Avnet, Inc

Text (OCR of the scan at left; may contain errors)

IN THE MATTER OF AVNET, INC. - ORDER, ETC., IN REGARD TO THE ALLEGED VIOLATION OF THE CLAYTON ACT, SECTION 7 Docket 8775. Complaint, Dec. 1, 1969—Decision, Feb. 16, 1973. Order requiring a New York City diversified manufacturer, processor and marketer of numerous items consisting principally of electronic, automotive and consumer products, among other things to divest itself of all assets, stocks, properties, rights, privileges and interests as a result of its acquisition of Guarantee Generator & Armature Co., doing business as International-Products & Manufacturing Co. Respondent is further prohibited from making any acquisitions of stocks or assets within the automotive electrical unit rebuilder industry for 10 years without prior Federal Trade Commission approval. AMENDED COMPLAINT The Federal Trade Commission having reason to believe that Avnet, Inc., respondent herein, has violated the previsions of ‘Section 7 of the Clayton Act, as amended, 15 U.S.C. Section 18, by acquiring Guarantee Generator & Armature Co., d/b/a International Products & Mfg. Co., issues this amended complaint pursuant to Section 11 of that Act, stating its charge in that respect as follows:

I 1. For the purpose of this complaint, the following definitions shall apply: ° Amended Complaint 82 F.T.C.

(a) “Automotive electrical units” consist of any or all of the following items: generators, alternators, starters, starter drives, armatures, solenoids, and voltage regulators. . (bd) The term “rebuilder”. is-synonymous with “re-manufacturer,” and only applies to those engaged in rebuilding automotive electrical units.

(c) (1) The relevant line of commerce is the “rebuilders’ supply industry,” consisting of firms (“suppliers”) engaged in the manufacture and/or supply of various new parts, materials, and equipment (‘supply of new parts’) to rebuilders. (2) A relevant sub-line of commerce limits the rebuilders’ supply industry by excluding the supply of new parts to rebuilders who, pursuant to an agreement with that supplier, rebuild and furnish automotive electrical units to said supplier or its designee. (3) The term rebuilders supply industry does not include the supply of new parts to those engaged in the manufacture of automobiles, trucks, buses and related self-propelled land vehicles. II RESPONDENT 2. Respondent, Avnet, Inc. (“Avnet”), is a corporation organized and existing since 1955 under the laws of the State of New York, with principal- executive offices located in the Time & Life Building, New York, New York.

3. Respondent is a diversified manufacturer, processor and marketer of numerous items consisting principally of electronic, automotive, and consumer products. For fiscal 1967, respondent’s net sales exceeded $146 million. Net income_was $9.3 million, and assets totaled $99 million in that year. 4. As the result of a program of expansion through merger and acquisition respondent has significantly increased its corporate growth in recent years. Between the years 1960 and 1968, respondent has acquired more than twenty companies including a number of profitable concerns engaged in manufacturing and . marketing automotive parts and machinery, including alternators, generators, starters, and ignition systems and their components primarily for the replacement parts market. In 1966, respondent established an Automotive Process and Equipment Division, comprised principally of concerns acquired by respondent and engaged in the manufacture or distribution of automotive replacement parts. For the year ending June 30, 1967, respond- 391 Amended Complaint ent’s Automotive Process and Equipment Division accounted for $31.6 million of the company’s aggregate net sales, establishing respondent as an important factor in the automotive aftermarket. 5. At all times relevant herein, respondent sold and shipped its products in interstate commerce and engaged in “commerce” within the meaning of the Clayton Act.

Il VALLEY FORGE PRODUCTS, INC.

6. On July 31, 1964, respondent acquired substantially all the assets of Valley Forge Products, Inc. (‘Valley Forge’), for $2,415,000. Prior to its acquisition by respondent, Valley Forge was a corporation organized and existing under the laws of the State of New York, with its executive office and principal place of business located at 370 19th Street, Brooklyn, New ;York. 7. At the time of its acquisition by respondent, and for many years prior thereto, Valley Forge was engaged in the manufacture and supply of replacement ignition parts for motor vehicles and of various equipment, tools, and component parts used by rebuilders. The business acquired from Valley Forge was re-established in part as a division of respondent and, since 1966, has been conducted in the Automotive Process and Equipment Division of respondent.

8. In the year prior to its acquisition, Valley Forge had sales of $4.8 million and total assets of -$2.4-million. At the time of acquisition, Valley Forge sold its products to independent distributors and rebuilders throughout the United States, was an important supplier of a complete line of parts to rebuilders, and was an acknowledged leader in the manufacture and supply of quality-built field coils. Approximately 50 percent of Valley Forge’s sales were to rebuilders. wee Los 9. At all times relevant herein, Valley Forge sold and shipped its products in interstate commerce and engaged in “commerce” within the meaning of the Clayton Act.

IV GUARANTEE GENERATOR & ARMATURE .CO., d/b/a INTERNATIONAL PRODUCTS & MFG. CO.

10. Prior to its acquisition by respondent on January 31, 1965, Guarantee Generator & Armature Co., d/b/a International Prod- Amended Complaint 82 F.T.C.

ucts & Mfg. Co. (“IPM”), was a corporation organized and existing under the laws of the State of Illinois, with its principal office and place of business located at 850 Ogden Avenue, Chicago, Illinois. o .

’ AK At the time of its acquisition by respondent, and for many years prior thereto, IPM was, and continues to be, engaged in the manufacture and supply of a comprehensive line of equipment, tools, component parts and supplies used by rebuilders. 12. During the year prior to acquisition, IPM had sales and assets of $12 million and $5 million, respectively. Sales. were made to over 5,000 independent distributors and rebuilders located primarily in the United States. In fiscal 1964, IPM’s sales to rebuilders were approximately $11.3 million. IPM was and is still considered the leader in supplying a full line of parts, materials and equipment to rebuilders.

13. At all times relevant herein, IPM sold and shipped its products in interstate commerce and engaged in “commerce” within the meaning of the Clayton Act.

Vv TRADE AND COMMERCE 14. The automotive parts rebuilding industry constitutes a significant segment of the important multi-billion dollar automotive aftermarket for replacement parts. Rebuilt parts have continued to gain acceptance and, in some instances, are in direct competition with new units for replacement purposes. For many products the rebuilder can offer a rebuilt unit equal in quality to a new unit at a lower price. The expanding area of automotive electrical unit rebuilding, constituted as a-highly . fragmented industry primarily made up of many small concerns, forms a solid sub-segment of the rebuilding industry. Rebuilt generators, starters, starter drives, and armatures have achieved such widespread acceptance that in comparison to the use of new parts, they completely dominate the replacement parts aftermarket. 15. In 1964 the rebuilders’ supply industry was highly concentrated. Sixteen firms supplied virtually the total volume of equipment and parts furnished to rebuilders. The total value of their supply during that year approached $24 million. Three firms supplied rebuilders with products valued at $16 million and were considered by rebuilders as being their major suppliers, and the only concerns able to furnish a complete line of equip- 391 Amended Complaint ment and rebuilding parts. IPM ranked first in sales in that year with a volume of $11.3 million and was the single most important factor in the supply of parts and equipment to rebuilders. While IPM accounted for over 47 percent of industry sales, Valley Forge ranked third on a volume of $2.4 million accounting for 10 percent of industry sales. Combined, IPM and Valley - —Forge accounted for approximately 57 percent of: total industry sales to rébuilders in 1964, with the four leading companies accounting for approximately 79 percent and the eight leading firms controlling 92 percent of such sales. 16. Since 1963, a series of acquisitions and mergers involving five of the sixteen suppliers referred to in Paragraph 15 has significantly altered the structure of the rebuilders’ supply industry. The merger movement, precipitated by respondent’s acquisition of IPM, challenged herein, has tended to solidify further an already highly concentrated industry to the detriment of substantial actual and potential competition. VI THE ACQUISITION 17. On or about January 31, 1965, respondent acquired substantially all of the assets and business of IPM for $7,537,533 Upon consummation of this acquisition, the business of IPM was conducted through the Guarantee Generator & Armature Division of respondent. However, since 1966, the business of IPM has been conducted through the Automotive Process and Equipment Division of respondent.

VII EFFECTS OF ACQUISITION 18. The effects of the acquisition of IPM by respondent may be substantially to lessen competition or to tend to create a monopoly in the manufacture and/or supply of parts, materials, and equipment to rebuilders throughout the United States, in violation of Section 7 of the Clayton Act, as amended, 15 U.S.C. Section 18, in the following ways among others: (a) Substantial actual and potential competition between respondent and IPM has been, or may be, eliminated ; (b) The combination of the business of IPM as a result of the acquisition challenged herein, with respondent’s existing busi- 396 . FEDERAL TRADE COMMISSION DECISIONS Initial Decision 82 F.T.C.

ness as a leading supplier of parts, equipment, and materials to rebuilders of automotive electrical units, and respondent’s position as an important manufacturer and marketer of replacement parts for sale in the automotive aftermarket, constitutes a major restructuring of the rébuilders” supply industry and may tend unduly to:

i. increase barriers to the entry of new and effective competition in that industry;

ii. deprive smaller, limited-line rivals of an equal opportunity to compete for sales to rebuilders thereby entrenching respondent in its acquired dominant and monopolistic position;

lil. increase previously existing high levels” of concentration; and, iv. precipitate additional acquisitions or mergers between other rebuilders’ suppliers which effect may be to eliminate actual and potential competition; and (c) Rebuilders of automotive electrical units may have been denied the benefits of free and open competition to their detriment and to the detriment of the general purchasing public and ultimate consumer.

19. The acquisition by respondent, as alleged in Paragraph 17 sonstitutes a violation of Section 7 of the Clayton Act, as amended, 15 U.S.C. Section 18.

Mr. K. Keith Thurman and Mr. Jere W. Glover supporting the complaint.

Wilmer, Cutler & Pickering, Washington, D.C. by Mr. Howard P. Willens, Mr. Daniel C. Schwartz and Mr. Stephen F. Black for respondent. :

INITIAL DECISION By WILLIAM K. JACKSON, HEARING EXAMINER MARCH 8, 1972 PRELIMINARY STATEMENT The Federal Trade Commission on April 1, 1969, issued its complaint in this proceeding charging Avnet, Inc., a corporation, by its acquisition of Guarantee Generator and Armature Co., d/b/a International Products & Mfg. Co., hereinafter referred to as IPM, violated Section 7 of the Clayton Act, as amended (15, U.S.C. Section 18). Thereafter on December 1, 1969, the Commission amended its complaint in several material respects. 391 Initial Decision The amended complaint alleges that the effects of the acquisition of IPM by respondent may be substantially to lessen competition or to tend to create a monopoly in the manufacture and/or supply of parts, materials and equipment to rebuilders throughout the United States, in the following ways, among others: .1, Substantial, actual and potential competition between re- ~ spondent and IPM has been, or may be, eliminated ; 2. The combination of the business of IPM as a result of the acquisition challenged herein, with respondent’s existing business as a leading supplier of parts, equipment, and materials to rebuilders of automotive electrical units, and respondent’s position as an important manufacturer and marketer of replacement parts for sale in the automotive aftermarket, constitutes a major restructuring of the rebuilders supply industry and may tend unduly to:

a. increase barriers to the entry of new and effective competition in that industry ;

b. deprive smaller, limited-line rivals of an equal opportunity to complete for sales to rebuilders thereby entrenching respondent in its acquired dominant and monopolistic position ; c. increase previously existing high levels of concentration ; and .

d. precipitate additional acquisitions or mergers between other rebuilders’ suppliers which effect may t be to eliminate actual] and potential competition; and - 8. Rebuilders of automotive electrical units may have been denied the benefits of free and open competition to their detriment and to the detriment of the general purchasing public and ultimate consumer.

After being served with the amended complaint, respondent appeared by counsel and filed on January 14, 1970, its. answer. to the amended complaint denying, in substance, that the merger was illegal. Thereafter, on January 26, 1970, August 20, 1970, October 16, 1970, and October 30, 1970, four prehearing conferences were held pursuant to pretrial orders of the hearing examiner for the purposes of simplification of the issues, obtaining admissions of fact and authentication of documents, discovery of relevant material, exchanging lists of exhibits and names of witnesses, together with a summary of their proposed testimony, to be used at the trial, and the preparation of a concise statement of the contested issues of law and fact. In accordance with the Initial Decision 82 F.T.C.

examiner’s pretrial order both parties prepared and submitted a pretrial memorandum.

Hearings for the presentation of testimony and other evidence by+complaint counsel -began-in- Washington, D.C. on -February 1, 1971, and concluded on February 25, 1971. Pursuant to a request by respondent for further discovery, a two and one-half month adjournment was granted prior to the presentation of respondent’s defense. During this period respondent presented to the examiner several subpoenas duces tecum, all of which were issued. On May 6, 1971, after having indicated that it had completed all its discovery requests, respondent commenced the presentation of testimony and other evidence in its defense. Except for several brief adjournments, the hearings continued until September 13, 1971, during which time respondent called approximately 59 witnesses. On October 18 and 19, 1971, complaint counsel called three rebuttal witnesses and the record was closed on October 19, 1971. The record in this matter consists of 5,663 pages of testimony and 354 documentary exhibits. Pursuant to an application of the hearing examiner based on a joint request by the parties, the Commission by order of November 5, 1971, ruled that the parties file their proposed findings of fact, conclusions of law and briefs 50 days after the closing of the record or on or before December 8, 1971; that both parties thereafter have an additional 25 days within which to file reply briefs or on or before January 8, 1972; and that the hearing examiner thereafter will have 60 days within which to file his initial decision, or until March 8, 1972. Proposed findings of fact and briefs in support thereof were filed by the parties on December 8, 1971;-and reply briefs were filed on January 3, 1972.

Any motions not heretofore or herein specifically ruled upon, either directly or by the necessary effect of the conclusions in this initial decision, are hereby denied. This proceeding is before the hearing examiner upon the complaint, answer, testimony and other evidence, proposed. findings of fact and conclusions and briefs filed by counsel supporting the complaint, and by counsel for respondent. The proposed findings of fact, conclusions and briefs in support thereof submitted by the parties have been carefully considered by the examiner, and those findings not adopted either in the form proposed or in substance are rejected as not supported by the evidence or as involving immaterial matter.

391 Initial Decision For the convenience of the Commission and the parties, the findings of fact include references to the principal supporting items in the record. Such references are intended to serve as convenient guides to the testimony and exhibits supporting the recommended findings of fact, but do not necessarily represent complete summaries of the evidence considered in arriving at such findings. :

Reference to the record are made in parentheses, and certain abbreviations, as hereinafter set forth, are used: CX —Commission’s Exhibit RX —Respondent’s Exhibit CPF —Complaint Counsel’s Proposed Findings and Conclusions RPF —Respondent’s Proposed Findings and Conclusions RB —Respondent’s Brief CRB—Complaint Counsel’s Reply Brief RRB—Respondent’s Reply Brief The transcript of the testimony is referred to with either the last name of the witness and the page number or numbers upon which the testimony appears or with the abbreviation Tr. and the page.

Having heard and observed the witnesses and after having carefully reviewed the entire record in this proceeding, together with the proposed: findings, conclusions-and briefs submitted by the parties, as well as replies, the examiner makes the following: FINDINGS OF FACT I. Identity and Business of Respondent and Acquired Company A. The Respondent 1. Respondent Avnet, Inc. (hereinafter referred to as “Avnet’’), is a corporation organized and existing since 1955 under the laws of the State of New York, with principal executive officds located at 767 Fifth Avenue, New York, New York (Amended Complaint, 2 (hereinafter referred to as Complaint) ; Answer 2). 2. Avnet, together with its subsidiaries and divisions, is a diversified manufacturer, processor and marketer of numerous items consisting principally of electronic, automotive and con- Initial Decision 82 F.T.C.

sumer products. For fiscal 1965, Avnet’s net sales were approximately $57.5 million, with net earnings of approximately $3.3 million. For fiscal 1967, primarily due to a program of expansion, - through merger and- acquisition, Avnet had increased its net sales to approximately $146 million, with a net income of $9.3 million and assets totaling $99 million (Complaint, 8, 4; Answer 113,4;CX10a,CX 12a). | 3. As the result of a program of expansion through merger and acquisition, Avnet has significantly increased its corporate growth in recent years. Between the years 1960 and 1968, Avnet acquired more than 20 companies including a number of profitable concerns engaged in manufacturing and marketing automotive parts and machinery, including components for alternators, generators, starters and ignition systems primarily for the replacement parts market. In 1966, Avnet established an Automotive Process and Equipment Division, comprised principally of concerns acquired by it and engaged in the manufacture or distribution of automotive replacement parts. For the year ending June 80, 1967, Avnet’s Automotive Process and Equipment Division accounted for $31.6 million of the company’s aggregate net sales (Complaint, ]4; Answer, 4).

4, On-July 31, 1964, Avnet-acquired substantially all the assets of Valley Forge Products, Inc. (hereinafter referred to as ‘Valley Forge”), for $2,415,000. Prior to its acquisition by Avnet, Valley Forge was a corporation organized and existing under the laws of the State of New York, with its executive office and principal place of business located at 370 19th Street, Brooklyn, New York (Complaint 6; Answer, 76; CX 9c).

5. At the time of its acquisition by Avnet, and for many years prior thereto, Valley Forge was engaged in the manufacture -and supply of replacement ignition parts for motor vehicles and of various component parts and materials used by rebuilders of automotive electrical units (Complaint, (7; Answer, 7). From the time of its acquisition until July 1966, the business acquired from Valley Forge (the Valley Forge Division) was conducted in the Automotive Division of Avnet, and from July 1966 to July 1968 was conducted in the Automotive Process and Equipment Division of Avnet. From July 1968 to July 1970, the Valley Forge Division was part of the Electrical and Automotive Division of Avnet and from July 1970 to July 1971, it was part of the Wire and Cable Division of Avnet (RX 128 a-b). AVNET, INC. 401 391 : Initial Decision 6. For calendar year 1964, Valley Forge and the Valley Forge Division had sales of $5.034 million and total domestic sales of $2.040 million (Fischer 3975-76). In 1964, Valley Forge and the Valley Forge Division had total sales to automotive electrical unit rebuilders of $2.5 million, and total domestic sales to such ‘customers ‘of $1.856 million (CX 22 a-b, CX 23 b, Fischer 3975-76) .

7. In 1964, Valley Forge and the Valley Forge Division sold several thousand different new items for use in rebuilding generators, starters, starter drives, armatures, alternators, solenoids and voltage regulators to domestic automotive electrical unit rebuilders (hereinafter “rebuilders”) (CX 9c, CX 15 b, CX 18 a, CX 20, CX 28 b, CX 29 b, CX 50 a-c, CX 105-CX 113). For each of the years prior to its acquisition by Avnet, Valley Forge offered an increasing number of new items for sale to rebuilders (CX 24 b, CX 88 a, Fischer 3965).

8. From 1961 through 1964, the sales to rebuilders by Valley Forge and the Valley Forge Division increased substantially ( CX 24 b, CX 38 a, Fischer 4245).

9. At all times relevant herein, Avnet sold and shipped its products, particularly the products of its Valley Forge Division, in interstate commerce and engaged in “commerce” within the meaning of the Clayton Act (Complaint, 15, 9; Answer, {I115, 9). B. The Acquired Company ae 10. Prior to its acquisition by Avnet on January 31, 1965, Guarantee Generator & Armature Co., d/b/a International Products & Manufacturing Co. (IPM), was a corporation organized and existing under the laws of the State of Illinois, with its principal office and place of business located at 850 Ogden Avenue, Chicago, Illinois (Complaint, 710; Answer, 10). | 11. At the time of its acquisition by Avnet, and for many years prior thereto, IPM was and continues to be, engaged in the manufacture and supply of a line of new component parts, supplies, equipment and tools used by rebuilders (Complaint, {11, Answer, 911). During the year prior to acquisition, JPM had sales and assets of $12 million and $5 million respectively (Complaint, (12; Answer, {/12).

12. In 1964, IPM offered and continues to offer rebuilders the most extensive line of new parts, materials and equipment. In 1964, IPM sold‘over 10,000 different part numbers of new items to rebuilders making it “The Rebuilding Industry’s complete 402 FEDERAL TRADE COMMISSION DECISIONS © Initial Decision 82 F.T.C.

source of supply” (CX 50 d-s, CX 52 a, CX 96 c, CX 115-CX 265, Erwin 552, DeBlase 840, Flynn 937; see also Finding 71). _ 13. IPM had' domestic: sales. of $11,353,000 to rebuilders in 1964 (CX 26 b, CX 45, Mansfield 2116-18). 14. In 1964 and for many:years prior thereto, IPM was by far the largest supplier and had the most complete line of new parts, equipment and materials to rebuilders (CX 44 a, CX 47 b, CX 50d, Smith 605, Shelly 750, Vander Veen 896, Flynn 943-44, Gordon 1160, Brock 1525, Garello 2185-86; see also Findings 60 “ and 68).

15. From the time of its acquisition until July 1966, the acquired business of IPM was conducted in the Automotive Division of Avnet; and from July 1966 to July 1968, it was conducted in the Automotive Process and Equipment Division of Avnet; and from July 1970 to July 1971, it was conducted in the Automotive Manufacturing Division of Avnet (RX 128 a-b). 16. At all times relevant herein, IPM sold and shipped its products in interstate commerce and engaged in “commerce” within the meaning of the Clayton Act (Complaint, $13; Answer 713).

C. The Acquisition 17. Negotiations between IPM and Avnet were initiated in the fall of 1964 when Mr. Mansfield, the president of IPM, met in Chicago with Mr. Morton Weiner, Avnet’s senior vicepresident. Mr. Mansfield was originally contacted by Harris Fischer, then president of the Valley Forge Division of Avnet, . at Mr. Weiner’s request (Mansfield 1875-76, Fischer 4151-52). Several further meetings were held, a letter-of-intent was signedand the acquisition was announced to the press on April 2, 1965 (CX 16). Pursuant to the agreement, Avnet acquired substantially all of the assets and business of IPM for $7,537,533, effective January 31, 1965 (Complaint, 17; Answer, 17). Il. NATURE OF THE TRADE AND COMMERCE The Line of Commerce A. Definitions 1. Rebuilder 18. There is a sharp disagreement between the parties over the meaning of the term “rebuilder” as used in Paragraph 1(b) of the complaint defining a rebuilder as “synonymous with ‘remanufacturer’ and only applies to those engaged in rebuilding AVNET, INC. 403 391 Initial Decision automotive electrical units.” Respondent seeks to base the definition of a rebuilder on a broad and general examination of the physical operations performed: basically consisting of the disassembling of a unit, cleaning, testing, replacement or recondi- ; tioning of defective or worn parts, reassembling and testing without régard to any other factors (RPF 24— 27). 19. Complaint counsel base their definition of who is a rebuilder on a variety of other processing and marketing factors hereinafter set forth, all of which are equally important (CPF 20-26).

20. Rebuilders operate on a production line or modified production line basis depending on their size, with each employee performing an assigned task or tasks (Erwin 531; Smith 594-95; Woodruff 826; DeBlase 848; Vander Veen 901; Butchkes 2288-89; Young 2979; Fallen 3022; Ledbetter 3399; Hicks 4627, “Our categorization of a rebuilder, from a marketing standpoint, is a production rebuilder. * * * This rebuilder rebuilt from stock and sold from stock. He didn’t ordinarily do custom rebuilding ;” Wolf 3664 ; Krider 5607-08; RX 55 e).

21. Rebuilders take a quantity varying from 5 to 500 identical inoperative units known as cores which they own and have received in exchange from their customers or purchased from used core dealers (junk dealers) (Smith 597; Gelberg 661; Feldman 714,719, 732-83; Shelly 772; Woodruff 801, 815; DeBlase 844, 873; Vander Veen 901, 919-20; McGuire1295; Ledbetter 3427- 28).

22. These cores are then disassembled, the component parts lose their identity, the component parts are separated by various categories, cleaned, tested and placed in separate bins or barrels (Gelberg 648-49; DeBlase 848-49; Keesee 1383; Weiss 4842). 23. Additional used or new parts are then purchased to fill in’ where parts salvaged from cores are either worn or defective or just not in sufficient supply. Some items such as brushes and bushings are never reused but are always replaced with new (Smith 636; Feldman 717; Shelly 771; DeBlase 850; Ledbetter 8487).

24. Production rebuilders generally follow a uniform procedure on which parts are replaced if worn or defective (DeBlase 850-51; Woodruff 821; Krider 5614-15).

25. The new and used component parts are commingled and are then drawn on a random basis from the bins or barrels and reassembled on a production line basis (Erwin 531; Feldman ° Initial Decision 82 F.T.C.

718-19, 733; “Units lose their identity during rebuilding operation,” Woodruff 801; DeBlase 848-50; Vander Veen 906; McGuire - 1295; Keesee 1883 ; Weiss 4842—48 ; Krider 5607-08, 5613). 26. The completed unit is then tested, packaged and sold to distributors, jobbers and dealers for use in the aftermarket (Gelberg 649; Feldman 719; Shelly 772; Woodruff 791, “in my terms a rebuilder is a production rebuilder who sells wholesale only,” 801, 826; DeBlase 835; Vander Veen 894; McGuire 1289; Butchkes 2288 ; Peatross 2873; Ledbetter 3407-08). 27. Rebuilders in general purchase their new parts in bulk rather than in individual. packages and generally maintain inventories (Erwin 540; Feldman 719; DeBlase 856; Vander Veen 902; Flynn 945; Kamber 1018; Stevens 3102, 3128; Burgess 3540; Fischer 4236).

28. Their principal sources of supply are rebuilder suppliers (hereinafter discussed) and only in case of emergency or un- . availability of an item do they prchase from warehouse distributors or jobbers (Smith 590, 634, 688; Gelberg 653; 655, 689; Feldman 715; Shelly 750; Woodruff 797-99; DeBlase 839, Ace and IPM supplied him in 1964 with 75 percent of his new parts, at 840; Vander Veen 896—97, 899, 900, 902; McGuire 1289-90, 1299, 1302, 2453; Butchkes 2299, 2301, 2326; Peatross 2869, 2875; Ledbetter 3458, 3442, 3905-06, 3928; see also Finding 97). 29. Most rebuilders do not rebuild or repair any heavy-duty units (Smith 589; Gelberg 653; Shelly 752-53; Vander Veen 905; Garello 2175; Mills 2767).

30. Those rebuilders who work on heavy-duty units generally do so on a custom or repair basis (Vande Veen 906; McGuire © 1294-95; Garello 2175; A. Johnson 2520-22; Ledbetter 3401; Mills 2767).

31. Such repair of heavy-duty units generally accounts for less than 5 percent of such rebuilders’ business and is done primarily as a convenience for these rebuilders’ customers (Smith 630; Vander Veen 905; McGuire 1294-95; Butchkes 2290, 2333; A. Johnson 2509; DeBlase 2903 ; Ledbetter 3400-01, 3858-59). 382. Rebuilders generally issue catalogues and price lists and sell their ‘units for an established price plus a core exchange, through salesmen who call on their customers (McGuire 1295, 2449 ; DeBlase 2948-49 ; Ledbetter 3410-12). 33. Rebuilders mark their units as “rebuilt” (DeBlase 852; Vander Veen 901; Ledbetter 3858; RX 56 a—c (16 CFR 62)). AVNET, INC. 405 391 Initial Decision 2. Repair Shop 34. A rebuilder differs from a repair shop, sometimes referred to as.a “custom rebuilder” in the trade, in the following ways, among others:

~.. (a) Repair shops seldom own the units on which the work is per formed ‘and in most circumstances the units are owned by and returned to the customer (Gelberg 648; Garello 2183; Bensen 2198, 2285; Butchkes 2310; McGuire 2449-50; A. Johnson 2522; Crisman 2562; Tarras 2598; Sechrist 2635, 2640-41; Mills 2744, 2746, 2769; Peatross 2873 ; Ledbetter 3399). (b) Repair shops work on one unit at a time and the parts are not commingled with those of another unit (Smith 631; Gelberg 648; Feldman 718; Shelly 753; Woodruff 826; DeBlase 850, 852; Keesee 1383-84; Garello 2183, 2187; Bensen 2221; Rowe 2345; A. Johnson 2509; Crisman 2560; Mills 2744, 2746; Ledbetter 3399;4 1 4 2 6 0 522 1088 234 37 -1 5 1 4 2 6 1 522 1088 97 32 95.984909 Wolf5 1 4 2 6 2 633 1088 123 37 95.984909 3664).3 1 4 3 0 0 524 1109 1317 166 -1 4 1 4 3 1 0 578 1109 1263 67 -1 5 1 4 3 1 1 578 1139 51 37 91.911346 (c)5 1 4 3 1 2 663 1136 132 39 95.919182 Repairs 1 4 3 1 3 817 1136 105 37 95.919182 shops5 1 4 3 1 4 946 1134 212 33 96.118187 reassemble5 1 4 3 1 5 1180 1144 21 21 96.966599 a5 1 4 3 1 6 1224 1133 77 32 96.662369 units 1 4 3 1 7 1323 1133 95 31 96.564659 from5 1 4 3 1 8 1441 1115 79 48 97.010895 that5 1 4 3 1 9 1543 1126 109 46 92.392853 unit’s5 1 4 3 1 10 1675 1109 102 58 96.800278 parts5 1 4 3 1 11 1801 1137 40 22 96.991791 or4 1 4 3 2 0 524 1178 1317 48 -1 5 1 4 3 2 1 524 1188 96 31 96.355354 from5 1 4 3 2 2 650 1188 101 38 96.373756 parts5 1 4 3 2 3 782 1185 216 33 96.457397 substituted5 1 4 3 2 4 1030 1185 58 31 96.677383 for5 1 4 3 2 5 1119 1183 174 33 96.352654 defective5 1 4 3 2 6 1324 1193 40 21 96.341537 or5 1 4 3 2 7 1395 1191 98 22 96.749504 worn5 1 4 3 2 8 1526 1181 105 31 96.104851 items5 1 4 3 2 9 1671 1178 170 38 87.131546 (Gelberg4 1 4 3 3 0 524 1229 1152 46 -1 5 1 4 3 3 1 524 1238 84 37 82.830078 648;5 1 4 3 3 2 623 1238 170 31 96.231499 Feldman5 1 4 3 3 3 807 1236 84 36 95.789185 718;5 1 4 3 3 4 906 1235 119 38 96.855995 Shelly5 1 4 3 3 5 1039 1235 83 36 74.977150 7535 1 4 3 3 6 1118 1225 19 54 74.977150 ;5 1 4 3 3 7 1138 1233 167 33 95.872841 McGuire5 1 4 3 3 8 1321 1233 105 36 95.210068 1295;5 1 4 3 3 9 1441 1230 96 33 96.782593 Mills5 1 4 3 3 10 1552 1229 124 37 96.185867 2744).3 1 4 4 0 0 526 1278 1319 342 -1 4 1 4 4 1 0 581 1278 1262 47 -1 5 1 4 4 1 1 581 1288 54 37 91.238197 (d)5 1 4 4 1 2 670 1286 132 39 96.462837 Repairs 1 4 4 1 3 820 1286 106 38 96.462837 shops5 1 4 4 1 4 945 1286 43 31 96.748352 do5 1 4 4 1 5 1006 1286 62 30 96.810013 not5 1 4 4 1 6 1086 1284 102 31 96.436768 resells 1 4 4 1 7 1206 1284 60 30 96.546707 thes 1 4 4 1 8 1285 1283 97 31 96.595093 units5 1 4 4 1 9 1399 1282 37 31 96.790367 in5 1 4 4 1 10 1455 1281 93 31 96.880898 most5 1 4 4 1 11 1567 1280 191 35 96.751358 instances,5 1 4 4 1 12 1779 1278 64 31 96.861725 but4 1 4 4 2 0 526 1328 1318 49 -1 5 1 4 4 2 1 526 1338 132 39 96.557426 charges 1 4 4 2 2 683 1337 61 31 93.294525 thes 1 4 4 2 3 772 1334 404 39 92.237846 customer—generally5 1 4 4 2 4 1204 1334 59 31 96.772560 thes 1 4 4 2 5 1290 1332 134 32 93.296463 vehicles 1 4 4 2 6 1450 1338 213 24 91.422821 owner—on5 1 4 4 2 7 1693 1339 21 21 96.885750 a5 1 4 4 2 8 1742 1328 102 38 96.492981 parts4 1 4 4 3 0 529 1377 1315 42 -1 5 1 4 4 3 1 529 1388 68 31 96.475098 ands 1 4 4 3 2 619 1388 99 31 94.936104 labor5 1 4 4 3 3 738 1386 96 32 96.503815 basis5 1 4 4 3 4 856 1386 67 31 96.488243 ands 1 4 4 3 5 947 1387 123 29 96.528374 returns 1 4 4 3 6 1092 1383 59 33 96.615173 thes 1 4 4 3 7 1173 1384 77 31 96.112022 units 1 4 4 3 8 1270 1383 37 31 96.882744 to5 1 4 4 3 9 1328 1382 60 31 96.375458 thes 1 4 4 3 10 1409 1383 177 30 96.280357 customers 1 4 4 3 11 1609 1389 40 22 96.262352 or5 1 4 4 3 12 1671 1378 121 32 85.767189 installs 1 4 4 3 13 1816 1377 28 31 96.935677 it4 1 4 4 4 0 528 1428 1317 42 -1 5 1 4 4 4 1 528 1448 44 21 95.219315 on5 1 4 4 4 2 598 1438 60 31 93.296440 thes 1 4 4 4 3 682 1437 208 31 91.872940 customer’s5 1 4 4 4 4 914 1435 134 32 96.400536 vehicles 1 4 4 4 5 1080 1434 186 36 96.435898 (Feldman5 1 4 4 4 6 1293 1434 83 34 96.265556 719;5 1 4 4 4 7 1404 1431 119 37 96.265556 Shelly5 1 4 4 4 8 1549 1431 83 41 96.300888 753;5 1 4 4 4 9 1659 1428 186 32 96.219620 Woodruff4 1 4 4 5 0 526 1478 1316 46 -1 5 1 4 4 5 1 526 1489 79 35 96.603256 801;5 1 4 4 5 2 637 1486 169 43 96.462936 McGuire5 1 4 4 5 3 837 1487 99 34 93.246788 1295;5 1 4 4 5 4 969 1485 131 31 91.340630 Keesee5 1 4 4 5 5 1131 1484 99 36 93.044670 1388;5 1 4 4 5 6 1259 1481 181 47 92.043480 Butchkes5 1 4 4 5 7 1470 1481 102 35 94.328606 2310;5 1 4 4 5 8 1606 1479 105 30 95.907906 Rowe5 1 4 4 5 9 1742 1478 100 34 78.877655 2348,4 1 4 4 6 0 529 1527 1315 48 -1 5 1 4 4 6 1 529 1539 106 36 95.000916 2377;5 1 4 4 6 2 667 1538 41 30 93.823715 A.5 1 4 4 6 3 741 1527 158 42 96.373680 Johnson5 1 4 4 6 4 931 1536 100 36 77.237213 2513,5 1 4 4 6 5 1063 1534 175 35 95.702522 2522-23;5 1 4 4 6 6 1271 1523 166 41 92.480690 Crisman5 1 4 4 6 7 1469 1531 100 37 96.303589 2562,5 1 4 4 6 8 1603 1530 100 36 96.303589 2575,5 1 4 4 6 9 1737 1527 107 36 96.026627 2578;4 1 4 4 7 0 530 1580 1095 43 -1 5 1 4 4 7 1 530 1588 134 32 89.674026 Tarras5 1 4 4 7 2 678 1587 175 36 49.567467 2606—085 1 4 4 7 3 844 1576 14 51 49.567467 ;5 1 4 4 7 4 868 1586 159 32 92.579399 Sechrist5 1 4 4 7 5 1040 1585 107 37 89.485214 2622;5 1 4 4 7 6 1162 1584 95 31 96.770119 Mills5 1 4 4 7 7 1271 1584 99 35 96.621826 2744,5 1 4 4 7 8 1385 1582 99 36 95.945671 2746,5 1 4 4 7 9 1501 1580 124 37 95.945671 2760).3 1 4 5 0 0 529 1605 1318 222 -1 4 1 4 5 1 0 582 1605 1265 70 -1 5 1 4 5 1 1 582 1638 53 37 91.734650 (e)5 1 4 5 1 2 669 1637 131 38 96.446747 Repairs 1 4 5 1 3 822 1636 105 38 96.549141 shops5 1 4 5 1 4 949 1635 174 39 96.527954 purchases 1 4 5 1 5 1141 1605 190 70 96.674812 primarily5 1 4 5 1 6 1351 1632 96 31 95.637924 theirs 1 4 5 1 7 1467 1640 77 21 96.288414 news 1 4 5 1 8 1566 1630 101 38 93.284065 parts5 1 4 5 1 9 1692 1627 155 38 91.934181 require-4 1 4 5 2 0 529 1678 1315 44 -1 5 1 4 5 2 1 529 1690 115 30 95.211182 ments5 1 4 5 2 2 670 1689 95 30 95.211182 from5 1 4 5 2 3 786 1686 230 32 96.531258 wholesalers5 1 4 5 2 4 1049 1684 136 38 95.969711 (Shelly5 1 4 5 2 5 1210 1684 77 36 92.998764 754;5 1 4 5 2 6 1315 1682 140 34 92.278549 Garello5 1 4 5 2 7 1480 1681 102 36 96.669617 2171;5 1 4 5 2 8 1610 1680 106 30 96.100632 Rowe5 1 4 5 2 9 1743 1678 101 34 94.190598 2352;4 1 4 5 3 0 530 1729 1316 44 -1 5 1 4 5 3 1 530 1739 164 32 92.880638 Crisman5 1 4 5 3 2 719 1739 101 34 91.684097 2551;5 1 4 5 3 3 846 1738 133 30 91.196114 Tarras5 1 4 5 3 4 1003 1736 215 35 93.278015 2599-2600;5 1 4 5 3 5 1245 1733 158 33 92.127159 Sechrist5 1 4 5 3 6 1427 1733 101 34 96.137955 2628;5 1 4 5 3 7 1555 1730 96 31 95.600952 Mills5 1 4 5 3 8 1676 1729 170 35 82.882378 2749-51,4 1 4 5 4 0 532 1791 123 36 -1 5 1 4 5 4 1 532 1791 123 36 95.935860 2764).2 1 5 0 0 0 533 1813 1323 582 -1 3 1 5 1 0 0 533 1813 1318 322 -1 4 1 5 1 1 0 577 1813 1271 67 -1 5 1 5 1 1 1 577 1849 54 31 86.859116 35.5 1 5 1 1 2 658 1848 73 31 96.146950 Thes 1 5 1 1 3 762 1847 207 31 96.005768 distinctions 1 5 1 1 4 1002 1846 157 31 92.162682 between5 1 5 1 1 5 1192 1843 196 32 91.070862 rebuilders5 1 5 1 1 6 1421 1813 98 60 0.000000 ands 1 5 1 1 7 1523 1821 126 57 36.990807 yepair5 1 5 1 1 8 1667 1825 117 51 86.748276 ‘shops5 1 5 1 1 9 1811 1831 37 37 79.312904 is4 1 5 1 2 0 534 1888 1317 49 -1 5 1 5 1 2 1 534 1899 206 38 95.628006 recognized5 1 5 1 2 2 765 1899 44 37 95.628006 by5 1 5 1 2 3 833 1908 20 21 94.636719 a5 1 5 1 2 4 876 1898 101 31 96.591110 trades 1 5 1 2 5 1001 1896 224 37 95.324104 association,5 1 5 1 2 6 1251 1893 227 32 96.511612 Automotive5 1 5 1 2 7 1504 1892 106 30 96.749229 Parts5 1 5 1 2 8 1636 1888 215 38 96.373840 Rebuilding4 1 5 1 3 0 533 1938 1316 46 -1 5 1 5 1 3 1 533 1949 224 32 96.350128 Associations 1 5 1 3 2 794 1947 181 37 96.492493 (APRA),5 1 5 1 3 3 1005 1945 113 32 96.730904 which5 1 5 1 3 4 1147 1945 121 31 96.356400 allows5 1 5 1 3 5 1297 1944 81 37 92.951309 only5 1 5 1 3 6 1407 1941 208 37 92.951309 rebuilders,5 1 5 1 3 7 1645 1938 95 34 91.995041 theirs 1 5 1 3 8 1768 1947 81 29 91.995041 sup-4 1 5 1 4 0 535 1987 1315 50 -1 5 1 5 1 4 1 535 2000 107 37 96.927338 pliers5 1 5 1 4 2 660 1999 68 32 96.672256 ands 1 5 1 4 3 746 1998 102 31 96.392609 others 1 5 1 4 4 865 1996 290 33 96.231499 manufacturers5 1 5 1 4 5 1172 1995 80 31 96.757156 that5 1 5 1 4 6 1269 2004 64 22 96.598732 cans 1 5 1 4 7 1351 1990 91 35 96.801994 offers 1 5 1 4 8 1459 1987 174 37 96.229645 technical5 1 5 1 4 9 1652 1989 198 33 96.401215 assistance4 1 5 1 5 0 533 2038 1316 45 -1 5 1 5 1 5 1 533 2050 37 30 96.587845 to5 1 5 1 5 2 598 2049 139 31 96.587845 becomes 1 5 1 5 3 765 2047 175 32 95.800537 members5 1 5 1 5 4 976 2046 81 37 94.072289 (RX5 1 5 1 5 5 1087 2047 41 30 85.706757 555 1 5 1 5 6 1157 2055 36 26 85.706757 e;5 1 5 1 5 7 1222 2044 118 37 95.841545 Shelly5 1 5 1 5 8 1370 2044 81 34 95.908493 756;5 1 5 1 5 9 1481 2040 186 33 94.887856 Woodruff.5 1 5 1 5 10 1696 2038 153 35 59.799927 792-935 1 5 1 5 11 1834 2034 18 54 76.623611 ;4 1 5 1 6 0 535 2097 558 38 -1 5 1 5 1 6 1 535 2099 156 32 96.306458 Winters5 1 5 1 6 2 707 2098 105 36 96.325310 1186;5 1 5 1 6 3 828 2097 128 38 96.325310 Youngs 1 5 1 6 4 970 2097 123 36 96.619392 2979).3 1 5 2 0 0 535 2147 1321 248 -1 4 1 5 2 1 0 583 2147 1271 41 -1 5 1 5 2 1 1 583 2158 54 30 96.274857 36.5 1 5 2 1 2 664 2157 73 31 96.531174 Thes 1 5 2 1 3 762 2155 206 32 93.439468 distinctions 1 5 2 1 4 995 2154 157 31 93.223770 between5 1 5 2 1 5 1169 2151 207 33 91.584534 rebuilders5 1 5 2 1 6 1402 2151 68 31 96.775223 ands 1 5 2 1 7 1498 2148 121 39 96.434181 repairs 1 5 2 1 8 1645 2147 108 38 96.714775 shops5 1 5 2 1 9 1781 2155 73 22 96.657059 was4 1 5 2 2 0 539 2196 1316 49 -1 5 1 5 2 2 1 539 2200 206 45 95.850449 recognized5 1 5 2 2 2 766 2206 46 38 95.850449 by5 1 5 2 2 3 834 2205 64 32 96.608665 thes 1 5 2 2 4 915 2204 148 32 96.477432 Federal5 1 5 2 2 5 1086 2204 116 31 96.346428 Trades 1 5 2 2 6 1225 2201 234 34 96.760780 Commissions 1 5 2 2 7 1483 2201 35 31 96.850060 in5 1 5 2 2 8 1543 2196 269 41 96.191444 promulgating5 1 5 2 2 9 1835 2205 20 21 96.491814 a4 1 5 2 3 0 535 2246 1318 48 -1 5 1 5 2 3 1 535 2258 104 32 96.593079 trades 1 5 2 3 2 664 2256 197 38 96.593079 regulations 1 5 2 3 3 889 2255 74 32 96.513618 rules 1 5 2 3 4 988 2253 214 39 96.305916 concerning5 1 5 2 3 5 1225 2253 60 31 96.430504 thes 1 5 2 3 6 1311 2251 153 38 96.442390 labeling5 1 5 2 3 7 1488 2250 39 31 96.754898 of5 1 5 2 3 8 1552 2249 97 32 96.250351 units5 1 5 2 3 9 1675 2246 178 40 96.250351 produced4 1 5 2 4 0 538 2298 1316 47 -1 5 1 5 2 4 1 538 2308 45 37 92.716179 by5 1 5 2 4 2 609 2307 197 32 92.090126 rebuilders5 1 5 2 4 3 832 2307 64 30 96.784233 but5 1 5 2 4 4 922 2300 61 37 96.272964 not5 1 5 2 4 5 1008 2304 101 31 96.941376 those5 1 5 2 4 6 1136 2303 163 38 96.730469 repaired5 1 5 2 4 7 1327 2302 46 38 96.790771 by5 1 5 2 4 8 1399 2301 121 38 96.832260 repairs 1 5 2 4 9 1547 2300 118 37 96.638214 shops.5 1 5 2 4 10 1696 2298 39 31 93.216690 In5 1 5 2 4 11 1764 2305 90 23 93.137909 com-4 1 5 2 5 0 539 2346 1317 49 -1 5 1 5 2 5 1 539 2358 138 37 92.668839 pliance5 1 5 2 5 2 697 2356 86 31 96.723381 with5 1 5 2 5 3 806 2356 72 31 96.252861 this5 1 5 2 5 4 902 2355 85 37 96.667114 rule,5 1 5 2 5 5 1012 2354 96 32 96.687134 units5 1 5 2 5 6 1131 2353 130 32 96.404984 rebuilt5 1 5 2 5 7 1283 2352 69 32 96.005890 ands 1 5 2 5 8 1376 2351 75 32 96.241585 sold5 1 5 2 5 9 1474 2351 46 37 96.599129 by5 1 5 2 5 10 1543 2348 199 33 91.186630 rebuilders5 1 5 2 5 11 1765 2346 91 31 96.654594 have 406 FEDERAL TRADE COMMISSION DECISIONS - Initial Decision 82 F.T.C.

been labeled “rebuilt,” whereas the units worked on by mechanics in repair shops (or by custom rebuilders) have not been so _ labeled (CX 246, RX 56 a-c (16 CFR 62(b) (1)); Shelly 758; Woodruff 828; Vander Veen 901; Bensen 2198; A. Johnson 2533-34; Crisman 2570; Tarras 2597-2605; Sechrist 2635; Mills 2747; Young 2978; Ledbetter 3858).

