Owens-Illinois, Inc

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IN THE MATTER OF OWENS-ILLINOIS, INC., ET AL.

FINAL ORDER, OPINION, ETC., INREGARD TO ALLEGED VIOLATION OF SEC. 7 OF THE CLAYTON ACT AND SEC. 5 OF THE FEDERAL TRADE COMMISSION ACT Docket 9212. Complaint, Jan. 11, 1989--Final Order, Feb. 26, 1992 This final order dismisses the complaint against the respondents because the record does not show that the acquisition of Brockway is likely to substantially lessen competition or to create a monopoly in the glass container industry. Appearances For the Commission: Dennis F. Johnson and Ernest Nagata. For the respondents: Richard C. Weisberg, Latham & Watkins, Washington, D.C. Paul C. Warnke, John C. Calender, and Harold D. Murry, Jr., Howrey & Simon, Washington, D.C. COMPLAINT The Federal Trade Commission, having reason to believe that respondents Owens-Illinois, Inc. ("Owens") and its wholly-owned subsidiary, BI Acquisition Corporation ("BIAC"), corporations subject to the jurisdiction of the Commission, have entered into agreements with Brockway, Inc. ("Brockway") that violate Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 45, that pursuant to these agreements, Owens and BIAC have commenced a cash tender offer to acquire all outstanding common shares of Brockway and intend to merge with Brockway following the cash tender offer, which cash tender offer, acquisition and merger would, if consummated, violate Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 45, and that a proceeding in respect thereof would be in the public interest, hereby issues its complaint pursuant to Section 11 of the Clayton Act, 15 U.S.C. 21, and Section 5(b) of Complaint 115 F.T.C.

the Federal Trade Commission Act, 15 U.S.C. 45(b), stating its charges as follows:

I. THE PARTIES A. Owens-Illinois, Inc.

1. Respondent Owens is a corporation organized and existing under the laws of the State of Delaware, with its principal place of business located at One SeaGate, Toledo, Ohio. 2. Owens is a manufacturer of packaging products, including glass containers, plastic products, specialty packaging products, tumblers and stemware, scientific and laboratory glassware, glass television components, and prescription containers. It is one of the two leading producers of glass containers in the United States. Owens also has investments in health care (nursing homes) and financial services (mortgage banking). For the year ended December 31, 1986, Owens had net sales of approximately $2.9 billion and total assets of approximately $3.5 billion.

3. Owens is owned by Kohlberg, Kravis, Roberts & Co. ("KKR"), a private investment firm. KKR also owns or controls various other corporations, including Beatrice Foods Company, the parent corporation of Tropicana Products, Inc. ("Tropicana"). Tropicana also produces and sells glass containers. B. BI Acquisition Corporation 4. Respondent BIAC is a newly formed corporation organized under the laws of the state of New York, with its principal place of business located at One SeaGate, Toledo, Ohio. 5. BIAC was formed by Owens in connection with the cash tender offer for Brockway's outstanding voting securities. BIAC is a wholly-owned subsidiary of Owens, and is the entity through which Owens intends to acquire Brockway's outstanding voting securities. OWENS-ILLINOIS, INC., ET AL. 181 179 Complaint C. Brockway, Inc.

6. Respondent Brockway is a corporation organized and existing under the laws of the State of New York, with its principal place of business located at 225 Water Street, Jacksonville, Florida. 7. Respondent Brockway is a manufacturer of glass, plastic and metal containers, caps, lids and closures for packaging consumer and industrial products. Brockway is the third largest producer of glass containers in the United States. The company also operates a regional passenger airline in the northeast corridor. For the year ended December 31, 1986, Brockway had net sales of approximately $1.1 billion and total assets of approximately $494.3 million. Il. JURISDICTION 8. At all times relevant herein, respondent Owens has been, and is now, engaged in commerce as commerce is defined in Section 1 of the Clayton Act, as amended, 15 U.S.C. 12, and is a corporation whose business is in or affecting commerce as commerce is defined in Section 4 of the Federal Trade Commission Act, as amended, 15 US.C. 44.

9. Atall times relevant herein, respondent BIAC has been, and is now, engaged in commerce as commerce is defined in Section 1 of the Clayton Act, as amended, 15 U.S.C. 12, and is a corporation whose business is in or affecting commerce as commerce is defined in Section 4 of the Federal Trade Commission Act, as amended, 15 U.S.C. 44.

10. At all times relevant herein, respondent Brockway has been, and is now, engaged in commerce as commerce is defined in Section 1 of the Clayton Act, as amended, 15 U.S.C. 12, and is a corporation whose business is in or affecting commerce as com-4 1 6 3 5 0 534 2398 1334 41 -1 5 1 6 3 5 1 534 2398 134 36 91.099892 merce is defined in Section 4 of the Federal Trade Commission Act, 15 U.S.C. 44.

Ill. THE PROPOSED ACQUISITION 11. Owens, BIAC and Brockway entered into an Agreement and Plan of Merger ("Merger Agreement"), dated September 17, 1987, Complaint 115 F.T.C.

pursuant to which Owens, through BIAC, commenced a cash tender offer for all outstanding voting securities of Brockway for $60 per share. In addition, pursuant to a second agreement dated September 17, 1987 ("Option Agreement") among Owens, BIAC and Brockway, Owens has the right to purchase up to 2,300,000 shares of authorized but unissued shares of Brockway for $60 per share. Following the cash tender offer, BIAC and Brockway are to merge, and Brockway will thereby become an indirect wholly-owned subsidiary of Owens. The total value of the cash tender offer is approximately $750 million.

IV. TRADE AND COMMERCE 12. A relevant line of commerce within which to analyze the effects of this acquisition is the manufacture and sale of glass containers.

13. A relevant section of the country within which to analyze the effects of this acquisition is the entire continental United States. V. MARKET STRUCTURE 14. The proposed acquisition would substantially increase concentration in the United States glass container market and would make that market highly concentrated, whether measured by capacity or by unit or dollar sales.

VI. ENTRY CONDITIONS 15. Barriers to entry into the United States glass container market are substantial. Even if new entry were to occur, it would take a long time, during which time substantial harm to competition could occur. VII. ACTUAL COMPETITION 16. Owens and Brockway are actual, direct and substantial competitors in the manufacture of glass containers in the United States.

OWENS-ILLINOIS, INC., ET AL. 183 179 Complaint VIII. EFFECTS OF THE ACQUISITION 17. The effects of the proposed acquisition of Brockway by Owens and BIAC may be substantially to lessen competition in the relevant market in violation of Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 45, in the following ways, among others:

(a) It will eliminate substantial direct competition between Owens and Brockway in the relevant market; (b) It will substantially increase concentration in the relevant market, thereby increasing the likelihood of successful anti-competitive interdependent conduct, nonrivalrous behavior, and actual or tacit collusion among firms in the relevant market; and (c) It will eliminate Brockway as a substantial independent competitive force in the relevant market. All of the above increase the likelihood that firms in the relevant market will increase prices and decrease the likelihood that they will decrease prices, both in the near future and in the long term. Ix. VIOLATIONS CHARGED 18. The proposed acquisition of Brockway by BIAC and Owens would, if consummated, violate Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 45.

19. The Merger Agreement and Option Agreement described in paragraph 11 above violate Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 45.

Chairman Oliver voting in the negative.

Initial Decision 115 F.T.C.

INITIAL DECISION BY JAMES P. TIMONY, ADMINISTRATIVE LAW JUDGE SEPTEMBER 11, 1989 I. INTRODUCTION The Commission's complaint, issued on January 11, 1988, charges that the acquisition of Brockway, Inc. ("Brockway") by Owens-Illinois, Inc. ("0-I" or Owens) and Owens' wholly-owned subsidiary, BI Acquisition Corporation ("BIAC"), is unlawful under Section 7 of the Clayton Act, 15 U.S.C. 18, and Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45.' The complaint alleges that the relevant line of commerce is the manufacture and sale of glass containers; that the relevant section of the country is the continental United States; that prior to the acquisition Owens and Brockway were competitors in the manufacture of glass containers in the United States; that the acquisition would substantially increase concentration in the United States glass container market; and that barriers to entry are substantial. The complaint further charges that the effects of the acquisition may be to eliminate an independent Brockway and direct competition between Owens and Brockway; and increase the likelihood of a price increase and anticompetitive conduct among firms in the relevant market. ' References to the record are made using the following abbreviations: F Findings of Fact CX Commission Exhibit RX Respondents’ Exhibit Stip. Stipulation Tr. Transcript Citations to the transcript of testimony are by witness name and the transcript page. Citation to exhibits are by exhibit number and page. OWENS-ILLINOIS, INC., ET AL. 185 179 Initial Decision A. The Parties and Commerce Owens - Illinois, Inc.

1. Owens is a Delaware corporation with its principal place of business at One Seagate, Toledo, Ohio.

2. Owens is a manufacturer of glass containers, plastic containers, tumblers and stemware, laboratory glassware, and glass television components. Owens is one of the two leading producers of glass containers in the United States. For 1987, Owens had a net sales of $3.1 billion and assets of $4.5 billion. (CX 109U, V.) 3. On March 24, 1987, Kohlberg, Kravis, Roberts & Co. ("KKR") bought control of Owens. (CX 109D.) A February 1987 memorandum concerning the acquisition financing for the buy-out explains that Owens was a “good leveraged buy-out” in part because of the company's “Dominant Market Position” in glass containers, with approximately5 1 4 3 6 3 984 1560 86 37 96.370186 26%5 1 4 3 6 4 1095 1560 119 36 93.547523 share of the domestic glass container market. (CX 101 Q.) The memorandum describes Owens as follows: Domestically, GCD [Owens' Glass Container Division] enjoys a dominant market share in both beer and soft drink glass container industries. Excluding Gallo, which manufactures its own containers, the Glass Container Division is also dominant in the wine and wine cooler glass container business. The Division holds the number two position behind Diamond-Bathurst in liquor containers and the number two position behind Brockway in food containers. In the markets for drug and chemical glass containers, which are declining markets, GCD's market position is less dominant. Overall, GCD has approximately a 26% market share in the U.S. (CX 101Z12.) 4. Over 90% of the outstanding common stock of Owens is beneficially owned by KKR Associates, a New York limited partnership, which is an affiliate of KKR. (CX 16C.) Owens is controlled by KKR Associates. (CX 16N.) KKR also owns or controls other corporations, including Safeway Stores, Inc. (Haworth, Tr. 3915-16) and Beatrice Foods Company. (Stollsteimer, Tr. 4331.) 5. Owens is engaged in commerce and is a corporation. (Complaint (8; Owens Answer 49.) Initial Decision 115 F.T.C.

