate shelf space today is one of the things manufacturers compete for in grocery stores, especially in the larger supermarkets.

Each P & G salesmen, in addition to selling his line of P & G products, is responsible for obtaining advertising and other merchandising support from his customers, and for obtaining retail store shelf and display space for P & G products. According to the President of respondent: "It's one of the salesman's normal duties to make sure to try to secure adequate shelf space for our brands."

Shelf space is generally allocated by grocers on the basis of the sales movement of a product, and the reputation and merchandising

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ability of the manufacturer of the product. As one liquid bleach manufacturer witness testified:

Well, the allocation of shelf space in the grocery stores is controlled by competitive factors that were previously recited; the amount of advertising, the amount of promotion, whether or not the product is being couponed or sampled; what sort of consumer promotion might be offered, how much sales help is offered the store manager in re-allocating or re-arranging shelf space, all these things have a factor in determining which product gets the maximum shelf space.

Another chain store grocer witness testified that in allocating shelf space the store owner takes into consideration such factors as advertising, promotion, and the character of the firm that is promoting the product so as to know whether or not it can carry out its promises.

C. Advertising Programs

Sales movement of products, including respondents, in grocery stores is based primarily on the ability of the producer to advertise and promote its products. Grocers desire "pre-sold" products which they do not have to advertise or promote themselves. "P & G brands are pre-sold through extensive advertising."

A chain store grocer witness testified that consumer acceptance is obtained, "by consistent advertising, radio, television. You name it. They could have many other gimmicks that are paramount to the supermarket industry, not particularly as to bleach or soaps. There are just any number of items that would cause a product to move."

As hereinbefore indicated, P & G is one of the nation's largest advertisers, having spent at least $79,000,000 to advertise its products in the fiscal year ended June 30, 1957, and approximately $82,500,000 for that purpose during the calendar year 1957.

Its principal soap and detergent competitors, Colgate-Palmolive, and Lever Brothers, spent approximately $37,000,000, and $24,- 000,000, respectively, during 1957 on national advertising. Purex, the principal competitor of respondent in the household liquid bleach business, spent approximately $3,000,000 in national advertising during the same year.

P & G uses television spot announcements extensively in advertising its products. In 1957 it ranked first in the nation as to amounts expended in this manner, having spent approximately $25,000,000 compared to approximately $8,000,000 expended by each of its principal competitors, Colgate-Palmolive and Lever Brothers for this type of advertising.

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P & G also uses television programs extensively in advertising its products. It also ranked first in the nation in 1957 on amounts expended in this medium, having expended approximately $47,000,000. Colgate-Palmolive, its nearest competitor, spent approximately $19,-000,000, and Lever Brothers spent approximately $16,000,000 for this type of advertising during this period.

The above amounts expended by P & G on television advertising alone indicate the advertising strength of the respondent.

P & G also utilizes radio, newspapers, and magazines extensively in advertising its products, and ranks high in the nation in the last two of these advertising media. It spent substantially more money in advertising in magazines in 1957 than any other detergent producer, and ranked fourth in the nation in magazine advertising.

Discount rates are available to large advertisers which can reduce their advertising cost by as much as 30% (or permit them to purchase substantially more advertising for the same amount of money expended). To earn these discounts, large advertisers may, as P & G does, combine their advertising on a given medium of all their products. This makes the pro-rata cost per product far less than the amount required to be paid by the one-product company. Even a company with many products cannot earn discounts comparable to those of P & G if their combined amount of advertising is insufficient to qualify for a maximum discount.

D. Sales Promotion Methods

In fiscal 1957 respondent P & G charged to profit and loss for sales promotion more than $17,000,000, which was approximately 5% of the amount of its net domestic sales. In conjunction with its advertising, P & G has promoted its household products by offering to the consumer such promotions as: 1. "Two-for-one" price sales.

2. Special packs wherein a small size is given free or at a reduced price with the purchase of the attached larger size or the entire pack price is reduced. 3. Free samples mailed or delivered to the consumer's residence. 4. Price-reducing coupons mailed to or delivered to the consumer's home, alone or packaged with free samples. 5. Reduced consumer prices on quantity purchases. 6. Free or reduced price merchandise premiums attached to the P & G product or to be sent for by the consumer. 7. Contests with cash and merchandise prizes for the consumer.

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8. Cross-couponing of P & G products and of P & G and other nationally known related products in that a price-reducing coupon for one product will be packaged in another P & G product. 9. Combining several of its products in a joint promotion, utilizing combinations of promotions hereinbefore mentioned. 10. Combinations of promotions hereinbefore mentioned for a single product.

E. P & G's "Comet" Advertising and Sales Promotion Campaign

An example of the effectiveness of P & G's advertising and sales promotion compaigns is found in the "very successful" introduction and customer acceptance of its household cleanser "Comet". In the spring of 1957 respondent P & G introduced nationally its "Comet" brand of abrasive cleanser containing a bleach, with a national advertising campaign, after test marketing in selected areas, utilizing radio, television, newspaper, and magazine advertising, coordinated with extensive consumer promotions. From sometime in 1956 through October 1957, over a period of not more than 22 months, P & G spent for the direct advertising and promotion of "Comet" approximately $7,200,000. Of this amount, approximately $4,400,000 was spent in the first ten months of 1957 alone on "Comet" advertising.

As a result of the foregoing campaign, "Comet", according to Neilsen Food Index, steadily and consistently increased its market share, until by the last bi-monthly period of record herein (February-March, 1958) it had attained 36.5% of the national market of all scouring cleansers sold in grocery stores, and was within .4% of tying "Ajax", the leader in this field, for the number one rank. This position was gained by P & G within a period of approximately 20 months, from August 1956 to March 1958.

X. CHANGES MADE BY P & G SUBSEQUENT TO THE ACQUISITION OF CLOROX CHEMICAL

A. As to Management Personnel of Clorox

At the time of the acquisition, respondent P & G took over active control of the Clorox Chemical Company and installed its own personnel in key and controlling policy making positions. For example, Mr. Fred Brown, a veteran of 45 years with P & G, formerly in charge of all P & G domestic manufacturing, became Executive

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Vice President and General Manager of Clorox, reporting directly to Mr. Borgens, the President of both P & G and Clorox. Mr. Brown replaced the former President of Clorox Chemical, Mr. W. J. Roth, who was retained in a consulting capacity only. P & G also transferred three other men of staff level at the time of acquisition to key positions with the Clorox Company. One, a marketing specialist with P & G who had been responsible for the promotion of several P & G brands, including "Tide", was made a marketing staff associate; another, a manufacturing specialist, became a manufacturing staff associate, reporting directly to Mr. Brown; and a third was placed in charge of Clorox's laboratory controls and the technical phases of its business. Also, in January 1958, a former P & G district manager of case soap sales was made Pacific Coast Division Sales Manager of the Clorox Company. In view of P & G's wide and successful experience in marketing its products, its technical know-how, together with its financial resources, these changes in the management of Clorox will result in substantial advantages to P & G in the marketing of Clorox liquid bleach.

B. As to Plant Operations

P & G closed down the Kansas City, Missouri, Clorox Chemical Company plant shortly after the acquisition, and is producing Clorox in a building on its own Kansas City, Kansas, property, with P & G personnel. This action was taken in the interest of economy. Rather than to have two plants manufacturing in the same area, it was decided to combine that production in one plant. The Boston plant of Clorox Chemical was also closed down because it was thought that the Eastern territory could be supplied more economically from the Jersey City, New Jersey, Clorox plant.

C. As to Sales Promotion Campaigns

Respondent P & G has added promotions to Clorox merchandising programs using price-off labels, free premiums, price-reducing coupons, and reduced-price premiums, coordinated with advertising in selling Clorox in selected areas and nationally. Examples of such promotions include merchandise premiums and special Clorox labels, usually during spring and fall housecleaning drives. One such brochure urges merchant support and stresses the coordinated advertising support in the same manner as is done for other P & G products.

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A premium offer of an ironing board cover was made in the southeastern United States in November 1957, in Erie, Pennsylvania, in January and February 1958, and in June 1958, in the southwestern Sales Division of P & G. A premium pack of a dishcloth attached to a bottle of Clorox was also used in Los Angeles in June 1958.

This change to consumer promotion was decided upon by The Clorox Company as early as October 7, 1957. In the spring of 1958, in the so-called "Clorox Spring Housecleaning Bee", consumer promotions were featured, such as an ironing board cover for 50 cents and a Clorox label. Also in June 1958, a 5-cent price-off labels on gallons were used in metropolitan Chicago, which includes northern Illinois and a part of Wisconsin. Other price-off labels were used in Detroit, Nashville, Chattanooga, and San Francisco between February and July 1958.

The evidence introduced at the hearings held on December 1st and 12th, 1961, pursuant to the order of the Commission entered on June 15, 1961, remanding this proceeding to the Hearing Examiner for the reception of further evidence, clearly shows that respondent substantially increased the promotional activity with respect to Clorox, its acquired liquid bleach product, during the period July 1958 through July 1961. Such evidence shows that respondent used a total of about seventy promotions during that 3-year period at a total cost of approximately $1,550,000 for the promotion of Clorox. This amount is in addition to the $400,000 which respondent had budgeted immediately after the acquisition for the fiscal year ended June 30, 1958, for promotional expenditures of this product. Prior to the acquisition of Clorox Chemical by P & G, the former company had not used consumer promotions for a number of years. The evidence further shows dramatically that the market impact of the P & G-Clorox promotions was immediate and indicates that they were responsible, at least in part, for reversing the trend of Clorox's diminishing market share growth under the ownership of Clorox Chemical Co.

The following table shows the market share of Clorox and the annual changes therein, of the total sales of household liquid bleach in the United States, moving through grocery stores, for each of the four years preceding the acquisition and each of the four years following the acquisition on both a 32-ounce Equivalent Unit Basis and on a Consumer Dollar Basis, together with the total annual expenditures by P & G for the promotion of Clorox.

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TABLE II.—Clorox Market Share and Annual Changes, Household Liquid Bleach and Promotional Expenditures

| Year ended July 31 | 32 oz. equivalent unit basis | | Consumer dollar basis | | Promotional expenditures | |---|---|---|---|---|---| | | Clorox share | Change | Clorox share | Change | | | PRIOR TO ACQUISITION | | | | | | | 1953--------------------------------- | 41.4 | ---------- | 45.3 | ---------- | (1) | | 1954--------------------------------- | 43.0 | +1.6 | 46.4 | +1.1 | (1) | | 1955--------------------------------- | 44.0 | +1.0 | 47.1 | +0.7 | (1) | | 1956--------------------------------- | 44.8 | +0.8 | 47.8 | +0.7 | (1) | | 1957--------------------------------- | 45.3 | +0.5 | 48.4 | +0.6 | (1) | | SUBSEQUENT TO ACQUISITION | | | | | | | 1958--------------------------------- | 45.8 | +0.5 | 48.7 | +0.3 | 2 $400,000 | | 1959--------------------------------- | 46.8 | +1.0 | 50.1 | +1.4 | 520,300 | | 1960--------------------------------- | 48.8 | +2.0 | 51.8 | +1.7 | 648,800 | | 1961--------------------------------- | 48.6 | -0.2 | 51.9 | +0.1 | 379,800 |

1 No Consumer promotions by Clorox Chemical Co. 2 Budgeted by P&G for Clorox promotions for fiscal year ended June 30, 1958. Source: RXs 134A, 135A and CX 718A-F.

It will be noted from the foregoing table that on both the 32 oz. Equivalent Unit Basis and the Consumer Dollar Basis, while Clorox's market share shows an increase every year from fiscal 1953 through fiscal 1961, the trend of the change in Clorox's market share shows a definite declining trend each year from fiscal 1953 to the date of acquisition, namely from +1.6 to +0.5 on the Unit Basis and from +1.1 to +0.6 on the Consumer Dollar Basis, during which time Clorox Chemical used no customer promotions and had no promotional expenditures. On the other hand, in fiscal 1958, the first year after the acquisition, when P & G budgeted $400,000 for promotional expenditures, the trend of the change in Clorox's market share leveled off and then in the following two years, fiscal 1959 and 1960, when Clorox's promotional expenditures increased to $520,300 and $648,800, respectively, the change in Clorox's market share shows a decided upward trend from +0.5 to +2.0 on the Unit Basis and from +0.3 to +1.7 on the Consumer Dollar Basis. In fiscal 1961, the change in Clorox's market share shows a definite reversal, although its actual market share shows only a slight decline of two-tenths of one percent on the Unit Basis and a slight increase of one-tenth of one percent on the Consumer Dollar Basis. In this connection, it is noted that P & G decreased its promotional expenditures materially in that fiscal year to $379,800 from $648,800 in fiscal 1960.

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The following graph shows visually the correlation between Clorox's market share and the trend of the change therein from fiscal 1953 through fiscal 1961 on the one hand, and the amount allocated to promotional expenditures during that period of time.

A CORRELATION OF CLOROX MARKET SHARE AND ITS PERCENTAGE POINT CHANGE WITH EXPENDITURES FOR PROMOTIONS (Years End July 31) Percent Prior to Acquisition Subsequent to Acquisition CLOROX MARKET SHARE 48 (32 OZ. EQUIVALENT UNIT BASIS) 2.0 PERCENTAGE POINT CHANGE 1.5 1.0 0.5 -0.5 $700 $648.8 PROMOTION EXPENDITURES (Thousands of Dollars) $520.3 $400* No Promotion Expenditures by Clorox Chemical Co.

$379.8 1953 1954 1955 1956 1957 1958 1959 1960 1961 *Budgeted for fiscal year ended June 30, 1958.

SOURCE: CX 134A, 718A-F.

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The respondent contends in its Proposed Findings filed May 8, 1959, (page 91), that in the case of established products, such as Clorox liquid bleach, promotions may result in temporary gains in market share which, following the promotion, recede to their former level. However, the evidence in this case does not support this contention, as discussed in the immediately preceding paragraphs and reflected in the graph correlating Clorox's market share and its percentage point changes with its expenditures for promotions, on page 1506 hereof. Another instance where evidence of probative value is available which relates the effect of a Clorox promotion, directly to market share, (Erie, Pa., area, CX 450) Clorox's market share increased from 49% of the market during the period October 14 to November 11, 1957, (the period immediately preceding Clorox's "Money Saving Clorox Special" promotion on November 25, 1957, and followed by other Clorox promotions in that area in January and February 1958) to 63% in the period December 12, 1957 to January 6, 1958.

Although Clorox's market share leveled off after these promotions to 52.9% of the Erie market during the period February 3-March 3, 1958, it retained a gain of almost 4 percentage points in market share in this area. During this same period, the market share of one of its principal, but smaller competitors, Gardiner Manufacturing Company, with its 101 Brand, was decreasing from 25.2% to 22.3% of the market, and "All Other" brands were decreasing from 18.9% to 17.7%.

Furthermore, if the respondent's contention is correct, that promotions result in only temporary gains in market shares and then recede to their former level, it is inconceivable that Clorox would earmark $400,000 of its first advertising budget after the acquisition and spend in excess of $1,500,000 in the three succeeding years for such "ineffective" promotions.

D. As to Advertising

1. In Magazines

The Clorox Company, under P & G control, made a number of changes in the magazine advertising as used by Clorox Chemical Company, not only in the kind of magazines used, but in the type of ads appearing therein. For example, in February 1958, Clorox began the use of monthly full page black and white ads in some

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magazines in which Clorox Chemical had run smaller color ads every other month. Several magazines that had been used for advertising by Clorox Chemical were dropped entirely and the advertising in others, such as certain farm magazines, was reduced. These latter changes would appear to be consistent with P & G's general policy, as testified to by its advertising manager, of advertising in magazines with national circulation.

2. On Radio

The Clorox Company, under control of respondent P & G, has doubled the amount of time purchased in television spot announcements of Clorox, compared to the record of Clorox Chemical, and placed less emphasis on radio in conformance with the P & G policy. Also consistent with P & G policy, subsequent to the acquisition of Clorox Chemical Company, spot announcements on some independent, unaffiliated radio stations were terminated, and were switched to net-work stations which generally offered more listening audience. After the acquisition, 34 radio stations were dropped from Clorox advertising, of which 27 were independent stations, unaffiliated with a net-work. One new station was added.

3. On Television

Clorox has been advertised, since the acquisition, on spot television in new markets wherein the Clorox Chemical Company was not using spot television. Also television spot advertising has been increased in other markets, wherein the Clorox Chemical Company had done very little television spot advertising. While Clorox dropped or decreased TV spot advertising in a few markets, that had been used by Clorox Chemical Company prior to the acquisition by P & G, it added or increased its TV spot advertising after the acquisition in a substantially larger number of markets, either not used at all, or used to a more limited degree by Clorox Chemical Company.

The monthly average number of seconds of TV spot advertising used by Clorox Chemical Company in TV markets decreased or dropped by Clorox after the acquisition were 5,956.7, while such average used by Clorox in such markets after the acquisition was 3,597.5, or a decrease of only 2,359.2 seconds. On the other hand, the monthly average number of seconds on TV spot advertising used by Clorox in new or increased TV markets after the acquisition was 96,660 seconds, as compared to a monthly average of

THE PROCTER & GAMBLE CO. 1509

1465 Initial Decision

43,277.4 seconds used by Clorox Chemical Company in such territory prior to the acquisition, or an increase of 53,382.6 seconds. Thus, the total monthly average number of seconds of TV spot advertising used by Clorox Chemical Company before the acquisition, in both decreased and increased TV markets, was 49,234, whereas such average used by Clorox after the acquisition in such markets was 100,257, or a net increase of 51,023 seconds. The following tables set forth in detail the monthly average, before and after the acquisition, in (1) New or Increased TV Markets, and (2) Decreased or Dropped TV Markets.

TABLE III.—(CX-545) New or Increased TV Markets After the Acquisition (Monthly Average Number of Seconds)

| | Monthly average | | | | Before | After | | Abilene, Tex. | 0 | 1,005.0 | | Albuquerque, N. Mex. | 105.0 | 1,560.0 | | Amarillo, Tex | 0 | 1,005.0 | | Ashville, N.C | 110.0 | 1,552.5 | | Atlanta, Ga. | 783.3 | 952.5 | | Austin, Tex. | 0 | 1,012.5 | | Baltimore, Md. | 1,061.6 | 1,150.0 | | Beaumont, Tex. | 0 | 1,012.5 | | Birmingham, Ala. | 1,200.0 | 1,795.0 | | Boston, Mass. | 1,200.0 | 1,647.5 | | Buffalo, N.Y. | 1,041.7 | 1,560.0 | | Charleston, S.C. | 81.7 | 1,217.5 | | Charlotte, N.C. | 716.7 | 1,045.0 | | Chattanooga, Tenn. | 0 | 10.0 | | Chicago, Ill. | 1,991.7 | 2,942.5 | | Cincinnati, Ohio. | 670.0 | 907.5 | | Cleveland, Ohio. | 1,638.3 | 2,820.0 | | Columbia, S.C. | 375.0 | 1,022.5 | | Columbus, Ohio. | 718.3 | 1,207.5 | | Corpus Christi, Tex. | 0 | 1,012.5 | | Dallas, Tex. | 68.3 | 2,212.5 | | Davenport, Iowa. | 828.3 | 1,560.0 | | Denver, Colo. | 721.7 | 992.5 | | Des Moines, Iowa. | 785.0 | 952.5 | | Detroit, Mich. | 933.4 | 1,045.0 | | El Paso, Tex. | 185.0 | 2,175.0 | | Erie, Pa. | 0 | 1,693.0 | | Evansville, Ind. | 0 | 1,620.0 | | Fort Worth, Tex. | 0 | 435.0 | | Galveston, Tex. | 600.0 | 962.5 | | Greenville, N.C. | 70.0 | 947.5 | | Harlingen, Tex. | 0 | 345.0 | | Houston, Tex. | 868.3 | 1,122.5 | | Indianapolis, Ind. | 978.3 | 1,385.0 | | Jackson, Miss. | 845.0 | 1,297.5 | | Kansas City, Mo. | 1,700.0 | 2,112.5 | | Los Angeles, Calif. | 1,218.3 | 2,205.0 | | Louisville, Ky. | 876.7 | 1,890.0 | | Lubbock, Tex. | 1,375.0 | 2,602.5 | | Memphis, Tenn. | 831.7 | 952.5 | | Miami, Fla. | 506.7 | 987.5 | | Midland, Tex. | 0 | 577.5 | | Milwaukee, Wis. | 0 | 977.5 | | New Orleans, La. | 660.0 | 777.5 | | New York, N.Y. | 1,726.7 | 2,105.0 | | Norfolk, Va. | 371.7 | 432.5 | | Odessa, Tex. | 0 | 435.0 | | Oklahoma City, Okla. | 1,353.3 | 2,400.0 | | Peoria, Ill. | 800.0 | 952.5 |

780-018—69—96

Initial Decision 63 F.T.C.

TABLE III.—(CX-545) New or Increased TV Markets After the Acquisition (Monthly Average Number of Seconds)—Continued

| | Monthly average | | | | Before | After | | Philadelphia, Pa........................................................................ | 1, 256. 7 | 1, 382. 5 | | Phoenix, Ariz............................................................................ | 73. 3 | 1, 040. 0 | | Pittsburgh, Pa........................................................................... | 908. 3 | 955. 0 | | Portland, Oreg........................................................................... | 1, 086. 7 | 2, 282. 5 | | Raleigh, N.C............................................................................. | 831. 7 | 1, 290. 0 | | Roanoke, Va.............................................................................. | 71. 7 | 1, 040. 0 | | Rochester, N.Y........................................................................... | 868. 3 | 2, 075. 0 | | St. Louis, Mo............................................................................ | 793. 3 | 1, 042. 5 | | San Angelo, Tex.......................................................................... | 0 | 1, 005. 0 | | San Antonio, Tex......................................................................... | 91. 7 | 1, 825. 0 | | San Francisco, Calif..................................................................... | 1, 756. 6 | 2, 027. 5 | | Schenectady, N.Y......................................................................... | 46. 7 | 585. 0 | | Scranton, Pa............................................................................. | 68. 3 | 1, 040. 0 | | Seattle, Wash............................................................................ | 1, 191. 7 | 1, 722. 5 | | Shreveport, La........................................................................... | 68. 3 | 1, 045. 0 | | Syracuse, N.Y............................................................................ | 1, 633. 3 | 1, 897. 5 | | Tampa, Fla............................................................................... | 823. 4 | 865. 0 | | Temple, Tex.............................................................................. | 0 | 465. 0 | | Tucson, Ariz............................................................................. | 90. 0 | 1, 297. 5 | | Tulsa, Okla.............................................................................. | 76. 7 | 1, 360. 0 | | Waco, Tex................................................................................ | 0 | 570. 0 | | Washington, D.C.......................................................................... | 745. 0 | 857. 5 | | Wheeling, W. Va.......................................................................... | 0 | 1, 005. 0 | | Wichita, Kans............................................................................ | 799. 0 | 1, 382. 5 | | Wichita Falls, Tex....................................................................... | 0 | 1, 005. 0 | | Youngstown, Ohio......................................................................... | 0 | 1, 005. 0 | | Total.................................................................................. | 43, 277. 4 | 96, 660. 0 | | Increase................................................................................. | ---------------- | 53, 382. 6 | | Decrease. (See Table IV)............................................................... | ---------------- | 2, 359. 2 | | Net Increase............................................................................. | ---------------- | 51, 023. 4 |

Source: CX545 A, B, C, D.