37. Part 62 of the Federal Trade Commission’s Trade Regulation Rule (RX 56 a-c; 16 CFR 62) must be read in its entirety in order to properly interpret the rule. Indeed, repair shops perform some of the functions delineated in the rule in order to repair a unit but are eliminated from the rule at the very outset. In order to qualify under the rule, the person, firm, corporation or organization must be engaged in the sale of the product (16 CFR 62.1(b), Bensen 2211). Repair shops are not engaged in selling | a rebuilt unit but invoice on a parts and labor basis (Finding 34(d)).

38. Treasury regulations promulgated under 26 U.S.C.A. Section 4061(b) (1954) distinguish between rebuilt and repaired or reconditioned units. Treas. Reg. Section 48.4061 (b)-3 provides with regard to rebuilt, reconditioned or repaired parts (units) or accessories:

(a) Rebuilt parts or accessories. Rebuilding of automobile parts or accessories, as distinguished from reconditioning or repairing, constitutes manufacturing, and the rebuilder of such parts or accessories is liable for the tax imposed by Section 4061(b) with respect to his sales of such rebuilt parts or accessories. Reboring or other machining, rewinding and comparable major operations constitute rebuilding. * * * (emphasis added) ee (b) Reconditioned parts or accessories. The mere disassembling, cleaning and reassembling (with any. necessary replacement of worn parts) of automobile parts or accessories * * * are regarded as reconditioning operations rather than the manufacturing or production of rebuilt parts or accessories. The sale of reconditioned parts or accessories is not subject to tax. * * * In 1964, Congress recognized this distinction by amending the excise tax law to exempt rebuilt units (CX 292; Woodruff 793; Weiss 4842-43; 26 U.S.C.A. Sections 4061(b), 4063(c); Treas. Reg. Section 48.4061 (b)—(c) ).

39. Some state tax regulations make a distinction between repairing and the sale of rebuilt units. When a unit is reparied, sales tax is charged only on the parts, whereas the entire price AVNINL, LNG. 4u 391 Initial Decision:

of the unit is subject to taxation on rebuilt units (A. Johnson 2523-24 ; Mills 2760).

40. Under the foregoing criteria, the examiner finds that respondent’s witnesses John Garello 2158-2189, Gem Truck Electric; Roy Bensen 2192-2227, Schelen Electric; Michael Rowe ~~-2342-2378, Apex Auto Parts & Electric. Co.; Donald M. Crisman 2537-2590, Auto Truck Electric; Harold Tarras 2591-2612, Terrace Auto Supply; E. Paul Sechrist 2614-2644, D.C. Ignition Headquarters; and Don Mills 2739-2774, Herb’s Truck Electric, are repair shops or custom “rebuilders.” 41. Respondent called several warehouse distributors or jobbers for original equipment manufacturers (Tarras 2594; Roberts 4383-84, 4448; Morrison 5158, 5154, 5161) who operated service or custom repair facilities in conjunction with their distribution of parts (Tarras 2593, 2608, ‘worked on customers’ cars,” 2598, has “drive-in” service; Roberts 4433, does “tune-up” work, 4435, 4398-99, has “drive-in” service, five days, 4486, does “bench work,” customer brings in unit and returns unit to customer, 4447, does warranty work in “drive-in” facility, 4455, does general repair work; Morrison 5179-80, had “drive-in” service, in most instances customers owned the units, doesn’t sell to warehouse distributors, 5192-93, jobber with service facility, ads in yellow pages state “units repaired and exchanged,” 5194, does warranty work), performed work on one unit at a time on custom repair basis (Tarras 2596, 2606), charged for time and materials or flat rate (Tarras 2597, 2608; Roberts 4481; Morrison 5195), used high percentage of OEM parts (Tarras 2600-01), units not stamped “rebuilt” (Tarras 2606, 2607, puts word “repaired” on invoice; Roberts 4431, 4447; Morrison 5180, ‘“‘we label them”). Upon the basis of the foregoing testimony, the examiner finds that respondent’s witnesses Tarras, Roberts and Morrison operate service facilities and do custom repair work and are not rebuilders.

42. Respondent called several fleet operators who maintained their own service and overhaul facilities (Nelson 2406~2427, Consolidated Freightways Corp.; Rosendhal 2460-2505, Chicago Transit Authority; Meell 2671-2738, Greyhound Corp.; Miller 2776-2818, Ryder Truck Rental). Such facilities perform a wide range of repair and maintenance services on the vehicles of their fleets (Rosendhal 2461-62, 2479-81; Nelson 2409, 2418-19; Meell 2676; Miller 2779). These facilities, in general, work on one unit at a time; and the parts are not commingled with those Initial Decision; 82 F.T.C.

of another unit (Rosendhal 2464, 2470, 2496; Nelson 2411; Miller 2782). Fleets do not resell the units repaired in their maintenance facilities but utilize them on their own vehicles (Kessee 1838-39; Nelson 2419, 2422; Rosendhal 2481; Meell 2689-90, 2717, sells a few rebuilt units to companies that have bought used Greyhound buses, as a convenience, but sells to no others; Miller 2803). Fleets do not mark the units repaired in their maintenance shops as “rebuilt” (Nelson 2411, 2424; Rosendhal 2499; Meell 2716). Fleets purchase almost all of the parts they use in repairing automotive electrical units from wholesalers handling OEM brands or vehicle dealers (Nelson 2417-18; Rosendhal 2473-74; Meell 2696, 2699-2700, 2719; Miller 2790, 2798, 2795, 2803-04). Fleets do not purchase from rebuilder suppliers who offer almost none of the items required by such fleets (CX 36 c; Erwin 575;. Nelson 2417-18, 2427; Rosendhal 2474—75, 2482-84; Meell 2726; Miller 2791, 2803-04; ‘DeBlase 2914; Fischer 4065, 4245-46). Fleet maintenance shops do not purchase used cores or parts for-use in their repairing operations (Rosendhal 2492-93; Meell 2706-07). Accordingly, the examiner finds that fleet maintenance facilities are not rebuilders, but repair shops.

3.. Automotive Electrical Units 43. An automotive electrical unit (hereinafter referred to as “units’”) is any item sold separately by a rebuilder for use on self-propelled land vehicles (CX 36 c; Erwin 573; Smith 608; Winters 1183; Butchkes 2286, 2290, 2809-10). The Federal Trade Commission, in the Trade Practice Rule for the “Rebuilt, Reconditioned and Other Used Automotive Parts Industry,” defined “automotive” parts as including any item’designed for “an automobile, truck, motorcycle, tractor or similar self-propelled vehicle” (RX 56 a). Units include generators, alternators, starters, armatures, starter drives, solenoids, voltage regulators, stators, and rotors (Erwin 573; Smith 602—03, 608; Gelberg 647; Feldman 709-10; Shelly 7738, 775-76; Woodruff 790-91, 806; DeBlase 833-34, 840; Vander Veen 892-93, 913, 920-21; Eurich 1413; Butchkes 2286; Ledbetter 3398, 3862). 4, Parts For Automotive Electrical Units 44. A part consists of any item purchased by a rebuilder for incorporation in units which he rebuilds (Smith 583, 608; Shelly 760-61, 766, 773; Woodruff 806; Vander Veen 913, 920-21 ; Winters 1183). ‘ AVINDVL, LINU. 4U9 391 Initial Decision 5. Cores 45. A core is an inoperative unit used by a rebuilder as his prime source of used parts. Used parts are not readily usable in the rebuilding process at the time of their receipt by rebuilders. Before used parts can be reused by rebuilders, the cores must be ~disassembled and the parts therefrom sorted, cleaned, inspected and tested. ‘Only a percentage of the used parts meet satisfactory standards to be commingled with similar parts for subsequent use in the rebuilding process. The unusable parts and cores are discarded or sold as scrap (CX 87 f; Erwin 542; Smith 581, 623; Feldman 716; Shelly 755; Woodruff 796, 799, 802, 815-16; DeBlase 848; Vander Veen 900, 919-20; Butchkes 2291; Ledbetter 3427, 3436). Cores constitute the most fundamental source of supply for rebuilders. Rebuilders could not continue profitably in business without the availability of used cores (Smith. 623— 24; Feldman 733, 740; Woodruff 816; Vander Veen 920). Rebuilders obtain approximately 85 percent of their cores from their customers in exchange for rebuilt units (Smith 602; DeBlase 843, 873; Vander Veen 920; Kamber 1043; Ledbetter 3427). The remaining 15 percent of cores are obtained by rebuilders from junk dealers, firms which specialize in the sale of used units and occasionally used parts (Smith 620; Shelly 780; Kamber 1043; McGuire 1293-94; Fallen 1460; Ledbetter 3428). B. Supply of Items to Rebuilders 46. The firms supplying rebuilders. are divided into three groups: suppliers of new parts, suppliers of used cores and suppliers of rebuilt parts. There is no dispute that new and used parts are physically interchangeable with one another; however, as hereinafter found, each of the three groups has significant distinct and different price and marketing characteristics which place them in separate competitive categories (see “Findings 48 to 58).

47. The following chart shows the relationship of these principal sources of supply to rebuNders:

410 FEDERAL TRADE COMMISSION DECISIONS — Initial Decision; 82 F.T.C, Used core New parts suppliers suppliers (Junk Dealers) Rebuilt or reconditioned parts Rewinder-Rebuilders Regrinder-Rebuilders Rebuilders 48. In 1964, rebuilders purchased complete used cores from junk dealers. In that year, rebuilders were generally unable to purchase used parts (Erwin 540, 542-44; Smith 619; Gelberg 692-94; Shelly 768, 780; Woodruff 804; McGuire 1293-94; Fallen 1460; Wolf 3693-94).

49. Junk dealers sell on a local or regional basis, whereas rebuilder suppliers of new parts generally compete on a nationwide basis (RX 80 c; Erwin 531, 542; Smith 619; Gelberg 665; Feldman 722, 732; Woodruff 815; Flynn 935; Green 987; Kamber 1016; Gordon 1156; Winters 1184; McCullough 1243; Fallen 1452; Goldblatt 3350 ; Fischer 3974).

50. Such used parts as were available in 1964 were sold by junk dealers (Gelberg 692-95; McGuire 1290, 1293- 94; Wolf 3640-41, 3645-46).

51. The suppliers of new parts and the suppliers of used parts compete in separate and distinct markets (Smith 599-601, 639-40; Fischer 4244). The suppliers of new parts either did not sell used parts and cores or had de minimis sales (CX 274 a, Hubert Products sold both new and used items, with used accounting for no more than 2 percent; Erwin 565-66; Smith 592, 620; Gelberg 659; Green 999-1000; Winters 1218; McCullough 1248). Conversely, with very few exceptions, the suppliers of used parts did not supply new parts (Erwin 544; Gelberg 661; Feldman 716; DeBlase 845; Vander Veen 926; Winters 1218; Wolf 3640-41, 3646; Ledbetter 3879). 891 Initial Decision | 52. The price of a new and a used item for the same application differs so substantially as to exclude competition between the two items (DeBlase 880; Kamber 1057; Broadwell 1087-88 ; McCullough 1248; Fischer 4244). In general, the price of the used item is between 50 percent and 75 percent less expensive than the price of the same new item (Shelly 767-68, 779, 782-84; ’ DeBlase 2952; Goldblatt 3351, 3364; Wolf 3699; Fischer 4061-62). Rebuilders purchased used items whenever such items were available in preference to new items (Shelly 783-84; Woodruff 796, 818, 828, 850; Vander Veen 896, Broadwell 1087; Winters 1225- 26; Goldblatt 3361; Ledbetter 3436-37). Rebuilders will continue to purchase such used items even though the price of the same item may vary considerably from time to time (Shelly 779-84). 58. Junk dealers neither employ salesmen nor provide catalogs or price sheets to rebuilders (Smith 605-06, 637; Feldman 720; Vander Veen 926; Wolf 3653-54, 3671). .

54. Core prices in the short run may vary considerably based upon availability. New parts are not subject to such short term price fluctuations (Smith 602; Shelly 772). The price trend of new and used parts over the long term differs remarkably. A given used item inevitably decreases in price as time passes. In contrast, the new item which fits a similar application shows a steady price increase over time (Smith 601-02; Feldman 726; Shelly 772; Woodruff 805; DeBlase 858-59; Vander Veen 904; Broadwell 1088, 1091 a; Winters 1197; -1222-24; Wolf 3676-77, 3682-88 ; Fischer 4061-62).

55. Cores and used parts are not available for many late model applications for which rebuilders need parts (CX 37 f; Erwin 544-45; Smith 597-98; Gelberg 693-94; Feldman 717, 722; DeBlase 845-46; Winters 1226).

56. Rebuilders regularly use only new parts for sevéral items which they replace during the rebuilding process (Erwin 540, 544; Smith 592, 636; Feldman 717; Shelly 780; Woodruff 799, 802-03; Winters 1228, 1225-26; Ledbetter 3437; see also Finding 23).

57. The price of a new and a rebuilt or reconditioned item for the same application differs so substantially as to exclude competition between the two items. In general rebuilt items sell for 25 percent to 50 percent less than a comparable new item (Smith 636; Gelberg 668; Feldman 737, 741-42, 744; Shelly 759, 777-79; Initial Decision 82 F.T.C.

Woodruff 816; DeBlase 846-48; Vander Veen 925-26; Flynn) 979; Kamber 1023; Winters 1183; Butchkes 2294, 2297-98; Ledbetter 3425-26; Levine 5028). Rebuilders purchased rebuilt items - whenever such were available in- preference to new items (Smith 612-13; Shelly 778; Woodruff 829; DeBlase 847-48; Vander Veen 896; Butchkes 2297-98 ; McGuire 2443 ; Ledbetter 3425). 58. Rebuilt and reconditioned items supplied to other rebuilders should also be excluded from any consideration of the supply of various parts, materials and equipment to rebuilders, because each supplier of a rebuilt item to another rebuilder is ‘also a purchaser of. new or used parts, materials and equipment. If the sales of rebuilt items were included in determining the total supply of parts, materials and equipment to rebuilders, one would be counting the value of the supply twice—once for the new and used parts consumed by the first rebuilder and again when the rebuilder resells the item to another rebuilder (Woodruff 808-09; Kamber 1016-17; Winters 1183; Butchkes 2294). Accordingly, the examiner finds that used core suppliers (junk dealers) and the suppliers of rebuilt or reconditioned parts (rewinders of armatures, rotors and stators and regrinders of bearings) should not be included in the relevant product market (suppliers of new parts to rebuilders) . C. Rebuilder Suppliers 59. The 1964 sources of new items for rebuilders are illustrated by the following chart:

rs ere or 391 Initial Decision 1964 SOURCES OF NEW ITEMS FOR REBUILDERS me oF Other REBUILDER Manufacturers SUPPLIERS OEM . . Manufacturers (Single line) Ford and Chrysler Authorized Rebuilders Rewinders- Rebuilders — 3 mem meme 8 fy qT, Pe Peer aT) — era —_— REBUILDERS Other Than Ford and Chrysler Authorized Rebuilders 2 mm cs om 8 on 5 oS eS ee .— = em 8 eee 8 ee eee ee ee ee Aatoriotive Wholesalers (WDs and Jobbers) Non-Automotive Wholesalers LH | I | l | l ani I l | l I l I | | | | l | ! I a1 _ _! — —_—— KEY:

Rebuilder supply market.

BESHEBRERER Rebuilder supply market—sales by Ford and Chrysler to their authorized rebuilders. me meee ms §=Primary channels of distribution. seuseuneaes Occasional insubstantial sales to a few of the largest rebuilders.

—— = Emergency and convenient insubstantial sales. Initial Decision 82 F.T.C.

60. The 1964 sales of new parts, materials and equipment to domestic rebuilders by rebuilder suppliers selling primarily to rebuilders were: © Market Company Sales Share Source ($000) ” (%) IPM 11,353 57.4 CX 26B, CX 45, Mansfield 2116-18 Ace 2,200 11.1 Weiss 4797, 4804-05, 4835 ' Valley Forge 1,856 9.4 Fischer 8976 Vulean Motor Products 750-1,000 5.0 Green 987 VMC & Rebuilders 1,000 5.0 McCullough 12438 Supply Co. ”

Carwin Sales 511 2.6 Winters 1179, 1182-83 * Butts Electric 438 2.2 Flynn 935 Supply Co.

American Starter 425 2.1 Kamber 1018 Drive Service Ennis Automotive, Inc. 167 8 Fallen 1452, 1458 Preferred Electric & 100-150 8 CX 273A Wire Corporation Lincoln Bearing Co. 188-165 8 Levine 5050-51, 5055 Starter Service 128 6 CX 272A * Company, Inc. oe.

Los Angeles 122 6 RX 80 Commutator Precision Field Coil Co. 95 5 Erwin 530, 536 Jamison Parts less than 70 4 Broadwell 1096 Hubert Products 55 3 CX 274A Rich Engineering Co. 46 2 CX 271A TOTAL 19,781 100.0 , 1 See also Broadwell 1075 ; and Gordon 1154. * Includes $341,250 in sales of solenoids which may not have been utilized as parts hy rebuilders. :

3Sales made through Automatics, Inc. and include transfers to Starter Service Co., Inc. 61. In 1964, each of the above rebuilder suppliers had salesmen or sales representatives which called on rebuilders (Erwin 5382; Smith 605; Feldman 719-20; Shelly 752; Flynn 935-36, 942; Green 989; Gordon 1156; Fallen 1455; A. Johnson 2533; Fischer 4069; Weiss 4834). Rebuilder suppliers engage in research and development of new methods and products for the rebuilder (CX 50 s; CX 96 a; CX 119, page DGP 88; CX 274 b15; Winters 1190).

aa ae aarwe xaeu 391 Initial Decision 62. In 1964, these rebuilder suppliers sold new parts, materials and equipment directly to rebuilders at the same price level. In that year, the three major rebuilder suppliers, after IPM, Ace Electric Company (hereinafter “Ace”), Valley Forge and Vulcan Motor Products (hereinafter “Vulcan”), equalized freight ~.charges in order to have similar prices and compete with the dominant rebuilders 1 5 1 1 3 996 568 186 45 96.310944 supplier,5 1 5 1 1 4 1208 569 85 38 96.517769 IPM5 1 5 1 1 5 1340 577 140 37 96.517769 (Erwin5 1 5 1 1 6 1522 580 152 36 87.884918 538-34;5 1 5 1 1 7 1718 575 152 42 91.568573 Gelberg4 1 5 1 2 0 556 623 1312 43 -1 5 1 5 1 2 1 556 623 144 38 94.513794 653-54,5 1 5 1 2 2 728 625 152 37 96.499374 657-58;5 1 5 1 2 3 908 625 186 32 95.500771 Woodruff5 1 5 1 2 4 1120 626 83 37 96.324463 802;5 1 5 1 2 5 1231 626 145 33 96.690964 Vander5 1 5 1 2 6 1402 627 96 32 96.600334 Veen5 1 5 1 2 7 1526 629 84 37 96.141556 902;5 1 5 1 2 8 1640 629 115 32 96.669052 Greens 1 5 1 2 9 1785 630 83 36 96.514839 996;4 1 5 1 3 0 559 673 1312 43 -1 5 1 5 1 3 1 559 673 193 32 96.485344 Broadwell5 1 5 1 3 2 793 677 169 35 95.557861 1110-11;5 1 5 1 3 3 1001 676 122 31 96.075287 Fallen5 1 5 1 3 4 1161 677 168 37 66.495308 1453-54;5 1 5 1 3 5 1368 677 177 33 92.423111 Butchkes5 1 5 1 3 6 1582 680 101 36 96.500656 2326;5 1 5 1 3 7 1723 679 148 32 96.410645 Fischer4 1 5 1 4 0 557 725 123 37 -1 5 1 5 1 4 1 557 725 123 37 84.663803 4108).2 1 6 0 0 0 558 783 1314 139 -1 3 1 6 1 0 0 558 783 1314 139 -1 4 1 6 1 1 0 604 783 1268 44 -1 5 1 6 1 1 1 604 783 52 31 82.118233 638.5 1 6 1 1 2 683 783 72 32 96.793808 Thes 1 6 1 1 3 789 785 143 32 96.120163 smaller5 1 6 1 1 4 965 785 70 31 96.002853 ands 1 6 1 1 5 1069 785 154 32 96.002853 mediums 1 6 1 1 6 1257 785 71 33 93.299492 sizes 1 6 1 1 7 1363 787 177 32 91.601242 rebuilders 1 6 1 1 8 1575 788 177 39 94.631386 suppliers5 1 6 1 1 9 1788 788 84 33 94.783638 base4 1 6 1 2 0 558 832 1313 44 -1 5 1 6 1 2 1 558 832 94 32 96.772064 theirs 1 6 1 2 2 676 833 114 39 96.635956 prices5 1 6 1 2 3 814 845 43 21 95.938904 on5 1 6 1 2 4 883 835 60 32 95.938904 thes 1 6 1 2 5 967 835 116 38 96.344360 prices5 1 6 1 2 6 1108 835 154 39 96.460693 charged5 1 6 1 2 7 1287 836 46 38 96.460693 by5 1 6 1 2 8 1357 836 60 32 96.085594 thes 1 6 1 2 9 1441 837 83 32 96.085594 four5 1 6 1 2 10 1549 838 118 38 92.968002 majors 1 6 1 2 11 1693 839 178 31 92.968002 rebuilder4 1 6 1 3 0 558 883 780 39 -1 5 1 6 1 3 1 558 883 175 38 96.030067 suppliers5 1 6 1 3 2 754 884 142 37 95.964333 (Erwin5 1 6 1 3 3 911 885 153 37 91.699173 533-84;5 1 6 1 3 4 1079 885 121 32 96.347008 Fallen5 1 6 1 3 5 1217 887 121 35 96.491982 1454).2 1 7 0 0 0 556 938 1313 147 -1 3 1 7 1 0 0 556 938 1313 147 -1 4 1 7 1 1 0 603 938 1266 51 -1 5 1 7 1 1 1 603 938 52 39 95.832024 64.5 1 7 1 1 2 682 947 190 32 96.846191 Rebuilders 1 7 1 1 3 895 948 177 38 96.126457 suppliers5 1 7 1 1 4 1096 949 61 31 96.184929 sells 1 7 1 1 5 1181 949 95 32 96.240822 theirs 1 7 1 1 6 1300 959 77 22 96.744354 news 1 7 1 1 7 1401 952 100 36 96.232086 parts5 1 7 1 1 8 1526 952 35 30 96.180573 in5 1 7 1 1 9 1587 951 83 33 96.180573 bulk5 1 7 1 1 10 1704 952 78 37 95.221069 (CX5 1 7 1 1 11 1809 953 60 36 95.221069 54;4 1 7 1 2 0 556 995 1312 44 -1 5 1 7 1 2 1 556 995 61 31 96.730904 CX5 1 7 1 2 2 647 998 61 36 96.777588 55;5 1 7 1 2 3 739 997 61 32 96.657532 CX5 1 7 1 2 4 834 998 82 37 92.062828 188;5 1 7 1 2 5 948 998 123 31 96.692223 Erwin5 1 7 1 2 6 1103 1000 83 35 96.947639 541;5 1 7 1 2 7 1218 999 144 32 96.353119 Vander5 1 7 1 2 8 1391 1000 95 32 95.776176 Veen5 1 7 1 2 9 1519 1001 83 37 95.776176 902;5 1 7 1 2 10 1636 1001 114 38 96.533684 Flynn5 1 7 1 2 11 1783 1003 85 35 96.339775 945;4 1 7 1 3 0 556 1045 283 40 -1 5 1 7 1 3 1 556 1045 145 33 96.826355 Fischer5 1 7 1 3 2 715 1048 124 37 95.307953 4068).2 1 8 0 0 0 553 1109 1316 242 -1 3 1 8 1 0 0 553 1109 1316 242 -1 4 1 8 1 1 0 601 1109 1268 44 -1 5 1 8 1 1 1 601 1109 52 31 95.911659 65.5 1 8 1 1 2 680 1109 190 34 95.911659 Rebuilders 1 8 1 1 3 895 1112 178 37 96.328300 suppliers5 1 8 1 1 4 1098 1111 89 32 96.652367 have5 1 8 1 1 5 1213 1112 207 37 96.689552 specialized5 1 8 1 1 6 1447 1115 201 37 96.294861 catalogues5 1 8 1 1 7 1675 1115 70 31 95.573265 ands 1 8 1 1 8 1772 1115 97 38 96.189720 price4 1 8 1 2 0 554 1157 1314 44 -1 5 1 8 1 2 1 554 1157 117 33 96.465424 sheets5 1 8 1 2 2 691 1159 58 32 93.283928 for5 1 8 1 2 3 770 1160 197 32 91.584068 rebuilders5 1 8 1 2 4 990 1161 124 39 96.461693 listings 1 8 1 2 5 1134 1161 59 32 96.780548 thes 1 8 1 2 6 1215 1162 104 32 96.523079 items5 1 8 1 2 7 1341 1162 114 32 96.192162 which5 1 8 1 2 8 1477 1163 84 38 96.929550 they5 1 8 1 2 9 1582 1163 90 33 96.812096 have5 1 8 1 2 10 1694 1164 174 32 96.398483 available4 1 8 1 3 0 553 1208 1312 43 -1 5 1 8 1 3 1 553 1208 60 31 96.604240 for5 1 8 1 3 2 634 1209 73 32 96.363937 sales 1 8 1 3 3 739 1210 78 38 96.046913 (CX5 1 8 1 3 4 843 1212 41 30 95.797256 515 1 8 1 3 5 910 1212 76 36 81.655251 213;5 1 8 1 3 6 1012 1211 62 31 96.717598 CX5 1 8 1 3 7 1100 1212 55 36 93.110085 53;5 1 8 1 3 8 1182 1211 80 32 89.773056 CXs5 1 8 1 3 9 1288 1213 124 37 95.159386 67-78;5 1 8 1 3 10 1438 1212 61 33 96.415413 CX5 1 8 1 3 11 1525 1214 43 31 93.028130 985 1 8 1 3 12 1594 1223 76 28 89.746307 a-c;5 1 8 1 3 13 1699 1214 61 31 96.830482 CX5 1 8 1 3 14 1789 1215 76 36 96.061737 139;4 1 8 1 4 0 553 1258 1313 44 -1 5 1 8 1 4 1 553 1258 62 32 96.572029 CX5 1 8 1 4 2 641 1260 77 38 96.055092 140;5 1 8 1 4 3 745 1260 61 33 96.736008 CX5 1 8 1 4 4 829 1262 81 37 87.614479 273;5 1 8 1 4 5 937 1261 62 32 94.827972 CX5 1 8 1 4 6 1024 1262 67 31 93.189377 2745 1 8 1 4 7 1114 1262 79 37 91.747681 b15;5 1 8 1 4 8 1233 1262 49 31 73.609467 RX5 1 8 1 4 9 1300 1263 53 31 73.609467 .295 1 8 1 4 10 1379 1273 75 28 87.396866 a-c;5 1 8 1 4 11 1481 1264 64 32 96.845871 RX5 1 8 1 4 12 1573 1265 41 31 92.120224 805 1 8 1 4 13 1641 1265 80 37 85.980408 a-d;5 1 8 1 4 14 1751 1265 115 31 95.989487 Smith4 1 8 1 5 0 555 1310 909 41 -1 5 1 8 1 5 1 555 1310 82 37 90.578979 637;5 1 8 1 5 2 652 1310 151 40 92.395103 Gelberg5 1 8 1 5 3 816 1313 84 36 92.762428 657;5 1 8 1 5 4 916 1313 114 37 96.596375 Flynn5 1 8 1 5 5 1045 1313 76 36 96.248444 947,5 1 8 1 5 6 1136 1313 83 37 96.685356 965;5 1 8 1 5 7 1234 1313 115 31 96.115234 Greens 1 8 1 5 8 1365 1314 99 37 96.213272 989).2 1 9 0 0 0 553 1374 1315 240 -1 3 1 9 1 0 0 553 1374 1315 240 -1 4 1 9 1 1 0 601 1374 1267 42 -1 5 1 9 1 1 1 601 1374 52 30 96.829430 66.5 1 9 1 1 2 681 1374 38 31 96.442818 In5 1 9 1 1 3 750 1376 95 37 93.300804 1964,5 1 9 1 1 4 875 1375 178 32 91.790520 rebuilders 1 9 1 1 5 1080 1377 176 37 96.449471 suppliers5 1 9 1 1 6 1283 1377 82 38 96.642868 only5 1 9 1 1 7 1391 1378 132 32 95.980423 offered5 1 9 1 1 8 1554 1380 101 36 96.812675 parts5 1 9 1 1 9 1683 1380 59 31 92.930061 for5 1 9 1 1 10 1769 1380 99 31 92.930061 auto-4 1 9 1 2 0 553 1423 1313 37 -1 5 1 9 1 2 1 553 1423 130 32 96.529961 motives 1 9 1 2 2 712 1425 174 31 96.540001 electrical5 1 9 1 2 3 916 1425 107 32 96.149635 units.5 1 9 1 2 4 1055 1426 39 31 94.411247 In5 1 9 1 2 5 1125 1426 104 32 96.811768 orders 1 9 1 2 6 1257 1428 37 30 96.444687 to5 1 9 1 2 7 1323 1427 136 32 93.211571 rebuilds 1 9 1 2 8 1489 1428 249 32 90.938309 nonelectrical5 1 9 1 2 9 1770 1429 96 31 96.472107 units4 1 9 1 3 0 553 1473 1314 48 -1 5 1 9 1 3 1 553 1473 85 31 96.947922 such5 1 9 1 3 2 664 1484 39 21 96.401527 as5 1 9 1 3 3 727 1476 112 31 96.401527 waters 1 9 1 3 4 864 1485 138 29 95.610077 pumps,5 1 9 1 3 5 1029 1486 20 21 96.780930 a5 1 9 1 3 6 1075 1476 317 45 89.268082 rebuilder.would5 1 9 1 3 7 1418 1477 89 32 96.723610 have5 1 9 1 3 8 1532 1478 69 31 96.574188 had5 1 9 1 3 9 1628 1479 37 31 96.574188 to5 1 9 1 3 10 1692 1479 175 38 96.582306 purchase4 1 9 1 4 0 553 1518 1314 47 -1 5 1 9 1 4 1 553 1522 94 32 96.534279 from5 1 9 1 4 2 671 1518 176 45 96.534279 suppliers5 1 9 1 4 3 871 1525 103 32 96.265381 others 1 9 1 4 4 997 1525 87 32 92.225601 than5 1 9 1 4 5 1109 1526 177 31 92.225601 rebuilders 1 9 1 4 6 1310 1525 176 40 96.151047 suppliers5 1 9 1 4 7 1518 1527 134 37 96.151047 (Smith5 1 9 1 4 8 1680 1530 83 35 93.018692 597;5 1 9 1 4 9 1790 1529 77 31 92.096848 Gel-4 1 9 1 5 0 556 1572 848 42 -1 5 1 9 1 5 1 556 1572 86 39 96.942360 berg5 1 9 1 5 2 655 1575 83 36 96.424004 652;5 1 9 1 5 3 753 1575 169 32 96.241966 Feldman5 1 9 1 5 4 937 1575 84 36 96.599411 720;5 1 9 1 5 5 1036 1575 143 32 96.150322 Vander5 1 9 1 5 6 1193 1576 95 31 96.668488 Veen5 1 9 1 5 7 1304 1577 100 37 96.691940 907).2 1 10 0 0 0 601 1649 568 40 -1 3 1 10 1 0 0 601 1649 568 40 -1 4 1 10 1 1 0 601 1649 568 40 -1 5 1 10 1 1 1 601 1650 28 29 74.510490 1.5 1 10 1 1 2 658 1649 70 31 95.004395 Thes 1 10 1 1 3 741 1650 98 31 95.201820 Four5 1 10 1 1 4 850 1650 123 39 96.647163 Majors 1 10 1 1 5 985 1650 184 39 96.578011 Suppliers2 1 11 0 0 0 552 1715 1331 193 -1 3 1 11 1 0 0 552 1715 1331 193 -1 4 1 11 1 1 0 598 1715 1268 43 -1 5 1 11 1 1 1 598 1715 52 31 96.385918 67.5 1 11 1 1 2 679 1715 103 32 96.141029 Prior5 1 11 1 1 3 808 1718 37 30 96.912949 to5 1 11 1 1 4 871 1716 60 33 96.520546 thes 1 11 1 1 5 958 1717 211 38 96.333694 acquisitions 1 11 1 1 6 1196 1718 39 31 96.333694 of5 1 11 1 1 7 1264 1718 83 31 95.714249 IPM5 1 11 1 1 8 1377 1719 44 37 96.847862 by5 1 11 1 1 9 1450 1719 126 38 96.077995 Avnet,5 1 11 1 1 10 1605 1719 60 33 96.962029 thes 1 11 1 1 11 1693 1722 61 36 95.924316 tops 1 11 1 1 12 1783 1720 83 32 95.924316 four4 1 11 1 2 0 553 1764 1312 42 -1 5 1 11 1 2 1 553 1764 177 32 92.694160 rebuilders 1 11 1 2 2 758 1767 177 37 96.018188 suppliers5 1 11 1 2 3 964 1768 192 31 96.080605 accounted5 1 11 1 2 4 1186 1767 58 32 96.837608 for5 1 11 1 2 5 1274 1767 224 39 96.485840 $16,409,0005 1 11 1 2 6 1529 1770 37 30 96.460342 in5 1 11 1 2 7 1597 1770 91 30 94.933281 sales5 1 11 1 2 8 1718 1779 40 22 94.933281 or5 1 11 1 2 9 1789 1770 76 30 96.533325 82.94 1 11 1 3 0 552 1816 1331 41 -1 5 1 11 1 3 1 552 1817 144 34 96.233353 percent5 1 11 1 3 2 719 1816 39 31 96.506683 of5 1 11 1 3 3 783 1818 85 30 96.664345 19645 1 11 1 3 4 892 1817 88 31 96.101105 totals 1 11 1 3 5 1005 1818 91 30 96.101105 sales5 1 11 1 3 6 1120 1818 45 37 96.478561 by5 1 11 1 3 7 1189 1818 176 38 96.477074 suppliers5 1 11 1 3 8 1389 1818 127 39 95.980911 selling5 1 11 1 3 9 1540 1820 188 37 96.205910 primarily5 1 11 1 3 10 1745 1821 43 30 79.915443 to5 1 11 1 3 11 1808 1827 75 24 0.000000 -re-'4 1 11 1 4 0 552 1863 1244 45 -1 5 1 11 1 4 1 552 1863 155 33 96.418144 builders5 1 11 1 4 2 728 1866 162 36 96.418144 (Vander5 1 11 1 4 3 903 1868 95 30 96.661514 Veen5 1 11 1 4 4 1013 1867 84 36 96.357857 902;5 1 11 1 4 5 1111 1867 141 32 96.402245 Gordon5 1 11 1 4 6 1270 1869 172 36 86.216583 1160-615 1 11 1 4 7 1431 1859 14 53 86.216583 ;5 1 11 1 4 8 1459 1869 174 39 96.531380 Findings5 1 11 1 4 9 1648 1870 54 36 96.235725 60,5 1 11 1 4 10 1718 1870 78 35 96.235725 73).2 1 12 0 0 0 549 1928 1318 442 -1 3 1 12 1 0 0 549 1928 1318 442 -1 4 1 12 1 1 0 598 1928 1269 42 -1 5 1 12 1 1 1 598 1928 52 30 96.477104 68.5 1 12 1 1 2 679 1929 72 31 95.220268 Thes 1 12 1 1 3 781 1930 291 32 95.834557 uncontradicted5 1 12 1 1 4 1103 1931 191 38 96.333588 testimony5 1 12 1 1 5 1324 1931 40 32 96.449364 of5 1 12 1 1 6 1392 1932 128 32 96.563225 almost5 1 12 1 1 7 1551 1942 106 28 92.335594 every5 1 12 1 1 8 1689 1932 178 32 91.217941 rebuilder4 1 12 1 2 0 551 1977 1314 40 -1 5 1 12 1 2 1 551 1977 156 39 96.406654 witness,5 1 12 1 2 2 730 1989 39 21 96.647049 as5 1 12 1 2 3 792 1980 76 31 95.227493 wells 1 12 1 2 4 892 1989 39 22 96.899796 as5 1 12 1 2 5 953 1980 102 31 96.416718 others 1 12 1 2 6 1078 1980 194 37 96.216042 witnesses,5 1 12 1 2 7 1297 1991 73 21 96.225342 was5 1 12 1 2 8 1393 1981 79 32 96.924370 that5 1 12 1 2 9 1495 1983 36 30 96.898277 in5 1 12 1 2 10 1558 1983 87 31 96.611465 19645 1 12 1 2 11 1668 1983 70 31 96.652245 ands 1 12 1 2 12 1762 1983 59 31 96.652245 for5 1 12 1 2 13 1845 1992 20 22 96.793022 a4 1 12 1 3 0 551 2028 1314 43 -1 5 1 12 1 3 1 551 2028 148 32 96.901283 numbers 1 12 1 3 2 719 2029 39 31 96.356079 of5 1 12 1 3 3 777 2039 104 28 96.625420 years5 1 12 1 3 4 903 2031 98 37 96.634087 prior5 1 12 1 3 5 1021 2030 149 38 96.625526 thereto,5 1 12 1 3 6 1192 2030 84 32 96.046310 four5 1 12 1 3 7 1295 2031 111 37 96.610916 firms,5 1 12 1 3 8 1428 2032 64 37 96.488304 viz,5 1 12 1 3 9 1516 2032 97 38 96.730263 IPM,5 1 12 1 3 10 1635 2033 83 38 96.347229 Ace,5 1 12 1 3 11 1741 2032 124 38 96.451263 Valley4 1 12 1 4 0 552 2076 1313 44 -1 5 1 12 1 4 1 552 2076 114 40 96.411041 Forge5 1 12 1 4 2 685 2079 69 31 96.411041 ands 1 12 1 4 3 773 2079 146 37 96.700630 Vulcan,5 1 12 1 4 4 941 2090 92 21 96.925163 were5 1 12 1 4 5 1051 2080 61 32 96.856056 thes 1 12 1 4 6 1132 2080 116 38 96.774109 majors 1 12 1 4 7 1268 2081 177 38 96.230263 suppliers5 1 12 1 4 8 1465 2082 39 31 96.730675 of5 1 12 1 4 9 1523 2092 78 21 96.730675 news 1 12 1 4 10 1622 2084 112 36 93.286850 parts,5 1 12 1 4 11 1756 2084 109 29 91.335655 mate-4 1 12 1 5 0 552 2127 1313 43 -1 5 1 12 1 5 1 552 2127 85 33 95.804474 rials5 1 12 1 5 2 658 2129 69 32 95.804474 ands 1 12 1 5 3 748 2130 203 37 96.579773 equipments 1 12 1 5 4 971 2132 36 29 93.301689 to5 1 12 1 5 5 1031 2130 204 31 91.815002 rebuilders.5 1 12 1 5 6 1261 2131 32 31 95.330635 It5 1 12 1 5 7 1314 2131 31 32 95.330635 is5 1 12 1 5 8 1367 2132 213 38 95.970108 undisputed5 1 12 1 5 9 1603 2133 81 31 96.137489 that5 1 12 1 5 10 1705 2132 40 32 96.828842 of5 1 12 1 5 11 1766 2132 99 32 96.828842 these4 1 12 1 6 0 550 2177 1313 43 -1 5 1 12 1 6 1 550 2177 93 38 95.805908 four,5 1 12 1 6 2 673 2178 85 31 96.161674 IPM5 1 12 1 6 3 788 2189 73 22 95.484375 was5 1 12 1 6 4 890 2180 60 32 95.484375 thes 1 12 1 6 5 980 2180 134 38 93.288734 largest5 1 12 1 6 6 1143 2181 177 31 92.753334 rebuilders 1 12 1 6 7 1350 2182 157 38 95.182579 suppliers 1 12 1 6 8 1545 2182 142 36 94.959274 (Erwin5 1 12 1 6 9 1719 2182 144 36 75.638321 531-32,4 1 12 1 7 0 550 2229 1315 42 -1 5 1 12 1 7 1 550 2229 76 37 90.083992 534,5 1 12 1 7 2 651 2230 83 36 88.171638 553;5 1 12 1 7 3 758 2230 115 31 95.527023 Smith5 1 12 1 7 4 898 2231 75 37 96.546043 582,5 1 12 1 7 5 999 2231 75 37 96.847015 586,5 1 12 1 7 6 1099 2231 76 38 96.183876 605,5 1 12 1 7 7 1199 2231 152 38 92.715363 608-09;5 1 12 1 7 8 1378 2232 150 39 92.320099 Gelberg5 1 12 1 7 9 1552 2233 76 37 94.197495 653,5 1 12 1 7 10 1654 2233 85 37 93.298790 689;5 1 12 1 7 11 1765 2233 100 31 92.853271 Feld-4 1 12 1 8 0 549 2280 1315 40 -1 5 1 12 1 8 1 549 2286 83 23 95.418236 man5 1 12 1 8 2 651 2280 152 36 81.960426 711-13;5 1 12 1 8 3 824 2280 118 38 95.299965 Shelly5 1 12 1 8 4 961 2281 84 36 95.832306 750;5 1 12 1 8 5 1065 2280 183 33 95.444649 Woodruff5 1 12 1 8 6 1268 2283 75 37 96.083290 795,5 1 12 1 8 7 1366 2283 151 37 91.186974 796-97;5 1 12 1 8 8 1539 2283 159 31 90.587669 DeBlase5 1 12 1 8 9 1719 2283 145 37 88.258759 838-39,4 1 12 1 9 0 550 2328 1313 42 -1 5 1 12 1 9 1 550 2328 82 37 96.245499 841;5 1 12 1 9 2 658 2328 143 34 95.977280 Vander5 1 12 1 9 3 825 2331 95 31 95.977280 Veen5 1 12 1 9 4 945 2331 144 37 7.150993 896-97,5 1 12 1 9 5 1115 2331 83 37 96.270645 902;5 1 12 1 9 6 1224 2331 115 38 96.627655 Flynn5 1 12 1 9 7 1365 2332 75 38 89.270210 986,5 1 12 1 9 8 1466 2334 153 36 94.685555 943-44;5 1 12 1 9 9 1646 2333 114 32 96.582687 Greens 1 12 1 9 10 1788 2333 75 37 96.680328 987, Initial Decision 82 F.T.C.