BI Acquisition Corporation 6. BIAC is a New York corporation organized with its principal place of business at One Seagate, Toledo, Ohio. BIAC is a whollyowned subsidiary of Owens that was set up for the purpose of acquiring Brockway's voting securities. (Complaint [5; Answer 96; CX 16A, M-O.) 7. BIAC is engaged in commerce. BIAC solicited Brockway’s shares in commerce in connection with the cash tender offer for Brockway. (CX 16.) Brockway, Inc.

8. Brockway was a New York corporation with its principle place of business at 225 Water Street, Jacksonville, Florida. Brockway manufactured glass, plastic and metal containers, caps, lids and closures for packaging consumer and industrial products. Brockway was the third largest producer of glass containers in the United States. For 1986, Brockway had net sales of $1.1 billion and assets of $494.3 million.

9. Brockway is engaged in commerce.

B. The Acquisition 10. Owens, BIAC and Brockway entered an agreement on September 17, 1987, whereby Owens, through BIAC, made a cash tender offer for all outstanding voting securities of Brockway for $60 per share. (CX 16; CX 17; CX 130.) The value of the cash tender offer was approximately $750 million for the shares, plus an additional $110 million for expenses and debt retirement. (CX 16J.) Owens' Chairman, Robert Lanigan, summarized the rationale for the acquisition as follows:

Our determination to maintain and improve our position in glass and plastic packaging is exactly what the Brockway acquisition is about. * * * The objective is to increase our share of the total domestic glass container market by adding to our capacity without adding new capacity to the industry. * * * The best estimates are that Brockway has a 16 percent share of the domestic market. The Owens-Illinois share is about 24 percent. That is only slightly ahead of the share claimed by Anchor Glass, following OWENS-ILLINOIS, INC., ET AL. 187 179 Initial Decision its recent merger of Diamond Bathurst. Anchor was at about 14 percent and Diamond at about 10 percent. Of the remaining domestic producers the other significant players are Ball-Incon with some 11 percent, Foster-Forbes with about 6 percent, and Kerr, which has some 4 percent. If we are successful with the Brockway merger, on the glass side we will have about 40 percent of the domestic market. And we will be nearly twice the size . . . and infinitely more productive and efficient . . . than the next largest competitor. One way to look at the Brockway acquisition is that if we are successful the cost will be in the range of some $240 per ton of capacity added. We are sure that this particular capacity represents the best existing domestic glass container assets, aside from our own. The price is well below what it would cost to add new greenfield capacity, which we would not do in any case. (CX 43J-L.) 11. Owens wanted greater control of the glass container market and higher prices for glass containers. In July 1986, Owens' director of planning reported to Owens’ president that the acquisition of Brockway would allow Owens to Becomes 1 3 1 4 7 1454 1369 88 35 95.268349 40%5 1 3 1 4 8 1564 1368 42 36 96.830994 of5 1 3 1 4 9 1621 1369 97 45 93.284782 glass5 1 3 1 4 10 1738 1368 151 35 91.726044 market-4 1 3 1 5 0 555 1425 1335 53 -1 5 1 3 1 5 1 555 1432 120 46 95.303802 place (CX 1221 at 4); A5 1 3 1 5 7 1078 1428 241 36 96.641380 combinations 1 3 1 5 8 1333 1434 36 29 96.468933 to5 1 3 1 5 9 1382 1428 87 35 96.468933 40%5 1 3 1 5 10 1485 1427 101 35 97.010834 shares 1 3 1 5 11 1600 1426 106 35 96.987877 could5 1 3 1 5 12 1720 1425 170 36 96.807892 establish4 1 3 1 6 0 555 1484 1333 53 -1 5 1 3 1 6 1 555 1490 99 47 96.997665 prices 1 3 1 6 2 671 1489 201 47 96.965897 leadership5 1 3 1 6 3 889 1488 158 47 96.512886 positions 1 3 1 6 4 1064 1488 68 36 96.996689 ands 1 3 1 6 5 1149 1487 111 36 96.625183 effects 1 3 1 6 6 1276 1487 96 46 96.625183 prices 1 3 1 6 7 1390 1485 259 47 70.902580 assumptions (CX 118J);

and the Alternatives 1 3 1 7 4 961 1546 42 36 96.568184 of5 1 3 1 7 5 1012 1546 202 47 96.014641 expanding5 1 3 1 7 6 1226 1545 153 45 93.305450 existing5 1 3 1 7 7 1393 1545 65 35 89.177948 O-I5 1 3 1 7 8 1471 1550 111 29 91.091690 assets5 1 3 1 7 9 1598 1572 6 7 78.890724 .5 1 3 1 7 10 1621 1572 28 7 50.249596 ..5 1 3 1 7 11 1665 1554 82 35 96.714508 may5 1 3 1 7 12 1761 1542 79 36 94.052765 leads 1 3 1 7 13 1853 1548 36 29 97.016899 to4 1 3 1 8 0 556 1602 1085 51 -1 5 1 3 1 8 1 556 1607 134 36 96.478981 overall5 1 3 1 8 2 706 1607 97 46 96.946564 prices 1 3 1 8 3 818 1605 143 36 96.907478 erosion5 1 3 1 8 4 976 1605 70 36 96.979439 dues 1 3 1 8 5 1060 1611 36 29 96.979439 to5 1 3 1 8 6 1111 1615 87 25 93.278778 overs 1 3 1 8 7 1211 1603 280 47 92.121635 capacity.(CX 118K.) The report concludes: Thus,5 1 3 2 1 5 1222 1673 55 24 96.197823 we5 1 3 2 1 6 1292 1672 57 25 96.371841 ares 1 3 2 1 7 1363 1662 36 35 96.681061 in5 1 3 2 1 8 1414 1671 19 25 96.352226 a5 1 3 2 1 9 1447 1660 155 47 96.933540 positions 1 3 2 1 10 1617 1667 35 28 96.772041 to5 1 3 2 1 11 1667 1670 150 35 96.557938 manages 1 3 2 1 12 1831 1659 58 35 96.589104 thea 1 3 2 2 0 556 1717 1333 52 -1 5 1 3 2 2 1 556 1723 160 46 96.361076 industry5 1 3 2 2 2 734 1729 36 29 96.024025 to5 1 3 2 2 3 788 1722 193 36 96.583351 maximize5 1 3 2 2 4 998 1722 86 35 96.649506 cash5 1 3 2 2 5 1102 1721 56 35 93.287834 for5 1 3 2 2 6 1175 1721 65 35 91.879486 O-I5 1 3 2 2 7 1258 1720 47 46 97.015869 by5 1 3 2 2 8 1324 1719 183 47 96.567902 acquiring5 1 3 2 2 9 1525 1719 99 35 96.954926 these5 1 3 2 2 10 1643 1718 143 35 92.130966 assets. (CX 118K.) C. Procedural History 12. On November 18, 1987, the Commission voted to seek a preliminary injunction in the United States District Court for the District of Columbia pending the administrative proceeding. A complaint was filed on January 6, 1988, and Judge Joyce Hens Green entered a temporary restraining order, and on February 18, 1988 denied the preliminary injunction. FTC v. Owens-Illinois, Inc., 681 F. Supp. 27, 30 (D.D.C. 1988), vacated, 850 F.2d 694 (D.C. Cir. 1988). The district court concluded that end-uses for glass had no acceptable alternatives but that these end-uses are not large enough to result in a substantial lessening of competition under Section 7: The eleven end-use segments presented by the FTC constitute .. . only about 25.8% of the total glass container tonnage. Thus, in the vast majority .. . of end-uses for glass containers, other packaging materials, including plastic, metal, and paper, compete directly and vigorously with glass.

Initial Decision 115 F.T.C.