TABLE IV.—(CX-545) TV Markets Decreased or Dropped After the Acquisition (Monthly Average Number of Seconds)

| | Monthly average | | | | Before | After | | Bellingham, Wash......................................................................... | 1, 256. 7 | 457. 5 | | Huntington, W. Va........................................................................ | 150. 0 | 0 | | Jacksonville, Fla........................................................................ | 1, 050. 0 | 1, 040. 0 | | Little Rock, Ark......................................................................... | 305. 0 | 0 | | Omaha, Nebr.............................................................................. | 431. 7 | 320. 0 | | Salt Lake City, Utah..................................................................... | 1, 000. 0 | 827. 5 | | Spokane, Wash............................................................................ | 1, 288. 3 | 952. 5 | | Tacoma, Wash............................................................................. | 311. 7 | 0 | | Wilmington, N.C.......................................................................... | 163. 3 | 0 | | Total.................................................................................. | 5, 956. 7 | 3, 597. 5 | | Decrease................................................................................. | ---------------- | 2, 359. 2 | | Monthly average number of seconds of TV spots in cities used by the Clorox Chemical Company and not used by the Clorox Company................ | ---------------- | 930. 0 |

Source: CX545 A, B, C, D.

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The number of cities used by Clorox Chemical Company for TV spot advertisements before the acquisition was 65, while the number of cities used for such purpose by Clorox after the acquisition was 80, an increase of 15 cities.

The monthly average number of seconds of TV spot advertisements used by Clorox after the acquisition, in cities not used at all by Clorox Chemical Company, was 16,197.5 seconds, while such monthly average of TV spots in cities used by Clorox Chemical Company before the acquisition, and not used by Clorox after the acquisition, was only 930 seconds. (See Tables III and IV on the preceding pages.)

The number of TV stations used by Clorox for TV spot advertising for the first time after the acquisition was the same as the number of TV stations dropped by Clorox after the acquisition, namely, 28. However, the total number of seconds used by Clorox for such advertising on the 28 new stations for the 8-month period, following the acquisition, August 1, 1957, through March 31, 1958 (157,000), was substantially more than the total number of seconds (104,080) used by Clorox Chemical Company for such advertising during the longer 12-month period, July 22, 1956, through July 31, 1957, on the 28 TV stations dropped by Clorox after the acquisition. (See Tables V(a) and V(b) on the following pages.)

The Clorox Company used 129,580 seconds of TV spot advertising in 19 new cities during the 8-month period following the acquisition, August 1, 1957, through March 31, 1958, whereas Clorox Chemical Company used only 11,160 seconds of TV spot advertising during the 12-month period, July 22, 1956, through July 31, 1957, in 4 cities which were dropped by the Clorox Company after the acquisition. (See Tables VI(a) and VI(b) on the following pages.)

A further indication of a more aggressive sales policy pursued by Clorox after the acquisition of Clorox Chemical Company by P & G is evidenced by the fact that, while Clorox Chemical Company used only 592,020 seconds of TV spot advertising in the 12-month period prior to the acquisition, Clorox purchased a total of 803,060 seconds of TV spot advertising in the shorter 8-month period immediately following the acquisition. (Source CX 545, A, B, C, D.)

Initial Decision 63 F.T.C.

TABLE V(a).—New Television Stations Used by the Clorox Company for Spot Advertising During the Period August 1, 1957–March 31, 1958

| Location | TV station used | Total number of seconds during period | |---|---|---| | Abilene, Tex................................................................ | KRBC-TV.................. | 8,040 | | Amarillo, Tex............................................................... | KFDA-TV.................. | 3,480 | | Amarillo, Tex............................................................... | KGNC-TV.................. | 4,560 | | Austin, Tex................................................................ | KTBC-TV.................. | 8,100 | | Beaumont, Tex............................................................. | KFDM-TV.................. | 8,100 | | Chattanooga, Tenn....................................................... | WRGP-TV.................. | 80 | | Corpus Christi, Tex...................................................... | KRIS-TV................... | 8,100 | | El Paso, Tex............................................................... | KROO-TV.................. | 3,480 | | Erie, Pa.................................................................... | WICU-TV.................. | 13,560 | | Evansville, Ind........................................................... | WFEI-TV................... | 12,960 | | Fort Worth, Tex.......................................................... | WBAP-TV.................. | 3,480 | | Harlingen, Tex............................................................ | KRGV-TV.................. | 2,760 | | Los Angeles, Calif........................................................ | KRCT-TV................... | 10,860 | | Los Angeles, Calif........................................................ | KTTV-TV................... | 480 | | Miami, Fla................................................................. | WCKT-TV.................. | 2,640 | | Midland, Tex............................................................... | KMID-TV.................. | 4,620 | | Milwaukee, Wis............................................................ | WTMJ-TV.................. | 7,820 | | Odessa, Tex............................................................... | KOSA-TV.................. | 3,480 | | Salt Lake City, Utah..................................................... | KTVT-TV................... | 2,420 | | San Angelo, Tex.......................................................... | KCTV-TV................... | 8,040 | | Spokane, Wash............................................................ | KHQ-TV.................... | 4,200 | | Temple, Tex............................................................... | KCEN-TV.................. | 3,720 | | Waco, Tex................................................................. | KWTX-TV.................. | 4,560 | | Wheeling, W. Va.......................................................... | KTRF-TV................... | 8,040 | | Wichita, Kans............................................................. | KAKE-TV.................. | 3,840 | | Wichita Falls, Tex........................................................ | KFDX-TV.................. | 4,560 | | Wichita Falls, Tex........................................................ | KSYD-TV.................. | 3,480 | | Youngstown, Ohio....................................................... | WFMJ-TV.................. | 8,040 | | Total TV Spot Advertising on New Stations........................ | ................................ | 157,500 | | Grand Total of Clorox Spot TV Advertising....................... | ................................ | 803,060 | | Percent Accounted for by New Stations............................. | ................................ | 19.6 |

Source: CX-545 A, B, C, D.

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TABLE V(b).—TV Stations Used by the Clorox Chemical Co. for Spot Advertising During the Period July 22, 1956–July 31, 1957, Dropped by the Clorox Co. August 1, 1957–March 31, 1958

| Location | TV station used | Total number of seconds during period | | Atlanta, Ga................................................................ | WSB-TV.................. | 3,060 | | Birmingham, Ala.......................................................... | WBRC-TV............... | 13,400 | | Chicago, Ill................................................................. | WBBM-TV.............. | 5,820 | | Cleveland, Ohio............................................................ | WEWS-TV.............. | 1,200 | | Do......................................................................... | WJW-TV................. | 5,740 | | Columbus, Ohio............................................................. | WBNS-TV.............. | 1,780 | | Denver, Colo................................................................ | KLZ-TV.................. | 3,140 | | Huntington, W. Va.......................................................... | WSAZ-TV............... | 1,800 | | Jackson, Miss............................................................... | WJTV-TV............... | 1,200 | | Little Rock, Ark............................................................ | KARK-TV............... | 3,660 | | Louisville, Ky............................................................... | WHAS-TV.............. | 300 | | New York, N. Y.............................................................. | WCBS-TV............... | 1,080 | | Oklahoma City, Okla....................................................... | KWTV-TV............... | 1,440 | | Peoria, Ill................................................................... | WTVH-TV............... | 260 | | Philadelphia, Pa............................................................ | WRCV-TV............... | 6,260 | | Portland, Oreg.............................................................. | KOIN-TV................ | 9,960 | | Raleigh, N. C................................................................ | WTVD-TV............... | 1,700 | | St. Louis, Mo............................................................... | KWK-TV................. | 2,020 | | San Francisco, Calif....................................................... | KGO-TV................. | 40 | | Do......................................................................... | KRON-TV............... | 8,880 | | Seattle, Wash............................................................... | KING-TV................ | 1,560 | | Spokane, Wash.............................................................. | KXLY-TV................ | 4,300 | | Syracuse, N. Y.............................................................. | WSRY-TV................ | 7,480 | | Tacoma, Wash............................................................... | KTNT-TV................ | 3,740 | | Tampa, Fla.................................................................. | WTVT-TV................ | 4,340 | | Washington, D. C........................................................... | WTOP-TV............... | 4,980 | | Wichita, Kans............................................................... | KTVH-TV................ | 2,980 | | Wilmington, N. C........................................................... | WMFD-TV............... | 1,960 | | (28 stations dropped)...................................................... | .............................. | ------------------ | | Total TV Spot Advertising on Stations Dropped.................. | .............................. | 104,080 | | Grand Total of Clorox Chemical Co. Spot TV Advertising... | .............................. | 592,020 | | Percent accounted for by stations dropped.......................... | .............................. | 17.6 |

Source: CX-545 A, B, C, D.

Initial Decision 63 F.T.C.

TABLE VI(a).—New Cities in Which the Clorox Company Used Spot Television Advertising During the Period August 1, 1957–March 31, 1958

| Location | TV station used | Total number of seconds during period | |---|---|---| | Amarillo, Tex................................................................ | KGNC.................... | 4,560 | | Amarillo, Tex................................................................ | KFDA-TV................ | 3,480 | | Abilene, Tex................................................................. | KRBC-TV................ | 8,040 | | Austin, Tex.................................................................. | KTBC-TV................ | 8,100 | | Beaumont, Tex.............................................................. | KFDM-TV............... | 8,100 | | Chattanooga, Tenn.......................................................... | WRGP-TV............... | 80 | | Corpus Christi, Tex........................................................ | KRIS-TV................. | 8,100 | | Erie, Pa....................................................................... | WICU-TV................ | 13,560 | | Evansville, Ind.............................................................. | WFEI-TV................. | 12,960 | | Fort Worth, Tex.............................................................. | WBAP-TV............... | 3,480 | | Harlingen, Tex............................................................... | KRGV-TV................ | 2,760 | | Midland, Tex................................................................. | KMID-TV................ | 4,620 | | Milwaukee, Wis............................................................... | WTMJ-TV................ | 7,820 | | Odessa, Tex.................................................................. | KOSA-TV................ | 3,480 | | San Angelo, Tex.............................................................. | KCTV-TV................ | 8,040 | | Temple, Tex.................................................................. | KCEN-TV................ | 3,720 | | Waco, Tex.................................................................... | KWTX-TV................ | 4,560 | | Wheeling, W. Va.............................................................. | WTRF-TV................ | 8,040 | | Wichita Falls, Tex........................................................... | KFDX-TV................ | 4,560 | | Wichita Falls, Tex........................................................... | KSYD-TV................ | 3,480 | | Youngstown, Ohio........................................................... | WFMJ-TV................ | 8,040 | | Total TV Spot Advertising in New Cities.......................... | ................................ | 129,580 | | Grand Total of Clorox Spot TV Advertising...................... | ................................ | 803,060 | | Percent Accounted for by New Cities................................ | ................................ | 16.1 |

Source: CX 545 A, B, C, D.

TABLE VI(b).—Cities in Which the Clorox Chemical Company Used Spot Television Advertising During July 20, 1956–July 31, 1957, and Were Dropped by the Clorox Co., August 1, 1957–March 31, 1958.

| Location | TV station used | Total number of seconds during period | |---|---|---| | Huntington, W. Va........................................................... | WSAZ-TV................ | 1,800 | | Little Rock, Ark............................................................... | KARK-TV................ | 3,660 | | Tacoma, Wash................................................................ | KTNT-TV................ | 3,740 | | Wilmington, N.C.............................................................. | WMFD-TV............... | 1,960 | | Total TV spot advertising in cities dropped...................... | ................................ | 11,160 | | Grand total of Clorox Chemical Co. spot TV advertising.. | ................................ | 592,020 | | Percent accounted for by cities dropped............................ | ................................ | 1.9 |

Source: CX-545 A, B, C, D.

4. Savings in Advertising Expenditures.

Although the record indicates, as contended by respondent, that the per case rate expenditure for advertising and promotion budgeted by Clorox Chemical in the fiscal year ended June 30, 1957, and by the Clorox Company in the 12-month period ended June 30, 1958, were approximately the same, namely 16.4 cents per case, it appears that under P & G control an estimated savings accrued to Clorox in only a part of the latter period in its advertising expenditure as a result of the

THE PROCTER & GAMBLE CO. 1515 1465 Initial Decision joint purchase by P & G and Clorox of advertising in the following media, and in at least the following amounts: Television-------------------------- $86, 000. 00 Radio------------------------------- 500. 00 Magazines--------------------------- 50, 000. 00 Newspapers-------------------------- 2, 000. 00

Total savings----------------------- 138, 500. 00 In addition, there is evidence which indicates that, if Clorox's advertising was fully coordinated with the advertising of P & G, even more substantial discount savings could be effected, which would enable Clorox to purchase considerably more advertising without increasing its per case rate budget for such purpose. In an industry where all but a few of Clorox's competitors are small firms with limited financial resources, any such an amount of potential additional advertising cannot be considered insignificant. That respondent P & G expected to accomplish such savings is indicated in a P & G confidential inter-office memorandum, dated February 28, 1957, recommending the purchase of Clorox Chemical by P & G, where the following statement is made: We are advised that Clorox spent $2,660,000 in the last half of 1956 for advertising, or at the rate of $5,320,000 a year. We believe that P & G advertising philosophies and economies applied to an advertising expenditure of this size can be expected to further advance the Clorox business. [Italic supplied.] XI. EFFORTS OF CLOROX UNDER P & G OWNERSHIP AND CONTROL TO PREVENT A COMPETITOR FROM ENTERING OR EXPANDING IN THE LIQUID BLEACH MARKET 1. In Erie County, Pennsylvania Prior to October 1957, as hereinbefore indicated, Clorox's market share of the household liquid bleach market in Erie, Pennsylvania was more than 50% of the total sales in that area, and the other principal brand of household liquid bleach sold in that market was the 101 Brand, manufactured by the Gardiner Manufacturing Company, which brand enjoyed approximately 30% of the market at that time. On or about October 14, 1957, the Purex Company began a market test in that area by offering a new energized household liquid bleach in a new improved type of container and handle, with a new label attached. A special advertising campaign was put on, and promotional allowances were made to the dealer to enable him to sell the product at a lower price to the public. Coupons were widely distributed in the Erie area, entitling the housewives to a

Initial Decision 63 F.T.C.

reduction of from 10 cents to 25 cents on the purchase of new Purex depending upon the size of the container. Clorox, under the control of respondent P & G, combined an advertising and promotion campaign to prevent the Purex entry into the Erie, Pennsylvania, market. The first step was an advertisement placed in an Erie, Pennsylvania, newspaper on November 25, 1957, described as "Money Saving Clorox Special", and showing Clorox cents-off labels of 7 cents off on gallons, 5 cents off on half-gallons, and 3 cents off on quarts, and emphasizing the fact that the offer was available only in Erie County. Another premium offer was made in January 1958. This was followed, in February 1958, with a "Big Bargain Offer in Erie County" of a regular $1 ironing board cover for 50 cents with each purchase of Clorox. A special newspaper advertisement, featuring the ironing board cover offer, was scheduled to run in the Erie Times-News on February 20 and 21, 1958, and distributors in Cleveland were furnished quantities of display material to be sent to and used by the dealers in the Erie County area. In addition to the ironing board cover promotion advertisement, to be run on February 20 and 21, a second advertisement appeared in the Erie Times-News on February 27 and 28, 1958, and the dealers were furnished copies of a full-page Clorox advertisement carrying its selling message in the February issues of Good Housekeeping, Better Homes and Gardens, Ladies' Home Journal, and Parent's magazines; also a stepped-up schedule of Clorox television advertising in Erie County supplied additional selling support during the month of February. In addition, reprints of the two Clorox newspaper ads and the magazine ads were sent in quantities to the distributors for mailing to the dealers, along with the bulletins in use at that time by the distributors. Clorox continued to run these promotions in the Erie market until the end of March 1958. From October 1957, to March 31, 1958, Clorox spent more than $4,000 for TV spots, and $2,400 for newspaper advertisements in the Erie County promotion campaign, although TV spot had never before been used by the Clorox Company to advertise in that area.

As a result of this campaign conducted by Clorox under P & G control, Clorox was successful in nullifying Purex's test market attempt and in preventing Purex from becoming a substantial factor in the Erie County market. Although Purex was able to nearly equal Clorox in its share of the market of household liquid bleach in the Erie area in the period November 11 to December 9, 1957, Clorox was able to regain and even increase its market position in

THE PROCTER & GAMBLE CO. 1517 1465 Initial Decision that area by the first of March 1958, at which time the Purex share had been reduced to approximately 7%. As a final result, according to an official of the Purex Company, the market test that was run in Erie, Pennsylvania, was cancelled out because the Purex market share did not remain at a reasonably good level. He stated: "It is not possible to do the piece of research that we anticipated, and get meaningful results." An indirect result of the failure to successfully test the market in Erie, Pennsylvania, according to this official of the Purex Company, was the purchase by Purex of the John Buhl Products Company brand of household liquid bleach, "Fleecy-White". When asked for the reasons for the purchase of the John Buhl Products Company, this Purex official stated: One was that Purex had been unsuccessful in expanding its market position geographically on Purex liquid bleach. The economics of the bleach business, and the strong competitive factors, as illustrated by our experience in Erie, Pennsylvania, made it impossible, in our judgment, for us to expand our market on liquid bleach. Fleecy-White represented a brand that sold in fair volume in a limited geographical area, and this area represented an expansion of our geographical area. 2. In Evansville, Indiana The Purex Company also attempted a market test in Evansville, Indiana, at about the same time that it conducted the test in Erie, Pennsylvania. There was the difference that Purex had been selling its product in the Evansville market prior to October 1957, and no price-off coupons were used by it in the test. All that Purex did in the Evansville market, apparently, was to step up their advertising, featuring the newly designed bottle and label. However, Clorox countered by using price-off labels of 2 cents, 4 cents and 6 cents in the Evansville market during the time Purex was attempting to test the market in that area. 3. In Other Markets At the times the Purex Company introduced its newly designed bottle and handle in other trade areas throughout the country, Clorox systematically countered with such "promotional devices" as price-off labels, coupons on the bottle, newspaper coupons, merchandising packs, and self-liquidating premiums, which were generally offered for periods of four or five weeks at a time. These promotions were put on in different local and regional areas throughout the country, the majority of which were utilized from May through August 1958, in the following recorded market areas: Atlanta, Georgia; Los Angeles and San Francisco, California; Chattanooga and Nash-

Initial Decision 63 F.T.C. ville, Tennessee; and the Pacific Northwest. In fact, Mr. Eric Bellingall, Vice President of the Advertising Agency handling the Clorox account testified that: "We drew up a list and had ready a group of these promotions and we got a list of dates when Purex was moving across with its (new) bottle." When questioned about such promotions, Mr. Bellingall further testified as follows:

Your Honor, you generally don't wait in most instances to let him get too much of an inroad. Now, we had this research of promotions that I had discussed and as Trimpe reported that the new bottle had shown up in this territory, and so forth, we would then move to counter with one of this pool of things.

We have used as different devices, price off labels, the coupon on the bottle, the newspaper coupon, and so on, and in some territories, we did not meet it with a promotion, but tried to meet it with whatever increase there was in an advertising schedule.

* * * Sometimes we won't wait for the full effect of the competitor's promotion to take place with the consumer, that is, if he moves with a promotion, we may elect to move simultaneously or as close to simultaneously as we can. In other instances, and this can depend on holidays and so forth, we wait until we get a better reaction from our distributors in the area, and then try to go in to prevent the second purchase. Am I clear there, where a promotion might do a sampling job for the competitor and we would move against the time that we would judge that the woman would be going back for a second bottle. We don't want her to be setting up a habit of purchasing the thing that she has been temporarily attracted to by a promotion, so there is a variety of timings in this activity.

XII. SUBSEQUENT TO THE ACQUISITION BY P & G ON AUGUST 1, 1957, CLOROX'S MARKET SHARE OF THE TOTAL HOUSEHOLD LIQUID BLEACH SALES (ON BOTH A QUART EQUIVALENT BASIS AND A CON- SUMER DOLLAR BASIS) HAS INCREASED SUBSTAN- TIALLY

The following table of comparable bi-monthly periods, before and after P & G acquired Clorox, prepared from the Neilsen reports, shows that for the months of August-September 1956, Clorox's market share, on a 32 oz. equivalent basis, was 44.9% and that in August- September 1957 and in each similar bi-monthly period thereafter Clorox's market share increased, until in August-September 1960 it enjoyed a market share of 49.2%, an increase of 4.3 percentage points in the four years subsequent to the acquisition. Similarly, the table shows that from the October-November 1956 period Clorox's market share increased from 45.3% to 48.9% in the same

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months of 1960, an increase of 3.6 percentage points, and that from the December-January pre-acquisition period to the comparable 1960-1961 period, its market share increased by 3.7 percentage points, or from 45.4% to 49.1%. The table also shows that Clorox's market share reflects a similar increase from the amount shown in each of the other three bi-monthly periods prior to the acquisition to the amounts shown in each of the comparable bi-monthly periods in 1960-1961, for increases of 2.7, 3.1, and 2.3 percentage points respectively. Also reflected in the table is an average annual increase from 45.3% in the 1956-57 pre-acquisition period to 48.6% in the 1960-61 period, or an average annual increase of 3.3 percentage points.

TABLE VII.—Comparable Bi-Monthly Periods Before and After P & G Acquired Clorox (on a 32 oz. Equivalent Basis)

Clorox Market Share | | 1956-57 | 1957-58 | 1958-59 | 1959-60 | 1960-61 | | Aug.-Sept.-------------------------------- | 44.9 | 45.5 | 46.5 | 47.9 | 49.2 | | Oct.-Nov.--------------------------------- | 45.3 | 45.2 | 45.8 | 48.9 | 48.9 | | Dec.-Jan.--------------------------------- | 45.4 | 45.5 | 47.0 | 48.6 | 49.1 | | Feb.-Mar.--------------------------------- | 45.7 | 45.7 | 47.0 | 48.6 | 48.4 | | Apr.-May.--------------------------------- | 44.9 | 45.7 | 47.1 | 48.8 | 48.0 | | June-July.-------------------------------- | 45.7 | 46.9 | 47.2 | 49.7 | 48.0 | | Average.---------------------------------- | 45.3 | 45.8 | 46.8 | 48.8 | 48.6 |

Source: RX 134-B.

The following graph clearly reflects the increase in Clorox's market share and the decrease in the market share of "All Others", before and after the acquisition, on a 32 oz. Equivalent Unit Basis. It will be noted that the trend of increase in Clorox's market share and the trend of decrease in the market share of "All Others" accelerates significantly subsequent to August 1, 1957, the date of acquisition.

The following table, also prepared from the Neilsen reports, makes the same comparisons on a consumer dollar basis and shows an even greater increase in Clorox's market share from the periods immediately preceding the acquisition to the comparable 1960-61 periods than is reflected in table VII prepared on a 32 oz. equivalent basis. For example, this table shows an increase from August-September 1956 to August-September 1960 in Clorox's market share from 48.0% to 52.4% or an increase of 4.4 percentage points; from October-November 1956 to October-November 1960, an increase of 3.4 percentage points, and similar increases in each of the other comparable periods shown in the table down to and including the

Initial Decision 63 F.T.C.

June-July 1961 period, which shows an increase of 2.7 percentage points over the June-July 1957 period. The table also shows an average annual increase from 48.4% in the 1956-57 pre-acquisition period to 51.9% in the 1960-61 period, or an average annual increase of 3.5 percentage points.

MARKET SHARE - CLOROX AND ALL OTHERS 32 OZ. EQUIVALENT UNIT BASIS (Years End July 31)

Percent Prior to Acquisition Subsequent to Acquisition ALL OTHERS CLOROX 1953 1954 1955 1956 1957 1958 1959 1960 1961

SOURCE: RX 134A.