989-90; Broadwell 1084, 1092; Gordon 1160; Winters 1184; McCullough 1245-47, 1250, 1258; Fallen 1452-54, 1465; Brock 1525; Butchkes 2299, 2322-23; A. H. Johnson 2529-31; Led- 5 1 2 1 4 2 701 558 117 45 80.142838 Better5 1 2 1 4 3 836 572 171 38 69.114243 3905-06;5 1 2 1 4 4 1029 583 57 22 96.367027 sees 1 2 1 4 5 1105 568 77 37 91.137131 also5 1 2 1 4 6 1199 573 62 32 96.503685 CX5 1 2 1 4 7 1280 569 43 36 82.421593 365 1 2 1 4 8 1343 584 30 27 30.034576 c;5 1 2 1 4 9 1396 575 124 32 79.501160 CX-375 1 2 1 4 10 1540 575 34 38 92.949081 d;5 1 2 1 4 11 1597 575 61 32 96.147369 CX5 1 2 1 4 12 1679 578 44 29 91.600945 445 1 2 1 4 13 1744 575 103 39 86.604362 a-b).3 1 2 2 0 0 702 623 1320 243 -1 4 1 2 2 1 0 748 623 1274 41 -1 5 1 2 2 1 1 748 623 54 30 96.668671 69.5 1 2 2 1 2 829 623 40 31 93.742783 In5 1 2 2 1 3 904 624 98 37 96.816269 1964,5 1 2 2 1 4 1034 623 60 33 96.235748 thes 1 2 2 1 5 1126 624 84 32 96.807014 four5 1 2 2 1 6 1241 626 119 37 96.989220 majors 1 2 2 1 7 1391 626 177 38 96.411560 suppliers5 1 2 2 1 8 1601 626 191 33 92.885948 furnished5 1 2 2 1 9 1826 628 196 33 92.432014 rebuilders4 1 2 2 2 0 702 671 1320 45 -1 5 1 2 2 2 1 702 671 87 33 96.505600 with5 1 2 2 2 2 820 672 159 33 96.396355 between5 1 2 2 2 3 1010 674 42 31 96.747513 645 1 2 2 2 4 1084 677 146 36 96.457336 percent5 1 2 2 2 5 1262 676 68 31 96.289040 ands 1 2 2 2 6 1363 677 43 30 96.662933 975 1 2 2 2 7 1438 677 145 37 96.449539 percent5 1 2 2 2 8 1614 677 40 31 96.947357 of5 1 2 2 2 9 1683 677 97 32 96.260895 theirs 1 2 2 2 10 1813 688 77 22 95.338921 news 1 2 2 2 11 1921 680 101 36 95.338921 parts4 1 2 2 3 0 702 722 1319 44 -1 5 1 2 2 3 1 702 722 259 39 96.409599 requirements5 1 2 2 3 2 994 724 136 39 95.615425 (Shelly5 1 2 2 3 3 1156 725 152 37 94.672684 750-51;5 1 2 2 3 4 1333 725 187 33 96.480972 Woodruff5 1 2 2 3 5 1543 728 85 36 93.277130 797;5 1 2 2 3 6 1655 727 160 32 91.588737 DeBlase5 1 2 2 3 7 1841 728 77 37 96.658157 837,5 1 2 2 3 8 1945 729 76 37 96.312096 839,4 1 2 2 4 0 702 773 1320 42 -1 5 1 2 2 4 1 702 773 83 36 95.952080 841;5 1 2 2 4 2 824 773 146 32 95.754723 Vander5 1 2 2 4 3 1008 774 96 32 95.912804 Veen5 1 2 2 4 4 1143 776 145 36 91.980988 896-97,5 1 2 2 4 5 1329 776 84 36 96.455307 902;5 1 2 2 4 6 1454 776 141 32 96.087090 Gordon5 1 2 2 4 7 1639 778 175 37 91.747086 1160-61;5 1 2 2 4 8 1855 778 167 32 96.316719 McGuire4 1 2 2 5 0 703 824 1022 42 -1 5 1 2 2 5 1 703 824 220 38 87.577324 1289-1300;5 1 2 2 5 2 947 824 179 33 91.168266 Butchkes5 1 2 2 5 3 1149 827 176 36 89.449272 2321-23;5 1 2 2 5 4 1349 826 42 32 95.815506 A.5 1 2 2 5 5 1416 827 159 32 95.725937 Johnson5 1 2 2 5 6 1600 828 125 38 77.564888 2533).3 1 2 3 0 0 701 874 1319 189 -1 4 1 2 3 1 0 746 874 1274 42 -1 5 1 2 3 1 1 746 874 54 31 95.381485 70.5 1 2 3 1 2 828 875 39 30 95.593407 In5 1 2 3 1 3 895 875 97 37 93.022675 1964,5 1 2 3 1 4 1018 875 197 32 92.039352 rebuilders5 1 2 3 1 5 1239 876 197 39 96.057785 purchased5 1 2 3 1 6 1461 878 158 31 96.302704 between5 1 2 3 1 7 1644 878 42 31 96.978317 345 1 2 3 1 8 1712 881 147 35 95.325241 percent5 1 2 3 1 9 1883 879 69 31 95.325241 ands 1 2 3 1 10 1979 880 41 30 96.888885 804 1 2 3 2 0 701 925 1319 41 -1 5 1 2 3 2 1 701 926 144 35 96.633797 percent5 1 2 3 2 2 868 925 40 31 96.563934 of5 1 2 3 2 3 929 925 96 32 96.143074 theirs 1 2 3 2 4 1047 926 86 31 96.720963 totals 1 2 3 2 5 1160 926 258 38 96.715164 requirements5 1 2 3 2 6 1442 927 40 32 96.179512 of5 1 2 3 2 7 1504 938 78 21 96.955215 news 1 2 3 2 8 1605 929 112 37 96.415405 parts,5 1 2 3 2 9 1743 929 185 31 95.856033 materials5 1 2 3 2 10 1952 929 68 31 96.080139 anda 1 2 3 3 0 701 974 1318 65 -1 5 1 2 3 3 1 701 974 204 38 96.764038 equipments 1 2 3 3 2 922 975 96 31 96.476181 from5 1 2 3 3 3 1033 975 61 32 96.956985 thes 1 2 3 3 4 1110 976 84 32 96.097733 four5 1 2 3 3 5 1211 976 118 38 96.097733 majors 1 2 3 3 6 1346 977 177 38 96.457611 suppliers5 1 2 3 3 7 1548 977 135 37 96.386536 (Smith5 1 2 3 3 8 1702 979 145 60 89.419380 582-84,5 1 2 3 3 9 1868 979 151 37 92.609169 610-12;4 1 2 3 4 0 702 1023 737 40 -1 5 1 2 3 4 1 702 1023 168 33 96.388268 McGuire5 1 2 3 4 2 886 1025 220 37 92.472206 1289-1300;5 1 2 3 4 3 1122 1025 236 34 92.472206 Butchkes5 1 2 3 4 4 1361 1027 78 36 88.774498 2331).2 1 3 0 0 0 698 1068 1323 396 -1 3 1 3 1 0 0 698 1068 1323 396 -1 4 1 3 1 1 0 746 1068 1275 61 -1 5 1 3 1 1 1 746 1082 54 31 93.303017 71.5 1 3 1 1 2 829 1082 39 31 96.780800 In5 1 3 1 1 3 900 1084 98 36 96.872818 1964,5 1 3 1 1 4 1028 1083 84 32 96.576874 each5 1 3 1 1 5 1143 1084 39 31 96.871017 of5 1 3 1 1 6 1210 1084 100 32 96.777405 these5 1 3 1 1 7 1339 1085 84 31 95.628510 four5 1 3 1 1 8 1451 1081 128 42 82.514923 majors 1 3 1 1 9 1598 1068 180 61 96.938637 suppliers5 1 3 1 1 10 1808 1087 162 38 94.851151 supplied5 1 3 1 1 11 2000 1097 21 22 94.851151 a4 1 3 1 2 0 701 1131 1320 44 -1 5 1 3 1 2 1 701 1131 90 33 97.018394 wide5 1 3 1 2 2 811 1142 111 29 96.472710 ranges 1 3 1 2 3 941 1133 40 31 96.895744 of5 1 3 1 2 4 1000 1135 101 36 96.813080 parts5 1 3 1 2 5 1121 1136 36 29 93.292366 to5 1 3 1 2 6 1177 1134 198 32 92.150970 rebuilders5 1 3 1 2 7 1396 1136 69 31 96.267838 ands 1 3 1 2 8 1485 1145 93 22 96.797783 were5 1 3 1 2 9 1598 1136 61 32 96.644226 thes 1 3 1 2 10 1680 1136 83 38 96.762802 only5 1 3 1 2 11 1784 1137 177 38 96.724579 suppliers5 1 3 1 2 12 1983 1137 38 32 96.853325 of4 1 3 1 3 0 700 1181 1320 44 -1 5 1 3 1 3 1 700 1181 86 31 96.325653 such5 1 3 1 3 2 809 1192 21 21 95.800919 a5 1 3 1 3 3 854 1182 91 33 95.800919 wide5 1 3 1 3 4 970 1193 111 28 95.252754 ranges 1 3 1 3 5 1106 1184 39 31 95.252754 of5 1 3 1 3 6 1169 1184 101 37 96.246834 parts5 1 3 1 3 7 1295 1185 36 30 92.726906 to5 1 3 1 3 8 1357 1184 197 33 91.380630 rebuilders5 1 3 1 3 9 1587 1186 143 37 96.424583 (Erwin5 1 3 1 3 10 1758 1187 83 37 93.298981 553;5 1 3 1 3 11 1869 1186 151 39 91.128975 Gelberg4 1 3 1 4 0 700 1232 1318 43 -1 5 1 3 1 4 1 700 1232 84 37 96.948563 657;5 1 3 1 4 2 809 1232 172 32 96.009460 Feldman5 1 3 1 4 3 1006 1234 84 36 96.962074 726;5 1 3 1 4 4 1116 1234 185 32 96.634544 Woodruff5 1 3 1 4 5 1325 1235 76 37 96.484924 797,5 1 3 1 4 6 1429 1235 83 37 92.807686 802;5 1 3 1 4 7 1539 1235 158 33 92.465622 DeBlase5 1 3 1 4 8 1724 1237 153 37 93.812538 840-41;5 1 3 1 4 9 1906 1235 112 40 95.603058 Flynn4 1 3 1 5 0 700 1282 1320 42 -1 5 1 3 1 5 1 700 1282 152 38 84.822296 943-44;5 1 3 1 5 2 877 1283 115 31 96.238930 Greens 1 3 1 5 3 1015 1284 145 37 90.669289 987-88,5 1 3 1 5 4 1184 1284 84 37 96.362694 990;5 1 3 1 5 5 1292 1284 142 32 96.382759 Gordon5 1 3 1 5 6 1460 1286 105 36 96.236130 1156;5 1 3 1 5 7 1589 1286 170 31 96.403900 McGuire5 1 3 1 5 8 1786 1286 97 38 93.295166 1290,5 1 3 1 5 9 1911 1287 109 31 83.310585 1292-4 1 3 1 6 0 700 1332 1318 39 -1 5 1 3 1 6 1 700 1332 61 37 94.823318 93;5 1 3 1 6 2 781 1332 123 33 96.465340 Fallen5 1 3 1 6 3 927 1334 191 37 86.453026 1453-54).5 1 3 1 6 4 1139 1334 201 31 96.284576 Numerous5 1 3 1 6 5 1360 1335 185 32 96.701324 witnesses5 1 3 1 6 6 1565 1336 155 32 96.353210 testified5 1 3 1 6 7 1741 1336 81 32 96.434151 that5 1 3 1 6 8 1844 1337 85 31 95.048332 IPM5 1 3 1 6 9 1950 1336 68 32 96.561974 had4 1 3 1 7 0 699 1381 1319 47 -1 5 1 3 1 7 1 699 1381 60 32 96.456871 thes 1 3 1 7 2 784 1382 127 32 96.332054 widest5 1 3 1 7 3 937 1393 112 28 96.874123 ranges 1 3 1 7 4 1075 1383 40 32 96.773018 of5 1 3 1 7 5 1140 1385 101 37 96.466248 parts5 1 3 1 7 6 1268 1384 174 32 96.350418 available5 1 3 1 7 7 1467 1386 38 30 93.292236 to5 1 3 1 7 8 1532 1386 207 31 91.316727 rebuilders.5 1 3 1 7 9 1771 1386 75 42 96.715645 Ones 1 3 1 7 10 1873 1386 145 32 96.826126 witness4 1 3 1 8 0 698 1432 167 32 -1 5 1 3 1 8 1 698 1432 167 32 96.154388 testified:2 1 4 0 0 0 697 1506 1322 336 -1 3 1 4 1 0 0 697 1506 1322 336 -1 4 1 4 1 1 0 698 1506 1321 37 -1 5 1 4 1 1 1 698 1507 68 26 64.830025 Yes.5 1 4 1 1 2 782 1509 23 24 64.830025 -I5 1 4 1 1 3 832 1507 87 27 96.822739 thinks 1 4 1 1 4 946 1509 143 31 96.568176 probably5 1 4 1 1 5 1116 1511 82 24 96.762466 after5 1 4 1 1 6 1226 1506 118 35 65.478783 looking5 1 4 1 1 7 1361 1513 50 23 65.478783 -at5 1 4 1 1 8 1429 1511 49 25 96.039062 thes 1 4 1 1 9 1506 1511 189 32 95.743469 availability5 1 4 1 1 10 1722 1512 33 26 95.743469 of5 1 4 1 1 11 1783 1514 86 29 96.229935 parts5 1 4 1 1 12 1898 1512 70 25 96.816612 then5 1 4 1 1 13 1996 1512 23 25 95.551460 it4 1 4 1 2 0 697 1548 1321 39 -1 5 1 4 1 2 1 697 1548 118 27 96.966286 became5 1 4 1 2 2 838 1558 73 23 96.465508 very5 1 4 1 2 3 935 1551 120 26 96.465508 evident5 1 4 1 2 4 1078 1554 31 22 95.637421 to5 1 4 1 2 5 1133 1560 45 17 96.718178 me5 1 4 1 2 6 1203 1551 68 27 96.401024 that5 1 4 1 2 7 1295 1551 25 27 96.025566 if5 1 4 1 2 8 1345 1553 11 25 96.025566 I5 1 4 1 2 9 1382 1552 96 32 96.097076 really5 1 4 1 2 10 1502 1553 117 25 96.746803 wanted5 1 4 1 2 11 1645 1554 171 33 96.334747 something5 1 4 1 2 12 1840 1554 59 25 96.649658 ands 1 4 1 2 13 1925 1554 93 25 94.225487 didn’t4 1 4 1 3 0 697 1592 1320 30 -1 5 1 4 1 3 1 697 1593 82 24 95.879135 wants 1 4 1 3 2 811 1593 31 24 96.434029 to5 1 4 1 3 3 875 1592 77 26 96.900253 hunt5 1 4 1 3 4 985 1593 49 26 96.793167 for5 1 4 1 3 5 1068 1593 24 25 96.553047 it5 1 4 1 3 6 1125 1595 11 25 95.193497 I5 1 4 1 3 7 1171 1593 85 26 95.193497 could5 1 4 1 3 8 1291 1593 58 26 96.309654 finds 1 4 1 3 9 1385 1594 24 26 96.058807 it5 1 4 1 3 10 1442 1597 33 24 96.568947 at5 1 4 1 3 11 1509 1595 80 25 92.868149 IPM.5 1 4 1 3 12 1625 1595 99 26 91.024483 IPM’s5 1 4 1 3 13 1759 1596 147 25 87.593124 salesmen5 1 4 1 3 14 1942 1604 75 18 87.593124 were4 1 4 1 4 0 697 1634 1321 34 -1 5 1 4 1 4 1 697 1634 176 25 96.765350 convenient5 1 4 1 4 2 890 1636 30 23 96.404999 to5 1 4 1 4 3 939 1635 50 25 96.404999 thes 1 4 1 4 4 1007 1635 163 31 96.668259 telephone,5 1 4 1 4 5 1189 1636 72 30 96.758499 they5 1 4 1 4 6 1278 1644 77 17 96.906326 were5 1 4 1 4 7 1374 1638 119 30 96.506432 prompt5 1 4 1 4 8 1511 1645 38 17 96.112968 on5 1 4 1 4 9 1567 1637 142 31 96.026421 delivery,5 1 4 1 4 10 1728 1638 80 25 96.542931 theirs 1 4 1 4 11 1827 1639 97 24 96.807304 stores5 1 4 1 4 12 1942 1646 76 17 96.382637 were4 1 4 1 5 0 697 1676 1320 34 -1 5 1 4 1 5 1 697 1677 97 29 96.117439 great,5 1 4 1 5 2 812 1676 79 25 96.521187 theirs 1 4 1 5 3 910 1677 134 30 96.272766 supplies5 1 4 1 5 4 1063 1685 77 17 96.637520 were5 1 4 1 5 5 1159 1677 157 32 96.753654 adequate,5 1 4 1 5 6 1336 1677 58 27 96.586731 ands 1 4 1 5 7 1415 1678 24 27 96.586731 it5 1 4 1 5 8 1458 1679 109 31 96.317924 simply5 1 4 1 5 9 1586 1687 63 17 95.209984 was5 1 4 1 5 10 1669 1680 49 25 95.209984 for5 1 4 1 5 11 1738 1680 52 25 96.377617 thes 1 4 1 5 12 1811 1687 81 17 96.702621 same5 1 4 1 5 13 1912 1688 105 17 96.558876 reasona 1 4 1 6 0 697 1716 1320 38 -1 5 1 4 1 6 1 697 1716 67 27 96.148933 that5 1 4 1 6 2 791 1726 58 23 96.148933 you5 1 4 1 6 3 877 1718 162 32 54.950890 might,5 1 4 1 6 4 1007 1712 35 46 54.950890 go5 1 4 1 6 5 1068 1722 29 23 96.141678 to5 1 4 1 6 6 1126 1728 17 17 96.818901 a5 1 4 1 6 7 1172 1719 211 32 96.157661 supermarkets 1 4 1 6 8 1411 1720 117 26 96.095139 instead5 1 4 1 6 9 1557 1722 32 24 96.783813 of5 1 4 1 6 10 1618 1723 30 24 96.783813 to5 1 4 1 6 11 1678 1721 50 26 96.944748 thes 1 4 1 6 12 1758 1729 107 18 95.730026 corners 1 4 1 6 13 1894 1730 123 24 95.730026 grocery4 1 4 1 7 0 697 1759 1320 35 -1 5 1 4 1 7 1 697 1761 88 24 96.247833 store.5 1 4 1 7 2 810 1759 111 32 96.416725 (Smith5 1 4 1 7 3 942 1761 67 31 96.855011 586;5 1 4 1 7 4 1031 1769 47 17 96.282196 sees 1 4 1 7 5 1098 1761 62 26 95.833321 also5 1 4 1 7 6 1181 1761 102 26 95.833405 Erwin5 1 4 1 7 7 1304 1763 66 31 74.290283 553;5 1 4 1 7 8 1395 1762 96 32 96.538780 Flynn5 1 4 1 7 9 1511 1764 68 30 93.393822 943;5 1 4 1 7 10 1602 1763 167 25 96.406258 Broadwell5 1 4 1 7 11 1792 1764 85 30 95.710449 1084;5 1 4 1 7 12 1901 1764 116 25 96.237999 Gordon4 1 4 1 8 0 698 1797 1231 45 -1 5 1 4 1 8 1 698 1802 84 30 96.667336 1160;5 1 4 1 8 2 805 1797 157 30 95.941193 Mansfield5 1 4 1 8 3 984 1803 140 30 92.694061 1908-13;5 1 4 1 8 4 1147 1803 149 26 92.694061 Butchkes5 1 4 1 8 5 1315 1805 142 31 89.471107 2321-23;5 1 4 1 8 6 1480 1800 159 46 95.422241 Ledbetter5 1 4 1 8 7 1656 1800 102 46 96.188095 3905).5 1 4 1 8 8 1927 1824 2 4 6.265373 :2 1 5 0 0 0 696 1867 1321 189 -1 3 1 5 1 0 0 696 1867 1321 189 -1 4 1 5 1 1 0 743 1867 1274 44 -1 5 1 5 1 1 1 743 1867 53 30 95.647041 72.5 1 5 1 1 2 825 1867 38 32 95.934158 In5 1 5 1 1 3 907 1869 98 36 95.934158 1964,5 1 5 1 1 4 1048 1869 70 32 96.742470 Ace5 1 5 1 1 5 1159 1869 187 33 93.126877 furnished5 1 5 1 1 6 1390 1871 196 32 91.816757 rebuilders5 1 5 1 1 7 1627 1872 88 31 95.863792 with5 1 5 1 1 8 1759 1872 258 39 95.863792 ‘Interchange4 1 5 1 2 0 699 1916 1318 44 -1 5 1 5 1 2 1 699 1916 117 32 95.852142 Lists”5 1 5 1 2 2 836 1917 163 40 96.372070 showings 1 5 1 2 3 1018 1919 79 31 96.706223 how5 1 5 1 2 4 1116 1921 83 36 96.555931 parts 1 5 1 2 5 1218 1920 167 32 96.598938 numbers5 1 5 1 2 6 1405 1921 40 32 96.947166 of5 1 5 1 2 7 1464 1921 46 31 96.025299 its5 1 5 1 2 8 1530 1922 119 37 96.150192 majors 1 5 1 2 9 1669 1923 241 37 96.150192 competitors,5 1 5 1 2 10 1933 1923 84 31 96.440788 IPM4 1 5 1 3 0 696 1967 1318 41 -1 5 1 5 1 3 1 696 1967 69 31 96.375015 ands 1 5 1 3 2 784 1968 124 37 96.142197 Valley5 1 5 1 3 3 928 1968 126 39 96.699875 Forge,5 1 5 1 3 4 1074 1969 255 39 96.306427 interchanged5 1 5 1 3 5 1348 1970 87 32 96.225105 with5 1 5 1 3 6 1454 1971 101 31 96.225105 those5 1 5 1 3 7 1573 1971 40 31 96.863091 of5 1 5 1 3 8 1632 1972 71 30 96.207489 Ace5 1 5 1 3 9 1731 1971 80 36 95.830635 (CX5 1 5 1 3 10 1834 1973 40 30 93.234184 515 1 5 1 3 11 1897 1973 117 35 36.826210 c-z12;4 1 5 1 4 0 698 2018 282 38 -1 5 1 5 1 4 1 698 2018 141 32 96.243347 Gordon5 1 5 1 4 2 857 2019 123 37 96.540588 1162).2 1 6 0 0 0 695 2076 1323 440 -1 3 1 6 1 0 0 695 2076 1323 440 -1 4 1 6 1 1 0 743 2076 1272 42 -1 5 1 6 1 1 1 743 2076 53 31 95.419258 73.5 1 6 1 1 2 825 2076 38 31 95.419258 In5 1 6 1 1 3 887 2077 98 36 95.331902 1964,5 1 6 1 1 4 1008 2079 92 30 96.463379 most5 1 6 1 1 5 1120 2078 39 31 95.634567 of5 1 6 1 1 6 1177 2078 61 32 96.167435 thes 1 6 1 1 7 1260 2079 169 31 96.300812 domestic5 1 6 1 1 8 1450 2079 91 32 96.128777 sales5 1 6 1 1 9 1563 2080 45 38 96.686043 by5 1 6 1 1 10 1629 2080 101 32 96.097733 three5 1 6 1 1 11 1751 2081 40 31 96.449585 of5 1 6 1 1 12 1813 2081 99 31 96.381348 these5 1 6 1 1 13 1933 2081 82 32 96.741364 four4 1 6 1 2 0 695 2125 1320 44 -1 5 1 6 1 2 1 695 2125 119 38 96.561005 majors 1 6 1 2 2 843 2127 178 37 96.267548 suppliers5 1 6 1 2 3 1051 2137 93 23 96.585846 were5 1 6 1 2 4 1174 2129 103 31 96.552574 made5 1 6 1 2 5 1306 2130 37 30 93.229897 to5 1 6 1 2 6 1373 2129 197 32 91.711800 rebuilders5 1 6 1 2 7 1601 2130 87 31 96.837341 with5 1 6 1 2 8 1720 2132 230 37 96.291992 one-quarters 1 6 1 2 9 1981 2133 34 30 96.291992 to4 1 6 1 3 0 695 2175 1319 48 -1 5 1 6 1 3 1 695 2175 180 33 96.220680 one-thirds 1 6 1 3 2 898 2177 39 31 93.272964 of5 1 6 1 3 3 959 2178 167 31 86.166145 Vulcan’s5 1 6 1 3 4 1150 2178 91 32 96.841751 sales5 1 6 1 3 5 1265 2179 106 38 96.345345 beings 1 6 1 3 6 1393 2180 102 31 96.077980 made5 1 6 1 3 7 1517 2181 37 31 93.271683 to5 1 6 1 3 8 1578 2181 199 31 91.610565 rebuilders5 1 6 1 3 9 1810 2181 79 42 96.826187 (CX5 1 6 1 3 10 1913 2181 42 31 87.094429 285 1 6 1 3 11 1981 2191 33 26 49.593857 ¢;4 1 6 1 4 0 697 2225 1317 42 -1 5 1 6 1 4 1 697 2225 60 32 95.238205 CX5 1 6 1 4 2 787 2226 60 37 96.371117 45;5 1 6 1 4 3 877 2226 62 37 96.533806 CX5 1 6 1 4 4 970 2228 43 30 95.517326 465 1 6 1 4 5 1041 2237 38 27 95.242592 a;5 1 6 1 4 6 1110 2228 114 32 96.459946 Greens 1 6 1 4 7 1255 2229 152 37 86.231064 986-87;5 1 6 1 4 8 1438 2229 196 32 96.425400 Broadwell5 1 6 1 4 9 1669 2231 174 36 77.176254 1078-79;5 1 6 1 4 10 1874 2230 140 33 96.300049 Gordon4 1 6 1 5 0 699 2276 1316 43 -1 5 1 6 1 5 1 699 2276 120 36 96.099541 1157).5 1 6 1 5 2 849 2276 31 31 96.266693 A5 1 6 1 5 3 908 2286 87 29 96.500542 very5 1 6 1 5 4 1023 2277 116 32 96.596809 minors 1 6 1 5 5 1168 2280 212 37 96.605820 percentages 1 6 1 5 6 1408 2280 39 31 96.821678 of5 1 6 1 5 7 1474 2279 100 32 96.295074 these5 1 6 1 5 8 1602 2281 215 38 96.664001 companies’5 1 6 1 5 9 1847 2280 168 32 96.424881 domestic4 1 6 1 6 0 697 2325 1320 44 -1 5 1 6 1 6 1 697 2325 91 32 96.666359 sales5 1 6 1 6 2 811 2328 96 31 96.036827 went5 1 6 1 6 3 930 2328 37 31 93.252312 to5 1 6 1 6 4 992 2328 251 32 91.669296 nonrebuilder5 1 6 1 6 5 1267 2330 207 31 96.887398 customers.5 1 6 1 6 6 1500 2330 182 39 96.884094 Although5 1 6 1 6 7 1710 2331 86 31 96.407593 IPM5 1 6 1 6 8 1821 2331 75 31 96.556984 sold5 1 6 1 6 9 1922 2340 95 22 96.553192 some4 1 6 1 7 0 697 2376 1318 41 -1 5 1 6 1 7 1 697 2376 281 40 53.870934 nonrebuilders,5 1 6 1 7 2 1000 2388 46 21 95.458374 no5 1 6 1 7 3 1068 2379 144 31 96.809563 reliable5 1 6 1 7 4 1234 2379 133 38 96.805664 figures5 1 6 1 7 5 1390 2379 58 32 96.181053 for5 1 6 1 7 6 1469 2379 99 33 96.666763 these5 1 6 1 7 7 1591 2380 91 32 95.969452 sales5 1 6 1 7 8 1705 2391 95 21 96.569107 were5 1 6 1 7 9 1822 2380 193 32 96.385788 submitted4 1 6 1 8 0 704 2425 1314 72 -1 5 1 6 1 8 1 704 2425 204 38 93.483246 (Mansfield5 1 6 1 8 2 937 2429 166 38 87.187157 1987-47,5 1 6 1 8 3 1132 2430 98 37 96.231377 1981,5 1 6 1 8 4 1259 2430 166 38 95.197632 1983-87,5 1 6 1 8 5 1455 2430 98 38 96.726120 1998,5 1 6 1 8 6 1579 2425 101 72 95.490356 2088,5 1 6 1 8 7 1708 2432 170 36 91.739990 2141-51,5 1 6 1 8 8 1906 2431 112 32 79.951332 2252-4 1 6 1 9 0 697 2477 318 39 -1 5 1 6 1 9 1 697 2477 62 37 92.136360 69;5 1 6 1 9 2 773 2477 46 32 92.136360 cf.5 1 6 1 9 3 835 2477 62 32 96.554291 CX5 1 6 1 9 4 912 2478 103 38 96.254326 290). AVINE 2, LINU. . ‘ELE 391 Initial Decision 74. In 1964, these four major suppliers were the only sources, other than wholesalers, from which a nonfactory authorized re- | builder could obtain a substantial number of necessary new parts including categories such as end frames, drive end housings and other iron castings and kits (CX 20; CX 21; CX 87 “~~a-c; Erwin 540; Smith 591; Feldman..716; Shelly 758; Gordon 1157-58 ; Winters 1190, 1194; McGuire 1294). 75. Without these four major suppliers, particularly IPM and Valley Forge, rebuilders could not remain in business at a profit (CX 86 b; Smith 598; Gelberg 660; Feldman 721-22; Woodruff 797-98, 801; DeBlase 859).

2. The Other Non-OEM Suppliers 76. The 18 other non-OEM rebuilder suppliers suffered many competitive disadvantages in competing with the four .major broad-line suppliers:

(a) Salesmen are difficult for these other suppliers to obtain (Erwin 532-83, 556).

_ (b) It is more difficult for rebuilders to achieve the lowest freight charges and reduce other costs when dealing with several nonmajor rebuilder suppliers instead of one full-line major sup- © plier (Erwin 556-57; Feldman 723; Green 991; Broadwell 1110; Gordon 1159-60; McCullough 1275, Fallen 1454; DeBlase 2929-30).

(c) These other non-OEM rebuilder ‘suppliers cannot offer package deals or discounts, whereas the four major suppliers -can (Flynn 938-39; Fallen 1454; Winters 1187). (d) Collections from rebuilders are more difficult for the nonmajor suppliers (Winters 1185).

(e) It is more convenient for a rebuilder, especially a medium or small size rebuilder, to place one order for all his:néeds with one of the four major suppliers (Erwin 556; Smith 586, 609; Gelberg 657; Feldman 721-22; Shelly 752; Woodruff 797-98, 801-02; Vander Veen 902; Flynn 938; Green 991; Kamber 1027; Broadwell 1102; Gordon 1159; Winters 1192; McCullough 1252; Fallen 1454).

38. OEM Suppliers 77. In 1964, OEM manufacturers had total sales of new parts to rebuilders of $664,000 of which $610,000 was to their authorized rebuilders (see Findings 78-91).

Initial Decision 82 F.T.C.

78. In 1964, Ford Motor Company did not engage in rebuilding units (Closser 1424). In that year, Ford Motor Company had Sales to rebuilders of $500,000 (Closser 1427). 79. All of these Ford Motor Company sales were to 24 authorized Ford rebuilders (CX 286 0; CX 387 e; Closser 1425; Wolski 5141): The authorized Ford rebuilders were under contract with Ford Motor Company which permitted them to use the Ford trade name (CX 2; Closser 1425-26; Ensor 5206-07). Under these contracts, Ford Motor Company had the power to determine the source from which its authorized rebuilders could obtain their parts (CX 2; Erwin 547; Kamber 1019; Ensor 5218-17). In 1964, all of the units rebuilt under the Ford name were sold to Ford Motor Company dealers (ClosSer 1424-25). In that year, Ford Motor Company had a policy against selling parts directly to nonauthorized rebuilders (CX 286 0, p, u, V; DeBlase 842; Closser 1425; Butchkes 2302, 2327; Ledbetter 8455-56 ; Wolski 5140-48).

80. Chrysler Corporation did not rebuild any units in 1964 (Eurich 1412). In that year, it only made sales of parts to five rebuilders, all under contract with Chrysler Corporation to supply its dealers and wholesalers with rebuilt units under the MoPar trademark, a trademark owned by Chrysler Corporation (CX 1; Eurich 1413— 14, 1416). In 1964, Chrysler Corporation’s sales of electrical parts to these five rebuilders were considerably less than $60,000 (Eurich 1415). Chrysler Corporation had a policy against selling directly to nonauthorized rebuilders in 1964 (DeBlase 842; Eurich 1416; Butchkes 2302, 2327). 81. General Motors Corporation (hereinafter “GM’’) made direct sales to only one rebuilder in 1964. Thé amount of such sales was $50,000, most of which consisted of parts used to rebuild starter drives sold to GM (Kulesa 1338-39). In 1964, GM had a policy against selling directly to rebuilders (DeBlase 842; Keesee 1359; Butchkes 2302-03, 2327). 82. GM, through its Delco-Remy Division (hereinafter “D-R”), was engaged in the rebuilding of units. Most of the items used by D-R in its rebuilding operations were manufactured by D-R. The remainder of the parts used by D-R was procured from the stock of parts used by D-R to produce new units. No separate accounting was made for parts procured for use in D-R’s rebuilding operation, either for parts which D-R manufactured or those which it procured (Kulesa 1333, 1885-36, 1839).

391 Initial Decision 83. Robert Bosch GMBH supplies and has supplied new, original equipment electrical units for Volkswagen, Mercedes- Benz, Volvo, Porsche, Saab, Ford Pinto, Lincoln Capri and Opel (Stevens 3099, 3143). In 1964, its subsidiary, Robert Bosch Corporation of the United States, made direct sales amounting _to less than $5,000 to only one rebuilder, Arrow. Armature, who utilized’ such parts in rebuilding Robert Bosch units (Stevens 8101, 3121-22).

84. Robert Bosch Corporation of the United States does not consider IPM to be a competitor (Stevens 3138). 85. In 1964, Robert Bosch Corporation of the United States rebuilt some units (Stevens 3125, 3144). All of the parts used in its rebuilding operations were new parts imported directly from Robert Bosch GMBH’s foreign plants (Stevens 3128-29). 86. Joseph Lucas, Ltd. supplies and has supplied new, original equipment electrical units for vehicles produced by British Leyland Motors, such as Triumph, MG and Jaguar (Burgess 3527). In 1964, its subsidiary, Lucas Electrical Services, Inc., made an insignificant amount of sales directly to rebuilders in the United States (Burgess 3535-86, 3538, 3557). The parts sold by Joseph Lucas, North American and its predecessor, were primarily used in rebuilding units originally produced by Joseph Lucas, Ltd. (Burgess 3555).

87. The Prestolite Company (hereinafter “Prestolite’), a division of Eltra Corporation, made insubstantial direct sales to rebuilders in 1964. Prestolite’s direct sales to rebuilders were $7,193 in 1964 (Bauerschmidt 4343). In that year, Prestolite made sales in excess of $5 to only three rebuilders (Bauerschmidt 4842, 4876).

88. In 1964, the Bendix Corporation had direct sales to rebuilders of starter drive parts of $41,748 (R. Johngon 3063). All. of these sales were made to two customers (R. Johnson 3066). 89. The Leece-Neville Division, VLN Corporation and Motorola Automotive Products, a division of Motorola, Inc., made no direct sales to rebuilders in 1964 (Hill 3176, 3190; Noonan 3831, 3883).

90. OEM. suppliers are properly excluded from the rebuilders supply industry by subparagraph 1(c) (2) of the complaint since in 1964 the big three, GM, Ford and Chrysler, without exception refused to sell parts directly to independent rebuilders and the sales by other OEMs were insignificant.

Initial Decision 82 F.T.C.

91. Since 1964 there has been no change in policy by the big three OEM suppliers regarding direct sales to independent rebuilders. Only insignificant changes have occurred in the pattern of direct selling by somé of ‘the other OEM suppliers. (Stevens (Bosch) 3101—1970 direct sales to rebuilders were $46,000 and for the first five months of 1971 were $36,000, 40 percent of which was for complete units, not parts, 3123—-Bosch required a minimum bulk quantity, 83140—the volume of most rebuilders was not sufficient to buy from bosch; Noonan (Motorola) 3833— insignificant competition in 1969 with IPM, 3840—sold only one rebuilder (Arrow) parts in 1970; Bauerschmidt (Prestolite) 4344—in 1969 sold only three rebuilders: Accurate $132; National Lease $7,489; Arrow $5,851, 4376—-sales of $308,766 to. Flint Armature were for marine application only; Johnson (Bendix) 3083—Bendix doesn’t sell small rebuilders or small quantities, 3087—only the ten largest rebuilders in 1970 were qualified to buy from Bendix, 3089—several of these ten were authorized rebuilders for Bendix).