* * * * The inquiry could end here, since it is possible to conclude for these reasons that, even aggregated, the end-use segments at issue, assuming arguendo they are indeed as inelastic as the FTC suggests, do not constitute a sufficient part of the glass market to allow a finding of substantial anticompetitive effect under Section 7. (/d., 681 F. Supp. at 36-37.) 13. The United States Court of Appeals for the District of Columbia Circuit on February 26, 1988, denied the Commission's request for an injunction pending appeal. On April 8, 1988, the court vacated the District Court's Opinion and Order on grounds of mootness. FTC v. Owens-lllinois, Inc., 850 F.2d 694 (D.C. Cir. 1988). The acquisition was completed on April 12, 1988. (CX 109D.) 14. The administrative trial began on November 14, 1988 and concluded on March 30, 1989, with 41 days of hearings. Complaint counsel's case-in-chief began on November 14, 1988 and concluded on December 22, 1988. Respondents’ defense began on January 24, 1989 and concluded on March 30, 1989. The record was closed on June 12, 1989, after transcript corrections and decisions on motions for in camera treatment from respondents and numerous third parties. Il. THE INDUSTRY A. Glass Containers 15. Glass containers are used for packaging food, soft drinks, beer, liquor, wine, wine coolers, juices, chemicals, and other products. (CX 131D.) During 1987, domestic sales of glass containers were $4.9 billion (CX 1451F), with shipments of more than 40 billion (281.6 million gross) containers. (RX 885D.) 16. The following table shows unit distribution of glass containers by end-use during 1987 (RX 885D): OWENS-ILLINOIS, INC., ET AL. 189 179 Initial Decision Millions of Percent Gross Units of Total Food 89.9 31.9 Beer 85.4 30.3 Non-Alcoholic Beverages 62.4 22.2 Wine 16.5 5.9 Distilled Spirits 11.8 4.2 Medicinal & Health 8.6 3.1 Toiletries & Cosmetics 5.6 2.0 Chemicals _14 0.5 TOTAL 281.6 17. Industry shipments of glass containers fell during the early 1980's but have stabilized. (CX 131D; RX 885D.) The drop in the early 1980's resulted from the loss of family-size (two-liter) soft drink containers to plastic, and a shift in the beer industry to metal cans. (CX 50Z10; CX 49R; CX 1013N; CX 1026I.) Analysts predict a stable industry with a growth of about 1% a year. (Zoon, Tr. 58; CX 52C, I; Cavanagh, CX 90V and Tr. 5239; RX 885D, E; CX 935E.) 18. The loss of family-size soft drink containers to plastic in the early 1980's occurred because of the weight and breakability of glass. (Harralson, Tr. 1568; Honickman, Tr. 3859-60; CX 49R; CX 1013N.) The loss of glass sales in the beer market occurred because of a change in the relative prices between glass and aluminum cans, as well as a declining market share for the Miller High-Life brand, which was a large user of glass. (CX 1013N; CX 1026I; CX 50Z10.) 19. Owens regards the shift from glass to plastic for two-liter bottles as an aberration (CX 1013N), and does not regard the drop in glass container sales in the early 1980's as reflecting a broad shift away from glass to plastic. (CX 1013N; See CX 49R; CX 50Z10.) 20. Before the Owens/Brockway acquisition, the domestic glass container market had six producers with four or more plants, and twelve smaller firms. (CX 1451B-E.) Of these twelve, only Latchford and Wheaton operate more than one plant, and five are singleplant in-house producers for glass container users (Central New York - Miller [CX 79Z36]; Gallo - Gallo [CX 79Z62]; Columbine - Coors [CX 79Z37]; Industrial - Seagram/Tropicana [CX 79Z65]; Hillsboro - Hiram-Walker [CX 79Z64]). (CX 1451B-E; CX 551T-U.) The following chart shows, for each producer, the number Initial Decision 115 F.T.C.

of plants in operation in 1987, 1987 dollar sales and market share based on 1987 dollar sales volume (CX 1451B-F): Number 1987 Sales Company of Plants ($ Millions) Share Owens-Illinois 16 $1,153 23.6% Anchor/Diamond-Bathurst 22 1,135 23.2 Brockway 11 687 14.1 Ball-Incon 12 525 10.7 Triangle ( Foster-Forbes ) 8 387 7.9 Kerr 4 146 3.0 Miller (Central New York) 1 102 2.1 Latchford 2 101 2.1 Wheaton 2 88 1.8 Gallo 1 86 1.8 Coors 1 72 1.5 Industrial (Seagram/Tropicana) 1 70 1.4 Liberty 1 60 1.2 Glenshaw 1 45 9 Anchor-Hocking (Carr-Lowrey) 1 30 6 Hillsboro 1 26 5 Leone 1 15 3 Arkansas 1 14 3 21. Since 1980, there has been a trend toward concentration in this market due to mergers and acquisitions (CX 262301; CX 32, CX 123K, CX 921B, CX 936A, Z30, CX 1007Z7, CX 1011): 1980 Ball acquired Metro-Pak 1981 Diamond-Bathurst acquired National Bottle 1983. Anchor acquired Midland Glass 1983 Chattanooga Glass (Container General) acquired Glass Container Corp. 1983 Foster-Forbes (later acquired by Triangle Industries) acquired four plants from Kerr 1985 Diamond-Bathurst acquired Chattanooga (Container General) 1985 Diamond-Bathurst acquired Thatcher 1987 Ball and Incon (owner of the former Madera, Laurens, Northwestern and Pierce glass companies) merged glass operations to form Ball-Incon 1987 Anchor acquired Diamond-Bathurst 1988 Owens acquired Brockway OWENS-ILLINOIS, INC., ET AL. 191 179 Initial Decision 22. Since 1980, 30 plants, 100 glass furnaces, and 350 glassmaking machines have been shut down. (CX 27Z73-Z75; CX 79G; CX 816T.) 23. A June 26, 1987, Owens memorandum to members of the board of directors at KKR observes that all of this consolidation among container producers leads5 1 3 2 3 5 1251 917 37 30 96.844765 to5 1 3 2 3 6 1303 922 19 25 96.935631 a5 1 3 2 3 7 1337 922 99 26 96.935631 more5 1 3 2 3 8 1451 912 113 36 96.986870 stable5 1 3 2 3 9 1578 913 139 47 93.290161 pricing5 1 3 2 3 10 1732 915 166 36 92.520317 environ-4 1 3 2 4 0 563 965 861 49 -1 5 1 3 2 4 1 563 965 128 35 94.612343 ment. (CX 109Z38; CX 123D; CX 843E.) B. Metal Containers 24. Domestic shipments of metal cans during 1987 totaled 109.3 billion units, valued at $10.9 billion. (RX 885A, B.) Metal cans are used for beverages with 1987 end-use as follows (RX 885A): Shipments (billions of units) Soft Drinks 40.3 Beer 36.5 Food 28.4 General Packaging 4,1 25. The domestic producers of metal cans include Triangle (American-National Can), Continental, Crown Cork & Seal, Reynolds, Ball, and Anheuser-Busch. (Zoon, Tr. 92.) The Department of Commerce forecasts that the metal can industry is expected to grow at an average annual rate of 3%, measured in constant dollars, during the period 1989-93. (RX 885C.) C. Plastic Containers 26. Shipments of plastic bottles during 1987 totaled approximately 35.5 billion units. (RX 885E.) Distribution by end-use during 1987 was as follows (RX 885E):

Initial Decision 115 F.T.C.

Shipments (millions of units) Soft Drinks 7,970 Household Chemicals 5,302 Milk 5,235 Medicinal and Health 4,113 Beverages (except soft drinks) 3,260 Toiletries/Cosmetics 2,889 Automotive and Marine 2,700 Food (other than milk) 2,233 Industrial Chemicals 400 Other 1,425 27. Plastic containers are produced from a variety of resins, including polyethylene terephthalate ("PET"), high density polyethylene ("HDPE"), low density polyethylene ("LDPE"), polyvinyl chloride ("PVC"), polypropylene ("PP"), and polystyrene (“PS”). (Carter, Tr. 2515-18; RX 885E.) 28. PET is a clear resin used for soft drinks, peanut butter, mustard, barbecue sauce, and cough medicine. (Carter, Tr. 2516.) PET does not have a good oxygen barrier, which affects the shelf-life and the taste of some products. (Malone, Tr. 5927; F 109.) 29. PVC can be produced as a clear or pigmented (opaque) resin that is used for edible oils, automotive waxes, engine additives, and charcoal lighter fluid. (Carter, Tr. 2516.) 30. HDPE is a translucent resin that can be used to make translucent or opaque containers. End-uses for HDPE include industrial and household chemicals, milk and other dairy products, large institutional food products, and automotive products. (Carter, Tr. 2517.) 31. LDPE is a resin used to produce translucent or opaque containers. LDPE is used primarily for mustard containers. (Carter, Tr. 2517.) 32. Polypropylene resin is not clear, but has contacts 1 3 6 1 10 1769 2424 143 45 88.687088 clarity so that the color of the contents can be discerned through the container, and is used for table syrups and disposal units for medical waste. (Carter, Tr. 2518.) Polypropylene has high oxygen permeability relative to glass, which should not be used for a product that requires long shelf-life. (Erwin, Tr. 5134.) OWENS-ILLINOIS, INC., ET AL. 193 179 Initial Decision 33. In recent years, plastic container producers have combined resins into opaque or translucent multi-layer squeezable containers, such as those used for Welch's squeezable jelly and Hunt's Ketchup. (Rembert, Tr. 169-70; Stollsteimer, Tr. 4285-88, 4352-53.) These containers consist of several layers of different resins. (Trumbull, CX 25 at 26-27.) More costly than glass, these containers have been successful in ketchup, but not for mayonnaise, jelly, or baby juice. (Zoon, Tr. 52-53, 75; F 131, 155, 197.) 34. Domestic producers of plastic containers include Sewell, Johnson Controls, Continental, Amoco, Owens-Illinois, Triangle (American-National Can), and Ball. (Zoon, Tr. 34; Carter, Tr. 25 15.) In multi-layer plastic containers, Triangle (American-National Can) has a 50% share, Continental has a 15% share, and Owens a 35% share. (CX 403B.) 35. Consumption of plastic bottle materials during 1987 as follows (RX 885E):

Millions of Pounds High density polyethylene (HDPE) 2,587 Polyethylene terephthalate (PET) 881 Polyvinyl] Chloride (PVC) 214 Polypropylene (PP) 119 Low density polyethylene (LDPE) 47 Polystyrene and other 53 36. The growth rate for plastic containers slowed in 1988 due to three factors: (1) difficulty in converting the additional glass and metal users to plastic, (2) tight resin supplies and increased prices, and (3) uncertainty about recycling legislation. (RX 885E.) Ill. RELEVANT PRODUCT MARKET A. Glass Containers 37. There are two types of glass containers: wide-mouth and narrow-neck. (CX 99A, B, C.) Wide-mouth jars are used for nonpourable products such as mayonnaise or pickles. Narrow-necked containers are used for beer, soft drinks, and ketchup. (Zoon, Tr. 42; Blecharz, Tr. 4979-80.) Initial Decision 115 F.T.C.