-49a-

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TABLE VIII.—Comparable Bi-Monthly Periods Before and After P & G Acquired Clorox (on a Consumer Dollar Basis) Clorox Market Share | | 1956-57 | 1957-58 | 1958-59 | 1959-60 | 1960-61 | | Aug.-Sept................................................ | 48.0 | 48.4 | 49.6 | 50.9 | 52.4 | | Oct.-Nov................................................. | 48.6 | 48.2 | 49.3 | 51.9 | 52.0 | | Dec.-Jan................................................. | 48.4 | 48.6 | 50.3 | 51.7 | 52.3 | | Feb.-Mar................................................. | 48.8 | 48.6 | 50.3 | 51.7 | 51.7 | | Apr.-May................................................. | 48.0 | 48.8 | 50.5 | 52.0 | 51.6 | | June-July................................................ | 48.8 | 49.6 | 50.4 | 52.5 | 51.5 | | Average.............................................. | 48.4 | 48.7 | 50.1 | 51.8 | 51.9 | Source: RX 135-B.

MARKET SHARE - CLOROX AND ALL OTHERS DOLLAR BASIS AT COST PRICE TO CONSUMERS

(Years End July 31)

Percent Prior to Acquisition Subsequent to Acquisition 52 ALL OTHERS CLOROX 1953 1954 1955 1956 1957 1958 1959 1960 1961

SOURCE: RX 135A.

Initial Decision 63 F.T.C.

The preceding graph also clearly shows the increase in Clorox's market share and the decrease in the market share of "All Others", before and after the acquisition on a Consumer Dollar Basis. It will be noted that the trend of increase in Clorox's market share and the trend of decrease in the market share of "All Others", subsequent to the acquisition, accelerates at an even greater rate on the Consumer Dollar Basis than is reffected in the graph prepared on a 32 oz. Equivalent Basis.

XIII. CLOROX AND PUREX MARKET SHARES IN PA- CIFIC, SOUTHWEST AND WEST CENTRAL REGIONS COMBINED

At the original hearings, the respondent submitted a tabulation of household liquid bleach bi-monthly sales in the Neilsen Pacific, Southwest, and West Central Territories combined, for the period June-July 1957, through October-November 1957, on a unit basis. (RX 91) This tabulation shows that during this period Clorox's share of the market in those areas declined until Purex and Fleecy- White's combined share was larger than that of Clorox. However, the abnormality of that selected period is evident from the following chart, showing for the same territories the percent of market shares of Clorox, Purex and Fleecy-White on a bi-monthly basis, from February-March 1957, through October-November 1958, the latest available data then of record. The dotted line portion of this graph shows the period included in respondent's exhibit (RX 91) referred to above. It is evident from this graph that not only did Clorox catch up and pass Purex Fleecy-White combined by April 1958, but that the Purex share of the market declined below what it was prior to P & G's acquisition of Clorox in August 1957. (RX 91 and CX 668) There were submitted by respondent at the remand hearing, tabulations showing the market share of Clorox on a 32 ounce equivalent unit basis in those same areas for the years 1953 to 1961 (RX 136). There was also submitted at this hearing by Commission's counsel an exhibit taken from Nielsen Food Index showing the shares of Clorox, Purex and others on a consumer dollar basis for this area. From an examination of these figures, it is apparent that the relative position of Clorox and Purex, as indicated in the following graph, has been substantially maintained during the subsequent period 1958 to 1961. The only change indicated is an increase of about one percentage point in the market share of Clorox. For that reason, no attempt is made to extend the graph to reflect the latter period.

THE PROCTER & GAMBLE CO. 1523 1465 Initial Decision A. C. NIELSEN CO.

PACIFIC, SOUTHWEST, WEST CENTRAL REGIONS COMBINED MARKET SHARES Quart Equivalent Basis (Units) Clorox Fleecy White - Purex Combined Purex Percent of Market Share 20 -52- Fleecy White FM AM JJ AS ON DJ FM AM JJ AS ON 1957 1958 Note: Dotted lines refer to data from RX 91. Source: Commission Exhibit 663.

XIV. THE EFFECT OF THE ACQUISITION OF CLOROX CHEMICAL BY THE RESPONDENT P & G MAY BE TO SUPPRESS THE COMPETITION OF NOT ONLY PUREX BUT OTHER SMALL COMPETITORS A. As to the Purex Company According to the testimony of the President of the Purex Company: The acquisition of Clorox by Procter & Gamble, in our opinion, will have a serious effect upon Purex's business and Purex's ability to compete in the liquid bleach business, particularly if the same promotion devices which are normally used by Procter & Gamble are applied to the liquid bleach business. B. As to the Linco Products Corporation As hereinbefore indicated, this Company is respondent's principal local competitor in the Chicago, Illinois, territory. The President of that company testified with respect to the effect upon his business of the acquisition of Clorox Chemical by respondent P & G: Well, I would say that this acquisition would create a situation where Linco Company will have a hard time to compete. When you stop to look at the resources that they have and the type of promotion that they put up when they buy or put out a new item, you can see that things are very serious. When they start a saturating campaign—that means radio, newspaper, TV, plus sampling, coupons, all that put together, including floor displays in the

Initial Decision 63 F.T.C.

stores, which they would be able to get following all its advertising; and not only that, but they would be able to get probably more shelf space than competition, and all that together would eliminate the small manufacturer like us. C. As to the Rose-Lux Chemical Company An official of the Rose-Lux Chemical Company, manufacturer of "Rose-X Bleach" brand of household liquid bleach, when asked what effect the acquisition by P & G of Clorox Chemical will have upon his company, testified: Well, it's bound to hurt our business and its bound to decrease our sales. D. As to the J. L. Prescott Company An official of the J. L. Prescott Company, manufacturer of the "Dazzle" brand of household liquid bleach, hereinbefore mentioned, when asked what effect, in his opinion, the acquisition of Clorox Chemical by P & G would have upon his business, testified: Well, it is our feeling that if approximately the same promotions are continued that the Clorox Chemical Company used, and in addition to that, things such as coupons, so much off on the label, that type of promotion added to it would definitely be harmful to our business. E. As to the Sunlight Chemical Corporation The President of the Sunlight Chemical Corporation of Rumford, Rhode Island, when asked what some of the competitive factors are which determine whether or not his company sells household liquid bleach, testified: I think our main competitor selling liquid bleach is the amount of money that our competitors have to spend for advertising. I do not think it is the product itself of our competitors that we fear as competition because all good brands of bleach are, chemically speaking, identical. They bear a different trade name. It is the ability of the larger companies to spend tremendous amounts of money in advertising that gets them the business instead of the smaller company like ourselves. When asked specifically what effect the acquisition of Clorox Chemical by P & G would have on his business, he testified: * * * I still think it would be more difficult for us to sell with a stronger competitor. It seems to me that is only logical. The stronger your competitor, the more resourceful, the more experienced, the more money he has, the more business he should get, and less we should get. So I say almost unqualifiedly that we will suffer by this taking over of Clorox by Procter & Gamble. F. As to the Savol Company A partner of the Savol Chemical Company of Hartford, Connecticut, hereinbefore mentioned, when asked what effect the acquisi-

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tion of Clorox Chemical by respondent P & G would have on his business, testified:

Frankly, we have learned to live with Clorox. As an individual I am a little bit apprehensive if Procter & Gamble goes on with the method of advertising, method of sampling, method of coupons, and the method of sales that they have used with Procter & Gamble products, both to the wholesaler and to the individual stores, of what they may do to the bleach business. Again, I am speaking as an individual. We have a little business. We are trying to get along. We are not trying to coop in or take in the entire world. We are making a living. If and when the advertising, if Procter & Gamble would go out with advertising such as they have with other of their products, it would take very little to put us out of business because there isn't enough of a spread or a profit that we are making. And that is the thing that troubles me a little bit, and I can't help but be a bit apprehensive of it.

G. As to the Gardiner Manufacturing Company

The President of the Gardiner Manufacturing Company of Buffalo, New York, hereinbefore mentioned, testified that he generally followed the Clorox price structure in selling to the trade, and when asked what effect the acquisition of Clorox Chemical by P & G would have upon his business, testified as follows:

Well, I am scared of it, definitely, because of their larger capacity, purchase, advertising matter—makes it that they can cover the trade at a much lower cost than I can. They have a much larger sales force, which is selling their other products, which can also promote the Clorox. The entire business really scares us because of the possibilities of what could happen.

H. As to Jones Chemicals, Inc.

The President of Jones Chemicals, Inc., of Caledonia, N.Y., hereinbefore mentioned, when asked what effect, if any, the acquisition of Clorox Chemical by P & G would have upon his business, testified:

If Clorox—runs along the way they have been running, in the experience that I have had with them for 27 years, then I feel that my company or any of our associates could meet them in the market place and operate satisfactory as we have in the past. If they become a more aggressive merchandiser, getting away from the newspaper technique of influencing sales through newspaper advertising and go to the more, you might say, dynamic form of merchandising such as only soap people know how to employ, then people like myself would be in trouble.

I. As to B. T. Babbitt Company

The B. T. Babbitt Company had long been a competitor of P & G in the detergent and cleanser field. As hereinbefore indicated, it acquired Chemicals, Inc., in August 1956, which manufactured a house-

780-018—69—97

Initial Decision 63 F.T.C.

hold liquid bleach which it sold under the brand name "Vano" in and around San Francisco, California. The Babbitt Company continued to manufacture and sell this product until about April 1958, when it decided to discontinue manufacturing its household liquid bleach.

The Chairman of the Board and Treasurer of this company testified that his firm had a policy since approximately 1953 not to compete unnecessarily with the "soapers", referring to soap manufacturers. When asked what effect, if any, the acquisition of Clorox Chemical by P & G would have on the Vano liquid bleach business, he testified:

From this point on, it isn't going to have any effect, because several months ago we decided to discontinue manufacturing the product. Since the witness was testifying in June 1958, it is apparent that the decision to discontinue the manufacture was shortly prior to that date, or about April 1958. He further testified that: We acquired the Vano Liquid Bleach in August of 1956 and have not promoted the product or advertised the product since the franchise of Clorox was so strong, so I feel that one of the contributing factors to our decision to discontinue the product was the acquisition of Clorox by Procter & Gamble, since it was obvious that we would not, under these conditions, entertain any thought of establishing a satisfactory franchise on Vano Liquid Bleach.

XV. THE ADDITION OF CLOROX TO THE P & G LINE OF SOAPS, DETERGENTS, AND CLEANSERS WILL ADD MERCHANDISING STRENGTH AND SUPPORT TO CLOROX WHICH WAS NOT AVAILABLE TO THE CLOROX CHEMICAL COMPANY

There is an abundance of evidence in this case that there is a definite relationship between soap products, detergents, household cleansers and household liquid bleach, such as Clorox. This is apparent from their very nature, the uses to which they are placed by the housewife, and the way in which they are placed, grouped and displayed on the shelves of the grocery stores, and the promotional effort that is put behind those items. As pointed out by an official of one of the Clorox competitors:

The multi-product manufacturer can maintain stronger sales reports at the retail level. This is an aid in getting shelf space. The multi-product manufacturer normally has lower sales cost, so he has more promotion power; this is an aid in getting shelf space. The more products a manufacturer in our general commodity class sells to the grocery store at a profitable volume, of course, the more power he has to promote, and all these things are aids in getting shelf space.

THE PROCTER & GAMBLE CO. 1527 1465 Initial Decision Another competitor testified that household liquid bleach is very definitely adaptable to the promotional techniques used by soap companies. He pointed out that household liquid bleach is used by 95% of the housewives in the United States, and that when such an item is so universally used, it is very adaptable to merchandising techniques.

XVI. THE INDUSTRY-WIDE CONCENTRATION OF THE PRODUCTION AND SALE OF HOUSEHOLD LIQUID BLEACH MAY BE INCREASED

While the acquisition of Clorox Chemical by P & G in and of itself did not immediately result in increased industry-wide concentration in the production and sale of household liquid bleach, the record indicates that the results flowing from the acquisition already have resulted in some increased concentration and may well, in time, result in even more increased concentration in the production and sale of household liquid bleach. For example, as a result of Purex's unfortunate experience at the hands of Clorox, when it attempted to test market its improved bleach and container in Erie, Pennsylvania, and Evansville, Indiana, Purex decided that its only opportunity to increase its sales and expand its territory was through acquisition, and it therefore acquired the Fleecy-White brand of household liquid bleach, thus increasing the concentration in that industry. Another example is the decision of the B. T. Babbitt Company to discontinue the sale of its Vano brand of household liquid bleach, as a result of the acquisition of Clorox Chemical by P & G. In addition, it would appear reasonable to expect P & G, with its financial resources available for the advertising and promotion of Clorox at any time and any place, and to the extent it may deem desirable, together with its admitted managerial, advertising and promotional expertise, to continue to increase the Clorox share of the market at the expense of its smaller and less resourceful competitors.

XVII. THE MARKET SHARE POSITION OF CLOROX LIQUID BLEACH BEFORE AND AFTER ACQUISITION

On page 12 of the respondent's "Proposed Findings of Fact and Conclusions, after Remand" the respondent states: The Commission's Opinion plainly indicates the significance which it attaches to evidence respecting the trend of market shares. (Emphasis supplied.) At page 4 of its Opinion it properly notes that no conclusion can be reached with respect to the substantiality or materiality of any post-acquisition Clorox

Initial Decision 63 F.T.C.

market share increase, which is claimed to be a result of the acquisition, without consideration of and comparison with the "pre-acquisition growth trend of Clorox." (Emphasis supplied.)

The respondent also states on pages 12 and 13 of its "Proposed Findings":

Nielsen data respecting market shares in the household liquid bleach industry are compiled and reported on both a 32-ounce equivalent unit basis and on a consumer dollar basis. The 32-ounce equivalent unit basis is preferable to the consumer dollar basis as a reflection of market conditions or market share data because it measures the actual volume of merchandising moving through grocery stores, and is not influenced by retail price changes, temporary or otherwise.

[Comment: Statistical data used throughout these findings with respect to household liquid bleach moving through grocery stores in the United States are based upon the Nielsen Food Index Reports and exhibits prepared therefrom which were offered in evidence. The accuracy of Nielsen figures was stipulated by both parties at the instance of complainant in the initial hearings (Tr. 2066A-2066B) and reaffirmed by counsel for both parties during the hearings on remand (Tr. 6275).]

The hearing examiner accepts the above statements.

The respondent then includes tables on pages 14 and 15 of its "Proposed Findings" showing the annual changes in Clorox's market share of the total sales of household liquid bleach in the United States, moving through grocery stores, for each of the four years preceding and for each of the four years subsequent to the acquisition, on (1) a 32 oz. Equivalent Unit Basis and (2) a Consumer Dollar Basis, indicating the percentage point change in each year, before and after acquisition, in both tables.

The hearing examiner accepts the presentation in both tables to this extent.

The respondent then proceeds to show the "Total Change" and the "Average Annual Change" in the percentage point change, of Clorox's market share before and after the acquisition in both tables and contends (on page 16) that since there is only a small difference in the "Average Annual Change" in the four years subsequent to the acquisition, "there is no significant difference between the post and pre-acquisition growth trend of Clorox".

This contention the hearing examiner rejects for the reason that the use of the "Average Annual Change" rather than the annual trend in the change in Clorox market share conceals the actual preacquisition and post-acquisition growth trend of Clorox, the importance of which the Commission stressed in its Opinion of June 15, 1961.

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It is believed that the annual trend in the change in the market share of Clorox before and after the acquisition is much more significant and a more reliable index than the average annual change in such market share, as used by the respondent in its "Proposed Findings of Fact". This is particularly true in the instant case since the record reveals that although Clorox's market share increased consistently both before and after the acquisition, it also clearly shows that the rate of increase, on both a consumer dollar basis and a 32 oz. equivalent basis, slowed perceptibly and constantly from August 1, 1953 to August 1, 1957, the date of acquisition, and that immediately following the acquisition the rate of increase reversed its downward trend and increased at an accelerated rate from August 1, 1957 to August 1, 1960. Also, as hereinbefore indicated, the annual trend in the change of Clorox's market share can be correlated with Clorox's expenditure for promotional activities during the four years subsequent to the acquisition. Also, as previously indicated, the decline in the trend in Clorox's market share from August 1, 1960 to August 1, 1961 is definitely traceable to the substantial decrease in Clorox's promotional expenditures during this same period of time.

CONCLUSIONS

The acquisition in this proceeding presents a novel question, one that has never been adjudicated by either the Federal Trade Commission or the courts in a formal proceeding. It is what might be called a conglomerate type of acquisition, or merger, in that the Clorox Chemical Company, the acquired corporation, was engaged in the sale and distribution of household liquid bleach, a product which respondent Procter & Gamble, the acquiring corporation, had never manufactured or sold. This product, however, is distributed to the public mainly through grocery stores and is used principally in the home as an adjunct to laundry soaps, detergents, and abrasive cleansers, and thus might be considered complementary to such products, which are the principal products manufactured and sold by respondent.

To determine whether this acquisition is in violation of Section 7 of the Clayton Act, as amended, attention must be given to that industry in which the acquired corporation was engaged, and an attempt made to evaluate the impact on competition in that industry growing out of the acquisition. In order to do that, it is necessary to take into consideration the size and experience of the acquiring corporation in the conduct of its business prior to the acquisition, the manufacture and sale of products sold by it over the past few

Initial Decision 63 F.T.C.

years, and then to make an evaluation of what the normal result probably will be when a corporation such as Procter & Gamble, the acquiring corporation, enters into the other industry, and utilizes the same methods of operation that it utilized in its prior fields of endeavor.

Following this pattern, or approach to the problem in this case, we find that the respondent herein is, and has been for a number of years, a financially powerful and aggressive commercial organization which depends on advertising and sales promotion practices and methods described in the above findings, through which, and by which, it has succeeded in becoming the largest manufacturer and distributor of soaps and detergents in the United States, and a leading manufacturer of other household products such as abrasive cleansers. The respondent is recognized as one of the largest, if not the largest advertiser, in the United States. In addition to its national advertising campaigns, it has effectively engaged in aggressive competitive sales promotion programs, few of which had been used by the acquired corporation, Clorox Chemical, the leader in the household liquid bleach industry, prior to the acquisition, although some competitors of Clorox Chemical had used some of such programs. From the foregoing Findings as to the Facts, therefore, it is concluded that as hereinbefore indicated, the line of commerce in this case is household liquid bleach; the sections of the country involved are the entire United States and the nine sections, or regions, described above. It is also concluded that one of the results of the acquisition of Clorox Chemical by the respondent, P & G, probably will be the substantial lessening of competition between the respondent-owned Clorox and the smaller manufacturers and distributors of household liquid bleach, in the United States, and the definite tendency to create a monopoly in the respondent P & G in the household bleach industry, based on one or more of the following factors: A. The dominant market position in the household liquid bleach industry held by Clorox, which it, under control of the respondent, has been able to increase as a result of the acquisition and the various advertising campaigns, sales promotion programs and devices engaged in since the acquisition.

B. Respondent's financial and economic strength and advertising and promotional experience as compared with its competitors in the household liquid bleach industry.

C. Respondent's ability to command consumer acceptance of its products and to acquire and retain valuable shelf space in independent and chain grocery stores as a result of its advertising and promotional experience and financial resources.

THE PROCTER & GAMBLE CO. 1531 1465 Initial Decision D. The competitive position or share of market enjoyed by Clorox, under respondent's control, in the production and sale of household liquid bleach has been enhanced to the detriment of actual and potential competition, and as hereinbefore shown, the decline in the pre-acquisition growth trend of Clorox has been reversed and its post-acquisition growth trend has responded directly to the substantial promotional expenditures made by Clorox under P & G ownership. It can fairly be anticipated that, if Clorox, a wholly owned subsidiary of respondent P & G, continues its present methods of promotion and advertising, its dominant competitive position will be further enhanced. E. The increasing tendency of concentration of competitors in the household liquid bleach industry. F. The ability of Clorox, through its aggressive P & G inspired advertising and sales promotion methods and devices, to prevent the entry of additional competitors into the household liquid bleach industry, and to prevent the competitors it already has from expanding by normal methods of competition. G. Furthermore, according to the testimony of officials of competing manufacturers and distributors of household liquid bleach, there is an apparently well-founded fear on their part that the aggressive advertising and sales promotion methods of respondent P & G used by Clorox in the household liquid bleach industry will result in serious injury to their business. The evidence introduced at the recent hearings showing a decline in the market share of some of Clorox's smaller competitors, since the acquisition, indicates that such fear expressed by at least some of these competitors was, in fact, well-founded. As hereinbefore mentioned, the record indicates that it was not the policy of the Clorox Chemical Company, the acquired corporation, to meet the sales promotions or test marketing of its smaller competitors with aggressive counter-promotions and retaliatory tactics. It had attained its leading position in the household liquid bleach industry mainly by national advertising. However, the evidence indicates that it has been the policy of Clorox, since its acquisition by P & G, to meet, and meet vigorously, the promotions and test marketing of its competitors. As hereinbefore related, these retaliatory tactics have been used especially against Purex and Roman Cleanser, the second and third largest household liquid bleach manufacturers in the industry. To summarize the basis for the foregoing conclusions, the deciding factor is the ability of Procter & Gamble's conglomerate organization to shift financial resources and competitive strength through a broad front of different products and markets and its ability to

Initial Decision 63 F.T.C.

strategically alter the selected point of greatest impact as time, place and market conditions require. It is not necessary that the conglomerate enjoy a predominate position in any industry or market, although in this particular case Procter & Gamble does enjoy such a position in the soap and detergent industry. The test of conglomerate power is whether a corporation is able to concentrate its competitive efforts at one point by shifting its financial resources and competitive strength from one industry or market to another. Procter & Gamble possesses this power and ability.

In view of the facts set forth in the aforesaid Findings, and Conclusions, and in the light of the avowed purpose of the amendment to Section 7 to protect small units in an industry, it is concluded that the effect of the acquisition of the Clorox Chemical Company by respondent the Procter & Gamble Company may be to substantially lessen competition and to tend to create a monopoly in the production and sale of household liquid bleaches in the United States in violation of Section 7 of the Clayton Act, as amended December 29, 1950, and an order of divestiture should be entered to restore, insofar as possible, the competitive situation in the household liquid bleach industry existing prior to the acquisition.

The foregoing legal conclusion is supported by the House Committee Report:⁴

If for example, one or a number of raw material producers purchases firms in a fabricating field (i.e. a "forward vertical" acquisition), and if as a result thereof competition in that fabricating field is substantially lessened in any section of the country, the law would be violated, even though there did not exist any competition between the acquiring (raw material) and the acquired fabricating firms.

The same principles would, of course, apply to backward vertical and conglomerate acquisitions and mergers.

The enactment of the bill will limit further growth of monopoly and thereby aid in preserving small business as an important competitive factor in the American economy. (Emphasis supplied.)

In the House of Representatives, Representative Boggs of Louisiana in discussing the bill to amend Section 7 of the Clayton Act, made the following statement with respect to the purpose and effect of the bill:

A third avenue of expansion—and this is one of the most detrimental movements to a free enterprise economy—is the conglomerate acquisition. This is the type which carries the activities of giant corporations into all sorts of fields, often completely unrelated to their normal operations. In times such as these, when big corporations have such huge quantities of funds, they are constantly looking around for new kinds of businesses to enter. By this

⁴ H.R. Rep. 1191, 81st Cong., 1st Sess., p. 11 (1949).

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process they build up huge business enterprises which enable them to play one type of business against another in order to drive out competition.⁵

The U.S. Supreme Court, in the Dupont case, also supports this legal conclusion in the following language:⁶

The first paragraph of Section 7, written in the disjunctive, plainly is framed to reach not only the corporate acquisition of stock of a competing corporation where the effect may be substantially to lessen competition between them, but also corporate acquisitions of stock of corporations, competitor or not, where the effect may be either (1) to restrain commerce in any section or community, or (2) tend to create a monopoly of any line of commerce * * *. (Emphasis supplied.) We hold that any acquisition by one corporation of all or any part of the stock of another corporation, competitor or not, is within the reach of the Section whenever the reasonable likelihood appears that the acquisition will result in a restraint of commerce or in the creation of a monopoly of any line of commerce * * *. (Emphasis supplied.)