D. Other Manufacturers (Occasional or Single Line Suppliers of New Parts, Materials and H'quipment) 92. In 1964, rebuilders made occasional purchases from other manufacturers whose primary. business is nonautomotive. Such other manufacturers generally confine their sales to a few large rebuilders and one product line (RX 83 in camera; Kirkwood 3489; Perkins 3618, 3632; Atwater 4278; Kling 4544; Fleming 4600; Ainsworth 4726-27, 4730-31; Ingald 5286-87, 5291, 5323). Such sales to rebuilders generally were an insignificant percentage of the total overall sales of such other manufacturers (Bashe 3369, 3380; Kirkwood 3476, 3489; ‘Perkins 3628-24; Atwater 4296; Ainsworth 4744; Ingald 5273). Individually and in combination, the sales of such other manufacturers. to rebuilders were not substantial (Gelberg 698-99; Green 1000-01; Broadwell 1126; Bashe 3380; Kirkwood 3489; Perkins 3608, 3623-24, Atwater 4278; Kling 4562; Fleming 4600; Ainsworth 4731; Boydston 4758, 4786-87; Ingald 5273). Such other manufacturers, in the view of Harris Fischer, vice-president of Avnet and president ‘of the Valley Forge Division, “* * * would continue to exist but it is reasonable to conclude that they could not progress to a point of being real competition” (CX 44 a). 93. All of the witnesses in the category of other manufacturers were called by respondent. The following chart indicates their composition.

i (s3ul ‘~Teaq SUlpulagei ssaursnq [ed “PULTg) *(LOST “1L) Jueudinbe pue syed mou Jo sayes Jo %oyT (LL&S “IL) %T FO OOT/E uoleyndutos LOZ Siseq ON i=] 3 (rege 8 ‘be-8B9E ‘BO9E “AL) %T Jo O1/z a F 2 (98LP “AL) 480q 9@ %T aqeuysy & (¢Z¢¢ “4L) Bur -yjou Aljeorjovad se saepyingas 0} safes saylsselD (PZgg IL) %T “ChhLb AL) %T (968p “AL) %T wey ssoq (L0-908T5 1 9 1 1 2 1689 1262 30 109 41.171436 yoorg)5 1 9 1 1 3 1686 1390 31 99 18.864548 ege'g¢5 1 9 1 1 4 1673 1746 36 165 0.000000 Jepulszey2 1 10 0 0 0 1304 859 357 1046 -1 3 1 10 1 0 0 1610 1305 51 542 -1 4 1 10 1 1 0 1610 1305 51 542 -1 5 1 10 1 1 1 1630 1305 31 80 13.502594 “(6835 1 10 1 1 2 1628 1400 27 49 90.553436 XO5 1 10 1 1 3 1610 1839 32 8 44.643768 |3 1 10 2 0 0 1576 860 49 1045 -1 4 1 10 2 1 0 1576 860 49 1045 -1 5 1 10 2 1 1 1598 860 26 63 10.076637 SIF5 1 10 2 1 2 1603 944 19 46 70.037109 89S5 1 10 2 1 3 1594 1013 31 86 18.244057 “LESS5 1 10 2 1 4 1592 1120 31 80 0.000000 “LESS5 1 10 2 1 5 1588 1222 33 119 54.309830 Plesul)5 1 10 2 1 6 1585 1368 31 117 34.735977 Teg'zeg5 1 10 2 1 7 1579 1530 30 231 0.000000 asanjoeynueyy5 1 10 2 1 8 1576 1774 33 131 46.690872 Sulqeeg3 1 10 3 0 0 1307 859 255 1044 -1 4 1 10 3 1 0 1527 1212 35 234 -1 5 1 10 3 1 1 1530 1212 32 156 7.068542 “(SI-PI9b5 1 10 3 1 2 1527 1382 31 64 21.424187 AL)4 1 10 3 2 0 1485 860 38 589 -1 5 1 10 3 2 1 1496 860 27 103 11.383102 S[[eset5 1 10 3 2 2 1495 988 27 148 4.063026 Jauiojsnd5 1 10 3 2 3 1488 1160 29 150 0.000000 Japyingqat5 1 10 3 2 4 1485 1335 32 114 0.000000 yse8av]4 1 10 3 3 0 1443 859 42 584 -1 5 1 10 3 3 1 1453 859 32 101 48.615562 “(009%5 1 10 3 3 2 1451 982 31 82 0.000000 ‘L8SF5 1 10 3 3 3 1450 1085 31 82 0.000000 ‘Z8ch5 1 10 3 3 4 1447 1189 31 82 0.000000 ‘6LgP5 1 10 3 3 5 1443 1291 35 152 3.636871 Surwey,7)4 1 10 3 4 0 1401 859 37 588 -1 5 1 10 3 4 1 1412 859 26 87 17.417404 T[eset5 1 10 3 4 2 1410 973 26 163 0.000000 Steuiojysnd5 1 10 3 4 3 1402 1163 31 158 0.000000 Jepyinqey5 1 10 3 4 4 1401 1349 31 98 0.000000 *(~Q9P4 1 10 3 5 0 1360 860 40 663 -1 5 1 10 3 5 1 1370 860 30 64 0.000000 “IL)5 1 10 3 5 2 1366 961 31 117 30.310806 IS6'6T$5 1 10 3 5 3 1363 1109 28 165 14.150276 Sazeppinqer5 1 10 3 5 4 1360 1304 26 83 0.000000 vaayq5 1 10 3 5 5 1360 1419 24 29 90.618408 045 1 10 3 5 6 1362 1521 5 2 11.619598 ;4 1 10 3 6 0 1304 860 52 1043 -1 5 1 10 3 6 1 1327 860 27 83 0.000000 Set@S5 1 10 3 6 2 1324 963 32 156 0.000000 (68-gggP Surwezq) soInsy ON / doanpeynueyy Sulleag , Diauno U2 6L XY leinjoejnuey, Sursesg “(L8LP ‘eg ~B8LP ‘Z9LP ‘8alp uoyspsog) 900‘9¢ JUNOWB pezEUysa ‘stapuImad om} Plog IOINGIASIG. O11 “(687g UoUIg) sainsy ON Jainyejnuey at1y “(T8-O8LP “1L) StopulMmad , PAY OF Silas ATUQ ‘(HELP “AZ) Ived dad saseyoand. Jo a1ow 10 000‘0S¢ YyIM Apqoatip squnovoe [Jas A[UO 04 Adhd *(18-O8LP GAomsuly) OOP HIPS AIINJIVINUBTAL VILA “(Z8Sh ‘SLBp 12}eM4W) plosez aulOS !gEeE'Esg$ SIopulIMer 04 sales JaInpejnusyy, ai uoljei0di09 oiqnNy Selljsnpuy Fys dogs 1 19 1 1 2 1298 2098 33 82 18.577209 of0y5 1 19 1 1 3 1291 2196 40 160 0.000000 uBdlLlauy2 1 20 0 0 0 1060 1962 168 393 -1 3 1 20 1 0 0 1060 1962 168 393 -1 4 1 20 1 1 0 1195 2110 33 245 -1 5 1 20 1 1 1 1199 2110 27 48 84.467865 ‘OD5 1 20 1 1 2 1195 2173 33 182 0.000000 u0ysUTIIO],4 1 20 1 2 0 1060 1962 38 388 -1 5 1 20 1 2 1 1067 1962 27 49 76.059807 0D5 1 20 1 2 2 1065 2024 33 152 0.000000 Aqyeledg5 1 20 1 2 3 1060 2191 29 159 0.000000 Jeorsyoaq2 1 21 0 0 0 926 2022 33 326 -1 3 1 21 1 0 0 926 2022 33 326 -1 4 1 21 1 1 0 926 2022 33 326 -1 5 1 21 1 1 1 929 2022 30 218 0.000000 [euolyeusajzuy5 1 21 1 1 2 926 2255 27 93 41.742748 xessq2 1 22 0 0 0 899 2249 10 47 -1 3 1 22 1 0 0 899 2249 10 47 -1 4 1 22 1 1 0 899 2249 10 47 -1 5 1 22 1 1 1 899 2249 5 8 28.128952 a5 1 22 1 1 2 901 2288 8 8 67.225494 92 1 23 0 0 0 709 1970 71 376 -1 3 1 23 1 0 0 709 1970 71 376 -1 4 1 23 1 1 0 751 2163 29 149 -1 5 1 23 1 1 1 754 2163 26 49 61.339191 0D elim youseyW e3poq sdjayq uolyeiodi105 uapjag SABE [BIOL 0} SIaPlINGeY 0} SajBg Jo asujuao1eg P9GT UY S1apfIngey oO, sayeg Jo yunowy ssaulsng jo adAj, Suedwoyg i } ! G Initial Decision ‘uoljeqndwiod a0f siseq oN (888¢ ‘698 “LL) %T Jo 2/1 (V8 “IL) 6961 %T JO OOT/F “UOTFBINdwod IOF siseq ON (QLPS “LL) %T FO Z/T (seanjeulie Jopese -uaZ Sulpujmed ssoursnq jedio “UlIg) seyes syied Mou Jo WANI (89PP5 1 10 1 1 2 1457 1320 31 111 0.000000 SSE)5 1 10 1 1 3 1454 1452 32 112 45.128765 sorn3y5 1 10 1 1 4 1453 1584 26 44 71.790436 oN2 1 11 0 0 0 1047 996 366 633 -1 3 1 11 1 0 0 1047 996 366 633 -1 4 1 11 1 1 0 1397 1527 16 5 -1 5 1 11 1 1 1 1397 1527 16 5 63.253269 44 1 11 1 2 0 1360 1258 38 371 -1 5 1 11 1 2 1 1366 1258 32 99 43.736500 ‘(ogee5 1 11 1 2 2 1363 1376 30 112 62.155449 eyseg)5 1 11 1 2 3 1360 1511 30 118 46.159203 Q00‘99$4 1 11 1 3 0 1301 1095 48 495 -1 5 1 11 1 3 1 1320 1095 29 100 0.000000 “(BT&h5 1 11 1 3 2 1315 1216 31 130 12.681854 JeyxINT)5 1 11 1 3 3 1311 1373 32 118 7.648544 OOL‘ZI¢5 1 11 1 3 4 1301 1511 36 79 45.744804 sayes4 1 11 1 4 0 1264 1008 44 618 -1 5 1 11 1 4 1 1279 1008 26 69 83.413452 696T5 1 11 1 4 2 1273 1104 35 99 44.953468 “(808P5 1 11 1 4 3 1272 1226 31 130 33.098343 JoyonL)5 1 11 1 4 4 1270 1385 27 77 49.636322 sates5 1 11 1 4 5 1264 1487 30 70 18.285721 pogT5 1 11 1 4 6 1266 1582 26 44 89.504898 on4 1 11 1 5 0 1217 1315 36 275 -1 5 1 11 1 5 1 1220 1315 33 156 0.000000 (88-L8PP equios “JOH Osy@ aes '79-Tecp ‘IJ,) ewos Plosex Japyingea ynq (zggp Burpy) 000°SZ$ Aeplingez auo pros Ayaqru “Ued “(pear ‘secp Sulpy) seansy on ‘(68F§ poomysry) TTg9‘ze¢ “(8I-OTSh ‘909% equi0d[oq]) (sjazd mau Inojy jo sares) 662'29$ Toinjoesnuey [ooypury aeany ~oBjnuey Juoudinby Jainyoeynuvy yueajog Jainjoejnuew;w ysnig 1aany -oeynueW 10jeynuWOD Japulmay ‘diop sjooy, uQ-deug ‘dul ‘va]sayBVlg uoIeg ‘oul ‘Sjonpoig a}1HVOQ SulinjoejnueW suiqqog 1oyBINWWOD poomyAIry ‘OD aanyeuy aqwoojoy SABE [B70L 03 SdaplINgsy 0} Sa[Bg Jo aseyusoIag PIGT UT Stap[Inqay 0} sa[¥g Jo yunoWY ssouisng jo adAy, Ausduog 391 Initial Decision 94. The examiner finds that four of these suppliers were large copper wire companies or distributors of wire with total sales to rebuilders of approximately $660,000, three were bearing companies with approximate sales of $192,000, two were rebuilders with limited redistribution sales of new parts of . _$42,000 after elimination of double counting, and one each was a brush manufacturer (no figures for 1964), a commutator manu: facturer with approximately $22,000 worth of sales, a seller of solvents (no figures for 1964), a tool manufacturer (no figures for 1964) and an equipment manufacturer with $66,000 worth of sales, for a total combined figure for all these companies of $982,000 which in almost all cases, with the exception of the rewinder and regrinder witnesses, represented no more than 1 percent of such companies’ total sales. Respondent throughout its proposed findings and _ briefs strongly urges that a survey commissioned by it identified over 1,000 additional rebuilder suppliers. Curiously enough neither the survey nor the list of 1,000 was offered into evidence, although the man responsible for its preparation was called as a witness, and testified as to the 1,000 figure (Gunn 5058-5112, 5087-90; see also RPF 229, cf. RPF 616). Since the survey was prepared for and in the possession of respondent, the names of the alleged additional 1,000 rebuilder suppliers were known only to respondent. Respondent had ample opportunity during the many months of discovery granted to it to cull the list. The examiner must infer that the 14 other manufacturers called by respondent were carefully chosen from the list of 1,000 and represent the most important and significant additional suppliers it could identify apart from its rather extensive independent knowledge of the industry as the principal competitor meeting its competitors in the market place.

In view of the foregoing, the hearing examiner finds-that these 14 witnesses were, with the exception of the rewinders and regrinders which have already been excluded from the market, only incidentally engaged in supplying rebuilders and at best were insignificant suppliers whose total dollar volume of sales would not materially alter the overall dollar value of the rebuilder suppliers market. The examiner also finds that complaint counsel’s failure to include these 14 companies, as well as any other wire, bearing, commutator, brush, solvent, equipment, handtool companies supplying rebuilders as merely an incidental portion of their overall business, does not materially alter the overall Initial Decision 82 F.T.C.

structure of the rebuilder suppliers industry as set forth in Finding 60.

_E. -Wholesalers 95. Some rebuilders make occasional purchases of new parts, materials and equipment from wholesalers including warehouse distributors and jobbers (hereinafter “wholesalers”) primarily from those wholesalers who handle OEM brands of parts (Smith 590; Gelberg 655; Feldman 715; Woodruff 798; DeBlase 842; Vander Veen 898-99; Kamber 1020; Butchkes 2301). 96. Such wholesalers charge prices to rebuilders considerably in excess of the prices charged by rebuilder suppliers (CX 36 a; CX 87 e; Erwin 534, 537-39, 541; Smith 590-91, 642; Gelberg 655; Feldman 715; Woodruff 798; DeBlase 843; Vander Veen 899; Broadwell 1080, 1082; McCullough 1248; Butchkes 2302, 2325-26; McGuire 2453; A. Johnson 2529; Weiss 4845; Gilbert 4913, 4967-68).

97. Rebuilders purchased from such wholesalers only those items unavailable from rebuilder suppliers or items needed on an emergency basis (Erwin 541; Smith 590-91; Gelberg 655; Shelly 754, 761, 776; DeBlase 842-48; Vander Veen 899; Kamber 1020; McCullough 1249; McGuire 1294, 1296, 1802; Butchkes 2302, 2326, 2330 ; Ledbetter 3861 ;-see also Finding 28). 98. Parts sold by such wholesalers are packaged individually or in small quantities rather than in bulk (Erwin 541; DeBlase 856; Fischer 4068-69, 4236).

99. Rebuilders could not produce a rebuilt unit for a lower price than a new unit if they had to buy exclusively from wholesalers (CX 86 b; Smith 598-99; Gelberg 655-56, -660; Feldman 715, 727-28; Woodruff 797-98; Vander Veen 900; Broadwell 1082; Gordon 1159; Winters 1227; Butchkes 2330). 100. Wholesalers do not offer all of the items needed by rebuilders (CX 86 a; CX 87 e; Smith 590-91; Woodruff 798, 8038-04; Kamber 1018-19, 1026, McGuire 1802-03; Butchkes 2330; A. Johnson 2529; R. Johnson 3076; Bauerschmidt 4353- 55).

101. In :1964, wholesalers’ salesmen, in general, did not call on rebuildérs (Smith 607; Gelberg 655).

102. No accurate estimate of sales by wholesalers to rebuilders is contained in the record, but based on the witnesses’ testimony, the examiner finds that sales by wholesalers do not con- 391 Initial Decision stitute a significant competitive factor in the rebuilder. suppliers market.

F. Conclusionury Findings Re Line of Commerce 103. The relevant line of commerce in this proceeding con- _ sists of direct sales by rebuilder suppliers of new parts, mate- ‘rials and equipment to rebuilders (Findings 18-102). 104. A relevant subline of commerce in this proceeding consists of direct sales by rebuilder suppliers to rebuilders, excepting direct sales by original equipment manufacturers (OEM) to their authorized rebuilders who, pursuant to an agreement with that OEM supplier, rebuild and furnish automotive electrical units to said supplier or its designee (Findings (77-91). The examiner also finds that supplies furnished to their own divisions for “in-house” rebuilding by OEMs is also included in such exception (see Findings 82, 85; Complaint {| 1(c) (2)). 105. In 1964, sales of new parts, materials and equipment by rebuilder suppliers directly to rebuilders, exclusive of sales by OEMs to their authorized rebuilders, constituted a recognized market (CX 36; CX 37; CX 44; CX 46; CX 52 a-b; CX 67-CX 78; CX 88 p; CX 119, page DGP88; CX 167 d; CX 286; RX 69; McCullough 1244; Fischer 4154-55; Bauerschmidt 4338).

Ti. THE GEOGRAPHIC MARKET 106. The only “relevant section of the ‘country or geographic market in which to determine the probable competitive effects of Avent’s acquisition of IPM is the United States as a whole, and there are no geographic relevant submarkets (CX 275). IV. CENSUS OF MANUFACTURERS 107. The 1967 Census of Manufacturers Report contains no data on direct sales to rebuilders in 1964 or 1967 (CX 270 a-z-11).

108. The Census of manufacturers reported total net sales (CX 270 z-7 “Value of Shipments”) of rebuilt generators, alternators, starters and voltage regulators of $67.8 million in 1967 (CX 270 f, w, x, y). Sales of rebuilt armatures, starter drives, solenoids, stators and rotors were not reported (CX 270). 109. New parts purchases by rebuilders account for approximately 15 percent to 35 percent of sales by rebuilders (Smith Initial Decision 82 F.T.C.

581-82; Gelberg 653; Feldman 714; DeBlase 837-88; Vander Veen 898; Butchkes 2299).

_ 110. Using the foregoing Census of manufacturers figures, total new parts purchases by rebuilders for use in rebuilding generators, alternators, starters and voltage regulators in 1967 were between $10 million and $25 million.

111. Sales by rebuilders increased substantially between 1964 and 1967 (CX 39; Gelberg 649, 651, 683; DeBlase 836-37; Vander Veen 893-94, 902-03 ; Butchkes 2287). 112. Although there are no Census of manufacturers’ figures for 1964, the examiner finds that the Census data substantially corroborates the approximately twenty (20) million dollar figure (Finding 60) of direct sales to rebuilders in 1964. V. CHANGING STRUCTURE OF THE REBUILDERS SUPPLY INDUSTRY _ 118. Since 1964, the structure of the rebuilders supply industry has been altered through a series of mergers and acquisitions.

114. Ace, the second largest firm in 1964, was acquired by Xebec Corporation in 1965, which was acquired by Susquehana Corporation in 1968 (Broadwell 1075; Weiss 4792). In 1970, the Echlin Manufacturing Company acquired the assets of Ace (Stipulation Tr. 5655-56).

115. In 1967, Jamison Parts, a supplier of shafts, was acquired by Ace, in part to strengthen Ace’s position in the rebuilders supply industry (Broadwell 1096-97) . 116. In 1966, Vulean was acquired by the Casco Products Division of Standard-Kollman Industries (Green 986). 117. In 1967, Butts Electric Supply, Inc., was acquired by Essex International, Inc., (Flynn 930). Subsequently, Butts Electric Supply, Inc., which became Region 9 of Essex’s IWI Division (Flynn 929-380), downgraded the supply of parts and materials to rebuilders (Flynn 962).

118. Postacquisition evidence adduced by respondent relating to the changing pattern of sales, new entrants, expansion of lines and sales by firms presently in the market, etc., was fragmentary, inconclusive and relatively insignificant particularly in comparison to the increase in combined sales of IPM and Valley Forge as divisions of Avnet.

ee many eee we --—- 391 Initial Decision VI. COMPETITIVE EFFECTS A. Elimination of Competition.

119. Prior to the acquisition, 1PM and Avnet (Valley Forge) competed for sales to rebuilders (CX 275). The nature and extent of this competition,: as well as the predicted competitive effects after the acquisition,-~are set-forth in two memoranda (CX 36; CX 44) prepared by Harris Fischer, an Avnet director and vice-president, the president of Avent’s Valley Forge Division and formerly operating head of Valley Forge prior to its acquisition by Avnet (Fischer 888, 3962-64). Fischer testified that CX 36 and CX 44 were typed by him at his home merely for his own information, were placed in a desk drawer in his house and were not submitted to anyone (Fischer 4153). However, these memoranda were typed after Fischer held a preliminary meeting in Chicago with Mansfield in. August 1964 (Fischer 4152; see also Finding 17), a few days before an Avnet board of directors meeting held on February 15, 1965 for the purpose of considering the proposed acquisition of IMP, which was attended by Fischer (Fischer 4221) and at which meeting Fischer comprehensively briefed the board of Avnet on the rebuilders supply industry and IPM in particular (Fischer 4150, 4154, 4221, 4229-80; see also 4226-27; CX 285 b). Moreover, Fischer admitted that he gave Mr. Scheib, a member of the board and the acquisition committee (Fischer 4155, 4231), a list of competitive suppliers (CX 37 a—f), discussed with Mr. Scheib various aspects of the proposed merger prior to the board meeting (Fischer 4229-30), and that Mr. Scheib addressed the board at this meeting on various aspects of the proposed merger including competitive conditions in the industry (Fischer 4155, 4221-22, 4229). Fischer also reluctantly agreed that the thoughts expressed in CX 36 and CX 44 were~clearly in his _: mind at the time he attended the board meeting to consider the acquisition of IPM (Fischer 4222-23).

120. Fischer, who had been in the rebuilders supply business since 1946 (Fischer 890) expressed his view of the anticipated results of the acquisition of IPM by Avnet as follows: The acquisition of IPM would serve chiefly to remove our most major competitor from the scene (CX 44 a). The biggest benefit would unquestionably be the removal of the competition that has existed and of the massive duplication of effort that has taken place (CX 36 b). Initial Decision 82 F.T.C.

121. In 1964, IPM and Avnet served many common customers (Smith 582-83; Gelberg 653; Feldman 713; Shelly 750; Wood- _ ruff 797; Vander Veen 896, 912; McGuire 1289-90; _Butchkes 2307; A. Johnson 2516, 2530; Ledbetter 3458-59). 122. In that year, IPM as the largest and Avnet—Valley Forge as the third largest supplier of new parts to rebuilders, accounted respectively for 57.4 percent: and 9.4 percent of such new parts sold to rebuilders (Shelly 750; Woodruff 797; DeBlase 837, 841; Vander Veen 896-97, 902; Flynn 944; Gordon 1160-61; Mc- Guire 1289-1300; Butchkes 2321-23; A. Johnson 2533; see Findings 14, 60, 68).

123. The elimination of competition between Avnet’s Vailey Forge Division and IPM by. Avnet’s acquisition of IPM was re- . flected in a conversation subsequent to the acquisition between the sales manager of Avnet’s IPM Division and Smith, general manager of Champion Armature. Smith testified that the sales manager told him, “* * * that they now owned Valley Forge and that if we wanted to play poker, they had the only poker game in town” (Smith 629).

B. Competitive Advantage 124. One of the primary. objectives of the acquisition of IPM by Avnet was the elimination of price competition between the two firms. IPM’s sales manager, Jim Paschal, expressed his reaction to this elimination of price competition, as follows: * * * we would not have to make price concessions to compete with one another in the manner we have done in the past, and thus enhancing the overall profit of the Corporation. (CX 35 c). Harris Fischer also expressed his views on the subject as follows:

We have glossed over the natural inherent advantages of elimination of bitter price competition for this is taken for granted, but the benefits should not be discounted. (CX 36 d).

The acqusition of IPM would serve chiefly to remove our most major competitor from the scene. This would reduce to an overwhelming extent the price competition that is a major factor in the industry. In many cases severe competition has held profit margins on key items to a reduced level owing to the ability of two firms to offer substantially the same item at the same price. (CX 44 a).

125. The acquisition also contemplated the end of certain special discounts which IPM gave some of its customers. As expressed by Harris Fischer:

fLVINGUL, LINU. toe 391 Initial Decision IPM has been very active in offering preferential discounts to large customers which Valley Forge has been obligated to meet (CX 44 a). 126. Such discounts indeed were eliminated subsequent to the acquisition (Smith 586-87, IPM discontinued discounts; Woodruff 802, Valley Forge also discontinued its discounts). ~---127,5 1 3 2 3 2 671 536 141 42 95.238678 Avnet,5 1 3 2 3 3 835 534 127 33 96.150284 absent5 1 3 2 3 4 984 533 59 34 96.651085 thes 1 3 2 3 5 1065 534 211 40 93.223526 acquisitions 1 3 2 3 6 1304 533 153 41 57.087284 of.IPM,5 1 3 2 3 7 1481 533 77 32 84.284096 had5 1 3 2 3 8 1575 533 182 32 92.883469 executives 1 3 2 3 9 1782 532 69 46 96.770294 anda 1 3 2 4 0 537 584 1315 40 -1 5 1 3 2 4 1 537 585 232 39 96.414047 engineering5 1 3 2 4 2 790 587 131 30 96.144127 talents5 1 3 2 4 3 943 587 37 30 95.947334 to5 1 3 2 4 4 1003 586 180 38 93.251747 challenges 1 3 2 4 5 1207 586 116 31 92.448502 IPM’s5 1 3 2 4 6 1346 585 184 32 96.217560 dominant5 1 3 2 4 7 1552 584 155 39 96.333221 positions 1 3 2 4 8 1732 584 36 30 96.554405 in5 1 3 2 4 9 1792 584 60 31 96.753510 thea 1 3 2 5 0 537 633 1313 41 -1 5 1 3 2 5 1 537 636 127 38 96.373604 supply5 1 3 2 5 2 684 636 38 32 95.868439 of5 1 3 2 5 3 741 646 77 22 95.868439 news 1 3 2 5 4 837 638 111 36 96.174713 parts,5 1 3 2 5 5 970 635 183 33 96.272705 materials5 1 3 2 5 6 1173 636 69 31 96.558189 ands 1 3 2 5 7 1263 635 203 39 96.365860 equipments 1 3 2 5 8 1485 636 37 30 92.729958 to5 1 3 2 5 9 1543 635 199 31 92.016434 rebuilders5 1 3 2 5 10 1771 633 79 38 96.369194 (CX4 1 3 2 6 0 536 686 156 37 -1 5 1 3 2 6 1 536 687 42 30 90.409584 445 1 3 2 6 2 595 686 97 37 76.914917 a-c).3 1 3 3 0 0 535 734 1317 241 -1 4 1 3 3 1 0 586 734 1263 39 -1 5 1 3 3 1 1 586 737 72 30 96.252937 128.5 1 3 3 1 2 686 737 72 31 95.625717 Thes 1 3 3 1 3 784 736 210 37 96.659660 acquisitions 1 3 3 1 4 1021 736 39 31 96.832123 of5 1 3 3 1 5 1086 737 83 30 96.581474 IPM5 1 3 3 1 6 1196 736 46 37 96.934685 by5 1 3 3 1 7 1267 736 118 31 96.624359 Avnet5 1 3 3 1 8 1410 735 76 32 96.356483 leads 1 3 3 1 9 1512 737 36 30 96.453384 to5 1 3 3 1 10 1574 745 21 21 96.134163 a5 1 3 3 1 11 1622 734 165 32 96.431892 decreases 1 3 3 1 12 1813 734 36 30 96.034348 in4 1 3 3 2 0 536 784 1316 41 -1 5 1 3 3 2 1 536 786 61 32 96.659660 thes 1 3 3 2 2 613 787 122 37 96.019707 Valley5 1 3 3 2 3 752 787 116 38 93.163620 Forge5 1 3 3 2 4 886 786 191 32 91.545166 Division’s5 1 3 3 2 5 1094 787 73 31 96.094383 roles 1 3 3 2 6 1184 786 36 31 96.556908 in5 1 3 3 2 7 1237 785 61 33 93.108566 thes 1 3 3 2 8 1315 785 207 33 92.723106 rebuilders’5 1 3 3 2 9 1540 785 128 38 95.919998 supply5 1 3 3 2 10 1686 784 166 37 96.433983 industry4 1 3 3 3 0 537 835 1313 40 -1 5 1 3 3 3 1 537 836 69 32 96.078072 ands 1 3 3 3 2 631 847 20 21 96.569878 a5 1 3 3 3 3 676 836 91 33 95.986504 shifts 1 3 3 3 4 791 837 35 31 96.251762 in5 1 3 3 3 5 852 837 92 32 94.908829 sales5 1 3 3 3 6 968 836 180 39 94.908829 emphasis5 1 3 3 3 7 1172 837 39 31 96.645233 of5 1 3 3 3 8 1234 836 61 32 96.369034 thes 1 3 3 3 9 1320 836 122 38 96.311729 Valley5 1 3 3 3 10 1468 836 115 38 96.361107 Forge5 1 3 3 3 11 1609 835 164 32 92.481873 Divisions 1 3 3 3 12 1798 836 52 30 92.481873 to-4 1 3 3 4 0 536 885 1313 40 -1 5 1 3 3 4 1 536 887 98 31 96.344521 wards 1 3 3 4 2 661 887 102 32 96.445671 those5 1 3 3 4 3 791 887 168 38 96.290138 products5 1 3 3 4 4 989 887 73 32 96.510635 sold5 1 3 3 4 5 1092 887 45 38 96.332848 by5 1 3 3 4 6 1165 887 80 31 95.905914 that5 1 3 3 4 7 1273 886 152 32 96.428123 divisions 1 3 3 4 8 1453 885 116 32 96.471886 which5 1 3 3 4 9 1599 896 94 21 96.404022 were5 1 3 3 4 10 1722 886 62 30 96.017479 not5 1 3 3 4 11 1813 885 36 31 96.845284 in4 1 3 3 5 0 535 935 1135 40 -1 5 1 3 3 5 1 535 937 228 38 96.162590 competitions 1 3 3 5 2 785 937 88 32 96.690926 with5 1 3 3 5 3 895 937 59 32 96.512329 thes 1 3 3 5 4 976 937 168 38 96.647522 products5 1 3 3 5 5 1166 936 76 32 95.965286 sold5 1 3 3 5 6 1264 936 46 38 95.965286 by5 1 3 3 5 7 1332 936 85 31 96.361610 IPM5 1 3 3 5 8 1447 935 79 38 96.304703 (CX5 1 3 3 5 9 1551 936 43 31 89.004074 355 1 3 3 5 10 1617 935 53 37 89.004074 c).3 1 3 4 0 0 535 986 1316 639 -1 4 1 3 4 1 0 584 986 1266 40 -1 5 1 3 4 1 1 584 988 74 31 96.052673 129.5 1 3 4 1 2 685 988 178 38 96.052673 Contrary5 1 3 4 1 3 892 989 36 31 93.171585 to5 1 3 4 1 4 957 988 177 32 91.970802 Fischer’s5 1 3 4 1 5 1162 987 143 39 96.091782 general5 1 3 4 1 6 1334 986 192 38 96.348274 testimony5 1 3 4 1 7 1555 986 80 32 95.353920 that5 1 3 4 1 8 1664 986 97 34 95.353920 after5 1 3 4 1 9 1790 986 60 31 96.882767 thea 1 3 4 2 0 536 1031 1315 45 -1 5 1 3 4 2 1 536 1037 211 38 96.124245 acquisitions 1 3 4 2 2 792 1037 122 39 96.477341 Valley5 1 3 4 2 3 959 1037 115 38 96.620056 Forge5 1 3 4 2 4 1118 1037 69 32 95.915619 ands 1 3 4 2 5 1233 1037 85 31 89.784554 IPM5 1 3 4 2 6 1362 1037 167 38 89.784554 operated5 1 3 4 2 7 1576 1031 275 43 93.278793 independently4 1 3 4 3 0 535 1085 1315 41 -1 5 1 3 4 3 1 535 1087 156 38 96.566887 through5 1 3 4 3 2 714 1089 164 37 96.195282 separates 1 3 4 3 3 901 1088 171 31 96.287827 divisions5 1 3 4 3 4 1095 1088 39 31 96.609070 of5 1 3 4 3 5 1157 1088 118 31 96.597794 Avnet5 1 3 4 3 6 1305 1086 163 38 96.340111 (Fischer5 1 3 4 3 7 1492 1086 176 36 92.717331 3963-64;5 1 3 4 3 8 1695 1085 63 31 96.248100 RX5 1 3 4 3 9 1786 1086 64 30 96.963852 1284 1 3 4 4 0 535 1134 1315 42 -1 5 1 3 4 4 1 535 1136 86 38 62.935978 a-b)5 1 3 4 4 2 652 1139 69 31 96.925484 ands 1 3 4 4 3 745 1138 180 38 96.878822 competed5 1 3 4 4 4 950 1137 204 39 96.200974 vigorously5 1 3 4 4 5 1186 1136 165 37 96.815956 (Fischer5 1 3 4 4 6 1375 1136 167 37 82.067993 4147-49,5 1 3 4 4 7 1569 1135 194 37 95.202904 4158-61),5 1 3 4 4 8 1789 1134 61 32 96.489708 thea 1 3 4 5 0 538 1184 1312 40 -1 5 1 3 4 5 1 538 1186 122 33 96.471596 records 1 3 4 5 2 679 1187 115 32 95.981903 shows5 1 3 4 5 3 812 1187 81 32 96.298950 that5 1 3 4 5 4 911 1187 156 32 96.142883 between5 1 3 4 5 5 1088 1188 86 30 96.142883 19645 1 3 4 5 6 1194 1187 69 31 96.227417 ands 1 3 4 5 7 1285 1187 85 31 96.652779 19695 1 3 4 5 8 1390 1186 124 38 93.297859 Valley5 1 3 4 5 9 1533 1185 146 39 91.122116 Forge’s5 1 3 4 5 10 1699 1184 92 32 96.430946 sales5 1 3 4 5 11 1812 1184 38 31 96.653267 of4 1 3 4 6 0 536 1235 1314 40 -1 5 1 3 4 6 1 536 1236 152 39 95.609947 ignition5 1 3 4 6 2 715 1238 100 37 96.319031 parts5 1 3 4 6 3 843 1237 182 32 96.496445 increased5 1 3 4 6 4 1051 1246 98 23 96.299614 more5 1 3 4 6 5 1175 1236 87 32 96.415146 than5 1 3 4 6 6 1293 1237 40 30 96.247078 105 1 3 4 6 7 1360 1236 104 31 96.681183 times5 1 3 4 6 8 1491 1235 96 32 96.101242 from5 1 3 4 6 9 1615 1235 170 37 96.010162 $184,2605 1 3 4 6 10 1813 1235 37 30 96.380569 to4 1 3 4 7 0 536 1284 1312 41 -1 5 1 3 4 7 1 536 1287 201 37 91.747444 $2,185,1315 1 3 4 7 2 765 1286 164 38 96.497940 (Fischer5 1 3 4 7 3 946 1287 100 38 96.792679 4006,5 1 3 4 7 4 1065 1287 106 37 95.754509 4232)5 1 3 4 7 5 1197 1286 69 32 95.754509 ands 1 3 4 7 6 1284 1286 80 32 96.648560 that5 1 3 4 7 7 1383 1286 131 37 96.208046 during5 1 3 4 7 8 1530 1285 61 32 96.662888 thes 1 3 4 7 9 1609 1294 98 22 95.872406 same5 1 3 4 7 10 1726 1284 122 39 96.737549 period4 1 3 4 8 0 537 1334 1312 41 -1 5 1 3 4 8 1 537 1337 47 31 95.966270 its5 1 3 4 8 2 602 1337 92 31 96.751678 sales5 1 3 4 8 3 713 1337 39 31 93.283813 of5 1 3 4 8 4 771 1336 177 32 92.679558 rebuilders 1 3 4 8 5 968 1337 100 38 96.995445 parts5 1 3 4 8 6 1088 1336 218 38 96.809280 moderately5 1 3 4 8 7 1325 1335 183 33 95.544540 increased5 1 3 4 8 8 1528 1335 97 31 95.445091 from5 1 3 4 8 9 1645 1334 204 37 95.445091 $1,798,7664 1 3 4 9 0 535 1384 1314 41 -1 5 1 3 4 9 1 535 1389 37 30 92.896042 to5 1 3 4 9 2 600 1387 201 38 96.743912 $1,870,7505 1 3 4 9 3 838 1386 166 38 96.698402 (Fischer5 1 3 4 9 4 1031 1387 99 37 95.992355 3976,5 1 3 4 9 5 1160 1387 99 36 96.654236 4006,5 1 3 4 9 6 1290 1386 98 37 96.401245 4166,5 1 3 4 9 7 1419 1386 124 36 95.229736 4233).5 1 3 4 9 8 1574 1384 114 32 96.246857 These5 1 3 4 9 9 1717 1384 132 38 96.313477 figures4 1 3 4 10 0 535 1434 1315 42 -1 5 1 3 4 10 1 535 1437 119 38 95.967743 amply5 1 3 4 10 2 680 1440 149 36 96.692726 supports 1 3 4 10 3 854 1437 60 31 96.829239 thes 1 3 4 10 4 940 1437 210 31 95.925049 statements5 1 3 4 10 5 1177 1436 186 31 96.608086 contained5 1 3 4 10 6 1390 1436 36 30 96.484779 in5 1 3 4 10 7 1454 1435 67 31 93.299957 Mr.5 1 3 4 10 8 1551 1434 177 32 92.058311 Fischer’s5 1 3 4 10 9 1756 1434 94 38 67.934891 ‘“Ap-4 1 3 4 11 0 536 1483 1311 47 -1 5 1 3 4 11 1 536 1487 133 37 91.321388 praisal5 1 3 4 11 2 688 1488 40 30 96.729340 of5 1 3 4 11 3 745 1488 59 33 96.175896 thes 1 3 4 11 4 824 1487 84 31 96.162094 IPM5 1 3 4 11 5 929 1486 244 38 95.718719 Acquisition”5 1 3 4 11 6 1201 1485 80 37 96.746971 (CX5 1 3 4 11 7 1299 1485 66 37 96.226906 36)5 1 3 4 11 8 1389 1485 155 45 96.436935 wherein5 1 3 4 11 9 1565 1485 44 30 96.447762 he5 1 3 4 11 10 1629 1483 218 32 96.624275 commented4 1 3 4 12 0 535 1530 1311 45 -1 5 1 3 4 12 1 535 1546 45 22 95.293213 on5 1 3 4 12 2 603 1536 61 33 95.293213 thes 1 3 4 12 3 687 1537 152 38 96.634460 possible5 1 3 4 12 4 863 1536 91 32 96.197968 shifts 1 3 4 12 5 979 1536 35 31 95.968887 in5 1 3 4 12 6 1039 1535 178 39 96.503212 emphasis5 1 3 4 12 7 1242 1536 46 36 96.775017 by5 1 3 4 12 8 1310 1535 61 31 96.825096 thes 1 3 4 12 9 1395 1530 123 42 95.777016 Valley5 1 3 4 12 10 1544 1534 116 38 96.308456 Forge5 1 3 4 12 11 1686 1533 160 31 96.567085 Division4 1 3 4 13 0 536 1586 1271 39 -1 5 1 3 4 13 1 536 1587 97 31 96.734917 after5 1 3 4 13 2 646 1587 61 31 96.526924 thes 1 3 4 13 3 721 1586 210 38 96.643120 acquisitions 1 3 4 13 4 946 1596 40 21 96.292503 as5 1 3 4 13 5 1000 1587 151 30 96.354973 follows:3 1 3 5 0 0 535 1649 1315 161 -1 4 1 3 5 1 0 572 1649 1277 36 -1 5 1 3 5 1 1 572 1653 162 32 96.827591 Recognizes 1 3 5 1 2 760 1654 67 25 96.493156 that5 1 3 5 1 3 850 1653 70 26 96.493156 both5 1 3 5 1 4 947 1653 105 31 95.696747 Valley5 1 3 5 1 5 1079 1653 96 30 96.825699 Forge5 1 3 5 1 6 1201 1651 59 27 96.679245 ands 1 3 5 1 7 1288 1652 70 25 96.571640 IPM5 1 3 5 1 8 1387 1651 74 26 91.553329 have5 1 3 5 1 9 1488 1650 159 26 91.553329 toolrooms5 1 3 5 1 10 1673 1649 99 25 96.249641 where5 1 3 5 1 11 1799 1649 50 25 96.829514 thea 1 3 5 2 0 535 1691 1315 36 -1 5 1 3 5 2 1 535 1703 81 17 96.533432 same5 1 3 5 2 2 634 1695 85 32 96.405907 tools,5 1 3 5 2 3 739 1695 61 26 96.708305 dies5 1 3 5 2 4 820 1695 58 26 96.951660 ands 1 3 5 2 5 897 1695 62 32 96.664734 jigs5 1 3 5 2 6 979 1703 51 17 96.876785 ares 1 3 5 2 7 1049 1694 89 32 96.184357 beings 1 3 5 2 8 1157 1694 85 25 96.581894 made5 1 3 5 2 9 1262 1693 58 26 96.234955 ands 1 3 5 2 10 1340 1694 71 25 96.468987 then5 1 3 5 2 11 1431 1692 143 26 96.468987 visualize5 1 3 5 2 12 1594 1691 121 31 96.256081 freeing5 1 3 5 2 13 1736 1691 114 31 96.233070 tooling4 1 3 5 3 0 535 1733 1315 34 -1 5 1 3 5 3 1 535 1737 71 25 95.780731 times 1 3 5 3 2 631 1738 80 25 96.628632 from5 1 3 5 3 3 739 1746 52 17 96.615349 ones 1 3 5 3 4 818 1737 128 25 96.553116 divisions 1 3 5 3 5 973 1740 29 23 96.903664 to5 1 3 5 3 6 1030 1737 84 24 96.438057 makes 1 3 5 3 7 1142 1736 141 31 96.500999 products5 1 3 5 3 8 1310 1734 140 33 96.750793 designed5 1 3 5 3 9 1478 1737 31 23 96.985451 to5 1 3 5 3 10 1537 1735 157 31 96.547676 penetrates 1 3 5 3 11 1723 1733 127 25 96.547676 another4 1 3 5 4 0 535 1779 276 31 -1 5 1 3 5 4 1 535 1779 66 25 96.885582 fields 1 3 5 4 2 627 1779 64 30 95.754730 (CX5 1 3 5 4 3 712 1780 35 25 92.680252 365 1 3 5 4 4 766 1779 45 31 91.934753 b).3 1 3 6 0 0 531 1818 1353 295 -1 4 1 3 6 1 0 573 1818 1311 40 -1 5 1 3 6 1 1 573 1829 43 25 95.241203 As5 1 3 6 1 2 648 1837 19 17 95.241203 a5 1 3 6 1 3 699 1829 167 26 95.530457 conclusions 1 3 6 1 4 901 1832 29 22 96.754349 to5 1 3 6 1 5 964 1829 49 25 96.905991 thes 1 3 6 1 6 1047 1829 91 25 96.856461 above5 1 3 6 1 7 1171 1830 170 28 95.955772 comments,5 1 3 6 1 8 1376 1827 48 26 95.955772 thes 1 3 6 1 9 1457 1818 189 40 67.176208 freeing”5 1 3 6 1 10 1610 1814 39 50 87.894180 of5 1 3 6 1 11 1664 1824 184 33 20.975395 duplicated5 1 3 6 1 12 1881 1827 3 2 41.884975 ~4 1 3 6 2 0 531 1866 1316 36 -1 5 1 3 6 2 1 531 1870 90 27 96.771400 efforts 1 3 6 2 2 640 1872 95 25 96.257698 would5 1 3 6 2 3 756 1872 96 25 96.204781 affords 1 3 6 2 4 872 1880 54 17 96.204781 ones 1 3 6 2 5 946 1879 144 23 95.939888 company5 1 3 6 2 6 1109 1870 49 27 96.952110 thes 1 3 6 2 7 1178 1870 75 26 96.353279 vital5 1 3 6 2 8 1275 1870 71 26 96.575912 times 1 3 6 2 9 1366 1870 58 26 96.923622 ands 1 3 6 2 10 1444 1877 112 23 95.960060 energy5 1 3 6 2 11 1579 1871 28 24 96.175415 to5 1 3 6 2 12 1627 1876 113 24 96.172081 pursues 1 3 6 2 13 1760 1866 87 27 96.663834 other4 1 3 6 3 0 533 1909 1315 36 -1 5 1 3 6 3 1 533 1913 85 26 96.578995 fields5 1 3 6 3 2 643 1913 98 26 96.421120 where5 1 3 6 3 3 768 1914 83 25 95.936386 there5 1 3 6 3 4 878 1914 54 25 95.596947 has5 1 3 6 3 5 958 1913 72 26 95.596947 been5 1 3 6 3 6 1058 1921 37 18 96.684113 no5 1 3 6 3 7 1123 1912 189 33 95.251541 penetration5 1 3 6 3 8 1339 1912 125 26 95.251541 because5 1 3 6 3 9 1492 1911 32 26 96.296501 of5 1 3 6 3 10 1551 1909 170 33 96.180672 duplicated5 1 3 6 3 11 1750 1909 98 25 96.180672 effort.4 1 3 6 4 0 536 1950 1314 37 -1 5 1 3 6 4 1 536 1955 89 30 95.537643 Thus,5 1 3 6 4 2 654 1955 27 32 95.537643 if5 1 3 6 4 3 709 1956 73 25 95.426743 IPM5 1 3 6 4 4 811 1955 97 26 95.426743 would5 1 3 6 4 5 938 1963 117 18 96.266647 assumes 1 3 6 4 6 1087 1955 48 26 96.487564 thes 1 3 6 4 7 1164 1954 101 32 95.081726 majors 1 3 6 4 8 1295 1954 113 26 96.199852 burdens 1 3 6 4 9 1437 1953 32 25 95.551254 in5 1 3 6 4 10 1501 1953 48 26 96.501198 thes 1 3 6 4 11 1580 1951 170 33 95.702271 rebuilding5 1 3 6 4 12 1782 1950 68 32 89.633835 field4 1 3 6 5 0 532 1992 1315 37 -1 5 1 3 6 5 1 532 1997 60 25 96.362190 ands 1 3 6 5 2 614 1997 103 32 96.184296 Valley5 1 3 6 5 3 739 1998 97 31 96.477020 Forge5 1 3 6 5 4 856 1997 31 25 96.517311 in5 1 3 6 5 5 909 1997 48 26 96.674980 thes 1 3 6 5 6 979 1997 85 26 96.425804 others 1 3 6 5 7 1084 1997 92 31 95.343529 fields,5 1 3 6 5 8 1198 2004 43 18 95.594116 we5 1 3 6 5 9 1263 1996 97 26 95.594116 would5 1 3 6 5 10 1380 1995 122 31 96.306717 develops 1 3 6 5 11 1523 2004 19 16 94.313576 a5 1 3 6 5 12 1562 1993 101 32 94.313576 majors 1 3 6 5 13 1685 1992 162 33 95.913994 expansion4 1 3 6 6 0 532 2034 1317 37 -1 5 1 3 6 6 1 532 2038 64 27 96.161514 into5 1 3 6 6 2 616 2048 89 17 96.371178 areas5 1 3 6 6 3 725 2041 97 25 96.412323 where5 1 3 6 6 4 843 2039 117 26 96.088333 neither5 1 3 6 6 5 980 2040 33 30 96.602936 of5 1 3 6 6 6 1032 2048 35 17 95.259079 us5 1 3 6 6 7 1087 2041 156 30 95.259079 penetrates 1 3 6 6 8 1264 2038 82 32 96.168274 rights 1 3 6 6 9 1367 2046 74 17 96.520653 now.5 1 3 6 6 10 1468 2037 65 31 96.603676 (CX5 1 3 6 6 11 1556 2037 35 26 92.685432 365 1 3 6 6 12 1612 2038 28 30 90.193993 c)5 1 3 6 6 13 1672 2034 177 33 96.766159 (Emphasis4 1 3 6 7 0 533 2081 164 32 -1 5 1 3 6 7 1 533 2081 164 32 96.559784 supplied).2 1 4 0 0 0 534 2147 529 38 -1 3 1 4 1 0 0 534 2147 529 38 -1 4 1 4 1 1 0 534 2147 529 38 -1 5 1 4 1 1 1 534 2147 149 38 96.091629 Finally,5 1 4 1 1 2 701 2148 147 31 96.803406 Fischer5 1 4 1 1 3 862 2148 201 31 96.183311 concluded:2 1 5 0 0 0 532 2211 1319 163 -1 3 1 5 1 0 0 532 2211 1319 163 -1 4 1 5 1 1 0 572 2211 1279 36 -1 5 1 5 1 1 1 572 2214 109 26 96.244560 Should5 1 5 1 1 2 705 2223 43 18 96.244560 we5 1 5 1 1 3 770 2215 120 31 96.437172 acquires 1 5 1 1 4 914 2215 81 32 95.250381 IPM,5 1 5 1 1 5 1019 2223 42 18 96.904816 we5 1 5 1 1 6 1084 2214 95 26 87.782890 would5 1 5 1 1 7 1226 2214 74 26 88.555069 have5 1 5 1 1 8 1324 2213 124 27 96.449158 reached5 1 5 1 1 9 1472 2222 39 17 96.610069 an5 1 5 1 1 10 1537 2211 205 33 96.404701 impregnable5 1 5 1 1 11 1766 2211 85 32 96.601913 point4 1 5 1 2 0 532 2253 1318 36 -1 5 1 5 1 2 1 532 2256 142 31 96.576279 provided5 1 5 1 2 2 694 2265 43 19 96.253838 we5 1 5 1 2 3 757 2258 68 25 96.253838 took5 1 5 1 2 4 846 2256 194 33 71.695633 appropriate5 1 5 1 2 5 1061 2259 81 30 96.439590 steps5 1 5 1 2 6 1163 2259 30 24 96.392792 to5 1 5 1 2 7 1214 2256 147 26 96.630661 maintains 1 5 1 2 8 1384 2264 54 17 95.577820 ours 1 5 1 2 9 1459 2255 138 32 95.577820 position.5 1 5 1 2 10 1619 2255 43 25 96.757614 At5 1 5 1 2 11 1685 2254 60 26 96.088722 this5 1 5 1 2 12 1765 2253 85 33 96.720703 point4 1 5 1 3 0 532 2295 1318 35 -1 5 1 5 1 3 1 532 2298 68 32 95.013802 only5 1 5 1 3 2 618 2299 61 25 96.787376 Ace5 1 5 1 3 3 697 2299 130 26 96.205994 Electrics 1 5 1 3 4 854 2299 51 26 42.718590 ands 1 5 1 3 5 929 2295 111 30 42.718590 Vulcan5 1 5 1 3 6 1058 2301 99 25 96.278534 Motors 1 5 1 3 7 1175 2299 147 25 96.719299 Products5 1 5 1 3 8 1342 2298 97 25 96.380852 would5 1 5 1 3 9 1457 2297 117 26 96.345230 remains 1 5 1 3 10 1594 2306 34 17 96.345230 as5 1 5 1 3 11 1648 2297 202 31 96.249542 replacement4 1 5 1 4 0 532 2340 1020 34 -1 5 1 5 1 4 1 532 2341 151 31 95.960838 suppliers5 1 5 1 4 2 700 2342 33 32 96.101379 of5 1 5 1 4 3 750 2350 57 23 96.077461 any5 1 5 1 4 4 826 2349 205 25 95.749954 consequence.5 1 5 1 4 5 1054 2341 65 30 91.821747 (CX5 1 5 1 4 6 1138 2342 28 30 91.821747 c)5 1 5 1 4 7 1194 2341 176 32 96.904015 (Emphasis5 1 5 1 4 8 1388 2340 164 32 96.550812 supplied). Initial Decision 82 F.T.C.