38. Glass has characteristics required for: - Products that require a clear, retortable container -- such as baby food or spaghetti sauce with meat. (F 105 - 145.) - Products that require a clear, wide-mouth, hot-fillable container -- such as baby juice, pickles, spaghetti sauce without meat, or jams and jellies. (F 105 - 164.) - Products that require a clear, wide-mouth, impermeable container -- such as mayonnaise. (F 185 - 197.) - Products that require a clear, hot-fillable, impermeable container -- such as shelf-stable juice. (F 165 - 184.) - Products that require a clear, impermeable container that provides a quality image -- such as wine, wine coolers or distilled spirits. (F 198 - 225.) - Products that require a clear, impermeable container -- such as certain single-serve soft drinks. (F 227 - 229.) 39. Glass containers have characteristics not found in other types of containers: clear, impermeable, retortable, resealable, inert, rigid, quality image, microwaveable and recyclable. (F 40-52, 96-104.) 1. Clear 40. Glass is clear, allowing the consumer to see the contents of the container. (Jones, Tr. 512-14; Rottman, Tr. 919; Willers, Tr. 1695, 1705; CX 553A.) 41. Metal cans and many plastics lack clarity. (Zoon, Tr. 38; Jones, Tr. 581; Jameson, Tr. 795.) 2. Impermeable 42. Glass is impermeable so it does not allow air or moisture to enter the container or gases (such as carbonation) to escape, which protects the contents from spoiling and provides extended shelf-life. (Jones, Tr. 519; Rottman, Tr. 919; CX 553A.) 43, One disadvantage of plastic for use in packaging food and beverages is inadequate shelf-life. (Zoon, Tr. 38; Cavanagh, Tr. 5339; Coakley, CX 23X-Y.) OWENS-ILLINOIS, INC., ET AL. 195 179 Initial Decision 3. Retortable 44. Retort is sterilization used for meats and vegetables, cooking them in the jar at 235-255 degrees and at high pressure. (Jones, Tr. 514; Rottman, Tr. 911-12; Gigliotti, Tr. 5677.) Baby juice, and jams and jellies are hot-filled at temperatures from 190-215 degrees. (Rottman, Tr. 912.) Glass containers are retortable and are used for products that are heated in the container, pasteurized, or hot-filled. (CX 553A; Buttermore, CX 24Z5, Z19.) There are no clear plastic containers that can be retorted. (F 68.) There are no commercially available clear wide-mouth plastic containers that can be hot-filled. (F 69.) 4. Resealable 45. Glass containers can be closed, permitting consumers to save the unused product for future use. (Jones, Tr. 519; Jameson, Tr. 795; CX 553A.) 46. Metal cans cannot be closed. (Jones, Tr. 581; Jardis, Tr. 1321; Coakley, CX 23X.) 5. Inert 47. Glass is inert, and will not affect the taste of the contents. (Faulkner, Tr. 1305; Jardis, Tr. 1321-22; CX 553A.) Plastic containers and metal cans are not inert. (Jones, Tr. 520-21; Jardis Tr. 1321-22; Willers, Tr. 1697; Erwin, Tr. 5142.) 6. Rigid 48. Glass containers are rigid, which permits their use on highspeed filling lines, as well as leak-proof closures, and provides strength so that cases can be stacked in warehouses. (Jones, Tr. 517, 527-29, 545; Rottman, Tr. 912-13, 920; CX 553A.) 49. Plastic containers lack rigidity, causing paneling, (plastic buckling inward toward a vacuum.) (Mitchell, Tr. 680; Erwin, Tr. 5119.) Plastic's lack of rigidity requires slow filling line speeds relative to glass (Jones, Tr. 529; Rottman, Tr. 913; Faulkner, Tr. Initial Decision 115 F.T.C.

1269) and the inability to use some closures without leakage. (Jones, Tr. 527-28; Wilson, Tr. 2213.) Plastic cannot be stacked as high as glass. (Jones, Tr. 517,529; Rottman, Tr. 930; Faulkner, Tr. 1269.) 7. Quality image 50. Glass is perceived as projecting a quality image. (Willers, Tr. 1696; Smith, Tr. 1931, 1936; CX 553A, B.) 8. Microwaveable 51. Glass can be used in microwave ovens. (Jones, Tr. 519-20; CX 553A; CX 1022R.) 9. . Cost 52. Glass is the lowest cost container for many uses. Plastic mayonnaise containers would be 25-30% more than glass. Plastic for baby juice would be 2-3 times the cost of glass. (Faulkner, Tr. 265- 67; Mitchell, Tr. 660, 669.) The cost of plastic containers relative to glass results from the cost of the container itself, and costs for closures, and cartons. (CX 3911; CX 393B; CX 1007F.) B. Substitution 53. Demand for glass containers is influenced by: the size of containers (F 54-57); the portion of retail price represented by the glass container (F 58); the testing involved in packaging decisions (F 59-65); and functional, marketing and cost limitations on packaging. (F 66-80.) 54. Plastic costs more than glass in smaller size containers than it does in larger sizes (F 55); the lightness and safety of plastic in large sizes is not important in smaller sizes (F 56); and permeation problems with plastics are magnified in small sizes. (F 57.) 55. The cost of plastic compared to glass is higher as container sizes become smaller. (Zoon, Tr. 39-40; Jones, Tr. 544; Rottman, Tr. 924-25.) OWENS- ILLINOIS, INC., ET AL. 197 179 Initial Decision 56. In large containers, such as two-liter soft drinks, the weight and breakability of glass is more disadvantageous than in smaller sizes. (Harralson, Tr. 1568; Bourque, Tr. 2078; Honickman, Tr. 3859-60; Lemieux, CX 26Z168-Z169.) 57. The surface-to-volume ratio is a measurement of the area of the container in contact with the contents relative to the total volume of the container. (Ayres, Tr. 1857-58.) The surface-to-volume ratio increases as the container size gets smaller. (Zabinko, Tr. 5447.) As the surface-to-volume ratio increases, the shelf-life of plastic containers decreases because of permeation. (Bourque, Tr. 2076.) 58. The price of a glass container is about 10-20% of the wholesale price of the packaged product. (Jameson, Tr. 895; Rottman, Tr. 935.) The price of a glass container is less than 10% of the price to the consumer. (CX 21 at 4.) 59. Users of containers do not switch back and forth over the short term between types of packages based on costs. (F 60.) The package is a part of their brand identity (F 32), and changes in packaging are made at the highest corporate levels. (F 62-65.) 60. Food and beverage container customers do not switch back and forth between glass and plastic containers based on relative prices. (Carter, Tr. 2537; Lankester, Tr. 4038; Blecharz, Tr. 4961.) Switching requires changing production and distribution systems, and large costs. (Erwin, Tr. 5147, 5157; F 62.) 61. Packaging is important to brand identity. (Willers, Tr. 1716-17, 1719; Lankester, Tr. 4027, 4029-30; Stollsteimer, Tr. 4333-34.) 62. Switching from glass to plastic is a long-term decision. The customer must make line modifications, equipment changes and a major marketing commitment before switching. (Carter, Tr. 2537-38; Blecharz, Tr. 4911; Erwin, Tr. 5052.) 63. Because packaging is important, decisions about changes are made only at the highest corporate levels. (Smith, Tr. 1923-24, 1926; Erwin, Tr. 5116-18.) 64. Firms conduct extensive testing of shelf-life, consumer preference, filling lines, and distribution before a decision on a container change. (Mitchell, Tr. 675-76; Smith, Tr. 1925-26; Erwin, Tr. 5142-43.) Initial Decision 115 F.T.C.

65. Packaging tests require a long period of time. (Bourque, Tr. 2067-68.) Seagram took five years to evaluate 1.75 liter distilled spirits in plastic before test-marketing. (Smith, Tr. 1925-26.) CPC evaluated plastic for packaging its peanut butter for about three or four years, and for two more years to convert. (Mitchell, Tr. 674.) 66. The shelf-life and processing requirements of the products in the food and beverage industry are diverse. (Zoon, Tr. 39; Trumbull, Tr. 4196; Gigliotti, Tr. 5737.) The extent to which other types of containers compete with glass varies by end- use. (CX 540A.) That plastic might be an acceptable package for peanut butter does not indicate whether it would be acceptable for baby food. (Blecharz, Tr. 4913-14; Erwin, Tr. 5150.)”

67. The attributes that a food packer requires from a container vary with the process for making and filling. (Gigliotti, Tr. 5742.) Some food and beverages are retorted or hot-filled; others are warmfilled or cold-filled. (Rottman, Tr. 911-12; Willers, Tr. 1704; Stollsteimer, Tr. 4339.) 68. No clear plastic containers could be used for retorted products such as baby food or retorted spaghetti sauces. (Carter, Tr. 2531-32, 2587-88; Gigliotti, Tr. 5715, 5728, 5736, 5689-90; Malone, Tr. 5931.) 69. No clear wide-mouth plastic containers could be used for hot-filled products such as baby juice, spaghetti sauce, jams and jellies, or hot-packed pickles. (Zoon, Tr. 55-56; Carter, Tr. 2531-32; Gigliotti, Tr. 5689-91.) 70. Plastic does not provide the barrier for shelf-life in some products. (Erwin, Tr. 5137-38; Zabinko, Tr. 5391, 5423, 5432-33, 5447-48.) 71. Wide-mouth plastic containers with high barrier capabilities and heat resistance are a long way off. (CX 45F.) 72. Plastic containers have problems of clarity for baby food (F 118) and spaghetti sauce with meat (F 140); for wide-mouth products * That a product may be packaged in a type of container in a foreign country may not tell much about whether that package would be accepted in the United States. (Erwin, Tr. 5145-47.) Kraft packages mayonnaise in squeezable tubes in Italy, but mayonnaise is used in small portions to decorate hours d’oeuvres in that country. (Erwin, Tr. 5146.) OWENS-ILLINOIS, INC., ET AL. 199 179 Initial Decision where clarity, heat resistance and barrier properties are needed (such as baby juice (F 109), jams and jellies (F 151), and pickles (F 163)); for hot-pack products where clarity and high barrier is needed, such as shelf-stable juice (F 170); and for mayonnaise, wine, wine coolers, and distilled spirits. (F 193, 201, 212, 219.) 73. Glass containers will not be replaced by plastic in beer, retorted products and quality wine (Carter, Tr. 2587); (pickles, spaghetti sauces, baby food) (Gump, Tr. 4238); (wide-mouth hotpack and retortable containers, including sauces, jams and jellies, and baby food) (Trumbull, CX 25Z14); (baby food, pickles, jams and jellies, and wine) (Lemieux, CX 26X); ("processed food packages or in any shelf-stable food pack that is highly sensitive to oxygen spoilage"). (Cavanagh, Tr. 5239-40.) 74. Multi-layer plastics are not clear and have pricing, technology and consumer acceptance problems. (F 152-156 (jams and jellies); F 197 (mayonnaise); F 161 (relish); F 109, 125-133 (baby juice)).