In accordance with the foregoing Findings and Conclusions, the following order is entered.

ORDER OF DIVESTITURE

It is ordered, That respondent The Procter & Gamble Company, a corporation, and its subsidiaries, officers, directors, agents, representatives and employees, shall cease and desist from violating Section 7 of the Clayton Act, as hereinbefore set forth in the Findings hereof, and shall divest itself of all assets, properties, rights or privileges, tangible or intangible, including but not limited to, all plants, equipment, trade names, trademarks and goodwill acquired by said respondent as a result of the acquisition of the assets of the Clorox Chemical Company, together with the plant, machinery, buildings, improvements, equipment and other property of whatever description which has been added to them in such a manner as to restore it as a going concern in the manufacture and sale of household liquid bleach in which the said Clorox Chemical Company was engaged, in substantially the same productive capacity as was possessed by the said Clorox Chemical Company at, and immediately prior to, the time of the said acquisition by respondent The Procter & Gamble Company.

It is further ordered, That by such divestiture none of the stocks, assets, rights, or privileges, tangible or intangible, acquired or added by respondent, shall be sold or transferred, directly or indirectly, to anyone who is at the time of divestiture, or for two years before said date was, a stockholder, officer, director, employee, or agent of,

⁵ 95 Cong. Rec. 11496 (1949).

⁶ 353 U.S. 586, pages 590-91-92.

Opinion 63 F.T.C.

or otherwise directly or indirectly connected with, or under the control, direction, or influence of respondent or any of respondent's subsidiary or affiliated corporations.

OPINION OF THE COMMISSION

NOVEMBER 26, 1963

By Elman, Commissioner:

The Commission's complaint, issued on September 30, 1957, charged that respondent's acquisition on August 1, 1957, of all the assets of Clorox Chemical Company violated Section 7 of the Clayton Act, as amended (15 U.S.C. § 18). After extended hearings, the hearing examiner rendered an initial decision in which he found the acquisition unlawful and ordered divestiture. On appeal, the Commission, concluding "that the record as presently constituted does not provide an adequate basis for informed determinations as to the actual or probable effects of respondent's acquisition * * * on competition", and hence that the record "should be supplemented in this respect to the end that all of the issues involved in the case may be finally and conclusively disposed of on their merits", ordered on June 15, 1961, that the initial decision be vacated, that the case be remanded to the hearing examiner for the reception of additional evidence, and "that after receipt of such additional evidence the hearing examiner make and file a new initial decision on the basis of the entire record herein."

On remand, additional evidence was introduced, and the hearing examiner rendered a second initial decision in which he again found the acquisition unlawful and ordered divestiture. In the course of oral argument on July 11, 1962, before the Commission on appeal from this decision, a question was raised whether the Commission was free to decide the case on the basis of the entire record, or whether it must assume that the record on the first appeal did not support a finding of illegality and confine its attention to the additional evidence introduced on remand. The Commission, believing that the public interest required that the case be decided on the entire record, directed reargument of all contested issues of fact and law (order of November 30, 1962). Reargument was held on January 30, 1963. The case is now ready for final decision on the entire record.

I. "Law of the Case"

We meet at the threshold the contention that notwithstanding the Commission's order of reargument, in which its intention to consider the issues of this case on the entire record was clearly an-

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nounced, such a course is barred by the principle of "law of the case". The principle, that an appellate tribunal will not reconsider its own rulings of law on a subsequent appeal in the same case, is not, we think, applicable here. The language of the Commission's order of remand, quoted above, should dispel any inference that a ruling on the sufficiency of the evidence to support the complaint was intended. The basis of the order, in fact, was that the record was inadequate for the making of any ruling, and hence required supplementation; decision of all the issues of the case was expressly postponed by the Commission pending receipt of the additional evidence; and the hearing examiner was directed to file a new initial decision on the basis of the entire record. It is true that in its opinion accompanying the order of remand, the Commission expressed the view that the post-acquisition data on which the hearing examiner had relied heavily in his first initial decision did not support the examiner's finding of illegality. However, even if this tentative expression of opinion be deemed a ruling of law, plainly it affected only a single, narrow aspect of the case. Inasmuch as the post-acquisition evidence introduced in this case is not a material factor in our decision (see pp. 1582-1583 below), whatever ruling the Commission may earlier have made as to the relevance or sufficiency of such evidence to support a finding of illegality is, at this point, moot. In any event, the doctrine of law of the case is not an inexorable command, but "only a discretionary rule of practice." United States v. United States Smelting, Refining & Mining Co., 339 U.S. 186, 199; see Note 65, Harv. L. Rev. 818, 822 (1952). Every consideration of fairness and of the public interest weighs in favor of our now deciding this case on the entire record. For one thing, only one of the present members of the Commission (Commissioner Anderson) participated in the decision of the first appeal. It would be a forced and unnatural exercise for us to consider the evidence introduced on remand in isolation from the rest of the record or attempt to divine how our predecessors would have reacted to that additional evidence. If we are to decide this case fairly and rationally, we must be free to draw our own inferences from the entire record. In addition, it is a widely recognized basis for relaxing application of the doctrine of law of the case that the law has changed in the interim. Note, supra, at 822, n. 15. The expressions of opinion accompanying the order of remand were based on the view that post-acquisition evidence is crucial in a case of this sort—a view which has been undermined, if not rejected, by two supervening decisions of the Supreme Court (see discussion at p. 1556-1560 below.)

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Accordingly, we feel free to consider the issues of this case unfettered by the observations made in the earlier opinion. Nor can respondent argue that it has been unfairly surprised by being compelled to argue the case on the entire record. It was to eliminate any such possibility of unfairness that the Commission ordered reargument and gave the parties full opportunity to brief and argue the case on the entire record.

The consequence of the Commission's order of remand has been a regrettable delay in the final disposition of an already protracted litigation. However, delays of this kind are perhaps inevitable where, as here, difficult questions of law are presented which the courts have not authoritatively resolved. In any event, the remedy for such delays is not decision of the case in a truncated posture, but clarification of the issues through reasoned decision on the entire record.

II. The Facts and Background

The complaint alleges that the effect of the acquisition by respondent, The Procter & Gamble Company (Procter), of the assets of Clorox Chemical Company (Clorox), "may be substantially to lessen competition, or to tend to create a monopoly", in the manufacture of household liquid bleach throughout the nation. Household liquid bleach is a 5¼% sodium hypochlorite solution which is used in the home as a germicide and disinfectant and, more importantly, as a whitener in the washing of clothes and fabrics. To a certain extent, the use of household liquid bleach overlaps that of other products, especially powdered bleach; also, liquid bleach in somewhat stronger solution has industrial uses. Nevertheless, the parties appear to agree that household liquid bleach is a distinctive product, recognized as such by the consumer and by the trade, and that it has no close substitutes (see p. 1560 below). At the time of the acquisition, Clorox was the nation's leading manufacturer of household liquid bleach. Its annual sales of slightly less than $40,000,000 represented almost 50% of the national total,¹

¹ Complaint counsel and respondent's counsel have stipulated the accuracy of the A. C. Nielsen Food Index, a compendium of statistics on the sales volume of various grocery products. The Index gives the following picture of household liquid bleach sales in 1957:

Market Shares of Household Liquid Bleach Manufacturers (consumer dollar basis) Percentage of total Brand: U.S. sales Clorox-------------------------------------------------------------------------------- 48.8 Purex--------------------------------------------------------------------------------- 15.7 Roman Cleanser------------------------------------------------------------------------ 5.9 Fleecy White-------------------------------------------------------------------------- 4.0 Hilex--------------------------------------------------------------------------------- 3.3 Linco--------------------------------------------------------------------------------- 2.1 ____ Total--------------------------------------------------------------------------- 79.8 All other brands---------------------------------------------------------------------- 20.2

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and its market share had been growing steadily for at least five years prior to the acquisition. As the table in note 1 shows, Clorox's principal competitor is the Purex Corporation. Unlike Clorox, which is engaged almost exclusively in the manufacture of household liquid bleach, Purex manufactures a number of products, including an abrasive cleanser (Old Dutch Cleanser), a toilet soap (Sweetheart), and detergents (Trend and News). Total sales of all its products were approximately $50,000,000 in 1957. The table shows that in 1957 Clorox and Purex between them accounted for almost 65% of the nation's household liquid bleach sales, and, together with four other manufacturers, for almost 80%. The remaining 20% was divided among 132 listed (in Dun & Bradstreet), and a number of unlisted (roughly 91), small producers. (These figures may be somewhat overstated.) In addition, there seems to be a large number of extremely small, so-called "garage" or "down-cellar" bleach producers. Only eight manufacturers of liquid bleach have assets of more than $1,000,000; very few, in fact, have assets of more than $75,000. Most manufacturers of household liquid bleach sell at least part of their production to grocery stores and supermarkets for resale to the consumer under the stores' own brand name. These private or house brands, however, appear to account for only a small proportion of the total sales of liquid bleach.² Clorox sells no private brand liquid bleach—all of Clorox's bleach is sold under the "Clorox" brand name—and Purex very little. The equipment, raw materials and labor required in the manufacture of liquid bleach are relatively inexpensive, and neither the product nor its process is the subject of a patent or trade secret. However, owing to its weight, to its low sales price per unit, and to the fact that it is ordinarily sold in bottles, household liquid bleach is expensive to ship. Freight, which the manufacturer pays for—the liquid bleach industry uniformly sells on a delivered-price basis—commonly averages more than 10% of unit cost. For this reason, household liquid bleach cannot profitably be distributed outside a radius of perhaps 300 miles from the point of manufacture. Most manufacturers, since they have only a single plant, are limited to a regional market. Indeed, Clorox, which has 13 plants distributed throughout the country, is the only producer selling on a national scale. Although Purex has as many plants as Clorox, it does

²In the Nielson Index, the private brand production of all manufacturers is included in the 20.2% residual category. The Safeway supermarket chain is evidently the only retailer of household liquid bleach that actually manufactures its private brand.

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not distribute its bleach in the northeast or middle-Atlantic states. In 1957, Purex bleach was available in less than 50% of the national market. The other manufacturers of liquid bleach are still more limited territorially.³

As a result of the territorial limitations of Clorox's competitors, the percentage figures in the table in note 1 do not give an adequate picture of Clorox's position in the various regions of the country. For example, Clorox's seven principal competitors did no business in New England, metropolitan New York or the middle-Atlantic states, and Clorox's share of the liquid bleach sales in these areas was 56%, 64%, and 72%, respectively. Even in areas where the principal competitors of Clorox were active, Clorox's share of total liquid bleach sales was high. Except in metropolitan Chicago and the west-central states, Clorox accounted for at least 39%, and often for a much higher percentage, of liquid bleach sales in the various regions.

It is not immediately apparent how Clorox was able to obtain a leading position in the household liquid bleach industry. Clorox is not sold to the consumer at a lower price than other bleaches; on the contrary, it is a premium brand that commonly sells for several cents per quart more than regional, local or private brands. Nor is Clorox a better bleach than other brands; all household liquid bleaches are chemically identical. Nor is the industry plagued by inadequate productive capacity or shortages; none of Clorox's competitors is producing at full capacity, and, as was mentioned earlier, the manufacturing process is relatively simple and inexpensive.

The explanation seems to lie in the way in which household liquid bleach is marketed. It is a low-price, high-turnover consumer product sold mainly to housewives in grocery stores. As a consequence of the growth of the self-service grocery store or supermarket, the consumer is no longer dependent upon the storekeeper's advice in purchasing commonly used, inexpensive household items such as liquid bleach. The housewife purchases the brand that she sees displayed prominently on the shelf or that is familiar and attractive to her by reason of advertising or sales promotions. Since the amount of shelf space that the grocer gives a particular brand is largely a function of the sales volume of the brand, it is apparent

³ For example, 60% of the sales of Linco, the sixth-largest-selling liquid bleach brand (see note 1, supra), are made in metropolitan Chicago. There was evidence that some liquid bleach brands are marketed only in the Italian neighborhoods of New York City.

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that the success of a particular brand of liquid bleach depends upon the manufacturer's successfully pre-selling it, whether by means of attractive packaging, a low price, advertising and sales promotion efforts, or otherwise. Cf. United States v. Lever Bros. Co., 216 F. Supp. 887, 893 (S.D.N.Y. 1963).

Prior to its acquisition by Procter, Clorox had not been active in "sales promotions", a term which embraces such selling devices or gimmicks as price-off labels, two-for-one offers, coupons, free samples, premiums and contests. But it had advertised extensively. In 1957, for example, Clorox spent $1,750,000 for newspaper advertising, $560,000 for magazine advertising, $258,000 for radio and billboard advertising, and $1,150,000 for television advertising. Advertising expenditures, thus, were equal to almost 10% of total sales.

As a result of Clorox's long-continued mass advertising, its trade name had become widely known to and preferred by the consumer notwithstanding its high price and lack of superior quality. Most manufacturers of liquid bleach lack the financial resources to advertise or promote extensively. Purex, it is true, is a large advertiser, but its advertising—and a fortiori that of Clorox's lesser competitors—is very possibly less effective than Clorox's because of Purex's territorially limited distribution. It is apparent that the effectiveness of advertising in media of mass circulation normally is enhanced if the product is sold nationally. See, e.g., Bain, Advantages of the Large Firm: Production, Distribution, and Sales Promotion, 20 J. of Marketing 336, 340, 344 (1956). Obviously, it is relatively inefficient to pay for national advertising coverage, e.g., in national magazines or network television, without having national distribution of the advertised product. In general, moreover, it is rarely possible to adjust the dissemination of an advertising message to the precise bounds of the territory in which the advertised product is distributed. In addition, in a nation such as ours, which has a very mobile population, a brand obtainable by the consumer in every part of the country is likely to be better known than and preferred to a product marketed only regionally or locally.

The allegiance to a particular brand that is created by mass advertising and promotion tends, in the case of low-cost, high-turnover household products, to be somewhat ephemeral; the housewife is easily lured from her accustomed brand by promotional and advertising efforts on the part of rival manufacturers. The record in this case contains a graphic illustration of the volatile quality of consumer brand preferences. In Erie, Pennsylvania, Purex launched a

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major "attack" on Clorox's theretofore entrenched position (Clorox enjoyed more than 50% of the sales in the area) by marketing Purex liquid bleach in a new container and by promoting the "improved" product intensively by means of price-off labels and coupons. Within a few weeks, Purex, which previously had done no business in the area, had won a market share of more than 30%. Clorox immediately counter-attacked, however, and, by means of strenuous promotional efforts (consisting of price-off and premium offers), coupled with intensive advertising, soon forced Purex's share down to 7%. At the time of its acquisition of Clorox, Procter was one of the nation's 50 largest manufacturers, with total net sales in 1957 of $1,156,000,000. Procter manufactures a wide range of low-priced, highturnover household consumer items sold through grocery, drug and department stores,⁴ but prior to the acquisition of Clorox, it did not produce household liquid bleach. Procter's major locus of activity is in the general area of soaps, detergents and cleansers.⁵ In 1957, of total domestic sales, more than one half ($514,000,000) were in this field. In packaged detergents alone,⁶ Procter's sales were $414,- 000,000, and this was 54.5% of the national total. In the household cleansing agents industry, Procter's principal competitors are Colgate-Palmolive and Lever Brothers. Together, these three firms account for more than 80% of total sales. Procter is the leading firm of the three. In 1957, total sales of Colgate-Palmolive and Lever Brothers were $291,000,000 and $250,000,000, respectively. There are no other firms in the industry of comparable size. Purex was the next largest after the "Big Three", with sales, as was noted

⁴ In the answer to the complaint, respondent offered the following "list of the most important brands sold by respondent": "Soaps, Detergents and Cleansers: Ivory Soap— all-purpose bar soap; Ivory Flakes—mild all-purpose flake soap; Ivory Snow—mild allpurpose granulated soap; Camay—hard-milled perfumed toilet soap; Lava—pumice hand soap; Duz—detergent and granulated soap; Tide—heavy-duty detergent; Cheer—heavyduty detergent; Dreft—light-duty detergent; Oxydol—heavy-duty detergent; Dash—low sudsing heavy-duty detergent; Joy—liquid general purpose detergent; Comet—scouring cleanser; Cascade—detergent for automatic dishwashers; Spic and Span—paint and linoleum cleaner; Zest—detergent toilet bar; Food Products: Crisco—vegetable shortening; Golden Fluffo—vegetable and lard shortening; Big Top—peanut butter and peanuts; Duncan Hines—prepared baking mixes—15 kinds; Toilet Goods: Crest— fluoridated toothpaste; Gleem—toothpaste; Drene—liquid shampoo; Prell—paste and liquid shampoo; Shasta—cream shampoo; Lilt—home permanent; Pin-It—home permanent; Paper Products: Charmin—household toilet tissue; Lady Charmin—household toilet tissue; Charmin—facial tissue; Charmin—paper napkins; Charmin—paper towels; Evergreen—industrial paper towels and tissue. On a consumer dollar basis, Procter in 1957 had 31% of the nation's total sales of toilet soap; 32%, dentifrices; 30%, lard and shortening combined; 19%, shampoo; and see p. 1541 below. ⁵ Soaps, detergents and cleansers, we shall call, for the sake of simplicity, "household cleansing agents". The term is meant to exclude mops, waxes, polishes, brooms and other such relatively high-priced, specialty items used in household cleaning. ⁶ The term "packaged detergents" embraces heavy-duty high-sudser detergents, heavyduty low-sudser detergents, heavy-duty soaps, heavy-duty liquids, light-duty synthetics, light-duty liquids, and light-duty soaps.

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earlier, of about $50,000,000 in 1957 followed by B. T. Babbitt, Inc., with sales of less than $22,000,000.

In the marketing of soaps, detergents and cleansers, as in the marketing of household liquid bleach, extensive advertising and sales promotion seem to be the key to success. Procter is one of the nation's leading advertisers. In 1957, it spent upwards of $80,000,000 on advertising (principally television advertising) in the United States, and was, in fact, the nation's largest advertiser in that year. In addition, it spent $47,000,000 for domestic sales promotions alone. (Procter's total domestic sales in 1957 were approximately $900,000,000.) Colgate-Palmolive and Lever Brothers, Procter's principal competitors, also rank high among the nation's largest advertisers.

The record in this case contains a striking example of the role of advertising and promotion in the household cleansing agents industry. In 1957, Procter introduced a new abrasive cleanser, which it called "Comet". Over a 22-month period, Procter spent $7,200,000 for the advertising and sales promotion of Comet; 20 months after it first appeared on the market, Comet had attained 36.5% of the national market in abrasive cleansers. (The abrasive cleansers industry had total sales of $53,000,000 in 1957—somewhat more than one-half the total sales of household liquid bleach in that year.) It would appear that Comet's success is traceable mainly to the intensive advertising and promotional efforts made on its behalf. (See generally United States v. Lever Bros. Co., 216 F. Supp. 887 (S.D.N.Y. 1963); Klaw, "The Soap Wars: A Strategic Analysis", Fortune, June 1963, p. 122.) Procter's acquisition of Clorox was the culmination of two years of study of the liquid bleach industry undertaken by its promotion department in order to determine the advisability of Procter's entering the industry. The first report from the promotion department observed that liquid bleach accounted for 90% of the large and expanding household bleach market and predicted that its ascendancy over powdered bleach would continue in the foreseeable future. The report, however, recommended not that Procter attempt to market its own brand of bleach, as it had repeatedly and successfully done with other household products, but rather that it purchase Clorox. Since, the report advised, "a very heavy investment" would be required for Procter to obtain a satisfactory market share for a new brand of liquid bleach, entry into the industry through acquisition of its leading firm was an attractive alternative. "Taking over the Clorox business * * * could be a way of achieving a

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dominant position in the liquid bleach market quickly, which would pay out reasonably well." The report predicted that Procter's "sales, distributing and manufacturing setup" could increase Clorox's share of the market in certain areas where it was low and effect a number of savings that would increase the profits of the business considerably.

A subsequent report from the promotion department confirmed the earlier recommendation, emphasizing that Procter management would be able to make more effective use of Clorox's advertising budget and that the merger would enable advertising economies. A few months after the second report was filed, Procter acquired the assets of Clorox in the name of a wholly owned Procter subsidiary, The Clorox Company, in exchange for stock of Procter having a market value of approximately $30,300,000.⁷ At the time of the exchange, Clorox's assets were valued at $12,600,000. Since the acquisition, the top management of Clorox has been placed in the hands of Procter officials, and some degree of integration of Clorox and Procter activities has taken place (see p. 1583 below). By and large, however, Clorox has been operated as a separate entity within the Procter organization.

III. The Legality of the Merger Under Section 7

A. Categories of Mergers

The hearing examiner, respondent, and complaint counsel concur in describing the merger of Clorox and Procter as "conglomerate". This term, far from denoting a homogeneous class of mergers, tells us only that the instant merger is neither conventionally "horizontal" nor conventionally "vertical". An analysis of each of these terms is necessary before we proceed further in the discussion of this case.

A horizontal merger, as ordinarily understood, is one between firms that make or sell the same product, or products which are close substitutes for each other. However, unless the firms actually operate within the same geographical market, the merger will have no immediate impact upon the market share of the acquiring firm—the hallmark of a conventional horizontal merger. Where the merger involves companies selling in different geographical

⁷ The Proctor shares received in the exchange were distributed to Clorox's shareholders, whereupon Clorox Chemical Company was dissolved. We shall refer loosely to the entire transaction as the merger of Clorox and Procter or the acquisition of Clorox by Procter.

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markets (or, what may amount to the same thing, to different customer classes, cf. Brillo Mfg. Co., F.T.C. Docket 6557 (decided January 17, 1964)) [64 F.T.C. ————] we have what has been termed a market-extension merger. See Foremost Dairies, Inc., F.T.C. Docket 6495 (decided April 30, 1962) [60 F.T.C. 944]. It may be a merger in which the acquired firm sells the same product as the acquiring firm and is a prospective entrant into the geographical market occupied by the acquiring firm. See United States v. El Paso Natural Gas Co., 1962 CCH Trade Cases § 70571 (D. Utah), prob. juris. noted, 373 U.S. 930; Foremost Dairies, Inc., supra, pp. 1087, 1088. Or the acquiring firm may be a prospective entrant into the market of the acquired firm. Foremost Dairies, Inc., supra, pp. 1088, 1089.

Another variant of the conventional horizontal merger is the merger of sellers of functionally closely related products which are not, however, close substitutes. This may be called a productextension merger. The expression "functionally closely related", as used here, is not meant to carry any very precise connotation, but only to suggest the kind of merger that may enable significant integration in the production, distribution or marketing activities of the merging firms. An example of a merger enabling integration at the production level would be the merger of a liquid bleach with a liquid starch manufacturer; the manufacturing processes involve many of the same raw materials and equipment. Integration at the level of physical distribution might occur in the case of products which, for example, are shipped together. Integration at the marketing level (including integration of advertising and sales-promotion activities) might result where products manufactured by the merging firms are sold to the same customers or through the same outlets, or are actually complementary.⁸

A vertical merger, conventionally understood, is one between firms at different points on the same chain of distribution, that is,

⁸ See Hale, Diversification: Impact of Monopoly Policy Upon Multi-Product Firms, 98 U. Pa. L. Rev. 320, 331-32 (1950). A complementary relationship between products exist "when a rise in the consumption or purchases of one cause a rise in the demand for the other * * *," Boulding, Economic Analysis 226 (3d ed. 1955). See United States v. Winslow, 227 U.S. 202. See generally Bowman, Tying Arrangements and the Leverage Problem, 67 Yale L. J. 19 (1957). It has been suggested that a multi-product firm's activities be termed "divergent" when integration is enabled at the production level and the products are sold in different markets, and "convergent" when the products, though made through different processes, are sold through the same channels, by the same marketing techniques, or to the same customers. Thorp & Crowder, The Structure of Industry 146 (T.N.E.C. Monograph No. 27, 1941).