130. Shortly after the acquisition of IPM by Avnet, the general sales manager of IPM, Jim Paschal, wrote Mr. Mansfield suggesting a split in the markets referred to above as follows: “Having become a part of the Avnet Corp. it is reasonable to~believe that International Products & Mfg. Co. will be able to show where it would be extremely profitable for Valley Forge to concentrate on the redistribution outlet for their products, and International Products & Mfg. Co. to concentrate on the rebuilding industry for their outlet. This way, we would not have to make price concessions to compete with one another in the manner we have done in the past, and thus enhancing the overall profit of the corporation. (CX 85 c). C. Increase in Concentration 131. The acquisition of IPM by Avnet increased the dominant position of Avnet-IPM in the supply of new parts, materials and equipment to rebuilders, raising Avnet’s share in that market to 67 percent (see Finding 60). As stated by Harris Fischer: In short, it would be reasonable to conclude that the acquisition of IPM would place us in a dominant position and probably beyond reach of any newcomer. (CX: 44 a).

The summation would indicate that by acquiring our major competitor we would at a single jump achieve dominance in a growing field and occupy a powerful position to uplift profit levels. (CX 44 b). The combined market share of IPM and the Valley Forge Division of Avnet in 1964 was six times the market share of Ace, the next largest supplier of new parts, materials and equipment to rebuilders and thirteen times the market share of Vulcan. Due to the acquisition, the concentration ratio for the top four firms in the supply of new parts, materials and equipment to rebuilders increased from 83 percent to 88 percent, or an-increase of 5 percent for the top four firms (see Finding 60). 182. Avnet’s acquisition of IPM, the dominant firm in the industry for many years, reduced the major rebuilder suppliers from four to three and the Avnet-IPM combine. was further entrenched as the dominant firm and placed it beyond the reach of any potential entrant (CX 44 a-b; Flynn 947; Findings 68 and 1388, infra).

D. Barriers to Entry 133. The acquisition of IPM by Avnet increased the already substantial difficulties any new entrant or present competitor wishing to expand would have to meet in order to begin the sale of new parts, materials and equipment to rebuilders. Fischer ex- AVNET, INC. A431 391 «Initial Decision pressed his views on this subject in no uncertain terms as follows:

By combining Valley Forge and IPM it is very unlikely that any other company could arise to become a substantial competitive factor. The amount _of tooling required on older numbers with reduced: sales. would preclude anybody maktng the investment which “would be very unsound. It is always possible that original equipment manufacturers would choose to enter the field with tremendous sums available for the job to be done but in light of experience, it is not likely that they would embark on a program of tooling where the items to be made were hardly likely to show amortization of the investment. In order to become a factor any newcomer would have to make a very substantial investment in order to give sufficient coverage. To start from scratch and become a factor we estimate the . minimum figure of three to four million dollars which would not afford full product coverage. In addition we estimate that this project would involve several years in which time new items would undoubtedly be introduced that would make the problem more complex and expensive. In short it would be reasonable to conclude that the acquisition of IPM would place us in a dominant position and probably beyond reach of any newcomer (CX 44 a).

Fischer in his testimony repeated that.an investment of 3 to 4 million would be required to tool up (Fischer 4170). Fischer admitted he knew of no one who has invested that amount since 1964 (Fischer 4171). Fischer also was asked: HEARING EXAMINER JACKSON: Do you know of anybody in your terminology who-had full product coverage that had entered the field since ’64? (Tr. 4172).

THE WITNESS: No, your Honor, I cannot. (Tr. 4178; see also Gelberg 659).

134. Other rebuilder suppliers cannot match the advertising and promotional expenditures of IPM and the Valley Forge Division (Erwin 545-47; Flynn 945-46). a DISCUSSION The major thrust of respondent’s defense is twofold: the appropriateness of the product market set forth in the complaint and the size of that market.

The Relevant Market Respondent contends that the demand side of the relevant product market should not only include rebuilders (Findings 18- 33) but (a) repair shops, electrical specialty shops and service 432 FEDERAL TRADE COMMISSION DECISIONS ~ Initial Decision 82 F.T.C.

stations (Findings 34-40); (b) fleet “rebuilders” (Finding 42); (c) warehouse distributors and jobbers (Finding 41); (d) OEM _auithorized:rebuilders. (Findings 79, 80, 81); and (e) OEMs engaged in in-house rebuilding (Findings 82, 85). Respondent also contends that the supply side of the market should not only include rebuilder suppliers of new parts (Findings 60-76) but also suppliers of used, rebuilt or reconditioned parts (Findings 48- 58), OEM suppliers of new parts (Findings 77-91), occasional or single line suppliers of new parts (Findings 92-94) ; wholesale distributors including OEM warehouse distributors and jobbers (Findings 95-102).

The guidelines for determining the appropriate product market or submarket were laid down by the Supreme Court: The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it. However, within this broad market, well-defined submarkets may exist which, in themselves, constitute product markets for antitrust purposes * * * The boundaries of such a submarket may be determined by examining such practical indicia as industry or public recognition of the submarket as a separate economic entity, the product’s peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes and specialized vendors. Because Section 7 of the Clayton Act prohibits any merger which may substantially lessen competition in any line of commerce (emphasis supplied), it is necessary to examine the effects of a merger in each such economically significant submarket to determine if there is a reasonable probability that the merger will substantially lessen competition. If such a probability is found to exist, the merger is proscribed. Brown Shoe Co. v. United States, 370 U.S. 294, 325 (1962). It is now well established that it is not necessary for each of the seven criteria set forth in Brown Shoe to be present in every merger case in order to establish a market. A relevant market has been found to exist where three or less of the Brown Shoe criteria were present. United States v. E. I. du Pont de Nemours & Company, 353 U.S. 586, 598-95 (1957); General Foods Corporation v. Federal Trade Commission, 386 F.2d 936, 941 (1967); Reynolds Metals Co. v. Federal Trade Commission, 309 F.2d 223 (D.C. Cir:, 1962).

The examiner recognizes that rebuilding and repair (custom rebuilding) processes have certain similarities, but he has considered many other factors which must be analyzed before a firm can be classified as a rebuilder. Some of these factors. are the ownership, marking, pricing, stocking and sale of the unit, 391 Initial Decision the type of customer to whom the unit is sold, and the source of supplies (Findings 18-42).

In 1964, the rebuilders supply industry was recognized as a separate entity by its members and numerous rebuilders testified that their very existence depended upon rebuilder suppliers ~~such, as IPM and Avnet (Findings 35, 75, 105). In 1964, all significant suppliers of new items directly to rebuilders, except the OEMs, specialized in sales to rebuilders. Such suppliers had salesmen or sales representatives specifically calling on the rebuilding trade and offering rebuilders specialized catalogues and price sheets (Findings 61, 65). In contrast, junk dealers neither employed salesmen nor provided catalogues or price sheets to rebuilders (Finding 58). Likewise, wholesalers’ salesmen, in general, did not call on rebuilders (Finding 81). In 1964, rebuilder suppliers sold the bulk of their items. to a distinct class of customers—rebuilders—and these customers purchased the major portion of their new items from such suppliers (Findings 28, compare Finding 34 (e) ; 51, 69, 70, 71, 73). In 1964, rebuilder suppliers sold rebuilders new items at distinct prices which were substantially lower than those charged by the primary alternative source of supply of such new items, i.e., wholesalers. Rebuilders testified that if they had to purchase their requirements of new items from wholesalers exclusively, they could not profitably offer their rebuilt unit at a competitively lower price than a new unit (Findings.62, 96, 99). In 1964, the prices charged by rebuilder suppliers for new parts were substantially higher than the prices charged by suppliers of used, rebuilt or reconditioned parts. This difference in price between new and either used or rebuilt parts was so substantial that rebuilders used new parts only when used or rebuilt parts of acceptable quality were unavailable (Findings 52, 54, 57).

In 1964, several peculiar characteristics existed in the supply of new parts, materials and equipment by rebuilder suppliers to rebuilders:

(1) Rebuilder suppliers, in general, sold to rebuilders in bulk, whereas wholesalers made their limited sales generally to rebuilders in individual packages. Rebuilders preferred to purchase in bulk rather than in individual packages for at least two reasons: parts sold in bulk are’ less expensive as they. do not have a packaging cost included in their price, and rebuilders 434 FEDERAL TRADE COMMISSION DECISIONS ; Initial Decision 82 F.T.C.

can save the labor cost of unpacking parts by purchasing in bulk (Findings 64, 98).

(2) Rebuilders never utilized certain used parts in their re- ‘building operations but always utilized new parts instead of used parts in these instances (Findings 23, 56). (3) For late model applications, rebuilders were primarily forced to use new parts due to the unavailability of used parts for such applications (Finding 55).

(4) Junk dealers did not compete with rebuilder suppliers because (a) the price of a new item and a used part for the same application differed substantially, (b) junk dealers sold almost exclusively complete used units (cores) instead of individual used parts, and (c) junk dealers don’t always have available the necessary individual parts (Findings 45, 48, 51, 52,54, 55). (5) Rebuilders could obtain from rebuilder suppliers necessary new items that were unavailable from wholesalers (Finding 100).

New and used parts exhibit different price trends as well as differences in price sensitivity both over the short term and long term (Findings 52, 54).

In support of its contention that used (including rebuilt and reconditioned) parts should be included in the relevant line of commerce, respondent places great reliance on United States v. Aluminum Co. of America, 148 F.2d 416 (2d Cir. 1945) in which Judge Learned Hand held that “secondary” (used) aluminum ingot competed directly with “virgin” (new) aluminum ingot (RB 20).

In quoting from Judge Learned Hand’s opinion (148 F.2d 416 at 424) respondent made no reference to that portion of the opinion concerning the price difference between “virgin” and “secondary” or used aluminum ingots where Judge Hand stated: * * * the difference in price is ordinarily not very great; the [District] Judge found that it was between one and two cents a pound, hardly enough margin on which to base a monopoly. Indeed, there are times when all differential disappears, and “‘secondary” will actually sell at a higher price * * * (148 F. 2d 416 at p. 424).

In subsequent decisions the courts have emphasized that price differentials are important in separating markets for antitrust purposes. Judge (now Chief Justice) Burger stated in Reynolds Metal Company v. F.T.C. 309 F.2d 2238, 229 (D.C. Cir. 1962), AVNET, INC. 435 391 Initial Decision We think price differentials have an important if not decisive bearing in the quest to delimit a submarket * * * * Such a difference in price as appears on this record must effectively preclude comparison, and inclusion in the same market, or products as between which the difference exist, at least for purposes of inquiry under Section 7 of the Clayton Act. ——-Two years after Brown Shoe. the Supreme Court stated: * * * to ignore price in determining the relevant line of commerce is to ignore the single, most important, practical factor in the business. (United States v. Alcoa, 377 U.S. 271, 276 (1964).) In the present case the record amply supports the fact that there are substantial price differences between new and used or rebuilt parts (Findings 52, 54, 57).

Applying the foregoing criteria laid down by the courts, the examiner is of the opinion that the supply of new parts to rebuilders by rebuilder suppliers constitutes a reasonable and appropriate product market in which to measure the legality of Avnet’s acquisition of IPM.

Size of the Relevant Market Respondent contends that complaint counsel have failed to sustain their burden of proving the size of the “rebuilders supply industry” (RB 49-58).

In a recent decision the Commission, under remarkably similar circumstances to the instant case, discussed the degree to which the size of a product market must be ascertained. In that opinion the Commission stated:

* * * In industries such as the one involved here, where there is a central “core” of major firms surrounded by a score or more of relatively unimportant local or regional producers, really precise market data can be prohibitively expensive and burdensome to obtain. As the Supreme Court said in Brown Shoe Co. v. United States, 370 U.S. 294, 343 (n. 69), “although appellant may point to technical flaws in the compilation of these statistics, we recognize that in cases of this type precision of detail is less important than the accuracy of the broad picture presented.” See also Luria Bros. v. Federal Trade Commission, 389 F. 2d 847, 858 (CA-38, 1968), cert. denied, 398 U.S. 829 (1968). We think it quite unlikely that this group of experienced executives in the giftwrap industry was substantially inaccurate in its identification of the major competitors it faces in the marketplace and its overall assessment of the general order of their aggregate share of the market in question. (Papercraft Corp., 3 CCH Trade Reg. Rep. | 19,725 at p. 21779-80 (FTC 1971) [78 F.T.C. 1852].) Counsel supporting the complaint, as part of its case-in-chief 436 FEDERAL TRADE COMMISSION DECISIONS — Initial Decision 82 F.T.C.

submitted sales figures for 17 rebuilder suppliers (Finding 60). Testimony from practically every rebuilder witness, as well as other witnesses, was that in 1964 and for a number of years prior thereto, four firms, IPM, Ace, Valley Forge and Vulcan were the major suppliers of new parts, materials and equipment to rebuilders (Finding 68). Respondent in its defense called 14 other manufacturers who were occasional or single line suppliers of new parts, materials and equipment to rebuilders (Findings 92, 98). The examiner found that these additional suppliers accounted for an insignificant share of the market and at best were only incidentally engaged in the rebuilder suppliers market (Finding 94). Based on.the record as a whole, the complaint counsel’s data appears to be relatively accurate, particularly in light of the fact that admittedly the four major firms account for the bulk of purchases by rebuilders (Findings 69, 70, 71). Moreover, complaint counsel’s market figures are corroborated by the Census of Manufacturers Report (Findings 107, 112). Under the guidelines laid down by the Commission in the Papercraft decision and cases cited therein, the examiner believes that complaint counsel have sufficiently identified the major competitors in the product market and their individual and aggregate share of the market in question. Although respondent may point to some technical flaws in the compilation of these statistics, there is no substantial evidence that this would change the fact that IPM was number one in sales with approximately six times the market share of its nearest competitor Ace, and that Valley Forge, the third largest supplier, had sales roughly equivalent to that of Ace (Findings 60, 181).

Anticompetitive Effects Respondent maintains that complaint counsel have failed to sustain their burden of proving any reasonable probability of anticompetitive effects resulting from the acquisition by Avnet of IPM (RB 59-74).

The Commission’s observations regarding “competitive injury” set forth :in their decision in Papercraft appear equally applicable heré. In that decision the Commission stated: The acquisition involved in this proceeding is so far outside the pale of permissible combinations that, even if we accepted respondent’s efforts to expand the universe figure to double or more the figure we believe to be reasonably correct and to place the two firms in question in separate AVINGE:L, LINU. tv 391 Initial Decision “submarkets” of the overall gift-wrap field, we would still be constrained to enter an order restoring this acquired firm to its former status as a separate full-line gift-wrap producer. No matter how the product markets (or submarkets) might be defined, the facts still would remain, as noted, that the Ist and 2nd largest gift-wrap manufacturers have been combined into one; that the combination thus created is more..than twice the size of thé “next-largest competitor; that -those two-firms were the most likely entrants into all aspects of gift-wrap production; that the number of significant firms in the industry has been decreasing; that the trade expects this trend to continue, with only four significant firms ultimately remaining in the industry; and that there is no prospect for any new firms to enter the industry in the future. The case law simply does not sanction acquisitions of this kind. (Papercraft Corp., 8 CCH Trade Reg. Rep. 7 19,725 at p. 21781 (FTC 1971) [78 F.T.C. 1352, 1409].) In the instant case the largest competitor has been eliminated which in and of itself would be sufficient proof of injury to competition. Moreover, the combination of the largest supplier with the third largest supplier beyond question would increase substantially the previously existing high levels of concentration in the industry. Furthermore, the acquisition would discourage new entrants into an industry where the barriers to entry were already formidable and would entrench respondent Avnet as the dominant firm in the industry (Findings 119, 134). The Remedy It is well settled that the choice of-the remedial order is committed to the discretion of the Commission. F.T.C: v. Mandel Bros., 359 U.S. 385, 392-93 (1959); Miresk Industries, Inc. v. F.T.C., 278 F.2d 337, 348 (7th Cir. 1960), cert. denied, 364 U.S. 883 (1960); L. G. Balfour Company v. F.T.C., 442 F.2d 1 (7th Cir. 1971). The Commission has the power to order divestiture to restore competition to the state of health it might be expected to | enjoy but for the acquisition. F.7.C. v. Dean Foods Co., 384 U.S. 597, 606 n. 4 (1966) ; see Pan American World Airways Inc. v. United States, 371 U.S. 296, 312-18 nn. 17 and 18 (1963) ; Ekco Products Company, 65 F.T.C. 1204, 1214-17 (1964). The remedial phase of antitrust cases is crucial and the primary focus of inquiry as to remedy is whether the relief adequately redresses the economic injury arising out of the violation. U.S. v. E. I. du Pont de Nemours & Co., 366 U.S. 316, 326, 327. Moreover, “once the government has successfully borne the considerable burden of establishing a violation of law all doubts as to the remedy are to be resolved in its favor.” U.S. v. du Pont, Initial Decision 82 F.T.C.

supra, 334. Generally, the most appropriate remedy to redress a Section 7 violation is divestiture. F.T. C. v. Procter & Gamble Co., -3886,U.S. 568 (1967). 2-1 + Respondent urges that the cease and desist order proposed by complaint counsel in several respects is punitive in nature and wholly unprecedented. Indeed, respondent points out that several of the proposed provisions are more stringent than those contained in the proposed order incorporated in the complaint. In short, respondent takes issue with four major provisions in the order: (1) the inflexible requirement that respondent divest IPM together with all additions, improvements and earnings accumulated subsequent to acquisition (f| 1 of the Proposed Order) ; (2) the absolute prohibition against respondent’s making any acquisition until divestiture is accomplished ({f 3 of the Proposed Order); (8) the ban of unlimited duration on future acquisitions of firms engaged in businesses outside the line of commerce which complaint counsel contend is relevant to this proceeding ({ 4 of the Proposed Order); and (4) the requirement that respondent file compliance reports every 30 days until divestiture is accomplished and annually thereafter as long as it exists (5 of the Proposed Order).

Respondent’s objection to -the language in Paragraph One of the proposed order that IPM be divested “together with all additions and improvements to IPM which have been added to IPM and all earnings therefrom subsequent to the acquisition,” is that this provision is arbitrary, unduly rigid and unprecedented. The tests to be applied to the divestiture of afteracquired property is generally whether such_property is required to assure that the divested company can function as a going independent concern and whether such relief is necessary to restore competition to the state in which it existed prior to the acquisition. The respondent has been unable to discover any Commission order directing the divestiture of postacquisition earnings of the company to be divested. In fact the Commission recently specifically deleted such a provision from the hearing examiner’s order in Matter of The Stanley Works, 3 CCH Trade Reg. Rep. ‘[ 19,646 at 21,706 (FTC 1971) [78 F.T.C. 1023]. Similarly, the Commission itself has recognized that divestiture of after-acquired property is appropriate only where absolutely essential to assure the viability of the divested company (Jn the Matter of Crown Zellerbach Corporation, 55 F.T.C. 769. (1957), aff'd 296 F.2d 800 (9th Cir. 1961), cert. denied, 370 U.S. 9387 ARVANES Ly LINUE 407 391 Initial Decision (1962); see also § 1 of the order in Stanley Works, supra.) Accordingly, the hearing examiner has revised the language in Paragraph One of the proposed order submitted by complaint counsel to make more explicit the kinds of assets that Avnet is required to divest, and has eliminated the phrase with respect '~-to after-acquired earnings to which respondent objected. Respondent’s second exception to the proposed order would prohibit it from acquiring any concern in the United States, regardless of its business, until divestiture of IPM has been accomplished. This provision is seemingly without precedent, as complaint counsel has cited no authority or basis for such a provision and it was not a part of the proposed order contained in the complaint. Furthermore, it appears that this provision is punitive in nature and wholly unnecessary to accomplish any legitimate purpose. Accordingly, the examiner has eliminated Paragraph Three of the proposed order.

Respondent’s third objection is to Paragraph Four of the proposed order by complaint counsel which would prohibit respondent from every acquiring or obtaining the market share of any firm “engaged in the business of manufacturing and/or supplying parts, materials, equipment, and other products to automotive electrical unit rebuilders.” Respondent urges that this paragraph is impermissibly broad in two respects: (1) it contains absolutely no time limitations; and (2) its prohibition is far broader than the relevant line of-commerce as alleged in the complaint. A similar ban of unlimited duration against acquisitions without. prior approval of the Commission was sought by complaint counsel and adopted by the examiner in The Stanley Works matter but modified by the Commission to incorporate a ten-year ban. Complaint counsel have set forth no peculiar facts which would justify such a provision in this matter. With re-. spect to the proposed injunction barring respondent from acquiring or obtaining the market share of firms engaged in businesses outside the line of commerce found as alleged in the complaint, complaint counsel, although they have not so stated, presumably are requiring such a provision. in view of Avnet’s position as an important manufacturer and marketer of replacement parts for sale in the automotive aftermarket as well as its acquisition of more than 20 companies in the past ten years, including a number of profitable -concerns engaged in the manufacturing and marketing of automotive parts and machinery (see Findings 2,8). In short, respondent has the resolve, capability and market 440 FEDERAL TRADE COMMISSION DECISIONS . Initial Decision 82 F.T.C.

proximity to enter this market. Under these circumstances, it appears to the examiner that a ban on the acquisition of all manufacturers and/or. suppliers of new parts, materials and equipment to rebuilders is closely related to the violation found herein since Avnet is a potential entrant into such market and necessary to insure against further violations of the same or similar nature by the respondent in order to protect competition. The examiner has deleted the unlimited ban against acquisitions and substituted therefor a period of ten years. Respondent objects to Paragraph Five of complaint counsel’s proposed order requiring compliance reports every 30 days as punitive and a “clear departure from established Commission precedent.” The examiner disagrees (see Matter of Stanley Works, J 3 of the Order [78 F.T.C. 1028, 1054]). Respondent also objects to the requirement contained in Paragraph Five that annual reports describing the nature of all future acquisitions be made. In light of the respondent’s expansion program through merger and acquisition over the past ten years, the hearing examiner is of the opinion that this requirement is not unreasonable and should be retained. As modified, the complaint counsel’s proposed order is hereinafter adopted.

CONCLUSIONS 1. The Federal Trade Commission has jurisdiction of and over respondent and the subject matter of this proceeding. 2. At all times relevant in this proceeding, respondent Avnet and IPM were corporations engaged in “commerce” as defined by Section 7 of the Clayton Act, as amended. vo : 8. As stipulated by the parties, the entire United States is the appropriate geographic market, or “section of the country,” within which to consider the alleged competitive effects of the merger of Avnet and IPM under Section 7 of the Clayton Act, as amended.

4. The direct sales by rebuilder suppliers of new parts, materials and equipment to rebuilders, excepting direct sales by original equipment manufacturers to their authorized rebuilders who, pursuant to an agreement with that OEM supplier, rebuild and furnish automotive electrical units to said supplier or its designee, is an appropriate product market, or line of commerce, within which to consider the alleged competitive effects of the ARVINGUL, LIN 441 391 Initial Decision merger of Avnet and IPM under Section 7 of the Clayton Act, as amended.

5. The effect of the acquisition by Avnet of IPM has been, or may be, substantially to lessen competition or tend to create a monopoly in violation of Section 7 of the Clayton Act, as “~amended (1 U.S.C. 18). re ORDER 1. It is ordered, That respondent Avnet, Inc. (hereinafter “Avnet”’), a corporation, its successors and assigns, shall divest all stock, assets, properties, rights, privileges and interests of whatever nature, tangible and intangible, acquired by Avnet as the result of its acquisition of the assets and business of Guarantee Generator & Armature Co., d/b/a International Products & Manufacturing Co. (hereinafter “IPM’’), together with all additions and improvements to IPM which have been added to IPM subsequent to the acquisition, so as to assure that IPM is reestablished as a separate, effective and viable competitor engaged in the business of manufacturing and/or supplying of parts, materials, equipment and other products to independent automotive electrical unit rebuilders. Such divestiture shall be absolute, shall be accomplished no later than one year from the effective date of this order, and shall be subject to the prior approval of the Federal Trade Commission. 2. It is further ordered, That pursuant~to the requirements of Paragraph 1 above, none of the stock, assets, properties, rights, privileges and interests of whatever nature, tangible or intangible, acquired or added by Avnet, shall be divested, directly or indirectly, to anyone who is at the time of the divestiture an officer, director, employee or agent of, or under the control, direction or influence of Avnet or any of Avnet’s.subsidiaries or affiliated corporations or who owns or controls more than one (1) percent of the outstanding shares of the capital stock of Avnet.

3. It is further ordered, That for a period of ten (10) years from the date this order becomes final, Avnet shall cease and desist from acquiring, directly or indirectly, without the prior approval of the Federal Trade Commission, the whole or any part of the stock, share capital, assets, any interest in or any interest of, any concern, corporate or noncorporate, engaged in the business of manufacturing and/or supplying parts, materials, Dissenting Statement 82 F.T.C.

equipment and other products to automotive electrical unit rebuilders, nor shall Avnet enter into any arrangement with any - such concern by which- Avnet obtains’ the market Share, in whole or in part, of such concern in the above described product lines.

4. It is further ordered, That Avnet shall, within thirty (30) days after the effective date of this order, and every thirty (30) days thereafter until Avnet has fully complied with the provisions of this order, submit in writing to the Federal Trade Commission a verified report setting forth in detail the manner and form in which Avnet intends to comply, is complying or has complied with this order. All compliance reports: shall include, among other. things that are from time to time required, (a) the steps taken to accomplish the required divestiture; and (b) copies of all documents, reports, memoranda, communications and correspondence concerning or relating to the divestiture. With respect to Paragraph 4 of this order, Avnet shall on the first anniversary date of the effective date of Paragraph 4 and each anniversary date thereafter, submit a report, in writing, listing all acquisitions and mergers made by it, the date of every such acquisition or merger, the products involved and such additional information as may ffom time to time be required. 5. It is further ordered, That Avnet notify the Commission at least thirty (30) days prior to any proposed change in the corporate respondent such as dissolution, assignment or sale resulting in the emergence of a successor corporation, the creation or dissolution of subsidiaries or any other change in the corporation which may affect compliance obligations arising out of | the order.

DISSENTING STATEMENT BY DENNISON, Commissioner:

I find myself unable to agree with the majority’s treatment of the relevant product market. Unlike most market definition issues, the problem is not whether the products of the acquiring company compete with those of the acquired; rather, the issue is the size of the product. market in order to determine whether there is the substantial lessening of competition by the acquisition of. a competitor. To establish a violation of Section 7, complaint counsel must prove that the merger between the two AVNET, INC. 443 891 Dissenting Statement electrical equipment suppliers substantially lessened competition in that line of commerce.

Complaint counsel maintain that the relevant product market is the new automobile electrical component parts sold to production-line rebuilders.

The majority approaches this | issue of product market from two perspectives: Companies which make up the demand side, and those who compose the supply side. On the demand side, for example, the majority limits rebuilders to only those employing a production-line method and not engaged in “in-house” production of component parts. On the supply side, the Commission restricts its consideration of market size to exclude respondent’s competitors who utilized used or rebuilt parts (as opposed to new parts), original equipment manufacturers who sell to rebuilders, suppliers of single line items and those who did not sell “primarily” to rebuilders. In each instance the majority determined either the competition was outside the relevant product market or, if within, was negligible. I am not persuaded by the evidence that such is the case.

I cannot agree with the majority’s view that complaint counsel has met his burden in demonstrating the size and dimension of the relevant line of commerce. While I may subscribe to the general proposition that the Commission does not have the burden of listing all and every competitor in order to determine the market, there must be a sufficient treatment of the factors in such market to meaningfully show what share the respondent enjoys vis-a-vis its competition. This record does not adequately treat the type or number of respondent’s competitors, nor does it show their size. While embracing the teaching of Brown Shoe,' the majority ‘earries the guidelines to the extreme. There may well be industry | recognition of “production-line” rebuilders on the demand side of the market. Recognition of such a different production system is, according to the majority, tantamount to a separate submarket. However, recognition alone is a distinction without necessarily a difference.

With respect to the majority’s use of the distinct pricing structure in establishing the relevant market, again I am unconvinced. For instance, the majority opinion itself concedes that demand for “new” component parts is substantially diminished when “‘used”’ parts are available. (Slip Opinion p. 18 [pp. 456-57 ? Brown Shoe Co. v. United States, 370 U.S. 294. 444 FEDERAL TRADE COMMISSION DECISIONS | Opinion 82 F.T.C.

herein]) What better evidence can there be of cross-elasticity of demand? See Papercraft Corp., Docket No. 8779, Slip Opinion p. 8, nz 22 (June 30, 1971-[78 F.T.G: 1372, 1402]). The majority’s curious market definition closely approximates what Justice Fortas once described as a “strange red-haired, bearded, one-eyed man-with-a-limp classification.” ? I am unable to support this tortured definition of product market and, therefore, I dissent.

* United States v. Grinnell Corp., 384 U.S. 563, 585. OPINION OF THE COMMISSION By KIRKPATRICK, Commissioner:

This matter is before the Commission pursuant to respondent’s appeal from the administrative law judge’s initial decision holding Avnet’s acquisition of Guarantee Generator and Armature Co., d/b/a International Products and Manufacturing Co. (IPM), in violation of Section 7 of the amended Clayton Act, 15 U.S.C. Section 18 (1970).' In his initial decision, the judge found that the horizontal acquisition not only eliminated Avnet’s largest competitor but. entrenched it as the dominant supplier of new parts, materials, and equipment to rebuilders of automotive electrical units * with a market share more than six times greater than that of its 1 The following abbreviations are used for citations: oe - 1.D.—Initial decision of administrative law judge (Findinys cited by paragraph number; conclusions cited by pare number).

Tr.--Transcript of testimony CX--Commission exhibit RX—-Respondent exhibit HE—-Hearing Examiner's (administrative law judge’s) exhibits Res. App. Br.—-Brief on Appeal of respondent Ans. Br.---Answering brief of complaint counsel Rep. Br.---Reply brief of respondent RPF---Respondent’s proposed findings ? The relevant line of commerce pleaded in the complaint and found by the judge (I.D. 103 {p. 425 herein]) is the “rebuilders’ supply industry.”’ Simply stated, that industry consists of those firms supplying new parts, materials, and equipment directly to firms envaved in rebuilding; automotive electrical units. The judge also found a relevant subline of commerce consisting of the rebuilders’ supply industry but excluding sales by suppliers to rebuilders that produce units for the supplier or its designee. (I.D. 104, 105 [p. 425 herein]). As defined in the complaint, ‘‘automotive electrical units’ refers to venerators, alternators, starters, starter drives, armatures, solenoids, and voltage regulators. (Amended complaint 1(a)). See note 21 [pp. 454-55 herein], infra. ;

The geographic market, about which there is no dispute, is the nation as a whole. AVNET, INC. 445 891 Opinion leading competitor.* In the judge’s opinion, Avnet’s acquisition of IPM, the largest firm in the market, only six months after Avnet had entered the market by purchasing Valley Forge (VF), the third largest supplier of rebuilders, would tend to: (1) _decrease substantially the previous price competition in the industry, (2) permit a division of markets between IPM and Valley Forge, and (3) discourage new entry into an industry where barriers to entry were already formidable. Quoting from the Commission’s Papercraft opinion, Dkt. 8879 (June 30, 1971) at p. 16, aff'd, No. 71-1681 (7th Cir., January 25, 1973), the judge concluded (1.D. p. 43 [p. 486 herein] ): The acqusition involved in this proceeding is so far outside the pale of permissible combinations that, even if we accepted respondent’s efforts to expand the universe figure to double or more the figure we believe to be reasonably correct * * *, we would still be constrained to enter an order restoring the acquired firm to its former status * * * The case law simply does not sanction acquisitions of this kind. On the basis of the violation found, the judge issued an order requiring divestiture of IPM and prohibiting Avnet from acquiring, without prior Commission approval, any firms supplying automotive electrical unit rebuilders for a period of ten (19) years.

On appeal, respondent challenges principally the judge’s definition of the relevant line of commerce, his determinations on the size of that market, and finally his finding that the acquisition tended to lessen competition. More specifically, respondent contends that the relevant market should include: (1) the sales to all categories of automotive electrical unit rebuilders, not just those who rebuild on a “‘production-line” basis (Res. App. Br. at 10~17; Rep. Br. at 2-6) ; (2) the sales of used and rebuilt . as well as new components utilized in rebuilding (Res. App. Br. at 17-28; Rep. Br. at 3); and (8) sales of original equipment manufacturers’ (OEMs) new parts by wholesale distributors (Res. App. Br. at 28-32; Rep. Br. at 3). The respondent also argues that the evidence on the size of the market presented by complaint counsel is extremely unreliable and that, therefore, 1Jn his initial decision, the jude determined that the challenged acquisition increased Avnet’s share of the market from 9.4 to approximately 67 percent. (I.D. 60, 1381 [pp. 414, 430 herein}). Furthermore, the concentration ratio for the top four firms increased as a result of the acquisition from 838 to 88 percent of the market. (I.D. 181 [p. 430 herein)). Althourrh these findings are based on the submarket, we note that for the line of commerce ; as a whole, the market-share figure would only be approximately 3 percent less. See page - 7, [p. 448 herein], infra.

446 FEDERAL TRADE COMMISSION DECISIONS > Opinion 82 F.T.C.

surveys of respondent which allegedly represent a more complete analysis of the market were wrongfully excluded. (Res. App. Br. 40-53; Rep. Br. 5-15): Finally, respondent. contends that the judge placed undue weight on. preacquisition documents prepared by Avnet executives in evaluating the probable anticompetitive effects of the merger. (Res. App. Br. 55-59; Rep. Br. 15— 20).

We have carefully considered all of respondent’s arguments in light of the record and the initial decision and have concluded, for the reasons stated below, that the judge’s findings and conclusions are fully supported by the evidence and applicable case law. Therefore, we hereby adopt, except to the extent noted in this opinion, the findings and conclusions contained in the initial decision and the order prepared by the judge. I, THE REBUILDING INDUSTRY AND ITS SUPPLIERS OF NEW PARTS The rebuilding of automotive electrical units ‘generators, starters, voltage regulators, and, in more recent years, alternators—grew out of the depression. At that time, the economic situation created a unique opportunity for those entrepreneurs who could rebuild an electrical unit with parts salvaged from several used inoperative units (referred~to by the industry as “cores’’) and sell.their product at a fraction of the price of a new unit. Today, with the technological sophistication of the industry, the increased consumer acceptance of rebuilt automotive units and the availability of new and rebuilt component parts, the rebuilder has become, in a very real sense, a manufacturer with a special niche in the automotive aftermarket. Because rebuilders provide the motoring public with a cheaper alternative of comparable quality to the new units produced by the OEMs‘, the rebuilding industry represents a viable competitive challenger 4Today, components of these four electrical units, such as armatures, rotors, solenoids, starter drives and stators, are also rebuilt on a major scale. (Rebuilt armatures, rotors, and stators are commonly designated ‘‘rewound.’’) These rebuilt components are largely produced for the purpose of being incorporated into the Jarger units by a rebuilder, although some are sold directly into the automotive aftermarket as finished goods. Consequently, there are today two levels in the rebuilding industry, one supplying the other. Several large rebuilders operate exclusively at one level, while others produce both rebuilt component parts and larger rebuild units.

5 Rebuilt units are yenerally sold to the consumer at prices 30-40 percent below those of OEM new units. (Tr. 795, 884, 895). Most rebuilders of automotive electrical units consider their products to be comparable in quality, if not better, than new units which are manufactured by the OEMs. (Tr. 651, 757, 795, 895). Furthermore, rebuilt units sold by most rebuilders today carry warranties that, if anything, are better than the 90-day coverage offered by the OEMs for new replacement units. (Tr. 651, 757). 391 Opinion in at least one small segment of the automotive replacement parts market to the general OEM dominance in the automotive aftermarket.

While many factors account for the meteoric rise of the automotive electrical rebuilding industry in the past quarter century, “none is more important than.the development ‘of sources of supply for the full range of new parts required in rebuilding. Unlike his predecessor of the 1930s, the modern rebuilder need not resort to cannibilizing parts from several cores to rebuild a single unit. (Tr. 1574). He is now able to operate on a much more efficient production-line basis, rebuilding each used core into a finished unit; because he can supplement his inventory of component parts with new parts when sufficient used parts cannot be salvaged from cores received in exchange from customers or purchased from junk dealers. (I.D. 20-26 [pp. 403-04 herein] ).*° Likewise, the, availability of certain new parts which are seldom salvageable in reusable form, such as brushes and bushings, has permitted the rebuilding industry to produce rebuilt units comparable in quality to new replacement units. (Tr. 794-95). But, perhaps the most important result of the development of the rebuilder supply industry is that today’s rebuilders can produce rebuilt late model units years before cores and used parts are available from the junk yards.’ Consequently, the suppliers of new parts to rebuilders hold the key to this industry. The industry can-only_exist if new parts are available at prices sufficiently low so that the rebuilder will be able to sell the finished product on the market at a price substantially below that for new units. The OEMs, however, have consistently followed a policy of not selling directly to rebuilders * The entire rebuilding industry operates on an ‘‘exchange” basis. That is, rebuilders sell to their customers, mostly wholesale distributors or jobbers, who generally “return to the -rebuilder a used core in partial payment for each rebuilt unit. Thus, the rebuilder has a constant source of supply for the most basic item in rebuilding—the used core. Since rebuilders can continue to operate on a production basis only with a continuous supply of used cores, their operation depends in large part on their ability to rebuild a unit from a single used core. (Tr. 815-16, 919-20, 1574). : ™Mr. Fischer, the president of Avnet’s Valley Forge Division, noted the vital role of rebuilder suppliers in making parts available for late model units: When original equipment {sic] changes basic parts in a new model, the rebuilder cannot secure these until the units hit the junk yards and this takes time, It is in this interval of time that VF [Valley Forge] and IPM serve their largest function. (CX 37f). § As one experienced rebuilder testified: Q Why in your opinion do rébuilders exist today ? A Because of price. Only because of price, as compared with OEM * * *, If it ever became where a rebuilt unit irrespective of its quality could not be bought cheaper than a brand-new unit, then the rebuilding business would stop. (Tr. 795-96). 448. FEDERAL TRADE COMMISSION DECISIONS Opinion 82 F.T.C. = other than those rebuilding units for. them (so-called “authorized -rebuilders’”). Rebuilders are able to obtain OEM new parts from 7 ; wholesale distributors (WDs) ; but,.as virtually: every rebuilder _.who testified in this proceeding indicated, WD. prices are so high that rebuilders could not. produce a rebuilt. unit. for less’ than a new one if they had to buy exclusively from wholesalers. (1.D. 99 [p..424 herein]). Consequently, a small group of. rebuilder =. suppliers, led by IPM and Valley Forge, has essentially been the ~ sole source of new parts for rebuilders since the. inception of the. | rebuilding industry in the 1930s.° As one major rebuilder testified with reference to IPM and Valley Forge and their leading com-.. petitor, Ace: “I doubt if we could have existed if it had not been for the three.” (Tr: 798). ° II. THE RELEVANT PRODUCT MARKET.

The judge found the relevant line of commerce to be “direct sales by rebuilder suppliers of new parts, materials and equipment to rebuilders.” (1.D. 108, pp. 38-41 [pp. 431-35 herein] ). In addition, he concluded that a relevant subline of. commerce existed consisting of all sales of new parts, materials, and equipment. to rebuilders excepting direct sales by OEMs to their authorized rebuilders. (I.D. 104, 105 -[p. 425 herein]). The geographic market, about which there is no dispute between the parties, is the United States as a whole. (J.D. 106 [p. 425 herein] ). Recognizing that respondent’s market share as a result of the acquisition is considerably greater than that sanctioned under any Section 7 precedent, Avnet on appeal raises a series of objections to the judge’s definitions of the relevant market and submarket. Since we note that the judge’s ‘submarket decreases the total market by only $610,000 or approximately 8 percent (1.D. 77 [p. 417 herein]), we will confine our review to those issues which relate to the overall market. A. The Demand Side of the Market 1. Definition of “Rebuilder”

Throughout the proceeding below and on appeal, respondent °It is indeed‘ ironic that the predecessor of IPM actually entered the rebuilder supply business. to conipete with Valley Forge, the principal supplier in the mid-1930s, because Valley Forge refused to sell new parts on other than a cash or c.o.d. basis. (Tr, 1572). And, during World War II, IPM was the first supplier to realize the potential for tremendous growth in the parts business if rebuilders had a full line of new parts at reasonable prices so that they would no longer have to cannibilize several cores to make a single unit. (Tr. | 1574). Thus, from the very beginning of the rebuilding industry, competition amony the suppliers of the industry has been an important factor in its developement. 391 Opinion has contended that the term “rebuilder” refers to all firms that engage in the physical operation of disassembling a unit, cleaning, testing, replacing or reconditioning defective or worn parts, and reassembling and testing the finished product. (1.D. 18 [p. 402 herein]). Thus, respondent argues that the definition of ~—gebuilder?? in the complaint should include not only “productionline” rebuilders but all types of automotive repair firms—service stations, general repair garages, vehicle dealers, electric specialty _shops, and fleet maintenance facilities. (Res. App. Br. 10-17; Rep. Br. 2-6).