75. Brockway's 1987-89 Three-Year Plan predicts that plastic will be limited for food packaging (CX 903Z): Growing concern on the part of food processors for product compatibility, safety and even recycling issues will dampen the penetration of plastics into our markets. In addition, very few plastics packages are completely cost effective, because of slower line speeds or higher spoilage rates.

76. Ketchup changed to plastic containers. (CX 10221.) Squeezability of a plastic container is an advantage for ketchup because it is difficult to pour out of a glass container. (Stollsteimer, Tr. 4337, 4352; Blecharz, Tr. 4916-19.) 77. Peanut butter changed to plastic containers because of lighter weight and shatter-resistance, in a product consumed by children.? (Mitchell, Tr. 673-74; CX 45-O; Lankester, Tr. 4035; Coakley, CX 23Z132.) Peanut butter can be packaged in PET because it is not hot-filled and does not have the shelf-life problems of other food products since it is not sensitive to oxygen or moisture. (Carter, Tr. 3 Kraft converted its ice cream toppings to squeezable plastic because it is a kid4 1 7 1 2 0 543 2760 1335 38 -1 5 1 7 1 2 1 543 2760 140 28 85.958649 oriented product and plastic provides break-resistance and ease of handling. (Erwin, Tr. 5001.) Initial Decision 115 F.T.C.

2532, 2539.) Like ketchup, the peanut butter conversion occurred in spite of higher costs for plastic. (CX 244B (30-35% premium for plastic over glass); Mitchell, Tr. 676 (20-25% premium for plastic).) 78. Price is one of several factors in determining the type of container that a food processor uses, and is less important than marketing considerations. (Smith, Tr. 2024; Stollsteimer, Tr. 4336-38; Gigliotti, Tr. 5668-69.) 79. Consumer preference is a factor in determining which package is appropriate. (CX 1032J.) 80. Increases in the cost of glass containers do not cause switching to other types of containers. (Blecharz, Tr. 4900-01 and CX 2104Z11.) Despite increases of 63.7% on 15-ounce Worcestershire sauce, 13.93% on 18-ounce barbecue sauce, and 11.98% on 10-ounce Worcestershire sauce, Heinz stayed in glass. (Blecharz, Tr. . 4963.) 81. Glass producers do not bid against other types of containers. (Smith, Tr. 1945-47; Carter, Tr. 2538-39, 2532-33; Blecharz, Tr. 4903-04.) When Seagram asks for bids on containers, it does not ask for glass and plastic bids at the same time for the same items in order to get a lower price. (Smith, Tr. 1946.) 82. In most uses, producers of one type of container do not generally take into account the prices of other types of containers when making their bids. (Carter, Tr. 2538.) Where the containers may be substituted, however, as in the single serve soft drink market, the price of competing materials may be a factor. (F 237; Honickman, Tr. 3832-33; Leone, Tr. 2700.) 83. Metal can and glass prices do not move together. (CX 810.) Plastic prices are more volatile than glass prices, so that glass and plastic prices at times move in different directions. (Erwin Tr. 5159; Whiting, CX 1221 at 102.) 84. Plastic bottles, glass containers, and metal cans have different cost. Glass is produced from sand, soda ash and limestone. (Cavanagh, Tr. 5193.) Metal cans are made from aluminum or steel. (Zoon, Tr. 46-47.) Plastic containers are produced from plastic resins which are derived from petroleum-based ethylene and ethylene glycol. (CX 414A.) Half of the costs of a plastic container is raw materials. (Zabinko, Tr. 5464.) The raw material cost of glass is OWENS-ILLINOIS, INC., ET AL. 201 179 Initial Decision about 11-13%. (CX 23G.) About 11% of glass costs relates to the price of oil, while 42% of PET costs relates to oil. (CX 1032H.) 85. The cost of raw materials is an advantage glass has had over aluminum, steel and plastics. (CX 1034Z5.) 86. The prices of plastic resins have gone up about 25-30% since late 1987. (Zoon, Tr. 74; Carter, Tr. 2520-21.) 87. Resin price increases are due to increases in the prices of ethylene and ethylene glycol, the raw materials that are used for producing plastic resins. (Carter, Tr. 2522; Zabinko, Tr. 5454; Trumbull, CX 1226 at 18, 21.) Due to a world-wide shortage of ethylene in early 1988 (CX 411), the market price of ethylene and ethylene glycol increased, resulting in higher resin prices. (Carter, Tr. 2522.) 88. The resin price increases since late 1987 have been passed on to food and beverage producers in higher plastic container prices. (Carter, Tr. 2522-23; Erwin, Tr. 5159; CX 938275.) 89. Although PET resin production capacity is expected to increase during 1989, non-container demand for PET also is increasing. Thus, the growth in PET resin capacity may not result in lower prices for PET containers. (Carter, Tr. 2526.) 90. Plastic and metal containers are sold FOB plant of manufacture; glass containers are sold on a delivered basis. (Blecharz, Tr. 4954; Coakley, CX 23Z71; Trumbull, CX 25264.) 91. Although plastic containers are lighter in weight than glass containers, there is no freight savings. (Cavanagh, Tr. 5256.) Freight rates are determined on truckload basis, not by weight. (CX 2119B.) 92. The plastic container division at Owens employs a separate sales force, research and development department, and profit center from the glass container division. (Bachey, Tr. 3548-49.) The marketing of plastic containers is separate from glass containers. (Bachey, Tr. 3551-52.) 93. Purchasers maintain separate buyers for different types of containers. Heinz has one buyer for glass, one for metal, and one for plastic. (Blecharz, Tr. 4885-86.) 94. Owens computes its market shares based on a glass market, without including other rigid packaging. (CX 33; CX 34A-C; CX 118D.) Owens estimated the 1985 market shares of the companies in Glass5 1 3 11 4 2 675 2785 230 36 93.233513 Containers by end-use segments as follows (CX 26Z239): Initial Decision 115 F.T.C.