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firms which actually or potentially are in the relationship of supplier and customer. Rather similar effects on competition, however, may result from a merger involving the acquisition not of a supplier but of a supplier's supplier.⁹ And effects akin to the "reciprocity" which such a merger fosters may flow from any merger involving firms that deal in common with other firms. Thus, the merger of two firms having common marketing outlets might facilitate tie-in or full-line forcing agreements. Only when the various subcategories of horizontal and vertical mergers have been exhausted (and the foregoing discussion of such subcategories is intended to be suggestive only) do we reach the true diversification or conglomerate merger, involving firms which deal in unrelated products. Cf. H. R. Rep. No. 1191, 81st Cong., 1st Sess. 11 (1949). An extreme example might be the purchase of a newspaper kiosk in New York by a bakery in California. The merger of Clorox and Procter may most appropriately be described as a product-extension merger. Packaged detergents— Procter's most important product category—and household liquid bleach are used complementarily, not only in the washing of clothes and fabrics, but also in general household cleaning, since liquid bleach is a germicide and disinfectant as well as a whitener. From the consumer's viewpoint, then, packaged detergents and liquid bleach are closely related products. But the area of relatedness between products of Procter and of Clorox is wider. Household cleansing agents in general, like household liquid bleach, are lowcost, high-turnover household consumer goods marketed chiefly through grocery stores and pre-sold to the consumer by the manufacturer through mass advertising and sales promotions. Since products of both parties to the merger are sold to the same customers, at the same stores, and by the same merchandising methods, the possibility arises of significant integration at both the marketing and distribution levels.

The functional relationship between household liquid bleach and products manufactured by Procter appears to hold even if we look beyond household cleansing agents to the food, paper and toilet products which round out the Procter line. They also are low-cost, high-turnover household consumer goods which are sold largely,

⁹ See Consolidated Foods Corp., F.T.C. Docket 7000 (decided March 22, 1963) [62 F.T.C. 929]. Cf. Bigness and Concentration of Economic Power—A case Study of General Motors Corporation, Staff Rep. of the Subcomm. on Antitrust and Monopoly of the S. Comm. on the Judiciary, 84th Cong., 2d Sess. 41 (1956).

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although not entirely, through grocery stores and are heavily advertised and promoted.

By this acquisition, then, Procter has not diversified its interests in the sense of expanding into a substantially different, unfamiliar market or industry. Rather, it has entered a market which adjoins, as it were, those markets in which it is already established, and which is virtually indistinguishable from them insofar as the problems and techniques of marketing the product to the ultimate consumer are concerned. As a high official of Procter put it, commenting on the acquisition of Clorox, "While this is a completely new business for us, taking us for the first time into the marketing of a household bleach and disinfectant, we are thoroughly at home in the field of manufacturing and marketing low prices, rapid turn-over consumer products."

B. General Principles in the Interpretation and Application of Section 7

The lawfulness, under Section 7 of the Clayton Act, as amended, of the kind of merger involved in the instant case, is a question largely of first impression. In general, the conglomerate merger (in the broad sense of that term) has received little attention under the antitrust laws.¹⁰ Its history of neglect appears to be due, first, to the erroneous view that Section 7 in its original form applied only to horizontal mergers¹¹—a view which stultified enforcement of the antitrust laws against conglomerate mergers until the amendment of Section 7 in 1950—and, secondly, to economists' preocupation with the number and size distribution of firms in a single market.¹² But at the same time that the conglomerate merger was being ignored by lawyers and economists, businessmen were resorting to it increasingly as a mode of corporation expansion. Today, many,

¹⁰ The problems of conglomerate power occasionally arise, however, in the context of other provisions of the antitrust laws. See United States v. Griffith, 334 U.S. 100; United States v. Swift & Co., 286 U.S. 106; United States v. Swift & Co., 189 F. Supp. 885 (N.D. Ill. 1960); Alexander Milburn Co. v. Union Carbide & Carbon Corp., 15 F. 2d 678 (4th Cir. 1926); cf. United States v. E. I. duPont de Nemours & Co., 188 Fed. 127 (Cir. Ct. D. Del. 1911).

¹¹ This view was ultimately rejected by the Supreme Court in United States v. E. I. duPont de Nemours & Co., 353 U.S. 586. See Brown Shoe Co. v. United States, 370 U.S. 294, 313, n. 21.

¹² See, e.g., such assertions as, "The fact is that a truly conglomerate merger cannot be attacked in order to maintain competition, because it has no effect on market structure." Adelman, The Antimerger Act, 1950-60, 51 Am. Econ. Rev., 236, 243 (Papers and Proceedings, 1961). Cf. United States v. Winslow, 227 U.S. 202, 217. For a pathfinding study of the problems of the conglomerate merger under the amended Section 7, see Neal, The Clayton Act and the Transamerica Case, 5 Stan. L. Rev. 179 (1953).

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perhaps most, mergers involving substantial firms are conglomerate, and concern has begun to be voiced.¹³ The absence of authoritative, specific precedents in this area compels us to look to basic principles in the interpretation and application of Section 7. The Commission and the federal courts have now had the benefit of more than a decade of enforcement of the amended Section 7, and the numerous decisions construing the statute include two by the Supreme Court. To the principles which have emerged, we turn for guidance in the instant case. First. All mergers are within the reach of the amended Section 7, whether they be classified as horizontal, vertical or conglomerate, and all are to be tested by the same standard. This is plain not only from the statutory language, but from the legislative history as well: “[T]he bill applies to all types of mergers and acquisitions, vertical and conglomerate as well as horizontal, which have the specified effects of substantially lessening competition * * * or tending to create a monopoly.”¹⁴ The inclusion of conglomerate mergers within the scope of the statute cannot be dismissed as casual or inadvertent. This Commission’s Report on the Merger Movement (1948), which played an important role in the deliberations leading to the amendment of Section 7, had emphasized the dangers presented by conglomerate mergers: “[T]here are few greater dangers to small business than the continued growth of the conglomerate corporation.” Id., at 59. Congress’ clearly expressed concern with the conglomerate merger is in striking contrast to the preoccupation of lawyers and economists with tests that look only to the number and size distribution of firms in a single market, and is a challenge to this Commission and to the courts to devise

¹³ “In a word then, we find that the antitrust laws have failed to stem the horizontal and vertical merger movements of the 1890’s and the 1920’s, and have had no deterrent effect on the conglomerate merger movement of the 1950’s and 1960’s.” Houghton, Mergers, Superconcentration, and the Public Interest, in Administered Prices: A Compendium on Public Policy 152, 158 (Comm. Print 1963). See Dirlam, The Celler- Kefauver Act: A Review of Enforcement Policy, in id., at 109–10, 130: Federal Trade Commission, Report on Corporate Mergers and Acquisitions 50–51, 54 (1955); Mergers and Superconcentration: Acquisitions of 500 Largest Industrial and 50 Largest Merchandising Firms, Staff Rep. of the H. Select Comm. on Small Business, 87th Cong., p. 44 (Comm. Print 1962). A suggestive statistic in this connection is that between 1947 and 1958, the 50 largest manufacturing firms in the nation increased their share of total value added by manufacture from 17% to 23%: the top 100, from 23% to 30%; the top 150, from 27% to 35%; and the top 200, from 30% to 38%. Mergers and Superconcentration: Acquisitions of 500 Largest Industrial and 50 Largest Merchandising Firms, op. cit. supra, at 13. See also Collins & Preston, The Size Structure of the Largest Industrial Firms, 1909–58, 51 Am. Econ. Rev. 989 (1961). One economist has suggested that the increasing concentration of the nation’s industrial assets in the hands of large firms is attributable to the conglomerate-merger movement. Houghton, supra, at 154–55.

¹⁴ H.R. Rep. No. 1191, 81st Cong., 1st Sess. 11 (1949); see Brown Shoe Co. v. United States, 370 U.S. 294, 317.

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tests more precisely adjusted to the special dangers to a competitive economy posed by the conglomerate merger.¹⁵ It must be stressed, however, that Congress, in seeking to bring “conglomerate” mergers within the reach of Section 7, did not thereby express the view that conglomerates are analytically a distinct merger class. Congress meant only that however a merger be characterized, its legal status under Section 7 is the same. As we have seen, even for purposes purely of description, the traditional threefold classification—horizontal, vertical and conglomerate—is unsatisfactory without considerable further refinement. More important, these definitional distinctions import no legal distinctions under Section 7. The legal test of every merger, of whatever kind, is whether its effect may be substantially to lessen competition, or tend to create a monopoly, in any line of commerce in any section of the country. Second. The Supreme Court has recently declared, “Subject to narrow qualifications, it is surely the case that competition is our fundamental national policy, offering as it does the only alternative to the cartelization or governmental regimentation of large portions of the economy.” United States v. Philadelphia National Bank, 374 U.S. 321, 372. This policy informs all the federal antitrust laws, but some more explicitly than others. Section 7 predicates illegality specifically on the probability of a substantial anti-competitive effect; like the other sections of the Clayton Act, it singles out a particular class of business practices—corporate acquisitions—for especially strict antitrust scrutiny by the courts and the Commission. If the adverse effects on competition specified in Section 7 are proved, it will normally not be open to the respondent to show that redeeming social or economic benefits will flow from the acquisition.¹⁶ In the words of the Supreme Court: We are clear * * * that a merger the effect of which “may be substantially to lessen competition” is not saved because, on some ultimate reckoning of social or economic debits and credits, it may be deemed beneficial. A value choice of such magnitude is beyond the ordinary limits of judicial competence,

¹⁵ “Section 7 should be able to check a merger producing or enhancing the power of a giant firm without reference to the effect on concentration ratios in any particular market.” Dirlam, supra, note 13, at 105. See Bicks, Conglomerates and Diversification Under Section 7 of the Clayton Act, 2 Antitrust Bull. 175, 178 (1956). ¹⁶ The single exception is the failing-company defense (see International Shoe Vo. v, F.T.C., 280 U.S. 291, 299-303), which, although not mentioned in the statute, seems plainly to have been intended by Congress to be carried forward in the enforcement of the amended Section 7. See H.R. Rep. No. 1191, 81st Cong., 1st Sess. 6 (1949); S. Rep. No. 1775, 81st Cong., 2d Sess. 7 (1950). No contention has been made in this case that Clorox at the time of the acquisition was other than a profitable, healthy concern.

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and in any event has been made for us already, by Congress when it enacted the amended § 7. Congress determined to preserve our traditionally competitive economy. It therefore proscribed anticompetitive mergers, the benign and the malignant alike, fully aware, we must assume, that some price might have to be paid. Philadelphia National Bank, supra, at 371.

While a broad Rule of Reason may not be read into Section 7, it is clear that mergers are not to be judged according to a so-called per se standard. In every Section 7 proceeding, the burden is on the complainant to prove that the merger will create a reasonable probability of a substantial lessening of competition or tendency to create a monopoly. This burden is not met, in any case, by invocation of a talismanic per se rule by which to dispense with the need for adducing evidence of probable anti-competitive effect. Congress declared neither that all mergers, nor that mergers of a particular size or type, are per se unlawful. In every case the determination of illegality, if made, must rest upon specific facts. There may be cases in which a relatively simple test of illegality is appropriate, as the Supreme Court has shown in the Philadelphia National Bank case, but this is possible only where consideration of the nature and circumstances of the merger in question indicates that such a test will provide an adequate basis for ascertaining whether the statute has been violated; and even in such cases no per se rule or conclusive presumption of illegality is applied.¹⁷

Third. The concept of competition which underlies the amended Section 7 has no simple or obvious meaning, and was defined by Congress neither in the statute itself nor in the course of the deliberations that led to its enactment. But some of its elements, at least, are clear. It has been observed by the Supreme Court that the “dominant theme pervading congressional consideration of the 1950 amendments was a fear of what was considered to be a rising tide of economic concentration in the American economy.” ¹⁸ Congress’ emphasis on concentration reflected its deep concern with what economists would call the problem of oligopoly (see S. Rep. No. 1775, 81st Cong., 2nd Sess. 5 (1950))—a problem that centers on undue or excessive market concentration. Indeed, the relationship between concentration (and related market-structure characteristics) and lessened competition is clearly, we think, at the core of Section 7. For this reason, the

¹⁷ The rule applied in the Philadelphia National Bank case was one of presumptive illegality. The Court did not suggest that the substantial change in the concentration ratio in the relevant market as a result of the merger created an irrebuttable presumption that the merger would have the effects on competition specified in Section 7. ¹⁸ Brown Shoe Co., supra, at 315. See Philadelphia National Bank, supra, at 363; Bok, Section 7 of the Clayton Act and the Merging of Law and Economics, 74 Harv. L. Rev. 226, 306-07 (1960).

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specific issues of this case must be placed in a larger frame of reference. Section 7 deals with the fundamentals of a free competitive economic system, and it is in the context of first principles that we must approach this case.¹⁹

In a market of, say, 100 sellers of roughly equal size, no seller need—or can—take into account his competitors' probable reactions in establishing his pricing or other business policies. No one seller in such a market is so powerful that he can retaliate effectively against a competitor who cuts prices or otherwise attempts to increase his market share; there are too many firms for deliberately interdependent pricing and other policies to be feasible (actual agreement, of course, would violate Section 1 of the Sherman Act); and no one seller's competitive behavior, however vigorous, is apt to endanger seriously the market share of any of his competitors, or even be apparent to them, since even if one seller increases his market share by 50%, the pro rata effect on each other seller's share will be only 1/200th. For these reasons, each seller is likely to establish his business policies in disregard of the actions of any individual competitor.

Conditions are very different in a market which has only, say, three sellers, each of equal size. If one cuts prices so as to increase his market share by 50% (i.e., to 50% of the market), each of his rivals will experience a 25% diminution in his respective market share. Unless they can operate profitably with their output thus curtailed, they must meet the price cut of their competitor. If there is active price cutting in such a market, the prices of all sellers will soon be forced down to the point at which they equal or barely exceed marginal cost—and no firm will be making a profit. Rather than incur price warfare that is bound to be mutually disadvantageous, each seller in a market of few sellers (an oligopolistic market) is likely tacitly to renounce price competition, and perhaps other forms of rivalry as well.²⁰

What makes such tacit renunciation of price competition feasible in the oligopolistic market, as it is not in the atomistic market, is

¹⁹ The discussion of oligopoly and related economic concepts in the following pages is drawn from works generally accepted as authoritative in the field. See, e.g., Bain, Barriers to New Competition (1956); Bain, Industrial Organization (1959); Chamberlin, The Theory of Monopolistic Competition (7th ed. 1956); Fellner, Competition Among the Few (1949); Machlup, The Economics of Sellers' Competition (1952); Business Concentration and Price Policy (National Bureau of Econ. Research 1955); Monopoly and Competition and Their Regulation (Chamberlin ed. 1954). See also Kaysen & Turner, Antitrust Policy (1959). The Supreme Court in the Philadelphia National Bank case, by its repeated citation of economic analyses such as the above works, has clearly indicated the propriety of a reviewing tribunal's consideration of such analyses in reaching its decision in a Section 7 case. ²⁰ Bok, supra, note 18, at 310.

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the fact that the attempt of one seller to increase his market share is bound to have significant repercussions upon the market shares of his competitors, who are compelled, in consequence, to retaliate immediately with a matching price cut. The price cutter "can't get away with it" for very long, and so he is better off refraining from systematic price cutting. The consequence of each firm's refraining from price competition is likely to be an unnaturally high price level in the market and a general deadening of competition. Price leadership, "conscious parallelism", excess capacity, emphasis on heavy advertising in lieu of technological innovation, and "administered prices", are some of the symptoms of oligopoly. Of course, not all market structures are so easily classifiable as either atomistic or oligopolistic as those we have described. There is no ascertainable critical point, in terms of the number and size distribution of sellers in the market, at which behavior characteristic of the atomistic market ends and that characteristic of the oligopolistic begins, for everything depends on the psychology of business planners.²¹ Analysis of market structure does not tell us at exactly what point a particular firm, by reason of its own and its rivals' market shares, will decide it can no longer afford to ignore the probable reactions of its competitors in setting business policy. Three further points about market concentration should be made. The first is that a market may be oligopolistic though a number of small firms exist alongside the few dominant firms. See Philadelphia National Bank, supra, at 367. But the small firms, in such circumstances, will not enjoy the same freedom of action as they would in an atomistic market, for they will not be competing on equal terms with the dominant firms. Where the disparity in market shares as between competitors is very large, the competitive disadvantage of the small firms is apparent. For example, if a firm with a market share of 2% doubles its production, a firm with a 33⅓% share of the same market will lose 2% of its sales. This may well be a sufficiently sharp decline to induce the large firm to meet the small firm's competitive foray, and, if the large firm reacts with great vigor, the result may be the destruction of its small rival. For should the large firm, by dint of vigorous competitive conduct, increase its market share from 33⅓% to 40%, the small firm's market share might shrink to nothing. In an oligopoly market, then, given the retaliatory power of companies having a strong market position,²² small firms tend to exist at the sufferance of their large

²¹ "Oligopoly is * * * characterized by the state of mind of a seller vis a vis other sellers * * *." Machlup, op. cit. supra, note 19, at 351. ²² See Comment, 68 Yale L. J. 1627, 1639, n. 57 (1959). Cf. Edwards, Conglomerate Bigness As a Source of Power, in Business Concentration and Price Policy, op. cit. supra, note 19, at 331, 335.

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rivals, and for that reason are likely to opt for peaceful coexistence— not vigorous competition—with those rivals. Small firms in such circumstances characteristically pursue the “quiet life”, following the price leadership of the dominant firms in the market and otherwise conforming to the competitive norms established by those firms. The second point is that oligopoly behavior does not depend upon there being any fixed size ratio among the leading firms. Nor need there be more than a single dominant firm. A market in which one firm enjoys, say, a share of 70%, with the balance divided among a number of other firms, will still exhibit the characteristics of oligopoly. The leader will have the kind of market power that compels his rivals to take his reactions into account in their business planning, and his disproportionate strength will tend to deter his small rivals from vigorous competitive activity.²³ The third point is that market concentration is a variable of market structure, not of market behavior. Undue concentration itself is not a form of anti-competitive conduct, as, for example, raising prices in the face of declining demand may be; but undue concentration increases the probability that behavior in the market will be noncompetitive. In distinguishing market “structure” from “behavior”, we do not mean to suggest that our concern is limited to a static, abstract model of market relationships. As will be seen shortly, market structure in a particular industry depends in significant respects upon the techniques of competition, and other dynamic factors, prevailing in that industry. Although concentration may be the most important market structure variable and the one that was in the forefront of Congressional deliberations on the anti-merger statute, it is not the only such variable and it cannot be adequately understood apart from others. For present purposes, the most significant market structure variable after concentration is the condition of entry into the market by new competitors.²⁴ No firm will contemplate entry into a new market unless it feels reasonably sure of being able to obtain a satisfactory market share. If the firms in a concentrated market use their market power to maintain a very high price level, the attractiveness

²³ Congress, indeed, appears to have been specifically concerned with the problem of single-firm dominance (short of outright monopoly) in amending Section 7. “The bill is intended to permit [legal] intervention * * * when the effect of an acquisition may be a significant reduction in the vigor of competition * * *. Such an effect may arise in various ways: such as * * * [an] increase in the relative size of the enterprise making the acquisition to such a point that its advantage over its competitors threatens to be decisive”. H.R. Rep. No. 1191, 81st Cong., 1st Sess. 8 (1949). ²⁴ It is not the only other such variable, however. For example, competition may be affected by whether the number of buyers from the firms in the market is small (oligopsony).

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of entry is enhanced. For, in such circumstances, the new entrant, by selling somewhat below the prevailing price level in the market, will be able to obtain a foothold in the market yet still operate well above his break-even point, so long as his costs are not substantially higher than those of the firms presently active in the market. Thus, the possibility of entry—potential competition—may exercise a restraining influence on oligopolists, who will be inclined to maintain a price level low enough to discourage entry, i.e., actual competition. For this reason the existence of barriers to entry into a concentrated market, which enable the established firms to raise prices above a low, entry-discouraging level, is a factor that bears significantly on the existence of oligopoly conditions in the market.²⁵

At least three factors may retard entry. The first is the possession of cost advantages by the firms presently occupying the market vis-a-vis prospective entrants.²⁶ Such advantages may stem from, for example, control of patents, a scarcity of raw materials, or impeded access to channels of distribution (absolute cost advantages), or from scale of operation (advantages or economies of scale). In the case of absolute cost advantages, the prospective entrant can compete with the established firms only at a substantial disadvantage, and the chances that he will be able to obtain a reasonable position in the market are, in consequence, reduced. Even if the prevailing price level in the market is well above his cost level, he will be vulnerable to retaliation by established firms which have a lower cost level and hence a greater flexibility in pricing. As for advantages of scale, the prospective entrant, if he is to compete on equal terms with the established firms, must be prepared to operate on a sufficiently large scale to be able to obtain the same advantages of scale enjoyed by the established firms. If the scale of optimum efficiency in the industry is substantial, a heavy initial investment may be required. To justify such an investment, the entrant must be in a position to obtain a large market share within a reasonable period of time. In these circumstances, the entrant is not only being made to play the competitive game for high stakes, but, by being forced to enter on a large scale, he is virtually ensuring a swift competitive response by the established firms. They might tolerate the obtaining of a small foothold by a new entrant, but they can hardly sit by while a large share of the market is absorbed by the newcomer.

²⁵ This is not to say, however, that the absence of substantial entry barriers will ensure effective competition in the market. See Bain, Barriers to New Competition 189 (1956).

²⁶ See Bain, Industrial Organization 249-51 (1959); Bain, Conditions of Entry and the Emergence of Monopoly, in Monopoly and Competition and Their Regulation 215, 226-36 (Chamberlin ed. 1954).

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Another, and perhaps more important, entry-retarding factor is "product differentiation".27 The term refers to consumer preferences as between very similar, close-substitute products or brands. Such preferences need not, and frequently do not, rest on real or substantial differences in terms of quality or usefulness. By reason of distinctive packaging, the firm's long history, mass advertising and sales promotions, or other factors, a firm may succeed in establishing such a definite preference for its brand that the consumer will pay a premium to obtain it, although it is functionally identical to competing brands. Such brand allegiance, which the prospective entrant, marketing a new brand, will not, of course, command, may be the cumulative result of the expenditure of many millions of dollars over a period of many years to promote the brand, and may, in consequence, be very difficult to counteract even if the entrant makes a very substantial initial investment to promote his own brand.28 As a result, in an industry in which product differentiation is an important factor, not only may the new entrant find it especially difficult to pry customers loose from the established firms, but the higher price obtainable for a brand that has been successfully differentiated in the public mind from competing brands may impart a flexibility in pricing, akin to that imparted by cost advantages, which the newcomer may not be able to achieve for many years.

The third entry-retarding factor is the financial size or strength of the established firms in comparison to that of prospective entrants. Plainly, entry is more effectively deterred by the prospect of an established firm which can well afford to meet a competitive challenge, then by the prospect of a firm small compared to the entrant (though large in its market) or in poor financial condition.