Admittedly, many types of repair shops engage in rebuilding on an individual unit basis (termed in the trade “custom rebuilding”), which involves the same basic process and parts employed in “production-line” rebuilding.'* As the judge below found, however, fundamental differences exist between production-line rebuilders and repair shops with respect to the nature of their business operations, their methods of pricing, their types of customers, and the degree of their dependency on specialized rebuilder suppliers. (Compare I.D. 19-83 with I.D. 34 [pp. 403— 05 herein]). Furthermore, the industry itself clearly recognizes the basic practigal difference between production-line and custom rebuilders as demonstrated not only by the testimony of several major rebuilders (Tr. 647-49, 718, 753-54, 826, 1295, 2310-11, 4627) but also by the existence of a separate trade association limited- to production-line-rebuilders and their suppliers.. (RX 55e).

The significance of the distinction between production-line and custom rebuilding in determining the relevant line of commerce lies in the fact that production-line rebuilders are manufacturers that sell completed units at an established price for distribution into the automotive aftermarket, primarily through wholesale distributors. (I.D. 26, 32 [p. 404 herein]). Custom rebuilders or repair shops, on the other hand, actually perform a service. 1 We cannot agree with respondent's contention that the fact that several production-line rebuilders engage in some custom rebuilding, primarily of heavy-duty units, renders the judge’s distinction between production line and custom rebuilding untenable. (Res. App. Br. at 12-13; Rep. Br. 3-4). The judge, in fact, found that the custom rebuilding performed by production-line rebuilders was generally for the convenience of their customers and accounted for less than 6 percent of their business. (I.D. 31 [p. 404 herein]). 't As the executive secretary of the trade association testified (Tr. 2979): “We generally define a.rebuilder as a firm substantially engaged in rebuilding on a production scale automotive parts for use in the aftermarket distribution channels. Production scale would generally refer to a firm who was substantially engaged in the promotion of the industry.”

Opinion 82 F.T.C.

Custom rebuilders do not prepare a unit for sale but rather repair the particular unit and return it to the customer, generally the vehicle owner, charging him on a parts and labor ‘basis. (I.D. 34 (a), (d), 37,39,42 [pp. 405, 406, 406, 407 herein]). Perhaps most significant in this proceeding is the fact that, while production-line rebuilders could not operate without a supply of new parts from rebuilder suppliers, custom rebuilders buy their new parts primarily '* from OEM wholesale distributors at prices 20-40 percent higher than those charged by the rebuilder suppliers. (I.D. 34(e) [p. 405 herein] ).% For these reasons, we cannot agree with respondent’s contention that the Commission’s decision in Papercraft, Dkt. 8779 (June 30, 1971), pp. 7-8 [78 F.T.C.. 1872, 1402], aff'd, No. 71-1681 (7th Cir., January 25, 1973), supports a broadening of the line of commerce to include sales to custom rebuilders. The facts found by the judge demonstrate that production-line rebuilders sell a product, not a service, to entirely different classes of customers at different distribution levels using completely different pricing methods. Thus, unlike the situation Papercraft where a dramatic shift in the market share from one type of retailer to another strongly indicated direct competition, competition between these two categories of rebuilders seems at best very indirect. 7 Furthermore, the tremendous. disparity between the production-line rebuilders’ dependence on rebuilder suppliers and the custom rebuilders’ reliance on wholesalers, despite the fact that wholesalers charge a substantially higher price, indicates that sales to these two categories of rebuilders are in different lines of commerce. As the D. C. Circuit observed’ in Reynolds Metals Company v. FTC, 309 F.2d 228, 229 (1962): 12 We do not disagree with respondent's assertion that rebuilder suppliers do have some sales to repair shops. (Res. App. Br. 11-12), The rebuilder suppliers cited by respondent, however, had very limited occasional sales to a limited number of repair shops. (Tr. 1078-79, 1155, 1462-68, 2142; CX 290). Furthermore, there is no basis in the record for respondent’s contention that 2,000 of IPM’s active customers were repair shops or that 700 were service stations. (Tr. 2268). See discussion at pp. 36-37 [pp. 470-71 herein], Infra. 13 Although the judge in his initial decision made no finding as to the differential between the prices charged to rebuilders by wholesalers and those charged by rebuilder suppliers, the testimony cited by the judge demonstrates that WD prices to rebuilders were at least 20-40 percent higher than rebuilder supplier prices. For example, the president of Precision Field Coil noted that WD prices for General Motors’ field coils were $4.41 while Precision sold to rebuilders at $2.76. (Tr. 538-39). One of the nation’s largest rebuilders testified that IPM’s prices were at least 20 percent cheaper than WD prices. (Tr. 843). The president of Valley Forge indicated that Valley Forge and IPM generally sold at a price 70 percent off OEM list price while jobbers sold at a 50 percent discount. (CX 37e). Thus, jobbers sold at prices over 60 percent greater than those of rebuilder suppliers. # 391 Opinion We think price differentials have an important if not decisive bearing in the quest to delimit a submarket. No prudent businessman (the ordinary end user of foil), would purchase colored or embossed foil at prices on this record of $1.15 to $1.22 per unit when another foil converter market offers florist foil, similarly colored or embossed, and of similar gauge and weight, at a cost of only $ .75 to $ .85 per unit. The fact that prudent “businessmen ‘do so supports the inference, drawn in the negative since as we have noted the record lacks affirmative evidence on the point, the florist foil must be distinct and separable from aluminum foil generally or the many users of the latter would have long ago begun to substitute the former at the lower price. Such a difference in price as appears on this record must effectively preclude comparison, and inclusion in the same market, of products as between which the dfference exists, at least for purposes of inquiry under Sec. 7 of the Clayton Act. Certainly, under the D. C. Circuit’s reasoning in Reynolds Metals, no prudent businessman engaged in custom rebuilding would continue to purchase new parts from wholesalers if he was in direct competition with rebuilders who purchased their new parts at prices substantially lower than those charged by wholesalers. 2. “In-House” Manufacturing or New Parts by Rebuilders Respondent also disagrees with the judge’s exclusion (I.D. 104 [p. 425 herein] ) of the production of new parts by various rebuilders for use in their own rebuilding operations. (Res. App. Br. 36-87) .1* Avnet contends that in-house manufacture of components competes directly with the sale of such components by outside suppliers and that, therefore;--parts manufactured “inhouse” by rebuilders should be included in the market. Respondent asserts that testimony in the record refers to numerous instances where rebuilders have shifted back and forth between purchasing from outside sources and manufacturing “in-house” depending on varying conditions of price, quality, and availability. (Res. App. Br. at 37).

14 We note that the judge in his initial decision did not actually discuss the issue of “‘inhouse” supply of new parts but did, in fact, exclude ‘‘in-house’’ supply by limiting the relevant market to “sales.” (Res. App. Br. at 36). 1% The testimony cited by respondent to show that rebuilders shift between “in-house” production and purchasing from outside sources largely relates to rebuilt, rather than new, parts. See RPF 151-152. (Tr. 608, 625-27, 658-59, 760, 809, 867-69, 1288, 2837, 3425, 3454-55). While the record does show that in 1964 some rebuilders manufactured their own field coils and that one fairly large rebuilder produced new commutators, the record also shows the very real limitations on the ability. of rebuilders to manufacture these parts themselves. Champion Armature, which manufactured its own commutators, was cut off by Anaconda, its supplier of ‘‘bar stock,”’ in 1967 when its purchases dropped and was forced to discontinue commutator manufacturing :because it could not obtain bar stock without paying a premium. (Tr. 627). With regard to field coils, Mr. Gordon of Ace, whose entire business centered on the sale of field coils (CX 44a—b), testified that’ by 1964, high labor costs effectively prohibited ‘‘in-house” production (Tr. 1170): Opinion 82. F.T.C.

Contrary to respondent’s argument, we find that the record in this case amply demonstrates that “in-house” production does not. effectively compete with sales. of new parts by rebuilder suppliers and that, in fact, it is extremely difficult for the overwhelming majority of rebuilders to supply any significant portion of their requirements of new parts. This is demonstrated not only by evidence of the. substantial investment required to “tool up” for new parts production and the substantial risks involved,’* but also by the fact that respondent identified only six rebuilders out of some 150-200 firms engaged in automotive electrical unit rebuilding in 1964 that manufactured any of their new parts requirements.” .

In fact, a mere listing of the vertically integrated firms named by respondent in its brief (Res. App. Br. at 37) demonstrates how unique “in-house” production of new parts really is in the rebuilding industry. Respondent lists only five firms—the Delco- Remy Division of General Motors, Robert Bosch, American Starter Drive, Carwin, and Accurate Parts. With the exception of Accurate Parts, the world’s largest rebuilder of a very narrow line of specialized products," all rebuilders listed by respondent manufacture new parts primarily for purposes other than for supplying their own -rebuilding operations. . Thus, Deleo-Remy and Robert Bosch, which are engaged principally in the manufacture of original equipment units (I.D. 81-85 [pp. 418-19 herein]), use some small percentage of the new parts they manufacture in Q. In 1964 to your knowledge did any rebuilders wind their own field coils? * * * * . * we -o.”

A. I don’t know. I know that prior to '64 they did and then they had to quit because it was too expensive for them to wind their own unless the owners’ wives came down and didn't have anything to do and they didn’t have to pay them and they wound the coils for them, but that is about the only way. But if they had to pay 75 cents or a dollar ofr] $1.25 an hour, it wasn’t worthwhile for them to wind their coils. The cost of tooling for manufacturing any significant portion of the broad range of parts required by rebuilders is substantial. See pp. 42-43 [pp. 475-76 herein], infra. Mr. Fischer, the president of Valley Forge estimated that a minimum investment in tooling of $3-4 million would be necessary to produce a broad, but not complete, line of new parts, (Tr. 4170, CX 44a). A 1964 study by Vulcan concluded that three quarters of a million to a million dollars would be required to ‘tool up” to enter the alternator parts business. (Tr. 992). 7 We do not include among the six rebuilders those rebuilders who may have made some of their own field coils as late as 1964. See note 15, supra. % Accurate Parts is the world’s largest rebuilder of starter drives and starter solenoids, which are components of starters. (RX 15d). In 1964, its sales of rebuilt starter drives alone was $2.2 million (Tr. 4665), which is greater than the total sales volume of many of the nation’s largest rebuilders, even though the other rebuilders sell a much broader line of products. For example, Standard Automotive Components, which ranked among the top-ten rebuilders, had sales in 1964 of $1.178 million (Tr. 836) ; Automotive Armature, also in the top ten, had sales of $1.119 million in that year. (Tr. 1289). AVNET, INU, ‘kv0 391 Opinion their rebuilding operations.’? American Starter Drive and Carwin, which are two rebuilder suppliers, manufacture new parts primarily for resale or for use in manufacturing new units.2° The fact that virtually the only vertically integrated rebuilders in the _ industry are those with a substantial market for new parts other *than- for use in their own rébuilding- operations demon-_ strates that real barriers exist which preclude the overwhelming majority of rebuilders from engaging in “in-house” production of new parts.

In analogous situations, the courts have excluded “in-house” production from the relevant line of commerce. In the leading case, United States v. Greater Buffalo Press, 402 U.S. 549 (1971), the Supreme Court recognized the relevant line of commerce, the independent color comic supplement printing business, as one separate from the “in-house” printing of color comic supplements by the newspapers themselves. Both the Supreme Court and the District Court excluded “in-house” printing because of the greater skill and specialized machinery necessary to produce quality color supplements and the cost savings inherent in printing such supplements on a high-volume basis. U.S. v. Greater Buffalo Press, Inc., 402 U.S. at 555 (1971); U.S. v. Greater Buffalo Press, Inc., 327 F. Supp. 305 at 307-09 (W.D.N.Y. 1970). Both courts acknowledged the fact, however, that a substantial number of newspapers printed color comic supplements themselves and that even those newspapers that did-not would do so “if at any time.the cost of purchasing such color comic supplements exceeds the cost to the newspaper of printing them.” (/d. at As the judge found, Deleo-Remy’s (D-R) rebuildiny operation was so incidental to its production of new units that D-R’s purchasing decisions were made solely on the basis of new-unit production. The rebuilding operation simply drew upon new parts in D-R’s stock used to manufacture new units, and no separate accounting was made to distinguish the use made of the parts. (I.D. 82 [p. 418 herein]). : i Robert Bosch GMBH is a world-wide manufacturer of original equipment that’ sells electrical units in the United States through a subsidiary, Robert Bosch Corporation of the United States, for Volkswagén, Mercedes-Benz, Volvo, Porsche, Saab, Ford Pinto, Lincoln Capri, and Opal. In 1964, the American subsidiary engaged in some rebuilding using only parts imported directly from Bosch’s foreign plants. (1.D. 83-85 [p. 419 herein]). *0 American Starter Drive in 1964 sold to rebuilders $415,000 in rebuilt starter drives and $425,000 in new components for starter drives. (Tr. 1017-18, 1028-29). Since the cost of new parts used in rebuilding usually represents 15-35 percent of total sales of rebuilt units (I.D. 109 [p. 425 herein]), we find that the overwhelming majority of new starter drive components were manufactured by American for sale to rebuilders rather than for use in its own rebuilding operation. .

In 1964, Carwin was primarily engaxed in the manufacture of new solenoids for which it made most of the component parts. While Carwin also rebuilt solenoids for sale to rebuilders, rebuilt solenoids accounted for only a quarter of Carwin’s total solenoid production. (Tr. 1182-83). In addition, Carwin sold $170,000 in new solenoid components, of which it manufactured 60 percent. (Tr. 1194).

Opinion 82 F.T.C.

307-08). See also, United States v. Philadelphia Natl. Bank, 874 U.S. 321, 356-57 n. 33 (1963).

_ Nor do we find the decision of the District Court in United States v. International Telephone & Telegraph Corp. (ITT-Canteen), 1971 CCH Trade Cas. Par. 73,619, at 90, 539-45 (N.D. Ill.) inconsistent with the judge’s exclusion of “in-house” production from the market. In ITT, the court’s determination that “inhouse” food service should be included in the relevant market was based on the finding that in the Chicago area, 14 percent of the food centers at plants, 42 percent of those at schools, and 52 percent of those at hospitals were operated by the institution. (Id. at 90, 542.) In the court’s view, the substantial percentage of institutions engaged in “in-house” food service confirmed expert testimony indicating that food-service operations by institutions were an important competitive factor in the overall food-service industry. In the present case, however, the facts dramatically demonstrate that “in-house” manufacture of new parts is unique and is almost exclusively limited to those rebuilders that have entered the rebuilding field as an outgrowth of their substantial new-part manufacturing operations. B. The Supply Side of the Market 1. Used and Rebuilt Parts Ignoring the overwhelming evidence on the record indicating that the rebuilding industry exists solely because of its ability to assemble units from the least expensive components and thereby sell its product at a price substantially below that of new units, respondent contends that used cores and parts, together with rebuilt and reconditioned parts, compete “directly and effectively” with substantially more expensive new parts. (Res. App. Br. 20-28). Respondent argues that the judge’s findings and conclusions, excluding sales of used cores and parts and rebuilt parts, are therefore unsupportable and “ignore[s] the dynamics of the rebuilding industry.” (Res. App. Br. at 20). This argument would certainly astound the rebuilders who testified in this proceeding.?! © 21 Respondent also contends that the judge in his initial decision excluded five components of electrical units—armatures, rotors, solenoids, starter drives, and stators—from the product market by defining them as “units” rather than “‘parts.”” (Res. App. Br. 18-20). Actually, these components can be considered either ‘‘parts” or “units” depending on the context in which they are used. Rebuilders of components consider them ‘‘units,’’ but rebuilders that incorporate these components into larger units consider them “parts.” (Tr. 778, 1183). 391 Opinion In fact, the record amply demonstrates that the purchasing decisions of rebuilders are made basically on considerations of availability which in turn are premised on the very substantial differentials in price among used, rebuilt, and new parts.”? Rebuilders will generally purchase used parts if they are available - —-in. preference to rebuilt or new components. (I.D. 52 [p. 411 herein] )? When used parts are not available, rebuilders will turn to rebuilt. parts suppliers (I.D. 57 [p. 411 herein]). Only if neither used nor rebuilt parts are available will rebuilders resort to new parts. (1.D. pp. 39-40 [p. 483 herein] ). The rebuilders’ main source of used parts is used cores obtained primarily from their customers in exchange for rebuilt units and, to a lesser extent, from junk dealers, affectionately Therefore, we find that the judge’s definition of “units” as “any item sold separately by a rebuilder” (LD. 48 [p. 408 herein]) and his definition of “parts” as “any item purchased by a rebuilder for incorporation in units which he rebuilds” (1.D. 44 [p. 408 herein]) reflect the recognized usage of those terms in the trade. : The mere fact that the judge listed a series of examples of ‘‘units,” which included these components, but listed no examples in his definition of “parts” certainly does not indicate, as respondent argues, that the judge did not ider these com ts “parts” when they were purchased by a rebuilder for incorporation into a larger unit. In fact, the judge parenthetically noted that suppliers of rebuilt parts included “rewinders of armatures, rotors and stators” and included Carwin’s sales of new solenoids in his computation of market shares. (LD. 58, 60 n. 2 [pp. 412, 414 herein]). While respondent attempts to support its strained reading of the initial decision by claiming that the judge erroneously excluded Bendix’s sales of starter drives to rebuilders (Res. App. Br. at 19 n. 15), the record clearly shows that these drives were not incorporated into rebuilt starters (Tr. 3081) and thus were not ‘‘parts’’ under the judge’s definition.

2 The following chart illustrates the relationship of the “Yebuilders’ principal sources of supply (LD. 47 [p. 410: herein]):

Used core suppliers (Junk Deaiers)"

New parts suppliers Rebuilt or reconditioned parts Rewinder-Rebuilders Regrinder-Rebuilders | __ Rebuilders ~] Opinion 82 F.T.C.

called “junkies.” #? Rebuilders disassemble the cores to recover the individual parts which, in turn, are sorted, cleaned, inspected, tested, and then commingled with other similar parts for use in‘the rebuilding process. (I.D. 45 [p. 409 herein] ). While respondent acknowledges that “the apparent price of parts contained in a used core is always substantially lower than the price of the same components new, rebuilt, or reconditioned” (Res. App. Br. at 25), it contends that the price discrepancy found by the judge is actually considerably less because of the cost of labor necessary to salvage a part from a used core. In fact, the judge’s finding that used items sell at 25-50 percent of the price of a comparable new part is based primarily on testimony comparing new part prices with prices for individual used parts extracted from cores by the junkie. (I.D. 52 [p. 411 herein]). For example, one rebuilder cited by the judge testified that used end plates for generators were available at the time of the proceeding for 15 cents compared to $1.00 to $1.50 for comparable new end plates. (Tr. 782-84). Furthermore, the president of Avnet’s Valley Forge Division indicated that used cores containing several salvageable parts often sell below the price for a single new part and that junk dealers who themselves break down the cores to salvage individual parts are able to sell used parts at prices 65-75 percent lower than those charged by Valley Forge. (Tr. 4061-62). Thus, the judge’s finding and the evidence on the record clearly indicate that the cost of salvaging parts from used cores is insignificant compared with the substantial price differential between used cores and the total new-part price of all the component parts which usually can be salvaged from used cores.” me Were used parts and cores in the same market with new parts, one would expect to find a substantial interaction in price 33 Junkies market their product in a manner completely different from new-parts suppliers. First, they generally sell! whole cores, not individual parts. (I.D. 48 [p. 410 herein]). Second, they tend.to sell on a local or regional basis whereas new-parts suppliers compete on a nationwide basis. (I.D. 49 [p. 410 herein]). Third, junkies do not maintain a stock of various kinds of cores but dispose of cores as soon as possible. (Tr. 600). Fourth, unlike the new-parts suppliers, junkies sell on an ‘‘as is’’ basis without any guarantee of quality. (Tr. 600-01, 693). Fifth, junk dealers have no salesmen and provide no promotional services such as those often performed by new-part suppliers’ salesmen. (I.D. 53 [p. 411 herein]). Sixth, junkies do not have price lists but sell at the hixhest price offered by their customers. (I.D. 58). ** Respondent’s argument (Res. App. Br. at 26) that used parts compete with new ones on the basis of differences in quality—citing its Proposed Findings of Fact (RPF 108, 109, 119)— is indeed curious in light of the statement contained in Paragraph 106 of its proposed findings: “Such used parts are generally considered substantially the same in quality as their new equivalents.’” We feel that the latter statement substantially reflects the evidence in the record. 891 Opinion between the two. In fact, as the judge found (I.D. 54 [p. 411 herein]) and the record again amply demonstrates, the prices for new parts are relatively stable with a slight increase over time while used items and cores decrease substantially in price as time passes and more used cores are available to the junkyards.?* While respondent refers to a few isolated excerpts ~~ from the record to indicate that: price ‘sensitivity actually exists (Res. App. Br. 26-27), most of the testimony cited tends to confirm, not rebut, the judge’s finding. Thus, the testimony of Avnet’s two vice-presidents indicated that as used parts became plentiful, their price fell well below the cost of manufacturing a new part (Tr. 4061), sometimes to the extent that IPM could not sell the new parts even at reduced prices and ‘ended up selling approximately eight or nine tons of end plates and stuff for scrap * * * .” (Tr. 1675). That is not price sensitivity but the bottom falling out of the market. Substantial price differentials also distinguish the sales of rebuilt and reconditioned parts from the sales of new parts. On the basis of substantial evidence on the record, the judge found that rebuilt parts generally sell for 25-50 percent less than comparable new parts and that rebuilders purchased rebuilt parts whenever they were available in preference to new parts. (I.D. 57 [p. 411 herein] ).? Respondent contends, however, that the “price differences that exist between rebuilt and reconditioned parts and their new equivalents are not differences in real cost.to the rebuilder’’ because the price ordinarily quoted for rebuilt parts is an “exchange price” which presumes the return of a used core by the customer. (Res. App. Br. at 21; Rep. Br. at 7-8 n. 16). Respondent is correct in asserting that if the value of the used core were added to the price charged by the supplier of the rebuilt part, the disparity in price between rebuilt and new parts... would be reduced. However, respondent’s contention again ignores 23'The wide fluctuation of the prices of used parts and cores is illustrated by the fact. that used generator core prices vary from one to ten dollars. (Tr. 805). *6 To dispute the judge’s finding of a substantial price differential, respondent cites testimony that two suppliers sold rebuilt and new starter drives at the same price and that new Japanese bearings sell at prices equal to those of rezround bearings. (Res. App. Br. at 21). However, the testimony of the two starter-drive rebuilders, in fact, indicates that they sold all products as rebuilt even when they were unable to fill an order with a rebuilt drive and had to purchase a new one to keep the customer content. (Tr. 1052; 4624-25). Respondent’s assertion about the price of Japanese bearings is true today. But, Japanese bearings were just entering the American market in 1964 so that at that time most rebuilders preferred rezround bearings over new because of the substantial lower price. (Tr. 697, 715, 731, 1000, 4599-4600). Opinion 82 F.T.C.

the dynamics of the rebuilding industry. The evidence in the record demonstrates that customers of rebuilders in the overwhelming majority of cases return cores to the rebuilder in order -to receive the exchange price.-As the judge found, approximately 85 percent of the cores used in rebuilding are obtained from the rebuilder’s customers. (J.D. 45 [p..409 herein]). This practice comports with the basic rationale of the rebuilding industry. To a rebuilder of generators, an armature core has little value since it cannot be utilized in rebuilding generators until it is rewound. But, to a rewinder (who is a type of rebuilder of component parts), armature cores provide the very foundation of his business. Consequently, to the rebuilder of generators, who himself receives used generators containing armature cores in exchange from his own customers, armature cores are of little value except to the extent that he can use them to decrease the cost of obtaining rebuilt armatures. Therefore, it is to the generator rebuilders’ advantage to purchase on an exchange basis whenever possible.?* In view of the fact that the entire rebuilding industry exists because of its ability to sell its product at a price substantially below that of new units and that, therefore, the predominant factor in choosing between alternative sources of supply is price, we find that the substantial price -differences between new and used and new and rebuilt parts establishes the sales of new parts as a distinct market. The facts found by the judge in his initial decison are so analogous to the facts relied upon by the Supreme Court in United States v. Alcoa, 877 U.S. 271 at 276 (1964), that the language of the court in separating insulated aluminum conductor from insulated copper conductor and placing it in another submarket is appropriate:

The price of most insulated aluminum conductors is indeed only 50% to 65% of the price of their copper counterparts; and the comparative installed costs are also generally less. As the District Court found, aluminum and copper conductor prices do not respond to one another. Separation of insulated aluminum conductor from insulated copper conductor and placing it in another submarket is, therefore, proper. It is not inseparable from its copper equivalent though the class of customers is the same. The choice between copper and aluminum for overhead distribution 27 Althourh the’ judve made no findings with respect to price sensitivity between rebuilt and new parts, we note that the testimony in the record tends to indicate that the principal determinant of rebuilt parts prices is the cost of the used core. Thus, the price of rebuilt parts will generally decrease substantially over time as used cores become plentiful and the price of the core drops. (Tr. 2451, 2455-56). In contrast, as we noted above, new part prices remain relatively stable over time with a slight upward trend. | AVNET, ING, 409 391 Opinion does not usually turn on the quality of the respective products, for each does the job equally well. The vital factors are economic considerations. It is said, however, that we should put price aside and Brown Shoe, supra, is cited as authority. There the contention of the industry was that the District Court had delineated too broadly the relevant submarkets—men’s shoes, women’s shoes, and children’s shoes—and should .have subdivided them further. It was argued, for éexample, that men’s shoes selling below $8.99 were in a different product market from those selling above $9. We declined to make price, particularly such small price differentials, the determinative factor in that market. A purchaser of shoes buys with an eye to his budget, to style, and to quality as well as to price. But here, where insulated aluminum conductor pricewise stands so distinctly apart, to ignore price in determining the relevant line of commerce is to ignore the single, most important, practical factor in the business. (Emphasis added.) See also Reynolds Metals Co. v. FTC, 309 F. 2d, 228 at 229 (D.C. Cir. 1962).

2. Exclusion of Sales to Rebuilders of OEM New Parts We note at the outset that OEMs sell to rebuilders only through wholesale distributors and jobbers except for those ‘authorized rebuilders” engaging in rebuilding for the OEMs. Furthermore, despite respondent’s contentions to the contrary (Res. App. Br. at 30-82), OEMs do not consider rebuilder suppliers as competitors. In fact, the memoranda by Ford and General Motors referred to by respondent indicate that these two companies do not regard themselves as competitors of IPM or Valley Forge. (CX 286, RX 69). The Ford memorandum. discussing sales by these two divisions of Avnet actually states that the divisions “e * = do not compete directly in the channels with parts sold under various Ford brands * * * .” (CX 286u). In contending that the. judge erroneously excluded sales by wholesale distributors (WDs) to rebuilders, respondent misreads the initial decision. The judge did not exclude WD.-sales to rebuilders but rather found “that sales by wholesalers do not constitute a significant factor in the rebuilders supply market.” (1.D. 102 [p. 424 herein]). The judge’s conclusion is substantiated by the virtually unanimous testimony of every rebuilder witness that WD prices were so much higher than rebuilder suppliers’ (20-40 percent greater) that they sought parts from WDs only in an emergency or when the parts were not otherwise available. (1.D. 96, 97 [p. 424 herein]). Nine industry members stated that rebuilders could not produce a rebuilt unit for less than a new one if they had to purchase all new parts from WDs. (1.D. 99 [p. 424 herein]).

Opinion 82 F.T.C.

3. Exclusion of Occasional or Single-Line Suppliers of New Parts, Materials, and Equipment - .. Respondent likewise-misreads-the initial decision when it contends that the judge excluded from the market suppliers that did not sell “primarily” to rebuilders. (Res. App. Br. 33-36). To the contrary, the judge included the proven sales of other suppliers in the market but found “at best [they] were insignificant suppliers whose total dollar volume of sales would not materially alter the overall dollar value of the rebuilder suppliers market * % & 1” And, “complaint counsel’s failure to include these 14 companies [and similar types of suppliers] does not materially alter the overall structure of the rebuilder suppliers industry as set forth in Finding 60.” (1.D. 94 [p. 423 herein]). Respondent’s argument concerning the other suppliers, as apparently acknowledged in its reply brief (pp. 8-11), in actuality relates to the size of the market and the substantiality of the sales to rebuilders by suppliers other than those included in complaint counsel’s original list of rebuilder suppliers. C. Sales by Rebuilder Suppliers of New Parts, Materials, and Equipment to Rebuilders Constitutes a Distinct and Valid . - Market When the air is cleared of all of respondent’s protestations and references to relatively insignificant exceptions to the ordinary course of dealing in the rebuilder supply field, the conclusion that sales of new parts to rebuilders of automotive electrical units is a relevant line of commerce within classic Section 7 terms is inescapable. In 1964, all significant suppliers. of new parts to rebuilders, except the OEMs, specialized in sales to a distinct class of customers, production-line rebuilders. (I.D. 61, 65, p. 39 (pp. 414, 415 herein]). These suppliers catered to the needs of rebuilders with salesmen specially soliciting and serving the rebuilder trade (1.D. 61 [p. 414 herein]), with research and development of new methods and products for the rebuilder (I.D. 61), and with specialized catalogs and price sheets for rebuilders. (I.D. 65 [p. 415 herein] ).

In addition to the fact that the rebuilders supply industry was recognized by rebuilders as the indispensable source of new parts, the rebuilder suppliers themselves recognized the industry as a separate economic entity. Despite respondent’s assertions to the contrary (Res. App. Br. 38-39), the record amply demonstrates that rebuilder suppliers’ pricing decisions were made primarily AVNET, INC. 461 391 , Opinion on the basis of the prices charged by the four largest rebuilder suppliers, particularly IPM.. (I.D. 62, 63 [p. 415 herein]; CX 44a). Several rebuilder suppliers also equalized freight, which is one of the major cost factors in the industry, so that their - ~total prices.to a particular rebuilder. would be similar to the prices of IPM, Ace, and Valley Forge. (I.D. 62 [p. 415 herein]; Tr. 656-57, 996-97, 1110-11). See General Foods Corp. v. FTC, 386 F. 2d 936, 941-42 (3d Cir. 1967), cert. denied, 391 U.S. 919 (1968).

Our conclusion that this market meets at least five of the seven practical indicia for defining submarkets noted in Brown Shoe Co. v. United States, 307 U.S. 294, 325 (1962) **—industry recognition, distinct customers, distinct prices, sensitivity to price changes and specialized vendors—is confirmed by Avnet’s own preacquisition: memoranda. (CX 36, CX 37d-f, CX 44) 2° All the memoranda, which were prepared by Mr. Fischer, the president of Avnet’s Valley Forge Division and an Avnet director and vice-president, strongly indicate that Valley Forge viewed only IPM, Ace, and Vulcan as meaningful competitors, (CX 36c, 37d, 44a—b). Moreover, Mr. Fischer concluded: The acquisition of IPM would serve chiefly to remove our most major competitor from the scene. This would reduce to an overwhelming extent the price competition that is a major factor in the industry. In many cases severe competition has held profit margins on key items to a reduced level owing to the ability of two firms to offer substantially the same item at the same price. (CX 44a).

We have glossed over the natural inherent advantages of elimination of bitter price competition for this is taken for granted, but the benefits should not be discounted. (CX 36d).

That Mr. Fischer was not alone in this view is demonstrated by the comments of JPM’s sales manager immediately after the acquisition:

*8'The outer houndaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it. However, within this broad market, well-defined submarkets may exist which, in themselves, constitute product markets for anti-trust purposes. United States v. KE. 1. Dupont De Nemours & Co., 353 U.S. 586, 593-595. The boundaries of such a submarket may be determinde by examining such practical indicia as industry or public recognition of the submarket as a separate economic entity, the product’s peculiar characteristics and uses, wnique production facilities, distinct customers, distinct prices, sensitivity to price changes and specialized vendors. (Emphasis supplied.) 2° Copies of Commission exhibits 86 and 44 are attached to this opinion as Appendix A and B [pp. 429, 483 infra].

Opinion 82 F.T.C.

* * * we would not have to make price concessions to compete with one another in the manner we have done in the past, and thus enhancing the - oyeg-all profit of the Corporation .(CX 5c). These observations by two of the most knowledgeable individuals in the rebuilding field indicate that the rebuilder supply market, which would be dominated after the acquisition by Avnet, was a separate and distinct market. Only if a distinct market existed would Avnet have the power to reduce to “an overwhelming extent the price competition” in the industry. As we stated in General Foods Corp., 69 F.T.C. 380, 414 (1966), aff'd. 386 F. 2d 936, 941 (8rd. Cir. 1967), cert. denied, 391 U.S. 919 (1968): .

It is obvious that if respondent and the other steel wool soap pad manufacturers regard themselves as a separate market, then it is this market in which the impact of respondent’s acquisition must be judged. Ill. SIZE OF THE RELEVANT MARKET Respondent’s. most vigorous challenge to the initial decision is its attack on the judge’s. conclusions concerning the size of the rebuilder supply market. Respondent asserts that complaint counsel failed to meet its burden of proof demonstrating the approximate size of that market (Res. App. Br. 42-44; Rep. Br. 6, 11), that the judge shifted the burden of proving the market size to respondent (Res. App. Br. 48-44; Rep. Br. at 11), and that, thereafter, the judge prevented respondent from developing and introducing evidence on market size by refusing to grant certain prehearing discovery requests, excluding respondent’s market surveys and excluding certain testimony regarding the amount of sales in the market. (Res. App. Br. 45-53; Rep. Br. 5-6, 9-15).

A. Substantial Evidence Supports the Judge’s Market-Size Determination At the outset, it should be noted that reliable market data for this industry is extremely difficult to obtain. Compliant counsel, to establish a prima facie case, introduced into evidence the sales figures for 17 rebuilder suppliers considered by complaint counsel to account for the overwhelming majority of the total sales in the ALVIN L, LIN. “tuv 391 Opinion market.*° The estimate of market size based on the aggregate 1964 sales of these 17 firms, which amounted to $19.8 million, was corroborated by computations based on the 1967 Census of Manufacturers. In that year, the sales of rebuilt generators, _ _alternators, starters, and voltage regulators amounted to $67.8 million. (I.D. 108 [p. 425 herein]): Since, as uncontroverted testimony in the record indicates, new part purchases by rebuilders account for approximately 15-35 percent of their total sales (I.D. 109 [p. 425 herein]), the judge found that the new part purchases by rebuilders to rebuild these four types of units was roughly $10-25 million in 1967. Noting that sales of rebuilt parts increased substantially between 1964 and 1967, the judge concluded that “the Census data substantially corroborates the approximate twenty (20) million dollar figure” represented by the total sales to rebuilders of the rebuilder suppliers included in complaint counsel’s market. (I.D. 112 [p. 426 herein] ). In challenging the judge’s reliance on the estimates extrapolated on the basis of the census report, respondent argues that * The following table lists the 17 firms in complaint counsel’s market with their 1964 sales to rebuilders (I.D. 60 [p. 414 herein]): Company Sales Market Share ($000) (%) IPM 11,3538 57.4 Ace . 2,200. 11.41 Valley Forge 1,856 -_ 9.4 Vulean Motor Products 750-1,000 5.0 VMC & Rebuilders Supply Co. 1,000 5.0 Carwin Sales 511 2.6 Butts Electric Supply Co. 438 2.2 American Starter Drive Service 425 2.1 Ennis Automotive, Inc. 167 8 Preferred Electric & Wee Wire Corporation 100-150 8 Lincoln Bearing Co. 138-165 8 Starter Service Company Inc. 128 6 Los Angeles Commutator; 122 6 Precision Field Coil Co. 95 Ms) Jamison Parts less than 70 4 Hubert Products 55 3 Rich Engineering Co. 46 2 TOTAL : 19,781 100.00 In addition, we note that in ‘1964, Ford, Chrysler, and General Motors had sales to authorized rebuilders of $500,000, $60,000, and $50,000 respectively. (I.D. 78, 80, 81 [p. 418 herein]). See p. 7 [p. 448 herein], supra.

Opinion 82 F.T.C.

many production-line rebuilders may not have been included and furthermore that the judge’s reliance on the census report in re- ‘solving the market-size issue effectively denied respondent’s right to cross-examination.*t While we acknowledge that the census data may not present the most precise picture of the rebuilding industry and that the further extrapolation to estimate the rebuilders’ purchases of new parts in 1964 provides us with only a general “ball park figure” of the size of the market, we cannot say that the judge erred in utilizing the census data to corroborate complaint counsel’s other evidence on market size. What respondent ignores is that the judge in his initial decision actually relied more heavily on several other findings based: on substantial evidence in the record in determining the size of the market. (I.D. pp. 41-43 [pp. 435-86 herein]). Except for the census report, all pertinent testimony was subject to cross-examination by respondent.