Brockway Q-] Total Soft Drink 19.0% 32.8% 51.8% Beer 15.0% 25.0% 40.0% Food 18.5% 16.1% 34.6% Other 6.8% 19.2% 26.0% 15.6% 23.1% 38.7% 95. There is a trade association for glass containers (CX 1121A- H), and a separate trade association for metal cans (RX 918A). 96. Glass is recyclable into new food and beverage containers and has a recycling value in excess of handling costs. (CX 380C; CX 2448J.) Brockway has a waste glass redemption program recycling glass recovered from its manufacturing process and from public sources. (CX 20G.) Plastic containers have a recycling disadvantage inhibiting their penetration of food and beverage markets. (CX 123D; CX 397A-I; Whiting, CX 1221 at 179-180.) PET has little recycling value and is not being recycled.’ (Gigliotti, Tr. 5733-34; CX 380C; CX 911.) 97. Glass and metal can be recycled into new food and beverage containers. Plastic cannot be re-used to make new food and beverage containers because any contaminants absorbed into the side wall of the plastic cannot be cleaned out. (Carter, Tr. 2528; Honickman, Tr. 3844; Trumbull, CX 25Z42-43.) 98. Most PET containers are used for food or beverage applications. (Trumbull, Tr. 4197; Malone, Tr. 5928.) 99. The recycling problems with plastic increase when more than one type of material is contained in the bottle (such as soft drink bottles with HDPE base cups) because the resins must be separated as part of the recycling process, which is complex and costly. (Trumbull, Tr. 4157.) Multi-layer plastics are not currently recyclable. (CX 416D.) 100. Some states restrict the use of plastic containers. The state of Washington does not allow new distilled spirits brands in plastic, and in the future no PET will be allowed. (CX 337.) California * Other plastics also have environmental problems. PVC containers may leach vinyl chloride monomer, a known carcinogen, from the container into the contents of the bottle. (Trumbull, Tr. 4107.) Incinerated PVC produces pollutants. (Lankester, Tr. 4051.) OWENS-ILLINOIS, INC., ET AL. 203 179 Initial Decision requires producers and distributors of carbonated beverages to pay a deposit per bottle, which increases if certain recycling rates not achieved. (Langer, Tr. 1454.) Aluminum cans and glass containers are close to achieving the rates, but plastic containers are nowhere4 1 3 1 5 0 562 866 1335 52 -1 5 1 3 1 5 1 562 866 100 35 95.362869 closes 1 3 1 5 2 680 872 36 30 96.988632 to5 1 3 1 5 3 733 867 109 46 96.809868 beings 1 3 1 5 4 859 868 184 46 95.428024 recycled at the required levels. (Langer, Tr. 1455.) Certain forms of plastic containers have been banned in some areas. Kentucky prohibited the sale of PET 12 oz. package because of recycling concerns, and sales were discontinued nationwide. (CX 71A; CX 101Z51; CX 360C.) 101. In April 1988, A-15 1 3 2 1 6 1170 1160 107 35 96.664604 Steaks 1 3 2 1 7 1296 1160 114 36 96.481346 Sauces 1 3 2 1 8 1429 1161 214 36 96.317291 conversion5 1 3 2 1 9 1662 1169 35 28 96.740112 to5 1 3 2 1 10 1716 1163 86 34 96.234833 PETS 1 3 2 1 11 1820 1174 73 24 96.826904 was4 1 3 2 2 0 559 1215 1335 51 -1 5 1 3 2 2 1 559 1215 172 36 96.254852 canceled5 1 3 2 2 2 751 1216 75 45 96.971016 just5 1 3 2 2 3 849 1217 96 45 96.360489 prior5 1 3 2 2 4 967 1223 37 30 96.960480 to5 1 3 2 2 5 1027 1218 136 36 96.140518 markets 1 3 2 2 6 1187 1224 66 30 96.761368 tests 1 3 2 2 7 1278 1220 68 35 96.599831 dues 1 3 2 2 8 1371 1226 35 29 97.005615 to5 1 3 2 2 9 1430 1220 183 46 96.273285 recycling5 1 3 2 2 10 1637 1220 147 37 93.087509 issues. (CX 406B.) The Coca-Cola bottler in Oregon switched back to glass from PET in 16 oz. and limited the use of plastic to two-liter containers “due to opposition to plastics by environmentalists and others." (CX 399Q.) 102. Coca-Cola test-marketed Petainer, a 12-ounce PET can with metal ends during 1986/87, but dropped the test after resistance over the container's recyclability. The Petainer was very difficult to recycle because it combines plastic and metal and there was no process to economically recycle the package. (Whiting, CX 1221 at 114-115; CX49K.) California and Kentucky introduced legislation prohibiting its use. Original New York Seltzer tested the Petainer after it was dropped by Coca-Cola, but also met with resistance and dropped the package. Petainer’s manufacturer has since sold its equipment to a firm in Japan. (Langer, Tr. 1434-36.) 103. Glass5 1 3 4 1 3 875 2088 198 36 96.489250 containers5 1 3 4 1 4 1087 2088 42 36 96.983437 fits 1 3 4 1 5 1142 2090 58 35 95.679237 thes 1 3 4 1 6 1214 2089 92 36 95.679237 ideal5 1 3 4 1 7 1321 2091 187 35 96.060463 definitions 1 3 4 1 8 1524 2091 41 36 97.005531 of5 1 3 4 1 9 1576 2092 106 46 96.931480 beings 1 3 4 1 10 1697 2093 80 35 96.368530 able5 1 3 4 1 11 1791 2099 35 29 96.368530 to5 1 3 4 1 12 1840 2093 45 35 97.010994 be4 1 3 4 2 0 549 2145 1336 49 -1 5 1 3 4 2 1 549 2145 168 44 96.496185 recycled5 1 3 4 2 2 735 2145 75 35 96.764832 into5 1 3 4 2 3 829 2146 58 35 96.711029 thes 1 3 4 2 4 905 2157 99 25 96.638138 same5 1 3 4 2 5 1020 2148 150 44 96.800056 products 1 3 4 2 6 1188 2158 44 25 96.993942 an5 1 3 4 2 7 1250 2148 140 36 96.217751 infinite5 1 3 4 2 8 1408 2150 150 35 96.262154 numbers 1 3 4 2 9 1574 2150 43 35 96.946716 of5 1 3 4 2 10 1631 2150 135 36 60.045101 times. (CX 91G.) Plastics, according to respondents’ expert, has recycling problems:

Polyethylene terephthalate is the principal resin used in soft drink bottle making, and constitutes the most visible problem in connection with packaging solid waste disposal. It cannot be recycled into the same soft drink container because of technical reasons. [P]lastic recycling is estimated at only 1.1 percent of all plastic packaging materials used.

Normal micro biological action has little or no effect on plastic polymers, which is one of the reasons that they were developed initially and are successful. This property suggests that it is not safe to dispose of plastics in landfills, even though that is where most of them now go.

Initial Decision 115 F.T.C.

* * * * The only present answer to plastic packaging disposal is incineration. PET can be burned safely in a modern incinerator. Most presently operating incinerators, however, cannot safely bur PET or any other plastic. . . . This of course increases costs and raises the question of whether the burning of the plastic will ever prove to be economical, even considering the plastic's high energy content. [CX 91I.] 104. Glass and metal can be recycled into the same products. Plastics used for food packaging have no potential for recycling into the same package type; and there is not a big enough market in other end-use products to accommodate even the present quantity of plastic packaging waste. While incineration for its fuel value is a potential solution, there are serious questions regarding the safety of emissions from present incinerators. Until these problems are solved, the long range prospects for plastics are increasingly uncertain. (Zabinko, Tr. 5407; CX 87E.) C. Use 1. Baby food and baby juice 105. Glass containers for baby food and baby juice are clear, impermeable, retortable, rigid, reclosable, inert, microwaveable and low cost. (Jones, Tr. 512-13; Rottman, Tr. 918; CX 2125A.) Sales of glass jars for this use in 1986 amounted to $107 million. (CX 35.) 106. Glass is the only container with all the features required for baby food and baby juice. (Rottman, Tr. 921-22.) 107. Clarity is important because of consumer preference. (Jones, Tr. 513-14; Rottman, Tr. 919; CX 2125A.) Metal cans are not clear. (Jones, Tr. 581.) 108. Impermeability prevents oxygen from entering the product and spoiling it, provides increased shelf-life, keeps the product sterilized and maintains nutrition. (Jones, Tr. 519; Rottman, Tr. OWENS-ILLINOIS, INC., ET AL. 205 179 Initial Decision 919.)° Gerber and Beech-Nut require a shelf-life of two years, which glass containers provide. (Jones, Tr. 514, 587-88; Rottman, Tr. 921.) 109. Plastic PET containers would not provide acceptable shelflife. (Jones, Tr. 539, 588.) PET would provide a shelf-life of two months. (CX 2212A.) Multi-layer plastic currently provides shelflife only for certain flavors that are less oxygen-sensitive than others. (Jones, Tr. 585; Rottman, Tr. 926.) 110. High-temperature packing is necessary for baby food and baby juice containers. (Jones, Tr. 514-16; Rottman, Tr. 911-12, 920.) About 50% of baby foods are retorted. (Rottman, Tr. 912.) Juices and the remaining 50% are hot-filled (filled at temperatures from 190-215 degrees for sterilization). The initial filling for both hot-fill and retorted products is the same. The product is filled into the container while hot. Next the product is put in steam and the cap is applied. As the steam condenses, it draws the closure button down. Hot-fill foods are kept at their filling temperature for 10-15 minutes. Foods requiring retort are put in pressure cookers (or retorts) and cooked at 250 degrees. (Rottman, Tr. 911.) 111. Glass is rigid and permits the use of tamper-evident closures with safety buttons. Plastic containers for baby food would require a more costly closure than glass containers. (Jones, Tr. 517, 527.) 112. The rigidity of glass also makes possible high-speed filling lines. (Jones, Tr. 517-18; Rottman, Tr. 913.) Plastic containers would require new filling equipment. (Rottman, Tr. 912.) The slower production rate with plastic containers would require twice as many lines as glass. (Jones, Tr. 529.) 113. Stacking plastic would require stronger corrugated containers to achieve the same vertical stacking strength as glass. (Jones, Tr. 517, 529, 545; Rottman, Tr. 920; CX 1459C.) 114. Glass containers can be resealed and stored for later use. (Jones, Tr. 519.) Metal cans are not readily resealable. (Jones, Tr. 581.) 5 Paper cartons used for dry baby cereals cannot package strained baby food. (Rottman, Tr. 913-14; Jones, Tr. 507-08.) When Beech-Nut sets the price for its processed baby food, it does not take into account the price of dry cereal. Jones, Tr. 508.) Initial Decision 115 F.T.C.