27 "[T]he most important barrier to entry discovered by detailed study is probably product differentiation." Bain, Barriers to New Competition 216 (1956). Some commentators, see, e.g., Kaysen and Turner, Antitrust Policy 74 (1959), follow Chamberlin in classifying product differentiation as a distinct market structure variable, rather than subsume it under condition of entry. Since, as will appear, condition of entry as we use that term is relevant not only to new entry, but equally to the competitive vigor of the existing firms in the market, it is of no practical significance whether product differentiation be deemed an independent factor or an aspect of condition of entry. 28 See Bain, Industrial Organization 240, 250, 320 (1959); Bok, supra note 18, at 239. The Supreme Court has given explicit recognition to the role, in the repulsion of new competition, of heavy expenditures for product differentiation: "The record is full of the close relationship between * * * large expenditures for national advertising of cigarettes and resulting volumes of sales * * *. Such advertising is not here criticized as a business expense. Such advertising may benefit indirectly the entire industry, including the competitors of the advertisers. Such tremendous advertising, however, is also a widely published warning that these companies possess and know how to use a powerful offensive and defensive weapon against new competition. New competition dare not enter such a field, unless it be well supported by comparable national advertising." American Tobacco Co. v. United States, 328 U.S. 781, 797.

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The three entry-retarding factors obviously interact, most notably perhaps in industries in which the dominant firms have succeeded in differentiating their products through mass advertising and sales promotions. As noted earlier (see p. 1539 above), advertising in the mass media may not be optimally efficient except on the part of a firm which operates on a national scale; and, obviously, advertising on a national scale demands considerable financial strength. Moreover, the effectiveness of advertising and sales promotions would appear to increase, at least up to a certain point, in direct proportion to their volume. A seller with an advertising and sales promotion budget twice that of his principal competitor not only may be able to recoup his additional selling costs in the premium price that he is able to charge for his brand; in addition, his more intensive advertising and promotional efforts are very likely to increase his market share at the expense of his rivals, because the more advertising and promoting a firm does, the more intensively is the public exposed to and persuaded to buy the firm's brand. Thus, financial strength and large absolute size may be indispensable attributes in enabling a substantial market share to be acquired and maintained in industries characterized by product differentiation through advertising and promotions.²⁹ At the same time, given the extent to which effectiveness in the utilization of advertising and other promotional activities seems to be a function of size and strength, the scale necessary for a firm to operate at optimum efficiency in the market may become very large indeed. See Bain, Barriers to New Competition 138 (1956). It is important to note that the factors making for high entry barriers also make for domination of small competitors by large, and so tend to eliminate actual as well as potential competition. If the large firm enjoys substantial competitive advantages by virtue of product differentiation, cost advantages or financial strength, any attempt by a small firm to expand its market share at the expense of the large firm is unlikely to succeed.³⁰ By the same token, should the large firm desire to expand its market share, the small firm, lacking comparable financial reserves, pricing flexibility, or a

²⁹ See Bain, Industrial Organization 172-73 (1959); Bain, Advantages of the Large Firm: Production, Distribution, and Sales Promotion, 20 J. of Marketing 336, 341 (1956). ³⁰ "In many cases * * * the most important benefit [from increased firm size] is the ability to support far larger budgets for advertising and promotion than a small firm could feasibly assume. Thus, by growing larger, the producer of a retail commodity can increase its capacity to establish consumer preferences for its product to an extent that cannot easily be matched by its smaller rivals. In this way, the relative strength of the largest firm is enhanced, since efforts by smaller concerns to expand their share of the market will tend to be somewhat blunted by the popularity of the more highly advertised product." Bok, supra note 18, at 276. See Bain, Industrial Organization 174 (1959).

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reservoir of accumulated consumer preference, is apt to be the first to lose ground. The power to repel or discourage new competitors, then, is the power to control or discipline existing competitors, to make them reluctant to engage in conduct, such as price cutting, which might provoke retaliatory action on the part of the dominant firms. In sum, high entry barriers, like excessive concentration, impair effective competition.

Fourth. The concept of competition upon which Section 7 rests has aspects which transcend the narrowly economic. "Other considerations [besides the danger to the economy posed by unchecked corporate acquisitions] cited in support of the bill [to amend Section 7] were the desirability of retaining 'local control' over industry and the protection of small businesses. Throughout the recorded discussion may be found examples of Congress' fear not only of accelerated concentration of economic power on economic grounds, but also of the threat to other values a trend toward concentration was thought to pose." Brown Shoe Co., supra, at 315- 16.³¹ One commentator has suggested that the legislative history of Section 7 invites "reliance upon a structural theory of competition which stresses the advantages of large numbers of small-sized firms."³² We cannot shut out the broad policy considerations which figured so prominently in the deliberations leading to Section 7, however difficult they may be to translate into precise legal criteria. To disregard them, moreover, would be to close our minds to a persistent theme in federal trade regulation. "Throughout the history of these statutes [the federal antitrust laws] it has been constantly assumed that one of their purposes was to perpetuate and preserve, for its own sake and in spite of possible cost, an organization of industry in small units which can effectively compete with each other." United States v. Aluminum Co. of America, 148 F. 2d 416, 429 (2d Cir. 1945).³³ On the other hand, there is no warrant in the language or history of Section 7 for subordinating the protection of competition to the protection of small-business competitors.³⁴ If the effect of a merger is to place a number of small firms at a severe competitive disadvantage, and the merger cannot be shown

³¹ The legislative history is reviewed by Bok, supra note 18, at 234-37, 247. ³² Bok, supra note 18, at 247. Professor Bok, however, criticizes such a test as unworkable. Id., at 248.

³³ See Thorelli, The Federal Antitrust Policy: Origination of an American Tradition 227 (1954); Dirlam & Stelzer, The DuPont-General Motors Decision: In the Antitrust Grain, 58 Col. L. Rev. 24, 41 (1958).

³⁴ See Philadelphia National Bank, supra, at 367, n. 43; Brown Shoe Co., supra, at 320; United States v. Bethlehem Steel Corp., 168 F. Supp. 576, 588, 592 (S.D.N.Y. 1958).

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to enhance the general competitive vigor of the market, it may be appropriate, in implementing Section 7, to note Congress' patent concern with the preservation, to the extent compatible with social and economic progress, of the fundamental benefits of a small-business, decentralized economy. The interest in fostering equality of opportunity for small business and in promoting the diffusion of economic power, although it may not be identical to the economists' notion of competition, was unquestionably intended by Congress to be relevant in any scheme for the enforcement of Section 7.35

Fifth. Section 7 embodies a preventive antitrust philosophy; Congress wanted the enforcement agencies to be able to arrest the anticompetitive effects of market power in their incipiency. A corollary of Section 7's prophylactic function is that the requirements of proving a violation are less strict than they would be under the Sherman Act. A further corollary is that evidence of market behavior, as opposed to evidence of market structure, is not a necessary ingredient of the prima facie case. If the enforcement of Section 7 against a particular merger were impossible until actual noncompetitive practices had been discovered in the market affected by the merger, all opportunity to attack those practices at their root would be lost. Economists teach, and Congress, in enacting the amended Section 7, postulated, that market behavior follows market structure; hence, proof that a merger has created or aggravated a market structure conducive (in a practical, not theoretical or abstract, sense) to practices that substantially lessen competition, or tend to monopoly, is sufficient under the statute. Cf. Brown Shoe Co., supra, at 322.

The preventive philosophy reflected in Section 7 has significance not only in fixing the requirements of a prima facie case in a Section 7 proceeding, but in defining the standards of relevancy and materiality governing such a proceeding. The Supreme Court has been quite explicit as to the latter:

* * * [T]he ultimate question under § 7 [is] whether the effect of the merger "may be substantially to lessen competition" in the relevant market. Clearly, this is not the kind of question which is susceptible of a ready and precise answer in most cases. It requires not merely an appraisal of the immediate impact of the merger upon competition, but a prediction of its impact upon competitive conditions in the future; this is what is meant when

35 Compare Adelman, supra note 12, at 236; Dewey, Mergers and Cartels; Some Reservations About Policy, 51 Am. Econ. Rev. 255, 261-62 (Papers and Proceedings, 1961). "[W]e cannot fail to recognize Congress' desire to promote competition through the protection of viable, small, locally owned businesses. Congress appreciated that occasional higher costs and prices might result from the maintenance of fragmented industries and markets. It resolved these competing considerations in favor of decentralization." Brown Shoe Co., supra, at 344.

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it is said that the amended § 7 was intended to arrest anticompetitive tendencies in their "incipiency." Such a prediction is sound only if it is based upon a firm understanding of the structure of the relevant market; yet the relevant economic data are both complex and elusive. And unless businessmen can assess the legal consequences of a merger with some confidence, sound business planning is retarded. So also, we must be alert to the danger of subverting congressional intent by permitting a too-broad economic investigation. And so in any case in which it is possible, without doing violence to the congressional objective embodied in § 7, to simplify the test of illegality, the courts ought to do so in the interest of sound and practical judicial administration. Philadelphia National Bank, supra, at 362 (citations omitted). See Brown Shoe Co., supra, at 341 & n. 68; Standard Oil Co. v. United States, 337 U.S. 293, 313.

The Court's emphasis appears to be twofold. On the one hand, a statute aimed at arresting practices in their incipiency can deal only with broad probabilities. The very nature of such a statute makes a quest for certainty delusive.³⁶ This is especially true in an area in which lawyers, not trained in economic analysis, must nonetheless grapple with what must often appear to be an unintelligible mass of complex economic materials. Not surprisingly, the less sophisticated in economic matters a lawyer is, the more "thorough" a job of economic inquiry he is likely to believe necessary.³⁷ The emergence of a class of business practices as to which, under the Sherman Act, a substantial anti-competitive effect is conclusively presumed (so-called per se offenses) testifies to the exigent need of simplifying the economic issues in antitrust litigation. Even where a per se rule is inappropriate, some limitation of the scope of economic inquiry will almost always be necessary and proper, for "the demand for full investigation of the consequences of a market situation or a course of business conduct is a demand for nonenforcement of the antitrust laws." Mason, Market Power and Business Conduct: Some Comments, 46 Am. Econ. Rev. 471, 478 (Papers and Proceedings, 1956). In a Section 7 proceeding, an inquiry bent on obtaining and digesting all data arguably relevant in making "some ultimate reckoning of social or economic debits and credits" of the merger (Philadelphia National Bank, supra, at 371), but not genuinely probative in making "an appraisal of the immediate impact of the merger upon competition * * * [and] a prediction of its

³⁶ "A preventive antitrust policy * * * should be directed at activities which on their face have a general and important tendency to reduce competition * * *." Stigler, Mergers and Preventive Antitrust Policy, 104 U. Pa. L. Rev. 176, 177 (1955). Cf. Brown Shoe Co., supra, at 323 (Congress' "concern was with probabilities, not certainties").

³⁷ "[E]rrors in logic and inference will increase when large amounts of complex data must be considered in a conceptual framework that is but partially understood." Bok, supra note 18, at 295.

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impact upon competitive conditions in the future" (i.d., at 362), is inevitably self-defeating, as the Commission's experience in this class of cases has amply demonstrated.

Furthermore, the danger is acute that if proceedings under Section 7 are allowed to become top-heavy with masses of economic and business data which are not strictly probative, the statute will become useless as an enforcement tool. In a merger proceeding, relief short of divestiture is rarely adequate. But divestiture is not a practical remedy unless it is accomplished within a reasonable time after the consummation of the merger. If too much time elapses, the property, good will, management, customers, business opportunities, and other assets and attributes of the acquired and acquiring firms tend to become irremediably commingled, and the acquired firm may lose all vestiges of independence. It may be impossible to reconstitute the acquired firm as a going concern; the patient, as it were, will be too far gone for medicine, or even radical surgery, to do him any good.

Other interests press for the simplifying and expediting of Section 7 proceedings. One is the interest in business stability and progressiveness. While an action under Section 7 is pending, the business decisions of the merged firm may be characterized by hesitancy and indecisiveness, due to uncertainty about the future of the firm. So also, perfectly lawful mergers may be deterred by the prospect of protracted legal proceedings whose outcome cannot reasonably be predicted. Finally, the effectiveness of Section 7 to check, where necessary in the interest of protecting competition, the very large annual wave of mergers 38 will be impaired if the limited staff and budget of this Commission (and of the Antitrust Division of the Department of Justice) that can be devoted to the enforcement of Section 7 are allowed to be frittered away in unduly complex and protracted proceedings. That effective relief in a Section 7 proceeding becomes increasingly difficult, to the point of impossibility, over time, coupled with the other considerations we have mentioned, argues in favor of sharply narrowing, wherever possible, the scope of permissible legal inquiry. Clear and relatively simple rules, and the rigorous exclusion of evidence which bears only remotely upon the central con-

38 In 1959-61, an average of 650 firms disappeared annually through mergers—more than at any time since 1926-30, the crest of the last great merger movement. These figures are rough estimates, are confined to manufacturing and mining firms, and probably underestimate the actual number of mergers even among those firms. See Mergers and Superconcentration: Acquisitions of 500 Largest Industrial and 50 Largest Merchandising Firms, op. cit. supra note 13, at 266. This Commission counted, for example, 1260 industrial mergers in 1962. F.T.C. News Release, Feb. 8, 1963.

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cerns of the statute, are essential if Section 7 is not to become a judicial and administrative nullity.

Specifically, we think that the admission of post-acquisition data is proper only in the unusual case in which the structure of the market has changed radically since the merger—for example, where the market share of the merged firm has dwindled to insignificance— or in the perhaps still more unusual case in which the adverse effects of the merger on competition have already become manifest in the behavior of the firms in the market. See Reynolds Metals Co. v. F.T.C., 309 F. 2d 223 (D.C. Cir. 1962). If post-acquisition data are to be allowed any broader role in Section 7 proceedings, a respondent, so long as the merger is the subject of an investigation or proceeding, may deliberately refrain from anti-competitive conduct—may sheathe, as it were, the market power conferred by the merger—and build, instead, a record of good behavior to be used in rebuttal in the proceeding. One consequence of a receptive attitude toward post-acquisition evidence on the part of the tribunals deciding Section 7 cases is that there will be frequent remands for further such evidence, as the instant case illustrates, until eventually the proceeding may become so protracted as to preclude effective relief, or may terminate in the respondent's favor only because his good-conduct evidence has been considered persuasive. At that point, the respondent is free to take the wraps off the market power conferred by the merger.

More important, given the nature of the concerns that moved Congress to amend Section 7, post-acquisition evidence will rarely have substantial probative value even if the respondent's postacquisition conduct is not influenced by the threat of legal action. Congress postulated that certain kinds of market structure would ordinarily lead to non-competitive company behavior. If a market structure conducive to non-competitive practices or adverse competitive effects is shown to have been created or aggravated by a merger, it is surely immaterial that specific behavioral manifestations have not yet appeared. In many cases, the converse will also hold true. The fact that non-competitive practices have persisted or even increased in the market since the merger may reveal little about the merger's effects. The behavior of firms is a complex matter; it may be impossible to separate out the various casual factors so precisely as to be able to attribute non-competitive behavior to a particular merger. The same strictures apply to evidence of changes in market structure that have occurred since a merger. The full significance of such changes may not become apparent until long after they

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occur, and their relationship to a particular merger is likely to be obscure.

At all events, the ineffectuality of a wait-and-see policy on the part of the agencies charged with the enforcement of Section 7 should be obvious. If the agencies postpone the commencement or completion of an action challenging a merger in order to see what trends or results will stem from it, they thereby disable themselves from obtaining or granting effective relief. It bears repeating that an order divesting corporate assets that were acquired a long time before the issuance of the order rarely advances the polices of Section 7.

C. The Effects of the Instant Merger on Competition

With the foregoing general principles in mind, we now address ourselves to the ultimate question in this, as in every Section 7, case: whether the effect of the particular merger "may be substantially to lessen competition, or to tend to create a monopoly", "in any line of commerce in any section of the country." The relevant line of commerce (product market) in this case is alleged to be household liquid bleach (5¼% sodium hypochlorite solution). No contention is made that industrial bleach should be included, and the contention, urged below by respondent, that dry or powdered bleach is sufficiently interchangeable with liquid bleach to be part of the same line of commerce, has not been pursued on appeal. It is clear, at all events, that the examiner's exclusion of powdered bleach from the relevant line of commerce was correct. The evidence shows that liquid and dry bleaches are used for different purposes: dry bleaches are in the light-duty category; liquid bleaches are in the heavy-duty category. Dry bleaches are approximately twice as expensive to use as liquid bleaches and their primary utility is in bleaching fine fabrics that do not respond well to stronger bleaches. To the consumer, liquid and dry bleach are economically and functionally distinct products that are poor substitutes for each other. See Reynolds Metals Co. v. F.T.C., 309 F. 2d 223, 226-27 (D.C. Cir. 1962); Crown Zellerbach Corp. v. F.T.C., 296 F. 2d 800, 811 (9th Cir. 1961). In any event, at the time of the merger dry bleach accounted for only about 10% of total household bleach sales, so that even if it were included as part of the relevant product market, the market shares of Clorox and its competitors would not be changed substantially.

The relevant geographical market in a Section 7 case ("section of the country") is, in the words of the Supreme Court, "where

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1465 Opinion * * * the effect of the merger on competition will be direct and immediate." Philadelphia National Bank, supra, at 357. The complaint charges that the effects of the merger on competition will be felt in the national market for household liquid bleach and in a number of regional submarkets as well. Since high shipping costs impose definite territorial limitations upon the distribution of household liquid bleach, and since Clorox is the sole producer for the national market, the appropriateness of appraising the merger in terms of its alleged impact upon the national market is somewhat questionable. The effects of Procter's acquisition of Clorox will be felt differently in the different regions of the country, according to the market position occupied by Clorox vis-a-vis its competitors in each region. Cf. American Crystal Sugar Co. v. Cuban-American Sugar Co., 152 F. Supp. 387, 398 (S.D.N.Y. 1957), aff'd, 259 F. 2d 524 (2d Cir. 1958). No uniform national impact can be forecast. Despite the fact that the proper sections of the country in this proceeding are a series of distinct regional markets, no attempt has been made to demarcate these markets, and it is probably not a feasible undertaking.²⁹ In such circumstances, it is appropriate to use aggregate national figures as approximations of conditions obtaining in the several regional markets. Cf. Brown Shoe Co., supra, at 342-43. If anything, the use of such figures favors respondent. Even if the regional sales figures in the Nielsen Index cannot be accepted as accurate market share percentages, they strongly suggest that in many of the geographical markets for liquid bleach Clorox's market share must be considerably higher than its national average, in places approaching monopoly proportions. Having established the relevant market, we are prepared to analyze its structure, disregarding, for the moment, the impact of the merger upon it. Manifestly, the household liquid bleach industry is highly concentrated and oligopolistic. A small number of firms (6) account for an overwhelming proportion of the industry sales (80%), and what is left is divided among firms which, absolutely and relatively, are very small. The concentration ratio, in other words, is

²⁹ The regional breakdowns given in the A. C. Nielsen Food Index (see p. 1538 above) represent standardized zones which Nielsen uses for all grocery products, and are not drawn so as to reflect meaningful geographical markets for the household liquid bleach industry. In rejecting these zones as geographical markets for present purposes, we do not mean to suggest that extreme rigorous standards of proof in this area are appropriate or allowable. The Supreme Court has cautioned that certainty in the calculation of the relevant market cannot, and need not, be achieved. Philadelphia National Bank, supra, at 361.

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that characteristic of oligopoly.⁴⁰ Among the market leaders, a single firm, Clorox, is dominant.⁴¹ It enjoys almost 50% of the total sales of the industry. Moreover, as the only national seller in an industry strongly characterized by product differentiation through advertising, Clorox enjoys a decisive competitive advantage, and has succeeded in creating a definite consumer preference for the Clorox brand, enabling it consistently to be priced at or above the level of any competing brand. In point of either market share or financial strength, no firm except Purex can be regarded as a significant competitive factor in the industry, and Purex does not compete with Clorox at all in about one-half of the nation. Indeed, in several areas of the country, Clorox faces no competition whatever from the principal firms, such as they are, of the industry (see p. 1538 above).

The factors which make for dominance by Clorox of its rivals also make for formidable barriers to new entry. To be fully efficient, a new entrant into the bleach industry would have to advertise and operate from the outset on at least a broad regional scale,⁴² and consequently incur a very heavy initial investment for advertising. To undertake to operate on such a large scale profitably, a prospective entrant must, as we noted earlier, be able to obtain a substantial market share within a reasonable period of time. But if a firm did succeed in acquiring a significant share of one of the regional liquid bleach markets, it would almost certainly provoke a competitive response from Clorox, which, could not afford to remain passive in the face of a significant encroachment upon its market position. In the resulting competitive struggle, Clorox, by reason of the substantial, accumulated consumer preference for the Clorox brand, would have a great advantage.

There is evidence in this case that before a new brand of liquid bleach can be safely launched, it must be test-marketed locally. Since Clorox is active in every part of the country, it is in a position, by responding promptly to every such test, to prevent a prospective entrant from acquiring the market data it needs in order even to

⁴⁰ Professor Bain would probably categorize the household liquid bleach industry as “highly concentrated”. See Industrial Organization 127 (1959). Professors Kaysen and Turner would categorize it as a “Type One structural oligopoly”, wherein “the first eight firms have at least 50 percent of total market sales and the first twenty firms have at least 75 percent of total market sales.” Antitrust Policy 27 (1959). In the Philadelphia National Bank case, after the merger the leading firm in the relevant market had a 30-35% share, and the top 4 firms combined, roughly 78%. ⁴¹ “[W]hen one firm has forty or fifty percent or more [of the market] * * * competition will seldom plague the industry.” Stigler, supra note 36, at 181. ⁴² Cf. Bain, Advantages of the Large Firm: Production, Distribution, and Sales Promotion, supra note 29. at 344.

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begin to compete. Indeed, this is what Purex claims Clorox did in Erie, Pennsylvania—responded so promptly and vigorously to Purex's competitive sortie that Purex was unable to complete the testmarketing of its new container (see pp. 1539, 1540 above). This incident illustrates, moreover, the two-edged quality of Clorox's dominant position. Not only is it a significant impediment to new entry; it is also an effective barrier to the growth or expansion of Clorox's existing rivals in the bleach industry, and thus an inhibitor of vigorous competitive activity.

Clorox's dominant position in the liquid bleach industry is dramatically shown by the fact that Procter, the nation's largest advertiser and perhaps leading maufacturer of household products comparable to liquid bleach, preferred to pay a very large premium for the good will of Clorox (the $17,700,000 difference between the purchase price of Clorox, $30,300,000, and the valuation of Clorox's assets, $12,600,000, suggests the size of this premium), rather than enter the industry on its own. Few firms—certainly none of the firms now active in the liquid bleach industry, with the possible exception of Purex—are in a position to make the investment evidently required to become a fully effective competitor in the liquid bleach industry. Perhaps entry or slight market expansion on the part of very small, neighborhood bleach producers is possible notwithstanding Clorox's dominant position. But the conclusion seems inescapable that at the time of the merger, the industry was concentrated, and barricaded to new entry, to a degree inconsistent with effectively competitive conditions.

What are the consequences for competition if, an industry such as we have described, a firm such as Procter is substituted for the industry's dominant firm? We find that there are significant areas in which absorption by Procter is likely to affect Clorox's competitive position.

In the first place, the record shows that in the liquid bleach industry the merger of a relatively small, single-product firm with a very large, multi-product firm enables substantial cost savings and other advantages in advertising and sales promotion, especially in television advertising.

The maximum annual volume discounts available to the largest advertisers amount to 25–30% for network television advertising and somewhat smaller but still substantial percentages for magazine, newspaper, and radio advertising. In addition, the discount rates available for local "spot" television advertising favor the large advertiser. In 1957, Clorox spent $1,150,000 on television advertising of all kinds on all stations. While complete discount rates are not

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included in the record, it is virtually certain that an expenditure of this size spread over all networks and stations did not entitle Clorox to discounts of any substance. For example, a $3,000,000 expenditure on NBC or CBS night time is required for the maximum discount. The record shows that Purex, in time bought in behalf of its complete line of products, received a 6% discount on an expenditure of $1,400,000 on one network, and a 15% discount on an expenditure of $2,400,000 on another. This was possible because Purex, unlike Clorox, is a multi-product firm, and because an advertiser can combine all of his advertising for all of his products to obtain the volume discount, which is then applied to the advertising for each brand. It is conceded that Procter is entitled to, and receives, the maximum volume discounts available in television advertising and, no doubt, in other media as well. With Clorox now a part of the Procter line, for the same amount of money Clorox spent on network television advertising prior to the merger, at least 33⅓% more network television advertising can now be obtained. Analogous benefits are obtainable in the other advertising media. The record discloses that maximum volume discounts of between 12% and 17% are available to advertisers in the leading women's or family magazines. An annual expenditure of $1,000,000 or more may be necessary to earn the maximum in a particular magazine. Prior to the acquisition, Clorox received no discounts for magazine advertising. Purex, the record shows, received a small discount in one magazine.