Thus, the judge also relied on “uncontradicted testimony of almost every rebuilder * * * that in 1964 and for.a number of years prior thereto, four firms, viz., IPM, Ace, Valley Forge and Vulcan, were the major suppliers of new parts, materials and equipment to rebuilders.” (I.D. 68, p. 42 [pp. 415, 436 herein]). The judge further found, and the record amply demonstrates, that the four major suppliers furnished rebuilders with between 64-97 |Thes 1 3 1 1 2 842 1666 239 20 91.701408 cross-examinations 1 3 1 1 3 1102 1667 62 20 95.947449 issues 1 3 1 1 4 1184 1674 48 12 95.887047 was5 1 3 1 1 5 1253 1668 133 22 95.887047 previously5 1 3 1 1 6 1408 1670 89 19 96.395630 treated5 1 3 1 1 7 1518 1670 29 22 96.756310 by5 1 3 1 1 8 1567 1671 39 18 96.756310 thes 1 3 1 1 9 1626 1671 157 19 96.174965 Commissions 1 3 1 1 10 1805 1671 24 19 95.300392 in5 1 3 1 1 11 1850 1671 30 19 96.124947 its5 1 3 1 1 12 1902 1671 86 24 95.969872 Rulings 1 3 1 1 13 2009 1679 29 13 95.873497 on4 1 3 1 2 0 718 1697 1320 31 -1 5 1 3 1 2 1 718 1697 163 21 96.392250 Certifications 1 3 1 2 2 897 1699 26 20 96.073112 of5 1 3 1 2 3 939 1699 103 23 96.073112 Requests 1 3 1 2 4 1058 1701 39 18 96.288857 for5 1 3 1 2 5 1114 1701 125 23 96.076141 Subpoenas 1 3 1 2 6 1256 1704 24 18 96.634048 to5 1 3 1 2 7 1297 1702 160 20 95.519981 Governments 1 3 1 2 8 1474 1703 90 20 96.334969 Officials 1 3 1 2 9 1581 1704 26 20 96.829620 of5 1 3 1 2 10 1624 1704 110 22 96.341171 January5 1 3 1 2 11 1751 1706 36 20 96.711411 29,5 1 3 1 2 12 1806 1706 62 21 96.237999 1971,5 1 3 1 2 13 1888 1706 23 19 96.292694 in5 1 3 1 2 14 1930 1705 39 20 92.579628 thes 1 3 1 2 15 1986 1712 52 16 92.370422 pre-4 1 3 1 3 0 718 1731 1321 30 -1 5 1 3 1 3 1 718 1733 54 17 96.379982 sents 1 3 1 3 2 792 1737 60 15 89.919868 case.5 1 3 1 3 3 875 1731 76 21 96.333580 There5 1 3 1 3 4 973 1740 34 12 96.911766 we5 1 3 1 3 5 1028 1735 101 22 96.887299 granted5 1 3 1 3 6 1150 1741 14 13 96.728455 a5 1 3 1 3 7 1186 1735 120 23 96.146324 subpoenas 1 3 1 3 8 1327 1735 31 20 88.718552 ad5 1 3 1 3 9 1379 1736 174 22 74.244568 testificandum5 1 3 1 3 10 1576 1740 23 18 95.825378 to5 1 3 1 3 11 1623 1739 57 19 93.281998 Paul5 1 3 1 3 12 1705 1737 25 21 88.624100 F.5 1 3 1 3 13 1754 1738 83 23 96.806519 Beard,5 1 3 1 3 14 1861 1738 70 20 96.619431 Chiefs 1 3 1 3 15 1951 1740 27 19 96.247574 of5 1 3 1 3 16 2000 1740 39 19 96.247574 thea 1 3 1 4 0 718 1765 1320 31 -1 5 1 3 1 4 1 718 1765 87 21 93.275650 Census5 1 3 1 4 2 824 1766 113 21 92.136391 Bureau’s5 1 3 1 4 3 954 1768 85 20 96.496696 Metals5 1 3 1 4 4 1056 1768 46 20 96.546188 ands 1 3 1 4 5 1120 1769 138 22 96.265877 Machinery5 1 3 1 4 6 1276 1770 100 23 96.488571 Branch,5 1 3 1 4 7 1395 1773 23 18 96.730965 to5 1 3 1 4 8 1435 1772 76 19 96.615288 affords 1 3 1 4 9 1528 1773 145 21 96.286293 respondents 1 3 1 4 10 1690 1772 40 19 96.399887 thes 1 3 1 4 11 1747 1773 159 23 95.816765 opportunity5 1 3 1 4 12 1924 1776 23 16 92.970070 to5 1 3 1 4 13 1965 1780 73 13 90.758087 cross-4 1 3 1 5 0 714 1800 1321 34 -1 5 1 3 1 5 1 714 1800 110 20 96.438286 examines 1 3 1 5 2 847 1800 40 21 96.638023 thes 1 3 1 5 3 908 1801 85 20 56.364571 official]5 1 3 1 5 4 1019 1803 146 22 96.226837 responsible5 1 3 1 5 5 1187 1803 39 20 96.167435 for5 1 3 1 5 6 1250 1804 124 23 95.583420 collecting5 1 3 1 5 7 1398 1805 46 19 96.132965 ands 1 3 1 5 8 1468 1806 133 28 95.987885 compiling5 1 3 1 5 9 1620 1806 41 20 96.580757 thes 1 3 1 5 10 1684 1807 91 20 96.701515 Census5 1 3 1 5 11 1799 1808 56 19 96.545601 data5 1 3 1 5 12 1881 1808 23 19 95.395416 in5 1 3 1 5 13 1929 1809 106 21 93.931198 question4 1 3 1 6 0 716 1833 1331 32 -1 5 1 3 1 6 1 716 1833 145 23 94.180031 “regarding5 1 3 1 6 2 880 1835 40 20 96.442818 thes 1 3 1 6 3 938 1838 74 17 96.556801 terms5 1 3 1 6 4 1031 1836 55 20 96.640465 used5 1 3 1 6 5 1105 1837 25 19 95.553764 in5 1 3 1 6 6 1148 1837 40 19 95.553764 thes 1 3 1 6 7 1208 1839 81 21 96.896980 reports 1 3 1 6 8 1307 1839 47 18 96.420227 ands 1 3 1 6 9 1374 1838 39 20 96.258018 thes 1 3 1 6 10 1433 1845 99 14 96.343437 manners 1 3 1 6 11 1551 1836 34 23 58.032703 in’5 1 3 1 6 12 1589 1834 228 26 76.622719 which’5 1 3 1 6 13 1691 1829 42 35 40.417358 thes 1 3 1 6 14 1738 1829 7 35 30.635254 -5 1 3 1 6 15 1750 1834 67 26 30.635254 firms5 1 3 1 6 16 1838 1836 139 29 96.626396 furnishings 1 3 1 6 17 1996 1842 51 19 43.099854 the’4 1 3 1 7 0 715 1867 1318 31 -1 5 1 3 1 7 1 715 1867 156 21 96.036842 information5 1 3 1 7 2 889 1875 27 13 96.983894 as5 1 3 1 7 3 934 1870 51 19 96.287453 wells 1 3 1 7 4 1004 1876 26 14 96.647285 as5 1 3 1 7 5 1048 1870 42 20 96.978615 thes 1 3 1 7 6 1108 1872 112 21 79.316315 products:5 1 3 1 7 7 1238 1878 62 13 95.833229 were5 1 3 1 7 8 1318 1872 115 21 96.440262 classified5 1 3 1 7 9 1453 1873 24 19 96.195717 in5 1 3 1 7 10 1495 1873 40 20 96.607338 thes 1 3 1 7 11 1572 1875 105 21 92.539803 report.”5 1 3 1 7 12 1701 1874 52 22 89.377831 (Id.,5 1 3 1 7 13 1775 1881 21 17 80.086464 p.5 1 3 1 7 14 1817 1876 34 20 95.121567 2).5 1 3 1 7 15 1873 1875 43 20 93.408585 Mr.5 1 3 1 7 16 1939 1876 94 22 95.443947 Berard,4 1 3 1 8 0 714 1902 673 27 -1 5 1 3 1 8 1 714 1902 23 19 96.573837 in5 1 3 1 8 2 750 1903 59 23 96.764084 fact,5 1 3 1 8 3 823 1902 101 21 96.144173 testified5 1 3 1 8 4 938 1904 24 20 96.679161 in5 1 3 1 8 5 975 1905 47 19 96.777054 this5 1 3 1 8 6 1036 1905 149 23 95.333878 proceeding.5 1 3 1 8 7 1203 1906 49 22 95.333878 (Tr.5 1 3 1 8 8 1267 1908 120 21 32.362091 499-524).3 1 3 2 0 0 709 1935 1324 265 -1 4 1 3 2 1 0 741 1935 1292 31 -1 5 1 3 2 1 1 741 1935 122 24 96.179634 However,5 1 3 2 1 2 883 1938 24 19 96.758789 in5 1 3 2 1 3 926 1938 42 19 96.381081 thes 1 3 2 1 4 985 1944 64 13 96.289429 same5 1 3 2 1 5 1067 1939 105 22 96.254753 opinion,5 1 3 2 1 6 1192 1939 39 20 96.254753 thes 1 3 2 1 7 1249 1939 154 21 96.076653 Commissions 1 3 2 1 8 1422 1941 82 20 96.878777 denied5 1 3 2 1 9 1522 1942 166 22 91.261047 respondent’s5 1 3 2 1 10 1708 1945 96 20 95.992783 requests 1 3 2 1 11 1821 1944 40 19 95.758713 for5 1 3 2 1 12 1881 1951 13 12 95.633377 a5 1 3 2 1 13 1914 1944 119 22 95.633377 subpoena4 1 3 2 2 0 712 1968 1321 31 -1 5 1 3 2 2 1 712 1968 69 21 92.939682 duces5 1 3 2 2 2 802 1972 76 18 92.514397 tecum5 1 3 2 2 3 899 1974 24 17 96.710022 to5 1 3 2 2 4 944 1971 44 21 94.063843 My.5 1 3 2 2 5 1010 1972 96 23 96.143707 Berard,5 1 3 2 2 6 1128 1973 75 20 96.925865 which5 1 3 2 2 7 1223 1974 75 20 94.889069 would5 1 3 2 2 8 1318 1974 61 20 96.612610 have5 1 3 2 2 9 1399 1976 106 22 96.351311 required5 1 3 2 2 10 1525 1976 48 20 96.386971 him5 1 3 2 2 11 1594 1978 26 18 96.386971 to5 1 3 2 2 12 1641 1977 103 22 96.596611 produces 1 3 2 2 13 1765 1984 14 13 95.152733 a5 1 3 2 2 14 1801 1978 40 19 95.152733 lists 1 3 2 2 15 1861 1979 26 19 96.396690 of5 1 3 2 2 16 1906 1977 41 21 96.916275 thes 1 3 2 2 17 1967 1980 66 18 96.142372 firms4 1 3 2 3 0 713 2003 1320 32 -1 5 1 3 2 3 1 713 2003 51 20 96.160675 that5 1 3 2 3 2 782 2004 125 21 96.137772 furnished5 1 3 2 3 3 925 2006 40 19 96.456963 thes 1 3 2 3 4 982 2006 156 20 96.127281 information5 1 3 2 3 5 1156 2007 113 23 96.283447 compiled5 1 3 2 3 6 1287 2008 75 20 96.773926 under5 1 3 2 3 7 1379 2010 91 19 95.964508 certain5 1 3 2 3 8 1488 2010 101 22 96.398491 products 1 3 2 3 9 1604 2011 75 20 95.982430 codes.5 1 3 2 3 10 1699 2011 42 20 96.789177 We5 1 3 2 3 11 1757 2012 46 19 96.802841 felts 1 3 2 3 12 1819 2011 55 21 96.534714 that5 1 3 2 3 13 1891 2012 40 20 93.299858 thes 1 3 2 3 14 1948 2019 85 16 92.167076 oppor-4 1 3 2 4 0 713 2038 1320 31 -1 5 1 3 2 4 1 713 2038 79 22 96.703590 tunity5 1 3 2 4 2 814 2041 22 18 96.118034 to5 1 3 2 4 3 858 2040 109 22 96.465607 questions 1 3 2 4 4 989 2041 44 19 95.681526 Mr.5 1 3 2 4 5 1058 2041 87 20 95.681526 Berard5 1 3 2 4 6 1169 2043 74 19 96.781456 would5 1 3 2 4 7 1266 2043 139 23 96.781456 adequately5 1 3 2 4 8 1428 2046 92 21 96.161888 protects 1 3 2 4 9 1543 2046 165 22 0.000000 respondent's5 1 3 2 4 10 1733 2046 66 23 96.561378 rights 1 3 2 4 11 1822 2047 25 19 91.968376 of5 1 3 2 4 12 1870 2048 163 19 91.839058 cross-exami-4 1 3 2 5 0 712 2072 1319 30 -1 5 1 3 2 5 1 712 2072 88 19 96.106323 nation.5 1 3 2 5 2 826 2072 25 20 96.290970 In5 1 3 2 5 3 874 2073 48 19 96.775314 this5 1 3 2 5 4 944 2075 93 22 96.321762 regard,5 1 3 2 5 5 1061 2081 35 13 96.685417 we5 1 3 2 5 6 1117 2076 70 19 96.685417 noted5 1 3 2 5 7 1209 2075 53 20 96.395218 that5 1 3 2 5 8 1283 2076 39 20 96.808098 thes 1 3 2 5 9 1345 2077 50 19 96.552605 rules 1 3 2 5 10 1415 2080 37 17 96.732018 sets 1 3 2 5 11 1474 2078 64 20 95.873665 forth5 1 3 2 5 12 1561 2079 23 19 96.022682 in5 1 3 2 5 13 1612 2078 72 20 93.291916 Wirtz5 1 3 2 5 14 1706 2085 21 14 92.508995 v.5 1 3 2 5 15 1752 2079 87 20 96.387695 Baldor5 1 3 2 5 16 1859 2079 102 20 93.209671 Electrics 1 3 2 5 17 1984 2080 47 22 92.379478 Co.,4 1 3 2 6 0 710 2106 1322 30 -1 5 1 3 2 6 1 710 2106 40 19 94.951622 3375 1 3 2 6 2 771 2106 55 20 92.597694 F.2d5 1 3 2 6 3 844 2108 41 18 92.597694 5185 1 3 2 6 4 907 2106 64 23 92.507904 (D.C.5 1 3 2 6 5 991 2108 47 20 87.779556 Cir.5 1 3 2 6 6 1059 2109 75 22 94.713440 1964),5 1 3 2 6 7 1155 2109 74 20 96.272133 which5 1 3 2 6 8 1248 2110 74 21 96.400681 would5 1 3 2 6 9 1342 2112 94 21 96.587036 requires 1 3 2 6 10 1454 2112 53 19 96.755524 that5 1 3 2 6 11 1522 2112 144 23 96.316154 underlying5 1 3 2 6 12 1684 2119 86 17 96.198456 surveys 1 3 2 6 13 1790 2114 108 20 96.440125 materials 1 3 2 6 14 1919 2114 28 20 96.741600 be5 1 3 2 6 15 1966 2115 66 19 96.883965 made4 1 3 2 7 0 710 2139 1320 31 -1 5 1 3 2 7 1 710 2139 115 21 96.755203 available5 1 3 2 7 2 839 2143 23 18 93.297989 to5 1 3 2 7 3 877 2142 165 22 91.764183 respondent’s5 1 3 2 7 4 1057 2144 93 19 96.243210 counsels 1 3 2 7 5 1165 2143 66 20 95.289398 when5 1 3 2 7 6 1246 2151 14 13 96.622215 a5 1 3 2 7 7 1274 2150 122 17 96.492241 summary5 1 3 2 7 8 1410 2145 25 20 95.866226 of5 1 3 2 7 9 1450 2145 40 20 96.415489 thes 1 3 2 7 10 1504 2152 84 17 96.466209 surveys 1 3 2 7 11 1603 2147 19 19 96.444016 is5 1 3 2 7 12 1638 2148 23 19 96.507172 to5 1 3 2 7 13 1678 2148 27 19 96.651436 be5 1 3 2 7 14 1720 2148 139 19 96.110138 introduced5 1 3 2 7 15 1876 2148 23 19 96.038307 in5 1 3 2 7 16 1915 2148 115 22 95.818680 evidence,4 1 3 2 8 0 709 2174 762 26 -1 5 1 3 2 8 1 709 2174 19 19 96.238739 is5 1 3 2 8 2 742 2174 159 23 96.184357 inapplicable5 1 3 2 8 3 914 2178 23 18 96.339928 to5 1 3 2 8 4 950 2182 15 13 96.315582 a5 1 3 2 8 5 977 2177 96 22 88.887276 regular5 1 3 2 8 6 1085 2180 82 20 96.686478 reports 1 3 2 8 7 1179 2178 24 19 96.688995 of5 1 3 2 8 8 1216 2178 40 19 96.380035 thes 1 3 2 8 9 1268 2178 88 21 96.028366 Census5 1 3 2 8 10 1371 2179 100 21 96.712181 Bureau:3 1 3 3 0 0 706 2208 1324 334 -1 4 1 3 3 1 0 738 2208 1292 31 -1 5 1 3 3 1 1 738 2208 41 19 96.662735 We5 1 3 3 1 2 796 2215 42 13 95.746368 ares 1 3 3 1 3 854 2209 26 20 96.134430 of5 1 3 3 1 4 898 2210 40 20 96.647339 thes 1 3 3 1 5 956 2211 98 22 96.141136 opinions 1 3 3 1 6 1072 2211 54 19 96.498543 that5 1 3 3 1 7 1143 2211 47 21 96.179962 this5 1 3 3 1 8 1209 2212 50 20 96.721710 rules 1 3 3 1 9 1276 2213 54 20 95.893005 does5 1 3 3 1 10 1349 2215 42 18 95.893005 not5 1 3 3 1 11 1408 2214 81 20 96.581894 obtains 1 3 3 1 12 1508 2215 57 19 96.778877 with5 1 3 3 1 13 1585 2218 94 21 96.362091 respects 1 3 3 1 14 1698 2217 24 19 96.462326 to5 1 3 3 1 15 1742 2217 96 22 96.125084 regular5 1 3 3 1 16 1857 2220 93 19 93.148560 reports5 1 3 3 1 17 1969 2223 61 13 92.565773 com-4 1 3 3 2 0 710 2241 1318 31 -1 5 1 3 3 2 1 710 2241 60 23 95.148178 piled5 1 3 3 2 2 788 2243 47 19 95.148178 ands 1 3 3 2 3 853 2244 121 22 96.048920 published5 1 3 3 2 4 993 2245 29 21 95.592537 by5 1 3 3 2 5 1041 2245 91 20 96.236656 Bureaus 1 3 3 2 6 1150 2246 25 20 96.236656 of5 1 3 3 2 7 1192 2246 40 20 96.501854 thes 1 3 3 2 8 1249 2247 89 20 96.228065 Census5 1 3 3 2 9 1357 2250 119 20 96.705528 pursuant5 1 3 3 2 10 1491 2250 24 19 96.705528 to5 1 3 3 2 11 1534 2249 59 20 96.141823 Titles 1 3 3 2 12 1613 2250 24 19 93.311111 185 1 3 3 2 13 1654 2250 27 19 95.978828 of5 1 3 3 2 14 1699 2250 40 19 96.638580 thes 1 3 3 2 15 1758 2250 87 20 96.672501 United5 1 3 3 2 16 1864 2250 79 21 96.366501 States5 1 3 3 2 17 1961 2252 67 20 96.264847 Code.4 1 3 3 3 0 709 2276 1320 31 -1 5 1 3 3 3 1 709 2276 124 23 94.883858 Generally5 1 3 3 3 2 850 2277 125 24 88.261536 speaking,5 1 3 3 3 3 997 2278 38 21 96.180023 thes 1 3 3 3 4 1052 2279 73 20 95.769058 latter5 1 3 3 3 5 1143 2280 19 20 96.471512 is5 1 3 3 3 6 1180 2280 135 20 96.389458 admissible5 1 3 3 3 7 1334 2281 101 21 96.523155 without5 1 3 3 3 8 1453 2283 138 22 95.969231 productions 1 3 3 3 9 1611 2284 26 20 96.924744 of5 1 3 3 3 10 1655 2284 42 20 95.884369 thes 1 3 3 3 11 1714 2285 144 22 94.609779 underlying5 1 3 3 3 12 1878 2286 107 19 49.847641 materials 1 3 3 3 13 2005 2286 24 19 96.506310 in4 1 3 3 4 0 708 2311 1319 30 -1 5 1 3 3 4 1 708 2316 30 13 96.832520 an5 1 3 3 4 2 756 2311 193 21 95.716202 administrative5 1 3 3 4 3 966 2314 142 23 96.010139 proceedings 1 3 3 4 4 1125 2315 74 19 96.933571 under5 1 3 3 4 5 1216 2314 92 21 96.823624 Sections 1 3 3 4 6 1326 2317 12 18 95.738029 75 1 3 3 4 7 1356 2316 39 19 96.368599 for5 1 3 3 4 8 1412 2316 40 20 96.565010 thes 1 3 3 4 9 1469 2323 83 14 96.554756 reasons 1 3 3 4 10 1569 2318 54 20 96.882935 that5 1 3 3 4 11 1640 2319 117 22 96.509445 necessity5 1 3 3 4 12 1774 2319 46 19 95.393837 ands 1 3 3 4 13 1840 2320 187 19 95.393837 circumstantial4 1 3 3 5 0 707 2346 1320 28 -1 5 1 3 3 5 1 707 2346 120 22 78.731720 guaranty5 1 3 3 5 2 845 2346 26 20 96.659630 of5 1 3 3 5 3 891 2347 206 20 95.951645 trustworthiness5 1 3 3 5 4 1118 2349 19 19 96.248955 is5 1 3 3 5 5 1158 2352 96 19 96.587326 presents 1 3 3 5 6 1272 2349 46 20 96.293907 ands 1 3 3 5 7 1340 2349 39 20 96.500114 thes 1 3 3 5 8 1399 2351 154 20 95.968277 Commissions 1 3 3 5 9 1574 2358 54 16 95.968277 may5 1 3 3 5 10 1649 2353 55 19 96.610649 takes 1 3 3 5 11 1724 2353 85 20 96.705040 officials 1 3 3 5 12 1831 2354 78 20 96.728569 notices 1 3 3 5 13 1928 2354 99 20 96.728569 thereof.4 1 3 3 6 0 706 2377 1321 33 -1 5 1 3 3 6 1 706 2377 37 24 96.495239 Cf.5 1 3 3 6 2 766 2379 88 20 95.966591 United5 1 3 3 6 3 873 2379 80 21 93.077446 States5 1 3 3 6 4 972 2388 20 13 91.450836 v.5 1 3 3 6 5 1013 2381 136 20 93.109840 Aluminum5 1 3 3 6 6 1171 2382 39 20 95.636192 Co.5 1 3 3 6 7 1230 2382 26 23 96.389961 of5 1 3 3 6 8 1276 2383 118 23 94.557060 America,5 1 3 3 6 9 1414 2386 26 18 93.167816 355 1 3 3 6 10 1463 2385 22 19 86.735832 F.5 1 3 3 6 11 1507 2386 73 23 95.104492 Supp.5 1 3 3 6 12 1602 2387 48 22 93.260498 820,5 1 3 3 6 13 1672 2388 100 19 36.788921 §28-8255 1 3 3 6 14 1798 2388 124 22 90.521873 (S.D.N.Y.5 1 3 3 6 15 1947 2389 80 21 79.057877 1940)5 1 3 3 6 16 2018 2379 13 35 80.782059 ;4 1 3 3 7 0 709 2412 1318 32 -1 5 1 3 3 7 1 709 2412 88 20 95.941605 United5 1 3 3 7 2 814 2413 79 21 93.186844 States5 1 3 3 7 3 912 2421 20 14 82.972290 v.5 1 3 3 7 4 953 2415 137 20 96.281303 Aluminum5 1 3 3 7 5 1111 2417 40 20 94.015671 Co.5 1 3 3 7 6 1170 2418 26 21 95.821175 of5 1 3 3 7 7 1212 2418 118 22 95.821175 America,5 1 3 3 7 8 1352 2419 40 20 95.739319 1485 1 3 3 7 9 1413 2419 55 20 80.190826 F.2d5 1 3 3 7 10 1486 2421 49 22 95.924232 416,5 1 3 3 7 11 1555 2421 49 22 95.469894 445,5 1 3 3 7 12 1624 2422 42 18 95.953384 4465 1 3 3 7 13 1690 2421 39 22 96.364159 (2d5 1 3 3 7 14 1750 2422 47 21 86.067245 Cir,5 1 3 3 7 15 1820 2422 83 22 93.259544 1945);5 1 3 3 7 16 1923 2423 104 20 92.242607 Dession,4 1 3 3 8 0 707 2446 1320 33 -1 5 1 3 3 8 1 707 2446 64 21 96.378464 “Thes 1 3 3 8 2 789 2447 64 21 94.678246 Trials 1 3 3 8 3 871 2449 25 19 96.685638 of5 1 3 3 8 4 916 2448 127 22 83.231186 Economies 1 3 3 8 5 1061 2451 47 19 95.784828 ands 1 3 3 8 6 1126 2451 177 24 66.893570 Technological5 1 3 3 8 7 1323 2452 78 21 95.552490 Issues5 1 3 3 8 8 1418 2453 27 20 96.145035 of5 1 3 3 8 9 1464 2454 80 22 29.418098 Fact,”5 1 3 3 8 10 1564 2455 26 20 92.743507 585 1 3 3 8 11 1609 2454 60 22 93.116745 Yale5 1 3 3 8 12 1689 2455 24 21 90.181747 L.5 1 3 3 8 13 1733 2456 24 20 96.722298 J.5 1 3 3 8 14 1779 2457 62 22 96.425812 1019,5 1 3 3 8 15 1863 2457 54 19 96.220535 12425 1 3 3 8 16 1940 2457 87 22 96.220535 (1949).4 1 3 3 9 0 706 2481 1321 31 -1 5 1 3 3 9 1 706 2481 57 20 96.864273 This5 1 3 3 9 2 778 2482 49 20 95.807289 also5 1 3 3 9 3 842 2488 105 18 96.594009 appears5 1 3 3 9 4 962 2485 24 18 96.970856 to5 1 3 3 9 5 1000 2484 28 20 96.974495 be5 1 3 3 9 6 1043 2485 41 20 96.994530 thes 1 3 3 9 7 1098 2486 142 20 96.139519 established5 1 3 3 9 8 1255 2487 107 22 96.726456 practices 1 3 3 9 9 1375 2487 82 21 96.554657 before5 1 3 3 9 10 1472 2488 39 20 96.702324 thes 1 3 3 9 11 1527 2491 79 18 96.897888 courts5 1 3 3 9 12 1622 2490 54 22 96.876160 and,5 1 3 3 9 13 1694 2497 26 13 96.749680 as5 1 3 3 9 14 1737 2490 40 20 96.526611 far5 1 3 3 9 15 1793 2497 26 13 96.064957 as5 1 3 3 9 16 1835 2496 35 14 96.064957 we5 1 3 3 9 17 1886 2497 40 14 96.399094 ares 1 3 3 9 18 1942 2497 85 15 96.389465 aware,4 1 3 3 10 0 707 2515 488 27 -1 5 1 3 3 10 1 707 2515 41 19 96.955292 has5 1 3 3 10 2 761 2518 42 18 96.283455 not5 1 3 3 10 3 815 2516 57 20 95.521072 been5 1 3 3 10 4 885 2518 155 22 96.578400 successfully5 1 3 3 10 5 1052 2518 143 24 95.933975 challenged. AVNET, INC. 465 391 Opinion percent of their new parts requirements. (1.D. 69, p. 42 [pp. 416, 436 herein] ). Large and small rebuilders alike and rebuilders from all sections of the country and in several areas of specialization all agreed that IPM, Ace, Valley Forge, and Vulcan furnished ~—~the-majority of new parts (I.D..69) and -the- bulk of their requirements in 1964 of new materials and equipment. (I.D. 70 [p. 416 herein] ).** (Appendix C infra) [p. 485 herein]. Respondent, however, takes issue with the judge’s holding that the evidence relied upon by the judge was sufficient to meet complaint counsel’s burden of proof under the Commission’s Papercraft decision.** (Res. App. Br. at 44). In Papercraft, we noted that the development of precise market data could be “prohibitively expensive and burdensome to obtain” in industries characterized by a central core of firms surrounded: by a fringe of much smaller competitors. Relying on the Supreme Court’s statement in Brown Shoe that “precision of detail is less important than the accuracy of the broad picture,” we held in Papercraft that complaint counsel had sustained their burden by establishing the sales of the major firms identified by experienced executives in the gift-wrapping industry where those executives expressed substantial agreement on the total size of the industry. While respondent is correct in asserting that one element of proof in Papercraft—the agreement among the executives of the major competitors as to total.market size—is lacking in this case, we feel that the underlying rationale of our decision in Papercraft is certainly applicable here. As indicated by several appellate court decisions, the real concern of an appellate tribunal in Section 7 cases concerning industries of this type is simply that the fringe firms’ aggregate market share is not so substantial as to cast doubt on what would otherwise be an illegal merger under any interpretation of Section 7. United States v. Philadelphia National Bank, 374 U.S. 821, 364 n. 40. (1963); Luria Brothers and Co. v. F.T.C., 389 F.2d 847, 858 (8rd Cir.), cert. denied, 393 U.S. 829 (1968). Thus, it is not necessary in all merger cases for complaint counsel to establish the overall size ™ Respondent does not contend that the rebuilders who testified in this proceeding were unrepresentative of the production-line rebuilders throughout the country. Although most of the rebuilders who testified tended to be larger than average, we note that substantial evidence indicates that small and medium-sized rebuilders would tend to purchase a greater percentare of their new parts requirements from the four ‘‘full-line’’ suppliers because of the reduced freight costs and greater Gonvenience of purchasing several different items from a single supplier. (I.D. 76(b), (e) [p. 417 herein]). 8 In Re Papercraft Corp., Dkt. 8779 (June 30, 1971), pp. 9-12 [78 F.T.C. 1852, 1404-06], aff'd, No. 71-1681 (7th Cir., January 25, 1978). . Opinion 82 F.T.C.

of the market as long as probative evidence exists from which the outer dimensions of that market can be determined. “On the present record, we’ find that complaint counsel has more than adequately met their burden. Complaint counsel’s listing of firms in the market undoubtedly includes all full-line suppliers. In addition, we find no indication in the record that complaint counsel’s listing omits any significant supplier selling a broad range of new products to rebuilders except the OEMs which we have included in the market.

The testimony of the rebuilders and of some rebuilder suppliers indicates, however, that rebuilders purchase new parts, materials, and equipment from a large number of suppliers which sell basically one product line. Often, as in the case of wire manufacturers, these sales are incidental to their overall . business to the point that such suppliers make no effort to sell to the rebuilder market. In such circumstances, where complaint counsel’s evidence tends to show that rebuilders generally purchased a majority of their new parts requirements from the main core of suppliers, we do not feel that complaint counsel has to undertake the onerous additional burden of demonstrating that the aggregate sales of the single-line suppliers in at least 20 different product classifications (CX 37a-c) would not materially affect the size of the market.

While respondent contends that the judge in his decision shifted the burden of proving the size of the relevant market to Avnet, it concedes that the judge, throughout the prehearing stages of the case, repeatedly informed respondent that it did not bear the burden of proving market size “‘btit~-had only to’ demonstrate that Complaint Counsel had overlooked several categories of substantial suppliers to rebuilders.” (Res. Br. 43). We find that the judge’s prehearing instructions to respondent were not only correct but necessary to avoid substantial delay in the proceedings. See Subsection III-B, infra. We further find that, contrary to respondent’s assertion, the judge did not shift the burden of proving market size to the respondent but that respondent, despite two years of prehearing discovery and its expert knowledge of the industry,** simply failed to produce any significant *% Probably no two individuals are more familiar with the rebuilding industry than Avnet’s two vice presidents, Mr. Mansfield and Mr. Fischer. As one rebuilder testified: I think it is generally acknowledged [that Mr. Mansfield] has done more for the electrical rebuilding industry than any other man in the country. (Tr. 898). Both men had been involved in the industry for more than a quarter century. (Tr 890, 1568). AVNET, INC. 467 391 Opinion number of suppliers which either had substantial sales themselves or were representative of a category of rebuilder suppliers with substantial sales in the aggregate. Altogether, respondent called 14 alleged suppliers of new ~~parts to, rebuilders in an effort. to demonstrate that complaint counsel had vastly understated the size of the market. With the exception of two firms—Belden and Phelps Dodge—respondent failed to identify any supplier with sales to rebuilders in 1964 exceeding $100,000. Nor is there any reliable evidence in the record indicating that the suppliers with sales under $100,000 were representative of a large number of small suppliers of re- - builders with substantial sales in the aggregate. Contrary to respondent’s assertions, we do not find that complaint counsel’s omission of Belden and Phelps Dodge seriously undermines their estimate of market size. Rather, we conclude on the basis of IPM’s own market survey (CX 39) that the two wire manufacturers, together with the suppliers listed by complaint counsel in their market, accounted for almost the total sales of wire sold to rebuilders in 1964. Magnet wire is used by rebuilders primarily in rewinding armatures by the so-called “random-winding” method. In 1964, armatures were rewound using either the ‘“random-winding” method or the preformed coil method, which at that time required coils obtainable only from IPM or VMC, a supplier listed by complaint counsel in its original market. In the IPM market survey, Mr. Mansfield estimated that 5 million rewound armatures were produced in 1964 of which IPM accounted for 2.55 million, 1.3 million by preformed coils and approximately 1.25 million through its sales of magnet wire. (CX 39). In addition, VMC supplied approximately 400,000 preformed coils in 1964. (Tr. 1245, 1252-54). Whether we rely on- Mr. Mansfield’s estimate of 5 million rewound armatures produced in 1964 or on IPM’s advertising claim that the majority of armatures were produced by preformed coils (CX 234 page CIG-2) ,** it is apparent that suppliers other than IPM and VMC provided the windings for between .5-2 million armatures in 1964. Placing the cost of each winding at approximately $1.00 per armature (Tr. 1253), it becomes clear that the wire suppliers called by Avnet accounted for most of the remaining sales of winding materials -to rewinders in 1964. In view of the tinquestioned experience and expertise of IPM 35 VMC's vice president also testified that in 1964 the majority of armatures were rewound by the preformed coil method. (Ty. 1245). Opinion 82 F.T.C.

and Valley Forge in the rebuilders supply industry, we can only conclude that respondent, in attempting to destroy complaint “edunsel’s market, strongly confirmed its validity. B. Procedural Rulings Respondent spends nine pages of its appeal brief (Res. App. Br. pp. 45-53) and several.pages of its reply brief (Rep. Br. pp. 4-6, 11-15) arguing that the judge prevented respondent from developing and introducing evidence on the size of the market by (1) refusing to grant certain prehearing discovery requests, (2) excluding respondent’s market survey, and. (3) excluding certain testimony from respondent’s market survey, and (3) excluding certain testimony from respondent’s witnesses _regarding the amount of sales in the market. As respondent admits, the judge in the prehearing stages of the case “repeatedly asserted that Respondent did not have to prove the size of a market larger than that alleged in the. Amended Complaint but only had to demonstrate that Complaint Counsel had overlooked several categories of substantial suppliers to rebuilders.” (See, e.g., Tr. 231-32, 244, 249-50, 257, 315-16, 333-34, 344-45, 352-54, 356-57): In light of these repeated statements to respondent, the prehearing discovery requests which are in issue here can only be explained as either an attempt to establish the size of the market, which was complaint counsel’s, not respondent’s, burden, or as a procedural tactic to unduly prolong the pretrial discovery. Respondent proposed a discovery program to subpoena the customer lists of respondent’s competitors identified by complaint counsel as being in their market. (Tr. 162). Respondent proposed to send questionnaires to firms on its competitors’ customer lists to determine their suppliers. Recognizing that such subpoenas to respondent’s competitors were likely to be resisted by those companies subpoenaed, the judge directed respondent to first conduct. questionnaire surveys of its own customers to determine their suppliers. (Tr. 168-69). In this case we feel that the judge’s alternative was much more reasonable than that proposed by respondent since, as the record now clearly indicates and as the judge suspected, Avnet’s customer list 7s the rebuilding industry. The judge’s ruling was entirely consistent with the Seventh Circuit’s recent holding in Papercraft Corp. v. FTC, No. 71-1681 AVNET, INC. 469 391 Opinion (January 25, 1973), that the Commission could require respondents to demonstrate the need for exceptional discovery requests. Here, Avnet’s requests were exceptional, not because of the number of subpoenas as in Papercraft, but because of the confidential. ~~mnature ofthe material requested..(see Section 6(f) of the Federal Trade Commission Act, 15 U.S.C. Section 46(f)) and the high probability that Avnet’s competitors would strongly resist disclosure of their customer lists. Since it is difficult to imagine that a thorough survey of Avnet’s own customers would fail to reveal the names of any substantial rebuilder suppliers in the country, we find that that Avnet has not demonstrated the necessity for the subpoenas to its competitors.

Although it could be concluded that the requirements of due process were met when the judge permitted respondent nine months to conduct a survey of its customers to determine their suppliers, the judge offered to permit respondent further discovery if respondent’s survey showed that substantial competitors existed who were not listed in complaint counsel’s market. (Tr. 362-64, 414). The responses to respondent’s questionnaire to its own customers, however, failed to produce more than a mere handful of firms in the relevant market. Respondent contends throughout its brief and argument before the Commission that the survey identified 1,001 new parts suppliers to rebuilders. Curiously, that survey was never introduced into evidence. Since respondent was given ample opportunity to subpoena any rebuilder or competitor to testify in this proceeding (Tr. 2398) and, as evident from our previous analysis of the record evidence, totally failed to produce more than two competitors with 1964 sales to rebuilders in excess of $100,000, we can only conclude that the judge was entirely correct in his evaluation of. respondent’s questionnaire technique.

Furthermore, we note that respondent voluntarily entered into a stipulation in October 1970 in which it agreed to commence the trial on January 25, 1971. (Tr. 429). The parties also agreed that a reasonable period of two to three weeks, later expanded to three months, would be allowed between the conclusion of the case-in-chief and the beginning of respondent’s case to allow additional discovery by respondent. (Tr. 430). Respondent’s second challenge to the procedural rulings of the judge concerns his refusal to permit respondent to add a survey to its list of exhibits after respondent’s defense was two-thirds Opinion 82 F.T.C.

completed.** Respondent contends that the survey was necessary to determine the total volume of sales in 1967 of rebuilt automotive electrical units.” (Res. App. Br. 46-49; Rep. Br. 11-15). This again, under the judge’s statement of respondent’s burden on the market-size issue, was totally unnecessary. Respondent asserts, however, that the survey was essential to demonstrate the incompleteness of the data contained in the 1967 Census Bureau’s report which complaint counsel introduced to corroborate their evidence on the market-size issue. The six-month period between the time that complaint counsel informed respondent they would rely on the 1967 census data and the date on which respondent actually contracted for the survey alone refutes respondent’s contention.** Moreover, respondent informed neither the judge nor complaint counsel of the fact that it was conducting the survey even though most of the survey was conducted during the time that respondent was putting on its case.** Such action by counsel before any tribunal is highly suspect; it is contrary to all pretrial procedures.** Respondent’s protestations aside, the survey is largely irrelevant to any issue in this case. Respondent surveyed repair shops, service stations, car dealers and fleets, all of which are clearly distinct from rebuilders and are-outside of the relevant market. Moreover, most of the information requested in the survey related * Order Denying Respondent’s Request to Amend Its Exhibit List, July 28, 1971. 3 Respondent was informed of complaint counsel’s intention. to introduce census data on October 30, 1970 (Tr. 430), but respondent did not contract for the survey until April 19, 1971. (Res. App. Br. at 46).

38 While respondent asserts that Mr. Maloney (the witness through whom the survey was to be introduced) was included in its list of witnesses, the judye’s findings, based in larze part on correspondence between counsel for respondent and complaint counsel,’ indicate respondent’s efforts to avoid revealing the nature of Mr. Maloney’s testimony: Complaint counsel assert that their attempts to talk with Mr. J. M. Maloney, the witness through whom this exhibit is to be introduced, have been continually thwarted. Complaint counsel also state that when they interviewed Mr. Maloney in April 1971, he told them he had no idea of the substance of his proposed testimony and when they contacted Mr. Maloney avain later that month he advised them he had been advised nut to talk to complaint counsel about his testimony without respondent’s counsel being present. Complaint counsel further state that they attempted to arranyze with respondent’s counsel to interview Mr. Maloney prior to the resumption of the hearings in May 1971 (see Appendix 1), but were informed that they would not be permitted to interview Mr. Maloney prior to the resumption of the hearinyes and that it was possible <that Mr. Maloney would not even be called to testify (see Appendix 2). * ° * * * * - * Even more serious is the fact that respondent’s counsel deliberately refused to divulwe the purpose of Mr. Maloney's testimony when in fact at the very time complaint counsel was seeking to interview Mr. Maloney, the survey had already been commissioned and questionnaires there under were being mailed out in April 1971. Order Denying Respondent’s Request To Amend Its Exhibit List, July 23, 1971, pp. 3—4. % A review of the record reveals a series of instances where respondent ignored the judge's orders and rulings. (Tr. 2236-39, 2385-98, 3955-60, 3983-91, 4000-03, 4080-91). AVINGL, LUNG. 401 391 Opinion to the number and cost of units rebuilt by the repair shops surveyed. (Res. App. Br. at 47 n.55). Since the total sales of repair shops and custom rebuilders was never an issue in this case, respondent’s time and money would have been better spent in . attempting to find a few representative repair shops that competéd with’ production-line rebuilders rather than conducting the survey.

In the course of its defense, respondent attempted to show through the testimony by its own officials, Mr. Mansfield, Mr. Eigenberg, and Mr. Fischer, that a substantial portion of the sales of IPM and Valley Forge in 1964 were to service stations and repair shops. With respect to IPM, respondent introduced the results of a survey conducted by its own salesmen in the three-month interval between the end of complaint counsel’s case and the beginning of respondent’s defense. The survey révealed that 166 of IPM’s 1971 accounts had service facilities. After acknowledging that only 49 of these 166 customers had purchased from IPM in 1964 and that their total purchases amounted to less than $45,000 (CX 290), respondent, through its vicepresident, Mr. Mansfield, attempted to expand the list of service station customers to 700 or more. (Tr. 2141-51). Since Mr. Mansfield’s attempt to expand the list of service station customers on direct examination was unsupported by any concrete factual] data, the president of Avnet, Mr. Sheib, directed him to conduct another survey of IPM’s salesmen during the weekend between his direct and cross-examination. As Mr. Mansfield admitted on cross-examination:

When I left this Hearing Room the Hearing Examiner was very disturbed about the material that was there [the first survey]. I was told in no uncertain terms by Mr. Simon Sheib that I had better | firm up this information and do something about it. (Tr. 2146). : We agree wholeheartedly with the judge’s exclusion of the testimony of both Mr. Mansfield and Mr. Eigenberg concerning this survey since the survey was developed during the course of the hearings. (Tr. 2268, 3311-13A). Such a survey could easily have been conducted by respondent at any time during the two years of pretrial in this matter or even in the three-months’ recess between the end of complaint counsel’s case and the beginning of respondent’s defense.

Not dissuaded by the judge’s rulings excluding the “weekend survey” conducted by Mr. Mansfield, respondent, through Opinion 82 F.T.C.