115. Inertness of baby food and baby juice containers prevents the flavor of the product from being absorbed into the container and the container from imparting taste to the product. (Jones, Tr. 520-21.) Some plastics absorb flavor into the contents. (Rottman, Tr. 919.) 116. Microwaveability is important for baby food. (Jones, Tr. 519-20.) 117. There is no clear plastic container commercially available in the United States today that could be used for retorted baby food products. (Jones, Tr. 525; Rottman, Tr. 922- 24; Gigliotti, Tr. 5689-90, 5736, 5748.) Plastic tends to soften at high temperatures, which would distort the container. (Rottman, Tr. 925.) Retortable plastic containers are not clear, are higher price than glass, and do not have screw-top resealability. (Gigliotti, Tr. 5715, 5717, 5728.) 118. There is no clear wide-mouth plastic container commercially available in the United States today that could be used for hotfilled baby food or baby juice products. (Zoon, Tr. 55; Carter, Tr. 2532, 2587; Zabinko, Tr. 5422, 5425.) Plastic containers could be used for some wide-mouth hot-fill products, but these containers are not clear, are high cost, and provide a reduced shelf-life. (Rottman, Tr. 925-26.) 119. Beech-Nut concluded that there were several obstacles to plastic containers for baby food and baby juice, including: closure, cost, production and warehousing. (CX 1459B-C.) 120. With present technology, the cost of any plastic container that could be used for baby food would be far in excess of the cost of glass. (Blecharz, Tr. 4877; Jones, Tr. 523-24.) 121. A plastic container for baby food would require from a year and one-half to three years to develop. (CX 1459C; CX 2113A.) 122. Producers of baby food and baby juice would not shift from glass to plastic if the price of glass containers were to increase by 5- 10%. (Jones, Tr. 529, 535; Rottman, Tr. 934.) 123. If the price of glass containers were to increase by 5-10%, producers of baby food and baby juice would not shift to metal containers because cans are not clear or resealable, and do not project the same quality image as glass. (Jones, Tr. 521-22; Rottman, Tr. 922-23, 934.) 124. It may be five years before a clear, high barrier, retortable, plastic container that is cost competitive with glass will become OWENS-ILLINOIS, INC., ET AL. 207 179 Initial Decision commercially available to package baby food. (Rottman, Tr. 933; Zabinko, Tr. 5400.) 125. In late 1986 or 1987, Gerber began marketing some of its baby juice in a 4.0 ounce plastic Gamma container produced by American-National Can. (Jones, Tr. 530-32; Rottman, Tr. 927-28.) This container took about two years to develop. (Rottmam, Tr. 927.) 126. Gerber's purchases of the Gamma container is one-half of one percent of its annual volume of its container purchases. Gerber also packages baby juice in plastic 750 milliliter container. (Rottman, Tr. 908.) Its purchases of the 750 milliliter container is about 1% of its total. (Rottman, Tr. 908.) Gerber had to install new filling lines to accommodate the plastic juice containers. (Rottman, Tr. 912.) 127. The Gamma container used by Gerber for juice is not clear like glass, but rather is translucent or contacts 1 3 4 2 9 1438 1374 121 42 95.953491 clear, (the color of the contents is only partly discernible). (Jones, Tr. 533.) The marketing department at Beech-Nut believes that the container has insufficient clarity for Beech-Nut's products. (Jones, Tr. 584.) 128. The Gamma containers for juice are multi-layer, but are not impermeable. (Rottman, Tr. 929.) They provide less shelf-life than glass. (Jones, Tr. 585.) 129. Gerber has had no savings in freight that resulted from the lighter weight of plastic. (Rottman, Tr. 930.) The plastic containers for juice are weaker than glass. (Rottman, Tr. 930.) As a result, juices packaged in plastic cannot be stacked as high as glass during storage and distribution. (Rottman, Tr. 930.) 130. These plastic containers for juice cost twice as much as glass. (Rottman, Tr. 924, 927; Jones, Tr. 533.) Gerber's 4.0 ounce juice in plastic sells for more at retail than glass. (Rottman, Tr. 927 (juice in plastic priced at $.07 more than glass, or about a 20-25% premium).) 131. Gerber's 4 oz. plastic juice containers have not been successful and the company is not planning to extend its marketing beyond its current limited geographic area because consumers5 1 3 8 3 9 1775 2491 98 24 96.142319 seem4 1 3 8 4 0 537 2534 1334 47 -1 5 1 3 8 4 1 537 2540 35 29 97.013313 to5 1 3 8 4 2 586 2534 117 46 96.482307 prefers 1 3 8 4 3 716 2535 58 35 96.944946 thes 1 3 8 4 4 788 2536 95 45 96.628448 glass5 1 3 8 4 5 898 2536 181 36 96.953926 containers 1 3 8 4 6 1092 2536 56 36 96.337006 for5 1 3 8 4 7 1161 2536 101 36 96.905457 those5 1 3 8 4 8 1277 2536 133 36 92.373306 items. (Rottman, Tr. 927-28.) 132. Plastic baby juice containers have a high price relative to glass, as well as other problems. (Zoon, Tr. 53; CX 402B; CX 2128B.) However, Heinz's 25.3 oz. plastic container replaced a glass Initial Decision 115 F.T.C.

container, and 50% of Heinz baby juice sales are packaged in plastic containers. (Blecharz, Tr. 4857.) 133. Mr. Lanigan, Owens' Chairman, does not believe that plastic is an alternative today for baby food. (CX 1224 at 32.) 2. Spaghetti sauce 134. Sales of glass spaghetti sauce jars in 1986 amounted to $115 million. (CX 35.) The sale of spaghetti sauce packaged in glass containers has increased five fold in the last fifteen years. This product has largely replaced the use of tomato sauce and tomato paste packaged in cans. (Jardis, Tr. 1412.) 135. Glass spaghetti sauce containers are convenient, resealable, clear, impermeable, inert, recyclable, can be hot-filled, microwaved, and have a quality image. (Jardis, Tr. 1320-21) 136. Spaghetti sauce is hot-filled at 185 to 205 degrees (Jameson, Tr. 797; Jardis, Tr. 1321), and sauce with meat or vegetables is retorted. (Gigliotti, Tr. 5677; Buttermore, CX 24Z19; CX 20522.) 137. Metal cans are not a ready substitute for spaghetti sauces packaged in glass because cans are difficult to open, are not resealable, not clear, perceived to impart a tinny5 1 5 4 3 9 1483 1778 104 34 89.856735 taste and perceived to be an inferior package in terms of quality. (Jameson, Tr. 795; Jardis, Tr. 1321, 1325; Buttermore, CX 24225.) 138. Producers of spaghetti sauce who use glass containers would not switch to metal cans if the price of glass containers were to increase by 20%. (Jameson, Tr. 795; Jardis, Tr. 1325.) 139. Hunt-Wesson introduced spaghetti sauce in a can two years ago (Stollsteimer, Tr. 4317), on January 31, 1987; the retail selling price for Hunt's new spaghetti sauce was $1.99. (CX 2163B.) On January 30, 1988, Hunt's retail price had dropped by 34% to $1.32, and the company had a share of 4.4%. (CX 2163B.) Eleven months later, the product's retail selling price dropped 17% to $1.10 and its share dropped to 4.3%. (CX 2163C.) 140. Plastic containers would not be an acceptable substitute for glass because of clarity, shelf-life and permeability problems, the lack of rigidity that would cause plastic to collapse under a vacuum, and the unavailability of a wide-mouth, clear, hot-fillable container. (Jameson, Tr. 795-96; Jardis, Tr. 1330; Carter, Tr. 2532.) OWENS- ILLINOIS, INC., ET AL. 209 179 Initial Decision 141. There are no commercially available clear wide-mouth plastic containers that could be used for hot-packed food products such as spaghetti sauce. (Jameson, Tr. 824; Jardis, Tr. 1325; Carter, Tr. 2532.) 142. Tomato sauce and spaghetti sauce turn brown from oxidation. (Zabinko, Tr. 5432-33.) 143. Producers of spaghetti sauce who use glass containers would not switch to plastic if the price of glass were to increase by 20%. (Jameson, Tr. 797; Jardis, Tr. 1330.) 144, Ragu tested a plastic container used by Furmano's,”5 1 3 4 1 10 1870 1151 20 25 96.986160 a4 1 3 4 2 0 555 1199 1334 47 -1 5 1 3 4 2 1 555 1211 181 35 96.175224 company5 1 3 4 2 2 751 1199 86 37 96.623497 with5 1 3 4 2 3 853 1199 70 36 96.882919 less5 1 3 4 2 4 940 1199 82 36 96.828102 than5 1 3 4 2 5 1038 1210 68 25 96.852982 ones 1 3 4 2 6 1120 1205 146 40 96.628654 percent5 1 3 4 2 7 1280 1199 42 35 96.866600 of5 1 3 4 2 8 1333 1199 58 36 96.244316 thes 1 3 4 2 9 1406 1199 146 36 96.135635 market.5 1 3 4 2 10 1581 1199 75 35 96.789673 Thes 1 3 4 2 11 1671 1199 83 35 95.802849 walls 1 3 4 2 12 1769 1209 48 25 95.802849 on5 1 3 4 2 13 1831 1199 58 35 96.716370 thea 1 3 4 3 0 554 1257 1335 46 -1 5 1 3 4 3 1 554 1258 187 35 96.354660 containers 1 3 4 3 2 757 1258 196 45 96.348846 collapsed,5 1 3 4 3 3 972 1257 27 36 96.781601 it5 1 3 4 3 4 1015 1268 74 25 96.370445 was5 1 3 4 3 5 1107 1263 62 29 96.484978 not5 1 3 4 3 6 1185 1257 160 45 96.333359 possible5 1 3 4 3 7 1363 1263 35 29 96.248505 to5 1 3 4 3 8 1416 1263 59 39 96.820229 gets 1 3 4 3 9 1492 1268 20 24 97.006516 a5 1 3 4 3 10 1528 1268 130 34 96.806580 proper5 1 3 4 3 11 1675 1257 73 35 95.872841 seals 1 3 4 3 12 1766 1268 47 24 96.640335 on5 1 3 4 3 13 1831 1257 58 35 96.934532 thea 1 3 4 4 0 554 1315 1333 46 -1 5 1 3 4 4 1 554 1316 192 41 96.793587 container,5 1 3 4 4 2 763 1316 67 35 96.824188 ands 1 3 4 4 3 844 1316 102 45 96.338615 Ragu5 1 3 4 4 4 961 1316 149 35 96.434639 deemed5 1 3 4 4 5 1125 1315 57 35 96.584351 thes 1 3 4 4 6 1195 1315 159 46 96.750595 packages 1 3 4 4 7 1371 1315 303 46 87.253128 unacceptable." (Jameson, Tr. 796.) The package is viewed as inferior by Borden because it must be opened with a can opener, has a limited shelf-life, no consumer appeal, lacks a quality image, and is not properly reclosable. (Jardis, Tr. 1327-29, 1368-69.) The price of this product relative to glass is irrelevant to Borden. (Jardis, Tr. 1330.) 145. Owens' own Plastic Products Division has decided not to pursue development of a plastic spaghetti sauce container because of poor5 1 3 5 3 2 675 1780 240 36 88.371223 economics. (CX 242A.) 3. Jams and jellies 146. Jams and jellies are hot-packed, and clarity, inertness, impermeability and recloseability are important attributes of glass for this end-use. (F 147-156.) Sales of glass containers for jams and jellies in 1986 amounted to $66 million. (CX 35.) 147. Clarity is an important attribute of glass in packaging jams, jellies and preserves. Ease of reclosing is also important. (Buttermore, CX 24Z30.) Metal cans do not offer either of these features, and consumers consider them to be unacceptable for packaging jams and jellies. Producers of jams, jellies and preserves would not switch to metal cans if the price of glass were to increase by 5-10 percent. (Rembert, Tr. 144; Clements, Tr. 752; Willers, Tr. 1705-06.) 148. Containers for jams, jellies and preserves must withstand high-temperature. These products are filled at 185 to 200 degrees. Hot-filling is necessary to obtain the gel, kill bacteria, and form a Initial Decision 115 F.T.C.