The scale advantages of a large, multi-product firm in advertising are not limited to volume discounts. According to uncontradicted evidence of record, a commercial announcement during a television program is substantially more effective in promoting a product than one during the between-program station break. Not only is the viewer apt to be less attentive during the station break—he may be switching stations, or he may leave the room momentarily—but a brand becomes better known to the consumer by being associated with a program which the consumer watches. Unless Clorox had been willing to put a disproportionate share of its advertising budget into a single venture, it could not, prior to the acquisition, have afforded to buy an entire network television program. Cf. United States v. Lever Bros. Co., 216 F. Supp. 887, 899 (S.D.N.Y. 1963). Procter, however, can and does buy the sponsorship of such programs in behalf of several of its products, and this means that if Procter includes Clorox among the products advertised on such a program, Clorox can realize the advantages of network program advertising at

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a fraction of the cost that would have been required prior to the merger. Moreover, even if Clorox could have purchased sponsorship of a program prior to the merger, the same investment, if used now to buy one-third of three shows sponsored by Procter, will result in broadened consumer exposure to the Clorox brand, thereby increasing the effectiveness of the investment. Another advantage in network program advertising that can be derived from the association of Clorox with Procter arises from the ability of a multi-product national advertiser to run commercials for different products in different sections of the country during a single commercial break. If Procter decides that Clorox needs advertising support in some area where Clorox faces particularly intense competition, it can place a Clorox commercial in that area, and that area only, while the remainder of the country is watching a commercial for one or more of Procter's other products. Clorox thereby gains the advantage of association with network television while actually limiting its advertising expenditures to selected regional markets. Similar advantages are obtainable by joint promotions, and by joint advertising in the other media. Procter can incorporate promotions for Clorox on the same in-store display cards as are used for other Procter products and thus receive point-of-sale promotion for several products at the cost of printing, distributing and installing one set of cards. Similarly, premium and special-offer coupons for Clorox can be mailed in the same envelope as those for other Procter products. In this way Clorox reaps the advantage of this type of promotion without having to pay full processing and mailing costs or make the initial investment necessary to launch this promotional method. The record shows that Procter has frequently engaged in combined-product displays and promotions of this sort. Joint newspaper or magazine advertising of Procter products, including Clorox, also offers the possibility of considerable cost advantages. A related point is that while prior to the merger Clorox distributed bleach to retailers by means of a network of independent brokers, Procter has a direct sales force for its products, and, were Procter to distribute Clorox bleach through this sales force, distinct promotional advantages would probably result. Independent brokers handle the products of many manufacturers and frequently carry competing brands; they have no particular interest in pushing one brand rather than another. Procter's sales force deals only in Procter products and spends considerable effort assuring these prod-

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ucts adequate and prominent shelf space and special displays. In light of the critical role played by shelf space in liquid-bleach competition, use of a direct sales force—a device that may be fully efficient only for a multi-product firm—would in all likelihood substantially increase Clorox's already great market power. The acquisition also has consequences for the bargaining position of Clorox in its dealings with retailers of liquid bleach. That Procter is the leading producer of a number of products marketed through grocery stores may enable it to induce retailers to give favored treatment to Clorox in the crucial fight for shelf space or otherwise concede especially advantageous terms involving the retail selling of Clorox bleach. We need not go so far as to find that leverage of the kind that supports tie-in and full-line forcing arrangments may be Procter's to wield in behalf of Clorox. Given Procter's position as a well-established producer of a broad range of common grocery items—many of them "must" items (see pp. 1578, 1579 below)—it would seem likely that Procter can obtain from retailers, as a matter not of coercion but of convenience or expediency, certain advantages in the display or marketing of its products which are not available to a single-product producer, such as the pre-merger Clorox. Cf. Machlup, The Political Economy of Monopoly 111-12 (1952).

Another material consequence of the merger is the advent, in the liquid-bleach industry, of a firm with a breadth of experience and degree of financial strength beyond anything possessed by the existing members of the industry. We have already indicated the importance of absolute size in effective advertising; Procter's size, whether measured by sales or assets, is many times greater than that of the largest firm operating in the industry prior to the merger. Furthermore, there is testimony in the record that sales promotions are considered in the main too expensive for a single-product firm in the relatively small-scale bleach industry; thus, at the time of the merger, Clorox was engaged in virtually no sales-promotion activities. Procter, a firm that in 1957 incurred sales-promotion expenses in an amount greater than Clorox's total sales, is in an obvious position to utilize the sales-promotion technique on a wide scale in behalf of Clorox.

Financial ability, moreover, may play a substantial competitive role in an industry such as liquid bleach quite apart from advertising and sales promotions. The record shows that one way in which a producer may obtain increased shelf space is by offering the merchant a special price, thus enabling the merchant to obtain a higher

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resale profit margin. To be able to do this frequently and effectively requires the kind of pricing flexiblity available only to a firm with ample reserves. So also, it is a fact that consumer preferences for particular liquid bleach brands, even for Clorox, are not invulnerable to competitive inroads; the Erie, Pennsylvania, incident (see pp. 1539, 1540 above) demonstrates the prevalence of local price cutting. Even local price cutting, however, cannot long be maintained by a firm short on reserves. In a price fight to the finish, Procter, whose aggregate scale of operations and fiscal resources dwarf the entire liquid bleach industry, can hardly be bested.

Consideration must also be given to the danger that a multiproduct firm such as Procter, operating in a market otherwise consisting of single-product firms, may engage in systematic underpricing having most unfair and destructive effects even though the firm is wholly innocent of any predatory intent. “[T]otal profit may be maximized [in a multi-product firm] * * * by selling some lines below accounting costs.” 43

A concern that produces many products and operates across many markets need not regard a particular market as a separate unit for determining business policy and need not attempt to maximize its profits in the sale of each of its products, as has been presupposed in our traditional scheme. It may classify its products into such categories as money-making items, convenience goods, and loss leaders, and may follow different policies in selling the different classes. Edwards, Conglomerate Bigness As a Source of Power, in Business Concentration and Price Policy 331, 332 (National Bureau of Econ. Research ed. 1955).

Thus, the greater flexibility in pricing enjoyed by the multi-product firm may lead, without predatory motive or purpose, to below-cost selling of a particular product which is in competition with a small firm’s single product.

In addition to the concrete competitive advantages in liquid bleach competition which stem from Procter’s substitution for Clorox in the liquid bleach industry, some account must be taken of certain intangibles of reputation which Procter unquestionably possesses. Whether or not Procter is in fact a well-managed and aggressive competitor, a question on which the record in this case permits no expression of opinion, the record does disclose that Procter is so regarded by the firms in the liquid bleach industry. To them, Procter

43 Thorp & Crowder, The Structure of Industry 667 (T.N.E.C. Monograph No. 27, 1941). “[D]iversification may so cloud a concern’s cost structure as to result in the shelter of inefficiently made products; a given product may be subsidized without the knowledge of its producer.” Hale, supra, note 8, at 361.

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is a more feared competitor than was the pre-merger Clorox. Since, as was noted earlier, market behavior is determined by the state of mind of the firms in the market, Procter's history of success, its general size and its prowess, which loom large in the eyes of the small liquid bleach firms, must for that reason alone be reckoned significant competitive factors. Enough has been said to establish that the merger of Procter and Clorox adversely affects the market structure of the liquid bleach industry. While the merger has no immediate impact on the number or size distribution of firms in the market, it does have an immediate impact upon another important variable of market structure—the condition of new entry. Procter, by increasing the Clorox advertising budget, by engaging in sales promotions far beyond the capacity of Clorox's rivals, and by obtaining for Clorox the advertising savings to which Procter, as a large national advertiser, is entitled, is in a position to entrench still further the already settled consumer preference for the Clorox brand, and thereby make new entry even more forbidding than it was prior to the merger. In addition, because a multi-product firm of large size enjoys, as has been seen, very substantial competitive advantages in an industry strongly marked by product differentiation through mass advertising, sales promotions, shelf display and related merchandising methods, the prospects become increasingly remote, given the substitution of Procter for Clorox in the liquid bleach industry, that small or medium-sized firms will be minded to enter the industry. The scale of optimally efficient operation in the industry has been so increased, by reason of Procter's advent, that only very large firms—firms on the scale of Procter itself—can reasonably be expected to be able to compete on roughly equal terms in the industry. In short, the barriers to entry, already very high, have been markedly heightened by the merger—to the point at which few firms indeed would have the temerity or resources to attempt to surmount them. And, as has been observed, a heightening of entry barriers concomitantly enhances the power of market leaders to dominate their small rivals, and so smother effective competition. Given Procter's materially greater strength, compared to Clorox, as a liquid bleach competitor, vigorous competition by the small firms in the industry would appear still more effectively and substantially inhibited than prior to the merger. Our finding that, as a result of this merger, the market structure of the liquid bleach industry is significantly less conducive to competition than was the case prior to the merger, is not in any way

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dependent upon the actual course of Procter's post-merger conduct. We need not attempt to ascertain or predict whether, and to what extent, Procter has taken or will take active steps to obtain for Clorox the potential scale or other advantages accruing from the merger. As has been pointed out, the conditions which retard competition in an industry are to an important degree psychological. They stem from competitors' appraisal of each other's intentions, rather than from the intentions—or the actions taken upon them—themselves. The appropriate standpoint for appraising the impact of this merger is, then, that of Clorox's rivals and of the firms which might contemplate entering the liquid bleach industry. To such firms, it is probably a matter of relative indifference, in setting business policy, how actively a Procter-owned Clorox pursues its opportunities for aggressive, market-dominating conduct. The firm confined by the high costs of shipping liquid bleach, and the high costs of national or regional advertising, within a geographically small area, cannot ignore the ability of a firm of Procter's size and experience to drive it out of business (not necessarily deliberately) by a sustained local campaign of advertising, sales promotions and other efforts. See Blair, The Conglomerate Merger in Economics and Law, 46 Geo. L.J. 672, 688-89 (1958). A small or medium-sized firm contemplating entry cannot ignore the fact that Procter is a billion-dollar corporation whose marketing experience extends far beyond the limited horizons of the liquid bleach industry and whose aggregate operations are several times greater than those of all the firms in the industry combined. Even a large firm contemplating entry into such an industry must find itself loath to challenge a brand as well-established as Clorox bleach, when that brand is backed by the powerful marketing capacities of a firm such as Procter.

If we consider, in other words, not what Procter will in fact do to exploit the power conferred on it by the merger, or has done, but what it can and is reasonably likely to do in the event of a challenge to its dominant market position in the liquid bleach industry, we are constrained to conclude that the merger has increased the power of Clorox, by dominating its competitors and discouraging new entry, to foreclose effective competition in the industry.

D. The Substantiality of the Instant Merger's Anti-Competitive Effects

In finding that the merger of Procter and Clorox has an undesirable effect, from the standpoint of maintaining competition, on the

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market structure of the liquid bleach industry, we have not determined the legality vel non of the merger under Section 7. The statutory test, whether the effect of the merger may be substantially to lessen competition, or tend to create a monopoly, has yet to be applied to the facts as found.

The language of Section 7 refutes any notion that every merger whose probable effect on competition is adverse is, for that reason, unlawful. Congress plainly meant to exclude from the proscription of Section 7 mergers having a negligible, abstract, or merely theoretical impact upon the structure of the relevant market. The impact must be significant and real, and discernible not merely to theorists or scholars but to practical, hard-headed businessmen; in a word, it must be "substantial". But substantiality, in the sense used in Section 7, is not a precisely ascertainable quantity; if the statute is to have meaningful application, the courts and the Commission must be content with approximations and estimates. In the Philadelphia National Bank case, the Supreme Court, confronted with a conventional horizontal merger, held that where such a merger conferred a 30% market share on the acquiring firm and significantly enhanced the combined market shares of the leading firms in the market (by more than 33%), the merger was unlawful, absent mitigating circumstances. The percentages selected by the Court as manifesting undue concentration were admittedly only rough indicators that the merger would have the effect on competition specified in Section 7; but, in the absence of any more precise indicators, they were deemed to satisfy the statute's requirements. The merger at bar, because it is not a conventional horizontal or vertical merger, does not afford the tribunal which must decide its legality the ready crutch of percentages. The market structure variable—condition of entry—here involved, unlike concentration (or foreclosure, in the case of a conventional vertical merger), is not even roughly translatable into a percentage. We cannot say that barriers to new entry into the liquid bleach industry have been raised, as a result of this merger, by 10%, 50% or any other exact figure. Nor do the raw figures on, say, cost savings in advertising enabled by the merger permit any dependable quantitative appraisal of the impact of the merger on existing barriers to entry. But the difference here between substantial and insubstantial, like that between night and day or childhood and maturity, is no less real because the dividing line cannot be precisely drawn.

If mergers not falling within certain familiar categories, such as "horizontal" and "vertical", are to be effectively subject to Section 7, as Congress plainly intended them to be, other means—non-per-

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centile and non-quantitative—of roughly, but fairly, estimating the substantiality of a merger's probable adverse effect on competition in the relevant market, must be found. There is, of course, only one place to look for such tools—the area of the basic policy considerations which moved Congress to enact Section 7 in its amended form and which must therefore govern the enforcement of the statute. We find that there are five factors in this case which, taken together (we need not, and do not, consider whether one or more of these factors, taken separately, would be dispositive of the case), persuade us that the instant merger violates Section 7. This set of factors plays the same role in the decision of this case as percentage ratios play in the decision of other merger cases, that of enabling the deciding tribunal to infer with reasonable assurance that the merger has the specified statutory effect, namely, of probably lessening competition substantially, or tending to create a monopoly, in the relevant market. These factors are: (1) the relative disparity in size and strength as between Procter and the largest firms of the bleach industry; (2) the excessive concentration in the industry at the time of the merger, and Clorox's dominant position in the industry; (3) the elimination, brought about by the merger, of Procter as a potential competitor of Clorox; (4) the position of Procter in other markets; and (5) the nature of the "economies" enabled by the merger. First. An important consideration is the very great discrepancy in size between Procter and, not only Clorox, but any firm in the liquid bleach industry. In 1957, Procter's sales of packaged detergents alone were 10 times the total sales of Clorox and 8 times the total sales of all of Purex's products combined. Procter's total sales were more than 20 times the total sales of Purex and more than 25 times the total sales of Clorox. In fact, Procter's advertising and sales promotion budget in 1957 was substantially larger than the combined total sales of Purex and Clorox, and very many times the size of Clorox's advertising budget. Such comparisons could be multiplied; they show plainly that Procter is of a different order of magnitude from that of the principal firms in the liquid bleach industry. Indeed, as has been observed, Procter's financial resources and scale of operations overshadow the entire liquid bleach industry. A size disparity of this magnitude is significant in several ways. First, it is a reliable indicator that the cost advantages enabled by the merger will be substantial and will substantially affect competitive conditions in the market. It would not be practicable to attempt a full-scale cost study of the firms involved in a merger, with a view toward predicting the actual, quantitative impact of the

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merger on competition. See Bok, supra note 18, at 285-86. We must make do, as has been pointed out, with less exacting but nonetheless useful working criteria; and in the circumstances involved in this case, the scale relationship between the acquiring firm and the principal firms in the relevant market is such a criterion. A merger between Clorox and, say, Purex might not enable substantial cost advantages, since Purex is not very much larger than Clorox; and the acquisition by Procter of, say, a small automobile manufacturer, even if the acquisition enabled substantial cost savings, would not be likely to impart a decisive competitive advantage to the acquired firm, given the scale of its competitors. But we have in this case a situation in which the pooling of expenditures by the merging firms places the acquired firm in a size class many times greater than that in which its own expenditures placed it and many times greater than that of any of its competitors. The inference is warranted, therefore, that the effect of this merger is to enable substantial cost savings which impart a substantial competitive advantage to the acquired firm.

To be sure, we might hesitate to draw such an inference in the case of a merger between firms in unrelated industries, or where the obtaining of cost advantages as a result of the merger depended on complex technological factors. But it has been found that Procter and Clorox are functionally closely related firms, the integration of whose marketing activities is not at all a remote hypothesis. And we have found also that the most substantial cost savings obtainable as a result of the merger, savings in the cost of advertising, depend principally on nothing more arcane than the total amount of the pooled expenditures for advertising on a particular network or in a particular magazine.

Second, the size disparity of the acquiring firm vis-a-vis the firms in the relevant market has an obvious materiality where, as here, that market is strongly marked by product differentiation through mass advertising. The effectiveness of advertising, we have seen, is a function in part of sheer weight, of the sheer volume of a firm's expenditures for advertising. It is therefore intensely relevant not only that Procter must in absolute terms be deemed a large and affluent corporation well able to finance large advertising campaigns but, more important, that the firms in the liquid bleach industry are decidedly small and weak relative to Procter. Third, size disparity of the unusual degree involved in this case takes on special significance in light of Congress' expressed concern, in amending Section 7, with the preservation, to the extent prac-

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ticable and consistent with economic and social progress, of competitive opportunities for small business.

Prior to the advent of Procter, household liquid bleach was basically a small-firm industry. The industry's total sales were less than $100,000,000 annually (i.e., less than 10% of Procter's total sales); many very small firms, perhaps as many as 200, were active in the industry; and the low costs of manufacturing enabled a firm to produce liquid bleach with a relatively small capital investment. Clorox, to be sure, overshadowed the other firms in the industry, but with assets of only $12,600,000, Clorox itself could hardly be regarded as more than a small medium-sized firm. The distinctive nature of the industry threatens now to be utterly transformed by the substitution, for Clorox, of a billion-dollar corporation. Not only does Procter's great size and wide experience permit advertising and sales promotions on a scale hitherto unknown in the liquid bleach industry, but the remaining firms may now be motivated to seek affiliation by merger with giant companies. The practical tendency of the instant merger, then, is to transform the liquid bleach industry into an arena of big business competition only, with the few small firms that have not disappeared through merger eventually falling by the wayside, unable to compete with their giant rivals. To be sure, there may be firms in this industry that are so small— firms with a purely neighborhood business which engage only in local advertising—as to be relatively unaffected by the substitution of Procter for Clorox, although such firms might very likely be the first casualties in any attempt by Procter to increase Clorox's market position through enhanced advertising or other marketing activities. Nevertheless, in the range between these very small firms, at the lower end, and Clorox, at the upper end, are to be found a number of relatively small firms whose continued existence as independent entities is gravely threatened by this merger. Precisely this phenomenon, the transformation through mergers of a small-business into a big-business industry, was at the heart of Congress' concern with what it conceived to be an accelerating trend toward excessive concentration of economic power. In the deliberations leading to the amendment of Section 7, illustration after illustration was cited of industries, formerly characterized by the vigorous competition of small firms on a footing of approximate equality, transmuted by mergers into arenas of "monopolistic competition".44 This manifest Congressional policy has a place in the

44 See, e.g., H.R. Rep. No. 1191, 81st Cong., 1st Sess. 3 (1949); Mergers and Superconcentration: Acquisitions of 500 Largest Industrial and 50 Largest Merchandising Firms, op. cit. supra note 13, at 15.

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enforcement of Section 7, and it cannot be disregarded in the instant case, where over 100 small firms, most with assets of less than $75,000—not to mention prospective small-firm entrants—must now contend with Procter's vast, wide-flung enterprise. In this respect, we may compare the Supreme Court's Brown Shoe decision, holding unlawful a merger that did not itself create or aggravate an oligopolistic market structure, but, rather, was feared to be the first step in the transformation of a traditionally small-business, atomistic industry into one dominated by corporate giants.⁴⁵ It should be very clear that, in deeming Procter's size a pertinent consideration in the decision of this case, we are most emphatically not adopting any view that business per se is anti-competitive or undesirable and should be attacked under Section 7 or any other antitrust statute. Procter's size is significant in this case only insofar as it is hugely disparate compared with the size of the firms in the relevant market. Disparity of size, not absolute size, has importance in a merger case of this kind. Moreover, we do not suggest that size disparity is relevant to the decision of every merger case. Quite possibly, there are industries in which size disparity has little or no competitive significance. But we are dealing, in this case, with an industry in which advertising figures very prominently as a factor in competition. And not only is effective advertising at least a partial function of sheer weight (and may, indeed, only be fully practical for a large regional or national seller), which in turn is a function of the financial scale and capacity of the advertiser, but the discount structure of the advertising industry favors very large, national advertisers to an unusual extent. As we have seen, a multimillion dollar diversified firm such as Purex may not be able to qualify for substantial advertising discounts, while a firm the size of Procter can qualify for very substantial such discounts indeed. Size, then, is a factor bearing significantly on competition in the special circumstances of this case, and we need not, and do not, have occasion to expatiate in general terms on the significance of bigness in the application of Section 7 and other antitrust statutes. Second. Our conclusion, in the foregoing discussion, that liquid bleach is an industry in which Congress would not have wished to see domination by large firms, and that the size disparity of Procter vis-a-vis the small firms of the industry is likely to have a significant effect on the competitive structure of the industry, is not, we think, affected by the fact that, at the time of the acquisition, the market

⁴⁵ See Adelman, supra note 12, at 241: Dean, What the Courts Are Deciding: An Economist's View, in The Climate of Antitrust—Second Conference on Antitrust in an Expanding Economy 23, 35 (National Industrial Conf. Bd. ed. 1963).

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structure of the industry, from the standpoint of the maintenance of a competitive regime, was already decidedly unhealthy. On the contrary, this factor has positive weight in our determination that the merger is unlawful. As the Supreme Court has stated, "if concentration is already great, the importance of preventing even slight increases in concentration and so preserving the possibility of eventual deconcentration is correspondingly great." Philadelphia National Bank, supra, at 365, n. 42. A merger that aggravates an already oligopolistic market structure, not by affecting the concentration ratio, as was the case in Philadelphia National Bank, but by affecting some other market structure variable, such as condition of entry, is highly suspect under Section 7. It is arguable, to be sure, that the market structure of the liquid bleach industry was already so inauspicious that the substitution of Procter for Clorox cannot have made things worse, that to a firm with resources of a million dollars or less, confined to a small regional market, the difference between a Clorox and a Procter as a competitor must be largely academic. Whatever deleterious effect on competition Procter's entry into an atomistic market might have had, it might be argued, its entry into a market dominated by one firm, by purchase of that firm, could have had no measurable such effect: the market was already rigidly non-competitive. We are not persuaded by this argument. Despite Clorox's ascendancy, competition has never been wholly absent from the liquid bleach industry. The industry's non-competitiveness has always been relative, rather than absolute. The record is replete with instances of local, often intense, price rivalry (for example, the Erie, Pennsylvania, incident) and other kinds of competition (for example, in container design). The substitution of Procter for Clorox, by lending further rigidity to an already oligopolistic industry, could eliminate what competition remains.⁴⁶ Even if Procter's entry into the industry by purchase of Clorox has no immediate impact on competitive behavior, which is by no means clear, it must eliminate virtually all possibility of an eventual movement toward deconcentration in the liquid bleach industry. The barriers to entry, already formidable, become virtually insurmountable when the prospective entrant must reckon not with Clorox, but with Procter. In addition, by taking the place of Clorox, the dominant firm in the highly concentrated liquid bleach industry, Procter obtains a protected market position built up by Clorox over many years, and, by virtue of Clorox's position of strength in the industry, Procter ⁴⁶ See Consolidated Foods Corp., F.T.C. Docket 7000 (decided March 22, 1963) [62 F.T.C. 929, 959] ; Bok, supra note 18, at 310 ; Blair, supra p. 51, at 693.