Mr. Fischer, attempted to establish Valley Forge’s 1964 sales by product categories and types of customers from figures contained in“a ledger book which had‘been maintained continuously since 1959. (Tr. 3975-4003). Respondent did this despite the fact that the Commission counsel, during the course of the investigation four years previously, had requested respondent to report information for Valley Forge, IPM, and other Avnet subsidiaries to “[s]how dollar value of sales for each product or product line by each class of customer.” (CX 33d, J 2d). In reply, respondent’s counsel indicated that Avnet could not provide such data because “it has only incomplete records of sales by product line and.therefore could not supply the information requested * * * without making an individual tabulation of invoices which will require great many man months of labor.” (HE 3a). While respondent in its reply brief (Rep. Br. at n.11) attempts to rebut the inescapable conclusion that it knowingly withheld information from the Commission by asserting that the development of the sales figures by IPM and Valley Forge required a considerable expenditure of time and effort, the acknowledged existence of the ledger breaking down Valley Forge’s sales by product line and class of customer ‘° disputes respondent’s contentions. ne Accordingly, respondent followed a course of conduct throughout four years of investigation, prehearing discovery, and trial during which it (1) denied the existence of a ledger book that had been known to the top officials of Avnet for eight years, (2) never disclosed the existence of such sales figures throughout two years of prehearing discovery, (3) never listed the book. in its list of proposed exhibits or as the basis of Mr. Fischer’s testimony, and (4) never disclosed the existence of the ledger to complaint counsel or the judge prior to Mr. Fischer’s testimony. 5 1 3 1 1 2 757 2056 32 19 95.819626 As5 1 3 1 1 3 803 2055 43 20 94.895668 Mr.5 1 3 1 1 4 862 2055 95 20 95.933708 Fischer5 1 3 1 1 5 971 2055 101 19 95.509163 testified5 1 3 1 1 6 1090 2054 49 22 95.986755 (Tr.5 1 3 1 1 7 1153 2055 79 21 89.925964 3978):4 1 3 1 2 0 730 2078 1294 35 -1 5 1 3 1 2 1 730 2091 25 22 90.586403 Q.5 1 3 1 2 2 789 2091 68 18 96.639252 Were5 1 3 1 2 3 876 2090 41 19 96.956100 thes 1 3 1 2 4 937 2089 87 23 95.964279 figures5 1 3 1 2 5 1045 2089 87 19 94.773109 broken5 1 3 1 2 6 1153 2088 69 20 82.643127 downs 1 3 1 2 7 1243 2088 104 19 96.410774 between5 1 3 1 2 8 1369 2087 60 20 96.753159 sales5 1 3 1 2 9 1450 2088 25 19 96.612709 of5 1 3 1 2 10 1498 2086 100 24 96.050301 ignition5 1 3 1 2 11 1621 2088 68 20 96.050301 parts5 1 3 1 2 12 1711 2085 46 19 95.759346 ands 1 3 1 2 13 1779 2085 60 19 95.155716 sales5 1 3 1 2 14 1862 2084 24 19 95.653336 of5 1 3 1 2 15 1909 2078 115 32 89.307472 rebuilder4 1 3 1 3 0 702 2124 595 22 -1 5 1 3 1 3 1 702 2124 78 22 96.743584 parts?5 1 3 1 3 2 1295 2137 2 2 12.983925 ;3 1 3 2 0 0 700 2150 1325 163 -1 4 1 3 2 1 0 732 2150 1292 29 -1 5 1 3 2 1 1 732 2158 26 18 95.532005 A.5 1 3 2 1 2 787 2157 63 22 95.532005 Well,5 1 3 2 1 3 866 2157 29 19 96.727280 all5 1 3 2 1 4 911 2157 24 19 96.634926 of5 1 3 2 1 5 951 2157 40 19 96.332817 thes 1 3 2 1 6 1007 2157 67 19 96.101738 items5 1 3 2 1 7 1090 2162 61 14 95.850960 were5 1 3 2 1 8 1166 2156 99 21 96.598824 divided,5 1 3 2 1 9 1282 2162 26 13 96.354118 as5 1 3 2 1 10 1324 2155 10 19 93.763161 I5 1 3 2 1 11 1348 2154 85 22 96.846130 stated,5 1 3 2 1 12 1451 2154 7 19 96.500893 I5 1 3 2 1 13 1475 2154 87 19 96.591728 believes 1 3 2 1 14 1578 2154 19 19 96.509827 it5 1 3 2 1 15 1612 2160 48 13 96.684624 was5 1 3 2 1 16 1676 2153 73 19 96.487740 about5 1 3 2 1 17 1764 2153 26 18 96.487740 615 1 3 2 1 18 1808 2157 27 14 96.515434 or5 1 3 2 1 19 1850 2152 27 18 93.254387 625 1 3 2 1 20 1893 2150 131 22 74.719269 catesories4 1 3 2 2 0 701 2184 1322 30 -1 5 1 3 2 2 1 701 2194 26 17 96.483078 at5 1 3 2 2 2 743 2191 53 20 96.423882 that5 1 3 2 2 3 812 2192 65 22 96.822151 time,5 1 3 2 2 4 894 2191 46 20 95.490707 ands 1 3 2 2 5 957 2197 35 13 95.957329 we5 1 3 2 2 6 1009 2190 53 20 95.957329 took5 1 3 2 2 7 1080 2190 67 20 96.692223 those5 1 3 2 2 8 1163 2190 69 19 96.692223 items5 1 3 2 2 9 1249 2190 54 19 96.723099 that5 1 3 2 2 10 1318 2190 49 19 95.633919 sold5 1 3 2 2 11 1385 2189 54 21 96.382874 only5 1 3 2 2 12 1456 2190 24 18 95.229034 to5 1 3 2 2 13 1497 2188 40 21 96.665092 thes 1 3 2 2 14 1554 2188 101 21 94.937515 ignition5 1 3 2 2 15 1674 2187 95 19 95.692871 markets 1 3 2 2 16 1785 2188 24 18 96.500008 to5 1 3 2 2 17 1828 2186 27 19 96.439728 be5 1 3 2 2 18 1873 2192 29 12 96.470718 an5 1 3 2 2 19 1922 2184 101 22 95.071121 ignition4 1 3 2 3 0 700 2218 1324 28 -1 5 1 3 2 3 1 700 2226 65 19 94.048622 item.5 1 3 2 3 2 787 2226 40 19 96.721809 We5 1 3 2 3 3 848 2226 45 19 96.576241 had5 1 3 2 3 4 913 2232 65 13 96.237244 some5 1 3 2 3 5 997 2226 69 19 95.081581 items5 1 3 2 3 6 1086 2224 53 20 96.053558 that5 1 3 2 3 7 1158 2224 49 20 96.723320 sold5 1 3 2 3 8 1228 2223 30 20 96.855812 all5 1 3 2 3 9 1279 2229 26 14 96.745155 or5 1 3 2 3 10 1326 2223 139 23 96.256454 practically5 1 3 2 3 11 1484 2223 30 19 96.929642 all5 1 3 2 3 12 1536 2223 24 18 96.600266 in5 1 3 2 3 13 1581 2222 41 19 92.787437 thes 1 3 2 3 14 1642 2221 117 20 91.194923 rebuilders 1 3 2 3 15 1782 2220 100 19 95.871803 market.5 1 3 2 3 16 1905 2219 73 21 96.634727 Then,5 1 3 2 3 17 2000 2218 24 20 96.786606 of4 1 3 2 4 0 701 2253 1324 28 -1 5 1 3 2 4 1 701 2266 89 15 96.018150 course,5 1 3 2 4 2 808 2259 66 20 96.443352 there5 1 3 2 4 3 892 2256 60 22 96.263359 were5 1 3 2 4 4 968 2265 64 13 96.391876 some5 1 3 2 4 5 1048 2259 68 19 96.673424 items5 1 3 2 4 6 1132 2258 53 20 96.496223 that5 1 3 2 4 7 1201 2257 92 21 96.235558 crossed5 1 3 2 4 8 1310 2263 55 14 96.494026 overs 1 3 2 4 9 1381 2256 78 19 96.695366 where5 1 3 2 4 10 1475 2256 67 20 96.290398 there5 1 3 2 4 11 1558 2262 49 13 96.602806 was5 1 3 2 4 12 1624 2262 14 13 95.792473 a5 1 3 2 4 13 1654 2261 108 14 95.792473 common5 1 3 2 4 14 1781 2254 94 19 96.431168 markets 1 3 2 4 15 1891 2253 79 19 96.624931 factors 1 3 2 4 16 1988 2253 37 18 96.753525 fora 1 3 2 5 0 701 2294 180 19 -1 5 1 3 2 5 1 701 2294 54 19 96.508293 both5 1 3 2 5 2 769 2295 112 18 96.602554 markets.3 1 3 3 0 0 700 2321 1324 63 -1 4 1 3 3 1 0 729 2321 1295 29 -1 5 1 3 3 1 1 729 2328 26 22 92.435760 Q.5 1 3 3 1 2 782 2328 71 19 96.891403 What5 1 3 3 1 3 868 2328 39 19 96.475525 did5 1 3 3 1 4 924 2334 42 16 96.452621 you5 1 3 3 1 5 984 2328 28 19 95.587502 do5 1 3 3 1 6 1029 2329 23 18 95.587502 to5 1 3 3 1 7 1069 2327 119 19 96.331635 ascertain5 1 3 3 1 8 1205 2326 40 19 96.869705 thes 1 3 3 1 9 1261 2326 60 19 96.761597 sales5 1 3 3 1 10 1339 2326 25 19 95.768997 of5 1 3 3 1 11 1380 2325 67 19 93.269211 those5 1 3 3 1 12 1462 2325 158 22 67.325623 overlappiny5 1 3 3 1 13 1637 2325 69 18 96.837761 items5 1 3 3 1 14 1724 2323 53 20 96.247963 that5 1 3 3 1 15 1795 2322 82 20 96.247963 should5 1 3 3 1 16 1897 2328 28 15 53.268608 go5 1 3 3 1 17 1944 2322 22 19 91.873077 in5 1 3 3 1 18 1987 2321 37 20 91.873077 thea 1 3 3 2 0 700 2361 1018 23 -1 5 1 3 3 2 1 700 2362 117 20 92.044228 rebuilders 1 3 3 2 2 828 2362 60 19 95.745979 sales5 1 3 3 2 3 902 2368 25 13 95.745979 as5 1 3 3 2 4 939 2361 104 23 95.143852 opposed5 1 3 3 2 5 1056 2363 23 17 95.143852 to5 1 3 3 2 6 1093 2361 102 22 96.654617 ignition5 1 3 3 2 7 1208 2361 78 19 86.935471 sales5 1 3 3 2 8 1277 2357 14 31 82.685562 ?5 1 3 3 2 9 1715 2379 3 3 1.109329 .3 1 3 4 0 0 700 2391 1324 164 -1 4 1 3 4 1 0 730 2391 1294 27 -1 5 1 3 4 1 1 730 2397 28 19 95.730598 A.5 1 3 4 1 2 784 2396 64 22 96.865105 Well,5 1 3 4 1 3 867 2397 53 19 96.708206 firsts 1 3 4 1 4 937 2396 24 19 96.067039 of5 1 3 4 1 5 978 2396 37 22 96.067039 all,5 1 3 4 1 6 1033 2396 69 19 96.612213 items5 1 3 4 1 7 1118 2394 54 20 96.688950 that5 1 3 4 1 8 1188 2394 121 22 96.283569 definitely5 1 3 4 1 9 1324 2400 62 13 96.476616 were5 1 3 4 1 10 1402 2400 44 13 96.067345 ones 1 3 4 1 11 1462 2400 25 13 95.979210 or5 1 3 4 1 12 1503 2393 41 20 96.442513 thes 1 3 4 1 13 1559 2392 69 21 95.795517 others 1 3 4 1 14 1645 2398 61 13 95.795517 were5 1 3 4 1 15 1723 2398 29 14 96.510040 no5 1 3 4 1 16 1769 2391 129 22 93.668617 questions.5 1 3 4 1 17 1918 2391 26 18 92.932663 In5 1 3 4 1 18 1961 2396 63 14 92.505814 some4 1 3 4 2 0 700 2425 1324 27 -1 5 1 3 4 2 1 700 2437 64 14 96.857979 cases5 1 3 4 2 2 780 2437 35 13 96.497284 we5 1 3 4 2 3 830 2431 55 19 96.187416 took5 1 3 4 2 4 902 2430 63 19 96.785309 what5 1 3 4 2 5 982 2436 34 13 96.609375 we5 1 3 4 2 6 1032 2430 113 22 96.135414 regarded5 1 3 4 2 7 1161 2436 26 13 96.001152 as5 1 3 4 2 8 1202 2430 42 18 96.432938 thes 1 3 4 2 9 1259 2429 184 22 96.163689 overwhelming5 1 3 4 2 10 1459 2434 80 16 96.632477 usage.5 1 3 4 2 11 1559 2427 25 19 96.641930 In5 1 3 4 2 12 1601 2427 69 19 96.152481 others 1 3 4 2 13 1686 2427 85 22 96.184807 words,5 1 3 4 2 14 1790 2426 19 20 96.049591 if5 1 3 4 2 15 1827 2425 19 20 96.758934 it5 1 3 4 2 16 1862 2432 48 13 96.588005 was5 1 3 4 2 17 1927 2426 27 18 92.464600 905 1 3 4 2 18 1971 2430 53 17 90.790993 per-4 1 3 4 3 0 700 2459 1324 28 -1 5 1 3 4 3 1 700 2467 53 18 96.669510 cents 1 3 4 3 2 769 2471 26 14 95.782997 or5 1 3 4 3 3 812 2466 25 18 95.782997 955 1 3 4 3 4 855 2466 100 21 96.409340 percent5 1 3 4 3 5 971 2464 132 22 96.552872 rebuilding5 1 3 4 3 6 1120 2463 24 19 96.830132 in5 1 3 4 3 7 1161 2469 43 14 96.471657 ours 1 3 4 3 8 1219 2463 133 22 95.580208 judgment,5 1 3 4 3 9 1370 2462 57 20 96.126160 then5 1 3 4 3 10 1444 2469 35 13 96.958412 we5 1 3 4 3 11 1496 2462 75 20 96.862144 would5 1 3 4 3 12 1589 2462 60 19 95.288422 have5 1 3 4 3 13 1666 2461 73 20 96.503311 called5 1 3 4 3 14 1757 2461 20 19 96.177116 it5 1 3 4 3 15 1793 2466 14 13 96.177116 a5 1 3 4 3 16 1826 2459 118 20 92.420326 rebuilders 1 3 4 3 17 1960 2460 64 22 96.336815 part.4 1 3 4 4 0 703 2494 1321 25 -1 5 1 3 4 4 1 703 2498 124 20 96.337753 Wherever5 1 3 4 4 2 847 2505 34 12 96.944527 we5 1 3 4 4 3 901 2498 65 20 96.196701 could5 1 3 4 4 4 986 2497 96 20 96.595573 excludes 1 3 4 4 5 1100 2497 46 20 96.748764 ands 1 3 4 4 6 1166 2498 119 21 96.236900 separate,5 1 3 4 4 7 1307 2503 34 12 96.799301 we5 1 3 4 4 8 1360 2497 38 18 96.175797 did5 1 3 4 4 9 1417 2503 26 13 96.175797 so5 1 3 4 4 10 1462 2496 100 19 96.247276 because5 1 3 4 4 11 1582 2496 20 19 96.170631 it5 1 3 4 4 12 1621 2501 49 13 96.923256 was5 1 3 4 4 13 1691 2494 25 20 96.637344 of5 1 3 4 4 14 1737 2494 151 23 96.082932 importance5 1 3 4 4 15 1908 2494 24 18 96.611450 to5 1 3 4 4 16 1953 2499 27 13 95.286301 us5 1 3 4 4 17 2001 2494 23 17 84.001183 to4 1 3 4 5 0 702 2531 753 24 -1 5 1 3 4 5 1 702 2533 122 22 96.036858 recognizes 1 3 4 5 2 837 2533 39 19 96.218445 thes 1 3 4 5 3 889 2533 71 21 96.502953 paths5 1 3 4 5 4 973 2531 53 20 96.980141 that5 1 3 4 5 5 1039 2532 64 19 96.625496 these5 1 3 4 5 6 1117 2532 100 22 95.733810 products 1 3 4 5 7 1230 2531 59 19 95.733810 lines5 1 3 4 5 8 1301 2536 63 14 96.609978 were5 1 3 4 5 9 1375 2531 80 22 96.251198 going. 391 : Opinion Again, respondent, through Mr. Fischer, attempted to introduce the results of a survey conducted weeks after the beginning of respondent’s defense which had not been noticed to complaint counsel. (Tr. 4085-92). Like Mr. Mansfield’s survey, this was an attempt to show that Valley Forge in 1971 had substantial sales to repair. shops. Our comments: with: respect to Mr. Mansfield’s survey apply equally here, particularly in light of the fact that the testimony on the survey of Valley Forge’s customers followed ‘the events that we have summarized above.*? Finally, respondent objects to the exclusion of the testimony of Mr. Roberts, a wholesale distributor, on his sales to rebuilders in 1964. (Res. App. Br. 51-52). The judge so ruled because the witness lacked knowledge about his customers’ businesses and the use they made of the new parts which they purchased. This is evident from the fact that three of Roberts’ alleged ‘“rebuilder” customers who testified in this proceeding were actually repair shops. (Tr. 2164, 2169, 2549, 2749; I.D. 40). IV. ANTICOMPETITIVE EFFECTS In his initial decision, the judge found that Avnet’s acquisition of IPM, resulting in a firm with approximately two-thirds of the relevant market, had severe anticompetitive effects, not only by eliminating Avnet’s largest competitor from the market, but by substantially increasing the previously high levels of concentration in the industry and entrenching Avnet as the dominant firm in an industry where barriers to entry were already formidable. (1.D. pp. 48-44 [pp. 486-87 herein]). In reaching these conclusions, the j udge relied heavily on two memoranda prepared by Mr. Fischer, an Avnet director and vice-president as well as the president of Avnet’s Valley Forge division. (Tr. 888, 3962-64). Throughout this proceeding, respondent has argued that the . two memoranda (CX 386 and CX 44, attached as Appendix A and B [pp. 479, 483 herein]), which are extensive: discussions of the competitive situation in the rebuilder supply industry and the benefits of Avnet’s planned acquisition of IPM, were prepared by Mr. Fischer without any direction from any officer of Avnet and were never shown to any other person prior to 1967. (Res. App. Br. at 55; Rep. Br. at 15). However, the basic issue here is one of credibility which is a matter peculiarly within the domain 41'We might also note, to xive the reader a complete picture of the setting in which the judge made the procedural rulings to which respondent objects, that the day that Mr. Fischer testified was the first time that respondent revealed the fact that the survey of repair shops discussed at pp. 34-36 [p. 470 herein], supra, had been conducted. (Tr. 4002). Opinion 82 F.T.C.

of the trier of fact who is in a much better position than we to judge the demeanor of the witness, namely Mr. Fischer. Universal Camera Corp. v. NLRB, 340 U.S. 474, 496 (1951). After closely examining Mr. Fischer’s testimony,:we feel compelled to affirm ' ‘the judge’s conclusion that the board of directors and other top management officials of Avnet were fully aware of the thoughts expressed in these two memoranda even though they may not have actually read them.

Thus, the judge found on the basis of ample evidence on the record that the memoranda were prepared before the Avnet board meeting of February 15, 1965, which was held for the purpose of discussing the proposed acquisition of IPM. Mr. Fischer, then a member of the board of directors, attended the meeting and comprehensively briefed the members of the board on the rebuilder supply industry and IPM in particular. (Tr. 4150, 4154, 4221, 4229-30; CX 285b). Mr. Fischer admitted on cross-examination that the thoughts expressed in these two memoranda were clearly in his mind at the time he attended the board meeting. (Tr. 4222-23). Furthermore, Mr. Fischer testified that he discussed the nature of the rebuilder industry and the implications of the proposed acquisition with Mr. Scheib, a member of the board and the acquisition committee, and provided him with a list of competitive suppliers (CX 37a-f) before the board meeting. The evidence also shows that Mr. Scheib made a presentation to the board of. directors at that board meeting on various aspects of the proposed merger including competitive conditions in the industry. (Tr. 4155, 4221-22, 4229). Confronted with the overwhelming evidence that the top management of Avnet was fully aware of the content of these memoranda, respondent argues that the judge in his initial decision placed undue reliance on the predictions contained in the memoranda in light of overwhelming evidence on the record demonstrating their inaccuracy. (Res. App. Br. at 55). However, as the judge found; there is substantial evidence in the record to demonstrate how accurate Mr. Fischer’s predictions were. Mr. Fischer observed, for example:

The acquisition of IPM would serve chiefly to remove our most major competitor from the scene. This would reduce to an overwhelming extent the price competition that is a major factor in the industry. In many cases severe competition has held profit margins on key items to a reduced level owing to the ability of two firms to offer substantially the same item at the same price. (CX 44a). (Appendix B [p. 483 infra]). ALVIN, LINU, 410 391 Opinion We have glossed over the natural inherent advantages of elimination of bitter price competition for this is taken for granted but the benefits should not be discounted. (CX 36d). (Appendix A [p. 482 infra]). Two months after Avnet’s acquisition of IPM, Jim Paschal, IPM’s sales manager, noted in a memorandum to: Mr.. Mansfield the benefits of*a division of markets between IPM and Avnet to reduce price competition:

Having become a part of the Avnet Corp. it is reasonable to believe that International Products & Mfg. Co. will be able to show where it would be extremely profitable for Valley Forge to concentrate on the redistribution outlet for their products, and International Products & Mfg. Co. to concentrate on the rebuilding industry for their outlet. This way, we would not have to make. price concessions to compete with one another in the manner we have done in the past, and thus enhancing the over-all profit of the Corporation. (CX 35c). In addition, as Mr. Fischer had predicted (CX 44a), both IPM and Valley Forge discontinued discounts to large customers. (1.D. 126 [p. 429 herein]).

Mr. Fischer also envisioned a division of markets between IPM and Valley Forge with the former concentrating on the rebuilders supply field, where it was undoubtedly the dominant firm, and the latter emphasizing the sales of ignition parts, a product line not sold to rebuilders:

If we were able to point to the future where. one division would pursue the rebuilding industry and the other to be free to make progress in ignition products and perhaps other items for the consumer product market it could be put to great advantage for purposes of expanded sales. (CX 36b). (Appendix A [p. 481 infra]).

Again, Mr. Fischer’s projections were amazingly accurate. The record shows that between 1964 and 1969 Valley Forge’s sales of ignition parts increased more than tenfold from” $184,000 to $2.185 million while its sales of rebuilder parts increased only slightly from between $1.5 million and $1.856 million in 1964 to $1.871 million in 1969 despite a rapid growth in the rebuilding industry. (Tr. 3976, 4006, 4166, 4232-83). See also CX 35c, quoted p. 41, supra.

Finally, in an extensive discussion of the barriers to entry in the rebuilder supply market, Mr. Fischer noted in his 1964 memoranda:

By combining Valley Forge and IPM it is very unlikely that any other company could arise to become a substantial competitive factor. The amount of tooling required on older numbers with reduced sales would preclude Opinion . 82 F.T.C.

anybody making the investment which would be very unsound. It is always possible that original equipment manufacturers would choose to enter the field: with tremendous sums available-for-the job’to be done but in light of experience, it is not likely that they would embark on a program of tooling where the items to be made were hardly likely to show amortization of the investment. In order to become a factor any newcomer would have to make a very substantial investment in order to give sufficient coverage. To start from scratch and become a factor we estimate the minimum figure of three to four million dollars which would not afford full product coverage. In addition we estimate that this project would involve several years in which time new items would undoubtedly be introduced that would make the problem more complex and expensive. In short it would be reasonable to conclude that the acquisition of IPM would place us in a dominant position and probably beyond reach of any newcomer. (CX 44a). (Appendix B [p. 483 infra]).

Mr. Fischer’s estimate of the investment necessary to offer broad product coverage is confirmed by the witness from Vulcan who testified that a 1964 study indicated that a $750,000—$1,000,000 investment would be necessary for Vulcan to enter the alternator parts business. (Tr. 992). He estimated that an investment of approximately two-and-a-half million dollars would be necessary to tool up to manufacture starter, generator, and alternator parts. (Tr. 994). Mr. Fischer’s assessment of the barriers to entry in the rebuilder supply field is further supported by the fact that no firm offering any substantial breadth of product coverage entered the field between the time of the acquisition and the time of this proceeding."? (Tr. 4171-73). Finally, respondent argues that in utilizing the memoranda prepared by Mr. Fischer, the judge in his initial decision ignored the first page of the one memorandum noting the tremieridous influence of the OEMs in the aftermarket and the fact that the entire rebuilding industry and its suppliers are allied in a battle against the OEMs. (CX 36a). As we stated at the outset, we acknowledge the dominance of the OEMs in the automotive aftermarket, a dominance due largely to the fact that the majority of ‘consumers, being inadequately informed of the price, quality, and availability of rebuilt parts, have been persuaded to accept the higher-priced new parts offered by the OEMs. While the rebuilding industry is not yet a sufficiently large threat to the OEMs’ business to make it necessary for the latter to lower their prices to meet the rebuilt prices—a situation that would prevail only if the two were in fact part of the same market—the re- #2 See also pp. 10-15 [pp. 451-54 herein], supra. AVNET, INC. Al 891 Opinion builders do offer a challenge to the OEMs in a particular segment of total aftermarket, one that offers the informed consumer more meaningful price competition and a wider range of automotive electrical units. Rebuilders serve a market characterized - —by. relatively knowledgeable and cost-conscious consumers. OEMs serve a separate market, one characterized by relatively less knowledgeable and less cost-conscious consumers. The barrier between them, inadequate information on the part of the motorists, protects the higher price level of the OEMs from erosion by the rebuilders. Lessening competition within the rebuilder supply industry, and thus raising the rebuilders’ price level closer to that of the OEMs, is hardly the way to increase the likelihood that the potential for competition between them will some day become an effective reality. .

Despite both subtle and ruthless attempts by the OEMs to impair the ability of rebuilders to compete since the inception of the rebuilding industry, the industry has prospered dramatically. We find nothing in the record which demonstrates that the continued prosperity or future growth of the industry is now suddenly dependent on a concentration of economic power among rebuilder suppliers to protect the industry from the OEMs. In fact, the evidence on this record demonstrates that exactly the opposite is true.

In summary, the record amply demonstrates that Avnet’s acquisition of IPM gave it an impregnable position atop the concentrated rebuilder supply industry with approximately 60 percent of the market, six times greater than that of its largest competitor. On this basis alone, the acquisition could be deemed violative of Section 7 of the Clayton Act. United States v. Philadelphia National Bank, 374 U.S. 321, 364-65 (1963); Brown Shoe Co. v. United States, 370 U.S. 294, 343 (1962). When, in addition, there ~ is ample evidence to indicate that Avnet acquired IPM to diminish price competition, divide markets, and increase the already formidable barriers to entry in the industry, we are compelled to affirm the judge’s decision that the acquisition is illegal. Vv. SCOPE OF THE ORDER Respondent attacks the judge’s order in three respects. (Res. App. Br. 55-62; Rep. Br. 21-23). First, respondent contends that it should be able to divest Valley Forge instead of IPM. In light of the ample evidence on the record indicating that Avnet acquired IPM to establish itself as the paramount rebuilder sup- ' Opinion 82 F.T.C.

plier and sought to decrease the previous price competition between IPM and Valley Forge by diminishing Valley Forge’s role in the rebuilder supply field, we-can only ¢onclude that to permit the divestiture of Valley Forge rather than IPM would be to run the risk that Avnet was at least partially successful in carrying out its plan. Certainly, when a respondent enters into a- clearly illegal arrangement, it, rather than the public, should suffer the consequences of its own attempt to stifle competition. Second, respondent argues that the ban on future acquisitions without prior Commission approval unjustifiably extends to a broader line of commerce than that found to be the relevant market for purposes of judging the legality of the acquisition. Paragraph 8 of the judge’s order prohibits Avnet from acquiring any firm “engaged in the business of manufacturing and/or supplying parts, materials, equipment and other products to automotive electrical unit rebuilders” for ten years. The order provision thus bans acquisitions of firms selling rebuilt or used as well as new parts to rebuilders. In view of Avnet’s position as an important manufacturer and marketer of automotive replacement parts, its acquisition of more than 20 companies in the past decade, its position as one of the major suppliers of new parts to rebuilders, and its relations with rebuilders developed over eight years of ownership of two of the major rebuilder suppliers, we consider respondent to be not only a potential, but a likely, entrant into any segment of the rebuilder supply business open to it. (1.D. 2, 3, p. 46 [pp. 399-400, 439 herein]). See In re Bendix Corp., Dkt. 8739, June 18, 1970, p. 43 [77 F.T.C. 731, 834], vacated on other grounds, 450 F.2d 534 (6th Cir. _1971). Moreover, respondent’s actions in acquiring two of the three largest rebuilder — suppliers in a six-month period evidence not only a fervent interest in gaining a strong position in the rebuilder supply field but also a complete disregard for any laws that would prohibit respondent from doing so. Consequently, the requirement that respondent come to the Commission before entering any segment of the rebuilder supply field by acquisition is necessary to insure against future violations which are similar in nature to that involved in this case.

Third, respondent objects to Paragraph 4 of the order requiring it to file annual reports of all future acquisitions. We might normally limit the annual reporting requirement to a report on those mergers or acquisitions which involve product markets 391 Opinion related to the ban. Cf. Paragraph IV of the Order in Stanley Works, Dkt. 8760, May 17, 1971 [78 F.T.C. 1023, 1083], aff'd. 469 F.2d 498 (2d Cir. 1972). Respondent’s disregard for the Commission’s investigative authority as well as its lack of coopera- __ tion throughout the investigation, pretrial and trial of this case, ~~ however, convince us that the-usual presumption that respondent will provide a full voluntary disclosure of all acquisitions related to the ban is inapplicable here. Therefore, we feel that the slight additional burden that might be imposed by requiring respondent to discuss all acquisitions in its annual compliance report is totally justified by the need for the Commission to have timely notice of any acquisition which may impair the competitive viability of the rebuilder supply industry. We do feel, however, that the reporting requirement should be limited to ten years, conterminous with the ban on acquisitions, and have so modified the order.

Finally, complaint counsel on appeal urge that respondent be precluded from making any acquisition before divestiture has been accomplished. Since we feel that the threat of a civil penalty action if divestiture is not soon effectuated is a sufficient deterrent, we do not deem the order provision urged by complaint counsel to be necessary in this case.

. Appendix A APPRAISAL.OF THE IPM ACQUISITION... _ In this memo I have prepared a gathering of thoughts and solutions rather than a series of arguments pro and con. In every case where arguments would be against the move, it is to be recognized that no argument or problem is without solution or counter-move. In a like vein every reasonable contingency has been raised in an industry known to be dynamic and subject to changes in distribution policies. It is critical in an appraisal to recognize and evaluate the—fact. that. all replacement manufacturers are allied against the original equipment manufacturers of car manufacturers themselves. The list prices from which all discounts are derived and from which all computations are made are set by OEM such as United Delco of General Motors, Autolite of Ford Motor Company, etc. Historically all replacement manufacturers have existed and prospered because of the fact that they were able to offer certain advantages which were price, broader product coverage, greater flexibility and service. No reliable figures have ever been developed which would indicate with authority what percentage of the overall business was secured by OEM as opposed to replacement.

OEM has always -pursued a course of action designed to get all the business they could and their efforts often touch on infringement of antitrust laws but the practical difficulties of getting people to testify and to Opinion 82 F.T.C.

secure in writing what is only said verbally has prevented any serious action to deter their aggressive moves. It could be stated with complete truth that the actions currently being taken by OEM represent their highest point - in terms of spending and coricentratidn of effort to overwhelm the industry. OEM has certain basic problems regardless of their approach and the main problem is one of distribution—giving profit to all the levels of distribution and still ending up with a product priced at list level that will be within range. It also must be recognized that consolidated balance sheets prevent anybody from knowing if these programs have been profitable and OEM is not noted for staying with any program for a long time if it means losses. Their systems of divisional management call for profits in addition to which they undoubtedly must have some sensitivity about their dominant position in a major industry. It is to be seriously doubted that they would undertake a program of selling at a loss to drive replacement manufacturers out of business for this would assuredly result in legal actién to say nothing of the FTC counter-moves.

The above has been written not as a scare but merely to serve as background for some of the other points which clearly point the way to a combining of IPM and VF which would be the most effective counter-weapon to OEM plans. The latest price sheets of United Delco of GM indicate that they have raised their individual parts prices while at the same time keeping the same price level on the total unit itself. Sticking strictly to the rebuilding field this means that the individual parts in a starter, for example, have been raised but the price of a rebuilt starter has remained at the same level. United Delco has been in the rebuilding business themselves for many years but their efforts have been. stronger in the very recent past. Thus, it would follow that the independent rebuilder would be caught in an jnexorable squeeze if he had to buy parts at higher prices to compete with a unit: that is being sold at the same price. If the rebuilder were at the sole mercy of United Delco (not the only offender but certainly the strongest force and therefore regarded as the main threat) without recourse to the parts manufactured by the independent manufacturer and sold at price levels well below OEM prices. :

By the acquisition of IPM, we would move forward“in many directions. The biggest benefit would unquestionably be the removal of the competition that has existed and of the massive duplication of effort that has taken place. It is assumed that an acquisition would mean that VF and IPM could for all practical purposes cease the duplication of tools and equipment and produce for all of the industry from one set of tools. Not only would this represent a reduction in expenditure but it would also mean that longer runs for combined usage would also result in lower unit costs for both. Insofar as purchases of outside components and parts would be concerned, the combined purchasing power would be awesome in terms of our industry and it must be admitted that only lower costs would result. It should also be realized that in certain areas, such as screw machine products and cold heading for example, our individual requirements might not justify in-plant manufacture but combined usage would clearly point the way to more vertical manufacture with the consequent savings in such a program.

AVN, ING. 401 391 Opinion One of the major points to be considered is the duplication in executive effort with major amounts of time being devoted on both sides to sales programs and products designed to gain a competitive edge. If we were able to point to the future where one division would pursue the rebuilding industry and the other to be free to maké progress in ignition products and perhaps other items for the consumer product market it: could be realized that the fréed creative time could be put to great advantage for purposes of expanded sales.

Recognize that both VF and IPM have toolrooms where the same tools, dies and jigs are being made and then visualize freeing tooling time from one division to make products designed to penetrate another field. Both companies face the same problem of being unable to hire sufficient toolroom personnel to make every product that it would like. Not to be overlooked for it is a key point is the immense duplication of time and money for the creation of catalogs and this is a major cost factor for both companies. Both companies have full-time personnel creating identical catalogs in terms of content and intent, differing in presentation and method but aimed at the same end.

One of the major areas of savings would be in the cost of sales. Both companies employ manufacturers representatives working on a commission basis. It must be recognized that eventually this could be eliminated and we could substitute paid factory representatives on a salary basis with regional overseers to direct and supervise the sales efforts. As a conclusion to the above comments, the freeing of duplicated effort would afford one company the vital time and energy to pursue other fields where there has been no penetration because of duplicated effort. Thus, if IPM would assume the major burden in the rebuilding field and VF in the other fields, we would develop a major expansion into areas where neither of us penetrate right now. We could make foreign parts which neither do at present because of the thought that the market will not permit two sets of tools and thus the business goes to Lucas, Fiat, etc. because it is not feasible for one to do so for fear that the tooling costs might not be amortized. To follow this thought one company could penetrate sacrosanct OEM parts such as heavy duty trucks, marine, etc. where OEM has kept their prices high because of the absence of competition.

It is our feeling that each company would assume the responsibility for which each would be best suited and the facilities freed by such an action could be employed for markets now denied because of practical limitations. The possibility of competition at this point and what could be developed is a key point. Should we acquire IPM, we would have reached an impregnable point provided we took appropriate steps to maintain our position. At this point only Ace Electric and Vulcan Motor Products would remain as replacement suppliers of any consequence. Ace was acquired in the very recent past by another company but Ace manufactures only field coils and buys the preponderant majority of their other parts from both IPM and VF. They could be more properly termed service suppliers and do not at this point have the personnel, knowledge or ability to implement a major threat in the parts they presently buy. Vulcan is years behind in product expansion and while they undoubtedly are adequately financed for such a venture, they have acquired a reputation for poor quality that will be hard to live down. In addition, the management of Vulcan is. not young and it is doubtful if, they would have the desire to embark’on such a program at this point. They are very anxious to sell but their manufacturing facilities are reputed to be obsolete for any serious purposes of expansion. Bear in mind also that Ace Electric is right now furnishing IPM with their field coils with an estimated annual sales volume of perhaps 300,000-350,000 which would normally gravitate to VF who is a basic manufacturer of this series of items. :

Feeling that the eventual plan would call for a consolidation of effort in the rebuilding field, it is our belief that we would occupy a position of such dominance that effective competition would be difficult. Should the efforts be joined it should be considered as a possibility to establiwarehouses in various parts of the country to serve the local rebuilder markets. At the present time both companies have made tentative efforts but they have been abandoned because of duplicated costs and the competitive pressures. Should IPM have installed an effective warehouse in California, for example, VF would have had to duplicate their efforts in order to protect the market. Neither has ever made a serious effort in that direction, therefore, feeling that any advantage would be temporary and the ultimate would be higher costs for both companies. . In the Canadian market, the combination would be dominant and the combined sales feature would permit the installation of purchasing in Canada for the combined sales would be enough to merit this. In certain foreign markets, IPM has products that could be sold but because of the fact that their line has limited export appeal in many countries, the business is going to OEM overseas distribution. It does not pay an importer to send IPM a separate order for a small amount of products and incur the import charges that would result so that they buy OEM which would be cheaper to them in such cases. Were the product. lines combined, the sales would of course be larger. ‘We have glosssed over the natural inherent advantages of elimination of bitter price competition for this is taken for granted but--the benefits’ should not be discounted.

VF also feels that such 2 move would enable them to concentrate their product improvement and cost picture for. it would tend to concentrate their efforts and eliminate the necessity of scattering efforts. On the minus side is to be considered the expressed desire of IPM’s key officer to retire from active participation in two years more or less. It would require « concentrated effort to bridge the gap that would be left but it is felt with confidence that this could be accomplished. It should also be suggested that IPM is financially interested in several outside but concurrent ventures in the rebuilding field with particular reference to equipment. IPM holds an unknown interest in Possis Machine in Minneapolis and steps should be taken to prevent any future competition in the equipment field from this direction. IPM also has an arrangement with Rea Magnet Wire of Fort Wayne which could prove to be of financial benfit in VF purchases of magnet wire. There is also an interest in a carbon brush company and this is brought ARV AVES Ey BATU awe 391 Opinion forth to ensure that no competitive efforts should stem from these directions.

Although no reasonable figures can be developed off the cuff it is felt that duplications of effort, tooling, time, etc. plus reduced sales costs and the gradual evolution of special price situations being phased out should result in a remarkable improvement _in-the profit picture. To return to the first phase mentioned of OEM pressures, a combined front is a powerful stabilizing force. Bear in mind that if need be, IPM-VF could always do their own rebuilding at price levels that could prove to be interesting. At present both companies hesitate to even consider such a project for it would back-fire—selling your customer and competing with him would not be the shortest way to success but a combined effort would always be a perfect method of sweeping away these considerations should it be necessary.

Appendix B Comparative evaluation re International Products: In the event that Avnet does not choose to pursue the acquisition of IPM it is to be understood that alternative measures are available for attaining the same product coverage and potential sales range. Listed below are estimates of the initial costs and inventory requirements that would be needed for each of the product categories in which Valley Forge is not now active as well as the recommendations for each. Prior to this listing we should desire to make clear the following facts consistent with our knowledge of the industry.

1) The acquisition of IPM would:serve chiefly to remove our most major competitor from the scene. This would reduce to an overwhelming extent the price competition that is a major factor in the industry. In many cases severe competition has held profit margins. on key items to a reduced level owing to the ability of two firms to offer substantially the same item at the same price. IPM has been very active in offering preferential discounts to large customers which Valley Forge has been obliged to meet. It is recognized by both Valley Forge and IPM that we must retain a reasonable share of the business from the larger users for they represent the primary target of any substantial tooling. We both recognize that large customers are necessary for our continued growth. This. has produced a situation where the large customer has used his position to play off one against the other. In this situation Maremont has been the chief offender and has used their purchasing power in the most effective manner. 2) By combining Valley Forge and IPM it is very unlikely that any other company could arise to become a substantial competitive factor. The amount of tooling required on older numbers with reduced sales would preclude anybody making ‘the investment which would be very unsound. It is always possible that original equipment manufacturers would choose to enter the field with tremendous sums available for the job to be done but in light of experience, it is not likely that they would embark on a program of tooling where the items to be made were hardly likely to show amortization of the investment. In order to become a factor any newcomer would have to make a very substantial investment in order to give sufficient coverage. To start from scratch and become a factor we estimate the Opinion 82 F.T.C.

minimum figure of three to four million dollars which would not afford full product coverage. In addition we estimate, that this project would involve several years in which time new items would undoubtedly be. introduced ‘that would make the problem more complex and expensive. In short it would be reasonable to conclude that the acquisition of IPM would place us in a dominant position and probably beyond reach of any newcomer. 8) Marginal suppliers of a portion of the line would continue to exist but it is reasonable to conclude that they could not progress to a point of being real competition. The only other supplier of strong coverage is Ace Electric Company who manufactures only field coils and purchases the balance of the items from Valley Forge and IPM. The Ace operation has been weakened by the emergence of Valley Forge as a key supplier and manufacturer of their main item—field coils. Vulcan Motor Products of Newark, N.J. also manufactures many items but their progress has been stunted over the past few years and they have been severely outclassed. Their management is not young and by themselves, it is a remote possibility that they would represent a competitive factor. If they were acquired by a larger company with money available for expansion, it is always possible that they could be revitalized but their present tooling is inadequate and they have acquired a reputation for poor quality which would remain with them. In addition many items are slowing up in sales and to tool them today would be poor policy and thus, a.newcomer would have to start with a short line unless they were prepared to spend money merely to achieve broad product coverage without any reasonable expectation of return. 4) A reasonable by-product of merger would be the ability of a combined operation t6 tool any new item without fear or being unable to have reasonable amortization. To have a guaranteed market for any new item without consideration of severe price competition would provide a major assurance in the case of any substantial tooling investment. As it exists today the introduction of a new item with major tooling expense represents a calculated risk to the result of who would be first on the market to capture the first and most profitable round of sales. Eventually both companies would recoup their investment but the limitation of original equipment.-as the.only avenue © of major competition would lead to faster tooling and greater profits at the expense of the OFM suppliers.

5) The summation would indicate that by acquiring our major competitor we would be ata single jump achieve dominance in a growing field and occupy a powerful position to uplift profit levels. The end could be achieved by other means as described below and the only differences would be slower progress and continued price competition. The end desired can be achieve” either way and it is not be inferred that acquisition is the only reasonable means. IPM is dominated to an unbelievable extent by the capability and energy of a single individual who has admitted to the burden of this load. While this has been a labor of love to this point, no secondary manage ment has arisen that has demonstrated their ability to carry on. ALTERNATIVE PROPOSALS 1) Valley Forge has the executive and engineering talent to achieve the same ends. Mainly the difficulty would be the money required and the time needed to inaugurate and implement each of the missing segments. Valley AVING 1, LINU, 40%) 391 Opinion Forge has not penetrated the alternator market and we would need tooling and inventory for Chrysler and Delco Remy alternators. It is our estimate that each of these AC systems would require an initial tooling expense of perhaps $75,000 with an initial backup inventory of $50,000. The inventory would level off as sales came in. The Ford alternator would not have to be tooled owing to the fact that all Ford parts could be secured from Ford in thé-special *status that we now have.

2) Valley Forge has been prepared to enter the starter and generator shaft business which has been completely dominated by IPM. We have a supplier who is prepared to produce these items at price levels that would be very desirable. Based on our estimates we would need an initial inventory of perhaps $250,000 to $800,000 which would level off within six months to a normal of possibly $175,000. The entry into this market would be slow owing to the fact that we could not effect a deep penetration until we had broad coverage with which to attract customers away from IPM. It has been considered and certainly still in consideration that the Shaw Process may well represent a new and desirable avenue of producing shafts. « 3) IPM has attained a deserved reputation for equipment that is needed by the rebuilder. The equipment ranges in price from inexpensive items of perhaps ten dollars to complete winding setups involving thousands of dollars. Valley Forge has the capability to enter this field but our opinion is that this program would have to be placed behind any attempts to expand product coverage.

4) It is the rough estimate of Valley Forge that this expansion could not be achieved within our present space limitations. We believe at this point that we can support a total volume of about 7 million dollars in both plants at which point relocation would be mandatory. Aside from construction costs or rental expenses we calculate the sum of $200,000 to relocate our present facilities. - ——— 5) We are confident of success. regardless 0 of the avenue chosen. Valley Forge is a basic manufacturer of most of their items in the field of rebuilding and does have the know-how to make all of the items. IPM does sub-contrac’ a great percentage of their production and we feel that this gives us an edge that would become more important as our product coverage would increase.

Appendix C—Percentage of New Parts Requirements Purchased by Rebuilders from the Four Largest Rebuilder Suppliers’ in 1964 (see page 28, supra) [p. 465 herein] Percentage of Total 1964 New Parts Purchases Represented By Purchases From 1964 Net Four Largest Rebuilder & Location Rebuilt Unit Sales Units Rebuilt ? Suppliers ! CMS Mfg. Co. , Sacramento, Calif. 92,500 ST., G, A 97% John-Wilmer Corp.

Atlanta, Ga. © 500,000 Full-line 80-85% Missouri Research Lab.* St. Louis, Mo. 1,178,000 ST., G, A 65% A486 FEDERAL TRADE COMMISSION DECISIONS Order 82 F.T.C.

Percentage of Total 1964 New Parts Purchases Represented oa we oe ~ By Purchases From OF a 1964 Net Four Largest Rebuilder & Location Rebuilt Unit Sales Units Rebuilt? Suppliers * World Generator South Holland, Il. 478,000 ST., G, A 60% Automotive Armature * Mooresville, Ind. 1,118,762 ST., G, A, AR. 60% CAPCO Deluxe Generator’ Covington, Ky. “1,126,000 G, ST., AR. 18% Arlington Armature Arlington, Va. 123,500 ST., A, G 100% 1IPM, Ace, Valley Forge, and Vulcan. a * Among top ten rebuilders in nation.

I Types of units are designated. by the following abbreviations: Generators (G) ; Alternators (A) ; Starters (ST.) ; Armatures (AR.).

Tr. 748-751, 790-1797, 832, 835, 839, 841, 892-98, 896-97, 1287, 1289, 1306-07, 2285, 2322-23. 2506, 2509, 2532-33.

ORDER This matter has been heard by the Commission on appeal of respondent from the initial decision of the administrative law judge, filed March 8, 1972, finding respondent in violation of Section 7 of the amended’ Clayton Act, 15 U.S.C. Section 18 (1970). The Commission has determined that the initial decision of the administrative law judge should be affirmed and that the findings and conclusions of law contained in his initial decision, modified to conform with the attached opinion, should be adopted as those of the Commission. Other findings 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 administrative law judge should be modified. Accordingly, 1. It is ordered, That respondent Avnet, Inc. (hereinafter “Avnet’’), a corporation, its successors and assigns, shall divest all stock, assets, properties, rights, privileges and interests of whatever nature, tangible and intangible, acquired by Avnet as the result of its acquisition of the assets and business of Guarantee Generator & Armature Co., d/b/a International Products & Manufacturing Co. (hereinafter “IPM”), together with all additions and improvements to IPM which have been added to IPM subsequent to the acquisition, so as to assure that IPM is reestablished as a separate, effective and viable competitor engaged in the business of manufacturing and/or supplying of parts, ma- 391 Opinion terials, equipment and other products to independent automotive electrical unit rebuilders. Such divestiture shall be absolute, shall be accomplished no later than one year from the effective date of this order, and shall be subject to the prior approval of the Federal Trade Commission.

2. It is furthered ordered, That pursuant:to the requirements of Paragraph 1 above, none of the stéck, assets, properties, rights, privileges and interests of whatever nature, tangible or intangible, acquired or added by Avnet, shall be divested, directly or indirectly, to anyone who is at the time of the divestiture an officer, director, employee or agent of, or under the control, direction or influence of Avnet or any of Avnet’s subsidiaries or affiliated corporations or who owns or controls more than one (1) percent of the outstanding shares of the capital stock of Avnet. 3. It is further ordered, That for a period of ten (10) years from the date this order becomes final, Avnet shall cease and desist from acquiring, directly or indirectly, without the prior approval of the Federal Trade Commission, the whole or any part of the stock, share capital, assets, any interest in or any interest of, any concern, corporate or noncorporate, engaged in the business of manufacturing and/or supplying parts, materials, equipment and other products to automotive electrical unit rebuilders, nor shall Avnet enter into any arrangement with any such concern by which Avnet obtains the market share, in whole or in part, of such concern, in the above described product lines. ~ : ‘ en 4. It ts further ordered, That Avnet shall, within thirty (30) days after the effective date of this order, and every thirty (30) days thereafter until Avnet has fully complied with the provisions of this order, submit in writing to the Federal Trade Commission a verified report setting forth in detail the manner and form in which Avnet intends to comply, is éomplying or has complied with this order. All compliance reports shall include, among other things that are from time to time required, (a) the steps taken to accomplish the required divestiture; and (b) copies of all documents, reports, memoranda, communications and correspondence concerning or relating to the divestiture.

With respect to Paragraph 3 of this order, Avnet shall within thirty (30) days following the effective date of this order, and annually thereafter, for a period of ten years, submit a report, in writing, listing all acquisitions and mergers made by it, the & Order 82 F.T.C.

date of every such acquisition or merger, the products involved and such additional information as may from time to time be required. .

.& It is further orderéd, That Avnet notify the Commission at least thirty (30) days prior to any proposed change in the corporate respondent such as dissolution, assignment or sale resulting in the emergence of a successor corporation, the creation or dissolution of subsidiaries or any other change in the corporation which may affect compliance obligations arising out of the order.

Commissioner Dennison dissented for the reasons set forth in his dissenting statement.