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may be able to strengthen its position in other markets. Economists teach that the possession of market power enables a firm to derive higher profits ("monopoly profits") from its activities in the market than it could under more competitive conditions; the additional profits, in turn, endow the firm with added power to meet its rivals in other markets. In this fashion, substantial market power, which Clorox, as the dominant firm in an oligopolistic market, seems clearly to possess, is transferable as between seemingly unrelated industries.⁴⁷ This kind of leverage has long been familiar in many contexts of antitrust enforcement. See, e.g., United States v. New York Great A. & P. Tea Co., 173 F. 2d 79, 86-87 (7th Cir. 1949). For example, it is one of the premises upon which various forms of vertical integration have been held unlawful. See, e.g., Reynolds Metals Co. v. F.T.C., 309 F. 2d 223 (D.C. Cir. 1962). It was recently deemed material in a Section 7 proceeding involving a market-extension merger. Foremost Dairies, Inc., F.T.C. Docket 6495 (decided April 30, 1962), [60 F.T.C. 944, 1084].

Since Procter is already a leading manufacturer of a number of products, its acquisition of Clorox, by strengthening Procter's aggregate market position, may lead to an impairment of competition in many industries besides liquid bleach. And since Clorox and Procter are engaged in the manufacture of closely related products, more direct possibilities of exploiting in other markets Clorox's substantial market power arise—for example, the use of Clorox bleach, as a tying product, loss leader, or cross-coupon offering, in connection with efforts to promote other Procter products. These too are forms of extending monopoly or market power that have long been familiar in antitrust enforcement. See, e.g., Northern Pac. R. Co. v. United States, 356 U.S. 1. The president of Procter put the matter succinctly: "We may be able to derive additional value from the Clorox name for other new and related products." Purex, for example, is already hard pressed to compete effectively with Clorox in the liquid bleach industry and with Procter in the abrasive cleanser, packaged detergent, and toilet soap industries; it may find itself in a powerful competitive pincers as the result of the fusion of its leading rivals in the several industries in which it is active. Moreover, it would be a curious result, and one hard to reconcile with the Supreme Court's emphasis on the importance of fostering

⁴⁷ See Burns, The Decline of Competition 453 (1963); Dirlam & Kahn, Fair Competition: The Law and Economics of Antitrust Policy 142-150 (1954); Adelman, Integration and Antitrust Policy, 63 Harv. L. Rev. 27, 45-46 (1949); Stigler, supra note 36, at 184; Blair, supra p. 51, at 686-87; Comment, 72 Yale L. J. 1265, 1269, n. 22, 1270, no. 28 (1963).

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deconcentration in an already unduly concentrated industry,⁴⁸ for this Commission to hold that a firm, if it succeeds in dominating, and substantially eliminating competition in, its own market, thereby becomes freely salable at a high premium to a giant conglomerate enterprise. For the Commission to conclude that the acquisition of a firm which has successfully snuffed out most of the competitive vigor in its market raises no question under Section 7, would be to provide an incentive to firms to achieve market dominance in order to become attractive offerings to the large conglomerate corporations.

In light of these considerations, we are persuaded that a merger involving a leading firm in a market that is already well on the way to a non-competitive structure may be unlawful under Section 7 even where the aggravation of non-competitive market conditions by the merger may seem relatively slight because of the already advanced oligopoly condition of the market. Perhaps conceptual difficulties are encountered if such a merger is deemed to violate Section 7's "substantially to lessen competition" clause, since effective competition may already have substantially disappeared. If so, resort may be had, with entire propriety, to the statute's tendencyto-monopoly clause. For "'tend to create a monopoly' clearly includes aggravation of an existing oligopoly situation." United States v. Bethlehem Steel Corp., 168 F. Supp. 576, 607 (S.D.N.Y. 1958). See Blair, supra p. 51, at 699-700. Cf. p. 27, n. 23 above.

Third. A factor closely related to the foregoing is that the merger eliminates the salutary effect of Procter as a potential competitor of Clorox in liquid bleach. At the time of the merger, Procter was a progressive and experienced manufacturer of many products in the same product line as liquid bleach; it had in the past frequently extended its product line by introducing a new brand in an industry in which it had not theretofore been active; it was one of the very few manufacturers of household products in the same general line as liquid bleach that was powerful enough to challenge, with some hope of success, Clorox's entrenched position in the bleach market; and it had actually pondered the possibility of entry into the liquid bleach market on its own. By virtue of all these facts, Procter must have figured as a tangible influence on Clorox's policies until the merger eliminated it as a potential competitor. Procter, though in absentia, was nonetheless, by reason of its proximity, size, and probable line of growth, a substantial competitive

⁴⁸ See pp. 1574, 1575 above. Cf. Edwards, Big Business and the Policy of Competition 125 (1956).

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factor in the liquid bleach market. We have said that the possibility of new entry may exercise a restraining influence upon oligopolistic firms, inclining them to maintain prices at a level low enough to discourage entry. Prior to the merger, Procter was not only a likely prospect for new entry into the bleach market, it was virtually the only such prospect. Once the threat of Procter's entry vanished, one of the last factors tending to preserve a modicum of competitive pricing and business policies in the liquid bleach industry was removed. As the Commission, in a related context, has had occasion to observe, "When market concentration is high, the main, and sometimes the only, restraint on the use of market power by oligopolistic sellers is potential competition." Foremost Dairies, Inc., supra, at 1089.

We have no occasion to speculate on such questions as whether or not Procter, had its acquisition of Clorox been blocked, would in fact have entered the bleach industry on its own, or whether or not, had it done so, the result would have been to increase competition in the industry—although, with reference to the second question, we note the Supreme Court's recent observation that "one premise of an antimerger statute such as § 7 is that corporate growth by internal expansion is socially preferable to growth by acquisition." Philadelphia National Bank, supra, at 370. See Kaysen and Turner, Antitrust Policy 135 (1959). It is sufficient that the tangible possibility of Procter's entry on its own into the liquid bleach industry was a continuing and important pro-competitive influence in that industry, and that the acquisition of Clorox, by eliminating that possibility, thereby removed a critical check on the power of Clorox to stifle effective competition in the sale of household liquid bleach. Fourth. Another factor which supports a finding that this merger is illegal is Procter's strong market position in other (and larger) industries, notably packaged detergents, which we have already mentioned. No rigorous analysis of market structure in the other industries in which Procter is active was attempted in this case. It would be impractical, in light of the critical importance of channeling Section 7 proceedings within reasonable bounds of simplicity, to undertake, in every case of a conglomerate merger, a comprehensive study of each market in which the conglomerate enterprise operates. But, if we are not entitled to infer that Procter is able to subsidize Clorox's activities in the liquid bleach market out of "monopoly profits" (including profits attributable to market power short of outright monopoly) gleaned by Procter from its activities in other markets, or otherwise to transfer monopoly or market power enjoyed in other markets into the bleach market (see pp. 1575, 1576 above), we at least

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know, from the record of this case, that Procter is well established in a number of separate product markets (see p. 1540, n. 4 and pp. 1540, 1541 above). We know, for example, that Procter possesses a 54.5% share of one market, packaged detergents, in which three firms account for 80% of total sales and which we earlier found (see p. 1544 above) closely resembles the household liquid bleach industry. On these facts, it is scarcely to be doubted that Procter, the biggest of the "Big Three" of the household cleansing agents industry, possesses some degree of market power in the packaged detergent and other product markets within the general field, although perhaps not so much as Clorox possesses in its market.

At the least, Procter's manifest strength in markets other than liquid bleach rebuts any inference that Procter cannot wield the advantages that flow both from its own financial size and strength and from the dominant position in the liquid bleach industry enjoyed by Clorox. If Procter were shown to be spread thin throughout its many fields of endeavor, the significance of its apparently decisive competitive advantage over its liquid bleach competitors might be impaired; but that, clearly, is not the case. Procter's strength in other markets may have, as well, a positive— though by no means conclusive—significance in appraising the effect of this merger on competition in the liquid bleach market. Even if such strength has not been proved to reach the level at which monopoly profits or other fruits of great market power are forthcoming, it is relevant to the psychological response of the members of the liquid bleach industry to Procter as a competitor. To the extent that Procter is thought by them to be not only a large and affluent firm, but also, a powerful firm, in terms of market power enjoyed in related markets and possibly transferable into the bleach market, its prowess as a competitor gains an added and even sinister dimension in the eyes of its liquid bleach rivals—a factor of considerable importance to the impact of the merger on competition in the bleach industry. Cf. Blair, supra, p. 51, at 690; Edwards, supra n. 22, at 335–36.

Thus, just as ownership of Clorox may enable Procter to enhance its competitive edge in other markets, so Procter's position in other markets may enhance its dominance, through its acquisition of Clorox, of the liquid bleach industry. Purex, we noted, now competes with Procter in the liquid bleach as well as in the packaged detergents industry, and it may be inclined to act cautiously in the liquid bleach market for fear of provoking Procter's retaliation along the whole front of Purex's activities.

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The short of it is that a conglomerate merger involving firms which have dominant power in their respective markets tends to reinforce and augment such power. Procter's willingness to pay a very substantial amount of money for the good will of Clorox bespeaks its ability, as a large and diversified firm which has seemingly exhausted the possibilities of further expansion in the numerous markets in which it has won a dominant position, to use the ample surplus it has accumulated in the process in order to achieve dominance in still another market by purchase of that market's dominant firm.⁴⁹ We emphasize here that we are discussing only corporate expansions through acquisition, and not through internal growth. In enacting Section 7, which deals only with mergers, Congress was expressing its special concern with those acquisitions which result in the mutual entrenchment of unhealthy market situations, and thus bear grave consequences for the future of our competitive economy.

Fifth. In stressing as we have the importance of advantages of scale as a factor heightening the barriers to new entry into the liquid bleach industry, and so impairing competitive conditions in that industry, we reject, as specious in law and unfounded in fact, the argument that the Commission ought not, for the sake of protecting the "inefficient" small firms in the industry, proscribe a merger so productive of "efficiencies". The short answer to this argument is that, in a proceeding under Section 7, economic efficiency or any other social benefit resulting from a merger is pertinent only insofar as it may tend to promote or retard the vigor of competition. As the Supreme Court has held (see pp. 1547, 1548 above), Congress did not mean the adjudicators of Section 7 cases to attempt to weigh the ultimate social and economic merits and demerits of a merger, but only to determine its effect on competition and monopoly. A merger that results in increased efficiency of production, distribution or marketing may, in certain cases, increase the vigor of competition in the relevant market.⁵⁰ But the cost savings made possible by the instant merger serve, we have seen, not to promote

⁴⁹ See Klaw, "The Soap Wars: A Strategic Analysis", Fortune, June 1963, pp. 122, 198; Blair, supra p. 51, at 693; Boggis, Merger Movements in Industry—The Diversification Threat, 13 Cartel 32, 37 (Jan. 1963). In this connection we note that between 1955 and 1957, Procter acquired, besides Clorox, a manufacturer of paper products and several manufacturers of food products, for a total consideration, in cash and stock, of about $30,000,000. ⁵⁰ However, the danger is very great that where any two firms in an oligopolistic market merge, the fruits of the merger will be used not to enhance, but to retard, competition. See American Crystal Sugar Co. v. Cuban-American Sugar Co., 152 F. Supp. 387, 399-400 (S.D.N.Y. 1957), aff'd, 259 F. 2d 524 (2d Cir. 1958); Comment, 68 Yale L. J. 1627, 1674 (1959).

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competition, but only to increase the barriers to new entry into the relevant market, and thereby impair competition.

A more complete answer to the argument that this merger should be upheld on account of its "efficiencies" is that cost advantages of scale are of more than one kind, and that the kind involved in this merger, far from representing a net social benefit, is independently offensive to at least the spirit, if not the letter, of the antitrust laws. For one thing, the savings chiefly involved here, which are savings in advertising and sales promotions (Procter does not contend that the merger will enable substantial economies of production or physical distribution), are, it seems, achievable only by firms of very large absolute size. See Bain, Industrial Organization 170, 172-73 (1959). When we reflect that a firm, Purex, with total sales of almost $50,000,000 in 1957 and a proportionally large advertising budget, was evidently unable to obtain any but the minimum volume discounts available to large television advertisers, we can only conclude that the large-scale advertising "economies" involved in this case represent price concessions available only to giant firms, and bear little relationship to ordinary notions of economic "efficiency".

More important, while we do not doubt that marketing economies, including those of advertising and sales promotion, are as socially desirable as economies in production and physical distribution, there does come a point "at which product differentiation ceases to promote welfare and becomes wasteful, or mass advertising loses its informative aspect and merely entrenches market leaders." 61 We think that point has been reached in the household liquid bleach industry. In short, the kind of "efficiency" and "economy" produced by this merger is precisely the kind that—in the short as well as the long run—hurts, not helps, a competitive economy and burdens, not benefits, the consuming public.

Advertising performs a socially and economically useful function insofar as it educates the consumer to the broad range of product alternatives that he should consider in seeking to make an optimal allocation of his necessarily limited economic resources. Advertising, then, should stimulate competition and, by increasing the sales of the advertised product, lower the unit cost of that product. But this process is distorted in the case of a homogeneous product, such as household liquid bleach, produced under conditions of oligopoly, such as obtain in the liquid bleach industry. Since there is no reason (save cheapness and availability) for a

61 Dirlam, supra note 18, at 103.

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consumer to prefer one brand of liquid bleach over another, there is no real need for the various manufacturers to incur as heavy advertising expenses as they do—except to protect their market shares. Heavy advertising, under such conditions, does not, in any meaningful sense, serve to broaden the consumer's range of product alternatives. Moreover, since oligopolists typically refrain from price competition, large advertising expenditures in the liquid bleach industry have not resulted in a lower unit price to the consumer. (Clorox, the most extensively advertised liquid bleach, is also the most expensive for the consumer.) Thus we have a situation in which heavy advertising benefits the consumer, who pays for such advertising in the form of a higher price for the product, not at all.⁵² This situation is simply an example of a latent ambiguity in the term "competition". All forms of business rivalry are, in a sense, "competition", but not necessarily in the sense contemplated by Section 7 and the other antitrust laws. Price cutting is normally a manifestation of healthy competition. Predatory price cutting, however, is not. It tends to stifle true competition, and is often itself a violation of the antitrust laws. Similarly, sellers who vie with one another, through advertising and other promotion activities, to create a consumer preference for their brands, may be laudably engaged in competition such as the antitrust laws are intended to protect. On the other hand, such sellers may, as here, be engaged in brand "competition" to the end only of maintaining high prices, discouraging new entry, and, in general, impairing, not promoting, socially useful competition.

In sum, the undue emphasis on advertising which characterizes the liquid bleach industry is itself a symptom of and a contributing cause to the sickness of competition in the industry. Price competition, beneficial to the consumer, has given way to brand competition in a form beneficial only to the seller. In such an industry, cost advantages that enable still more intensive advertising only impair price competition further; they do not benefit the consumer.

E. Post-Acquisition Evidence

In holding this merger unlawful under Section 7, we expressly decline to place reliance on certain facts which, in the view of the hearing examiner, helped demonstrate the merger's unlawfulness. It should be noted that the hearings in this case were conducted, for

⁵² See Taplin, Advertising: A New Approach 107-110 (1963); Blair, supra p. 51, at 681.

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the most part, under the aegis of the Commission's decision in Pillsbury Mills, Inc., 50 F.T.C. 555. Experience in the trial of merger cases, now confirmed by the Supreme Court, has exposed the fallacy of supposing that a broad-gauged inquiry into every business and economic fact remotely relevant to the economic effect of a merger— the kind of inquiry the Commission in Pillsbury Mills held it must undertake under Section 7—is productive of more rational decisions. Broad principles of relevancy and materiality may have been appropriate when the law of Section 7 was still fluid and unsettled, but it is now clear that the path toward just and effective enforcement of the statute lies in the direction of narrowing the scope of necessary or permissible inquiry.

In the particular circumstances here, most of the considerable amount of post-acquisition evidence introduced at the hearings was entitled to little weight. We have already canvassed the considerations that make such evidence rarely of much probative value (see pp. 1559, 1560 above); suffice it to say that those considerations are applicable in this case. Were the post-acquisition evidence in this case to be considered, it might furnish some support for the finding we have made wholly on the basis of other factors. Since the merger, Clorox's market share has continued to increase. In 1961, Clorox's overall market share was 51.5% as compared to 48.8% in 1957, while its share in, for example, the New England region, had risen in this period from 56% to 67.5%. Procter has introduced sales promotions on a fairly large scale ($2,000,000 in four years) in behalf of Clorox. Purex has acquired the fourth largest liquid bleach producer (thus increasing concentration in the industry), after, and according to an official of Purex, in part because of, losing a "brand war" to Clorox-Procter in Erie, Pennsylvania. And Procter has obtained, for Clorox, certain advertising economies. None of these phenomena, we think, proves that the merger is unlawful, for it is difficult to know to what extent they were produced by the merger, and not by other factors. However, if we were to consider them, we would have to find that they corroborated or confirmed the conclusion of illegality grounded in solid evidence of the structure of the market at the time of the merger. Had Procter in fact fully integrated the marketing and other activities of Clorox in its overall organization, perhaps dramatic post-acquisition changes, directly traceable to the merger, would have occurred. But, save for taking advantage of certain advertising cost advantages and introducing sales promotions, Procter in the period covered by the post-acquisition evidence has carefully re-

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frained from changing the nature of the Clorox operation; even the network of independent brokers has been retained. Such restraint appears to be motivated by a general Procter policy of moving slowly and cautiously in a new field until the Procter management feels totally acclimated to it. It is possible, as well, that the pendency of the instant proceeding has had a deterrent effect upon expansionist activities by Procter in the liquid bleach industry. Most important, however, so far as post-acquisition evidence in this case is concerned, is the fact that there has been no dramatic change in market structure or behavior in the years since the merger. This means that there is no reason to suppose that an analysis based upon market structure at the time of the merger need be reexamined, qualified or discarded in the light of subsequent events. Where, as here, the period since the acquisition has been relatively uneventful, there is certainly no basis for according particular weight to the post-acquisition evidence that found its way, needlessly, into the record.

IV. Relief

The last point to be considered is the nature of the relief to be ordered. The order in the initial decision would require respondent to divest itself of the acquired assets through sale. Respondent raises two main objections to this order. First, it contends that divestiture is not called for in these circumstances, because the public interest can be protected by an order enjoining Procter from exercising the opportunities for enhancing Clorox's dominance of the liquid bleach industry which the Commission has found resulted from the merger. It is settled, however, that divestiture is normally the appropriate remedy in a Section 7 proceeding. United States v. E. I. duPont de Nemours & Co., 366 U.S. 316. This case would be a particularly inappropriate one in which to make an exception. The anti-competitive effects of this acquisition are not enjoinable. They inhere in the very presence of Procter, standing in the place of Clorox in the liquid bleach industry, and can be corrected only by restoration of the market structure, so far as possible, as it existed at the time of the acquisition.

Second, respondent objects to the provision in the order entered by the hearing examiner that sale of the acquired assets cannot be made to anyone "who is at the time of divestiture, or for two years before said date was, a stockholder * * *" of Procter. Recognizing that the purpose of a Section 7 proceeding is in no sense punitive, that the sale of an absorbed firm may be difficult to accomplish

THE PROCTER & GAMBLE CO. 1585

1465 Final Order

within a reasonable period of time, and that in the case of a large publicly-owned corporation the common ownership by the shareholders of both the acquired and the acquiring firms is not necessarily inconsistent with a meaningful separation of the firms, the Commission recently approved an order permitting a Section 7 respondent to spin off the acquired assets to a new corporation, the stock of which would then be distributed to the shareholders of respondent. Consolidated Foods Corp., F.T.C. Docket 7000 (decided March 22, 1963) [62 F.T.C. 929, 961], see id., Memorandum Accompanying Final Order (issued March 22, 1963) [62 F.T.C. 964]. There is no apparent reason why this respondent should not be permitted thus to spin off the acquired assets to a new corporation or corporations, if it so desires, and we have modified the order entered by the hearing examiner accordingly.

Commissioner Anderson concurs in the result.

FINAL ORDER

NOVEMBER 26, 1963

This matter has been heard by the Commission on respondent's appeal from the initial decision of the hearing examiner filed on February 28, 1962. The Commission has rendered its decision, denying the appeal in all respects, and adopting the findings of fact and conclusions of law made by the hearing examiner to the extent consistent with the opinion accompanying this order. Other findings of fact and conclusions of law made by the Commission are contained in that opinion. For the reasons therein stated, the Commission has determined that the order entered by the hearing examiner should be modified and, as modified, adopted and issued by the Commission as its final order. Accordingly,

It is ordered, That:

I.

Respondent, The Procter & Gamble Company, a corporation, and its officers, directors, agents, representatives, employees, subsidiaries, affiliates, successors and assigns, within one (1) year from the date this order becomes final, shall divest, absolutely and in good faith, all assets, properties, rights and privileges, tangible and intangible, including but not limited to, all plants, equipment, trade names, trademarks and good will, acquired by The Procter & Gamble Company as a result of the acquisition by The Procter & Gamble Company of the assets of Clorox Chemical Company, together with all plants, machinery, buildings, improvements, equipment and other

Final Order 63 F.T.C.

property of whatever description which have been added to the property of Clorox Chemical Company since the acquisition.

II.

By such divestiture, none of the assets, properties, rights or privileges, described in paragraph I of this order, shall be sold or transferred, directly or indirectly, to any person who is at the time of the divestiture an officer, director, employee, or agent of, or under the control or direction of, respondent or any of respondent's subsidiary or affiliated corporations, or owns or controls, directly or indirectly, more than one (1) percent of the outstanding shares of common stock of The Procter & Gamble Company, or to any purchaser who is not approved in advance by the Federal Trade Commission.

III.

If respondent divests the assets, properties, rights and privileges, described in paragraph I of this order, to a new corporation or corporations, the stock of each of which is wholly owned by The Procter & Gamble Company, and if respondent then distributes all of the stock in said corporation or corporations to the stockholders of The Procter & Gamble Company, in proportion to their holdings of The Procter & Gamble Company stock, then paragraph II of this order shall be inapplicable, and the following paragraphs IV and V shall take force and effect in its stead.

IV.

No person who is an officer, director or executive employee of The Procter & Gamble Company, or who owns or controls, directly or indirectly, more than one (1) percent of the stock of The Procter & Gamble Company, shall be an officer, director or executive employee of any new corporation or corporations described in paragraph III, or shall own or control, directly or indirectly, more than one (1) percent of the stock of any new corporation or corporations described in paragraph III.

V.

Any person who must sell or dispose of a stock interest in The Procter & Gamble Company or the new corporation or corporations, described in paragraph III, in order to comply with paragraph IV of this order may do so within six (6) months after the date on which distribution of the stock of the said corporation or corporations is made to stockholders of The Procter & Gamble Company.

BERCO, INC., ET AL.

Complaint VI.

No method, plan or agreement of divestiture to comply with this order shall be adopted or implemented by respondent save upon such terms and conditions as shall first be approved by the Federal Trade Commission.

VII.

As used in this order, the word "person" shall include all members of the immediate family of the individual specified and shall include corporations, partnerships, associations and other legal entities as well as natural persons.

VIII.

Respondent shall periodically, within sixty (60) days from the date this order becomes final and every ninety (90) days thereafter until divestiture is fully effected, submit to the Commission a detailed written report of its actions, plans, and progress in complying with the provisions of this order and fulfilling its objectives.