vacuum inside the container to pull down the safety button on the cap. (Willers, Tr. 1704.) This restricts the container to glass which can withstand hot-filling. (Rembert, Tr. 134.) 149. Inertness is important in packaging jams and jellies. (Buttermore, CX 24230.) 150. Impermeability is critical for jams and jellies. Some of the fruits used are oxygen-sensitive, so that the container requires a high oxygen barrier. Plastic resins have not proven acceptable. (Erwin, Tr. 5137-38; Zabinko, Tr. 5391, 5447-48; CX 1007G.) 151. There are no clear, wide-mouth hot-fillable plastic containers commercially available in the United States that would meet the requirements for packaging jams, jellies and preserves. (Rembert, Tr. 137; Willers, Tr. 1705-07; Carter, Tr. 2532.) 152. Welch packages some jelly in a squeezable plastic container. The container is not clear (Willers, Tr. 1707-08) and has five different layers of plastic. These multiple layers are necessary to serve as an oxygen barrier and to provide rigidity and stability in the hot-fill process. (Rembert, Tr. 135.) 153. To use a squeezable, multi-layer plastic container Welch has to reformulate its jelly and modify filling lines. (Rembert, Tr. 135-36, 139.) The plastic squeeze container runs 25% slower than glass, which increases Welch's product costs. (Rembert, Tr. 139.) Plastic containers have more quality problems than glass on the filling line. (Rembert, Tr. 139-40.) 154. Welch's squeezable plastic package is more costly than glass. (Rembert, Tr. 136.) 155. The squeezable jelly package has problems of its high relative cost, lack of clarity, and difficulty in dispensing all of the product. (Clements, Tr. 754; Willers, Tr. 1707-08.) Welch's sales of squeezable jelly have declined by 50% and the company discontinued several flavors and only grape flavors remain. (Rembert, Tr. 140-41, 246.) Other jelly producers introduced squeezable jelly containers, but withdrew them from the market. (Rembert, Tr. 141; Willers, Tr. 1708; Erwin, Tr. 5136.) The producer of the package, American- National Can, regards the squeezable jelly container as unsuccessful because consumer acceptance is low. (Zoon, Tr. 52; Willers, Tr. 1708.) OWENS-ILLINOIS, INC., ET AL. 211 179 Tnitial Decision 156. Welch would not shift more of its jams and jellies into this squeezable plastic container if the price of glass were to increase by 5-10%. (Rembert, Tr. 142.) 4. Pickles 157. In pickle jars, clarity, impermeability, recloseability, relative costs, and the ability to withstand high temperature packing are important attributes of glass. Sales of glass jars for pickles in 1986 amounted to $111.5 million. (CX 35.) 158. There are three categories of pickles: fresh5 1 5 2 1 9 1575 1198 120 47 94.489166 pack, process4 1 5 2 2 0 538 1255 1336 47 -1 5 1 5 2 2 1 538 1256 124 45 72.368927 pack, and refrigerated. Fresh pack pickles are processed by putting cucumbers into jars with flavors and seasonings, and pasteurizing. Process pack pickles are placed in tanks in brine, vinegar and water, kept there until needed for pickle chips and relishes. Refrigerated pickles are processed like fresh pack pickles, but are not pasteurized. (Faulkner, Tr. 1260.) 159. Clarity is an important attribute of pickle jars for consumers because pickles are an impulses 1 5 3 2 6 1169 1665 190 45 95.541100 purchase item. If the price of glass containers were to increase by 5 to 10 percent, Cates would not switch from glass to metal cans for its retail sizes of pickles. (Faulkner, Tr. 1271.) 160. Resealability and the ability to withstand the high temperatures of pasteurization also are important attributes of containers for pickles. (Buttermore, CX 24Z26-Z27; CX 202G-H.) 161. Impermeability is an important attribute of glass for packaging pickles because of the long shelf-life required. (Faulkner, Tr. 1265; CX 202G.) Some institutional pickles are packed in large plastic containers. (Faulkner, Tr. 1286; RX 1002F.) Shelf-life is reduced to about six months because of oxygen permeation and the transfer of a plastic taste to the pickles. Such problems do not occur with glass containers. (Faulkner, Tr. 1305.) Brockway acknowledges that plastic does not provide sufficient shelf-life for packaging pickles. (Coakley, CX 23Z78-Z79.) 162. Based on an evaluation of a possible plastic pickle container designed by Owens, Cates concluded that plastic would be approximately 60% more expensive than glass for a container that was not clear. (Faulkner, Tr. 1265-67.) Initial Decision 115 F.T.C.

163. There is no clear, wide-mouth plastic container that is economically feasible for packaging retail sizes of hot-packed pickles. (Zoon, Tr. 55; Faulkner, Tr. 1265; Carter, Tr. 2532.) 164. Cates began marketing some of its relish in a squeezable plastic container about two years ago. The product has5 1 3 2 2 10 1822 857 62 30 95.642540 not5 1 3 2 2 11 1901 852 93 35 96.900475 been4 1 3 2 3 0 660 908 1337 47 -1 5 1 3 2 3 1 660 909 218 36 92.303520 successful because of dispensing problems and the relative cost of the package; only about 15 1 3 2 4 6 1198 974 145 40 96.605881 percent5 1 3 2 4 7 1357 978 40 25 96.950623 or5 1 3 2 4 8 1411 968 89 35 95.066841 less of Cates' relish sales are in this squeezable plastic container, with the remainder in glass. (Faulkner, Tr. 1267-69.) On the other hand, Heinz's pickle relish is packed in a squeezable plastic container and achieved a 48% share of the market in 1988. (RX 1029G.) 5. Shelf-stable juice 165. Shelf-stable juice is sold in cans and in glass and plastic containers, and in aseptic cartons. About 47% of retail sales of shelfstable juice is in non-glass containers. (Bourque, Tr. 2062, 2102-08; Bachey, Tr. 3329-30.) Sales of glass containers for shelf-stable juice in 1986 amounted to $260 million. (CX 35.) 166. Shelf-stable juices are juices that are packaged and sold without refrigeration or chilling. (Rembert, Tr. 144.) These products are hot-filled at 180 to 195 degrees. (Langer, Tr. 1436.) The purpose of hot-filling is to kill microorganisms in the juice and to sterilize the container. (Bourque, Tr. 2064.) 167. Producers of shelf-stable juices who use glass do so because of consumer preference, clarity, taste perceptions, resealability, impermeability, shelf-life, the hot-fill nature of the product, relative costs, image and recyclability concerns. (Rembert, Tr. 147-49; Willers, Tr. 1712, 1716-17; Bourque, Tr. 2065, 2068-69, 2114.) 168. Ocean Spray packages some of its juice products in 52 ounce metal cans and in 46 ounce metal cans for the institutional food service business. The company does not use metal cans for retail consumer packages because clarity5 1 5 4 4 5 1399 2480 30 35 96.954269 is5 1 5 4 4 6 1449 2491 43 24 96.997047 an5 1 5 4 4 7 1511 2480 190 45 96.557281 important5 1 5 4 4 8 1718 2479 136 36 96.608658 features 1 5 4 4 9 1873 2485 37 29 96.996292 to5 1 5 4 4 10 1929 2479 59 36 96.676735 thea 1 5 4 5 0 654 2537 1333 47 -1 5 1 5 4 5 1 654 2539 218 36 93.169968 consumer. (Bourque, Tr. 2062, 2079.) Beatrice/Hunt-Wesson packages its shelf-stable tomato juice in 5 1/4 0z., 15 oz. and 46 oz. cans. (Stollsteimer, Tr. 4323.) Sales of juice in metal cans have been declining because of relative costs and consumer preferences. (Rembert, Tr. 158-59; CX 266D.) OWENS-ILLINOIS, INC., ET AL. 213 179 Initial Decision 169. Producers of shelf-stable juice who use glass containers would not shift from glass to metal cans if the price of glass were to increase by from 5% to 20%. (Langer, Tr. 1443; Willers, Tr. 1725.) 170. There is no clear plastic container commercially available in the United States that is cost competitive with glass for the packaging of shelf-stable juices, except for certain juices in the largest sizes. (Zoon, Tr. 56; Rembert, Tr. 149; F 178.) Plastic containers are not used for shelf-stable juices in most sizes because of inadequate shelf-life (Willers, Tr. 1720-21), excessive costs relative to glass (Zoon, Tr. 56), clarity problems (Willers, Tr. 1720-21), lack of rigidity, inability to be hot-filled (Langer, Tr. 1439), and the cost of necessary line modifications. (Rembert, Tr. 153.) 171. Shelf-life is important in the packaging of shelf-stable juices because they are highly sensitive to oxygen, which causes darkening and deterioration of some juices. (Bourque, Tr. 2076-77; CX 269A; CX 938Z65.) 172. Juice producers who use glass would not switch from glass to plastic containers if the price of glass containers were to increase by 5% to 20%.° (Rembert, Tr. 155; Langer, Tr. 1449; Willers, Tr. 1725.) 173. Ocean Spray has recently begun packaging cranberry juice in a 64-ounce heat-set PET container. (Bourque, Tr. 2065, 2073.) Quaker Oats uses a similar container for 64-0z. Gatorade. (Bourque, Tr. 2066-67.) Ocean Spray had been evaluating plastics since the mid-1970's, and it took four years to develop this package. (Bourque, Tr. 2067-68 ) 174. Welch tested 64 oz. hot-fillable PET juice containers in October 1987 and concluded that plastic cost 38% more than glass. (CX 415C.) 175. Modifications that had to be made to Ocean Spray's lines to run the 64-oz. plastic bottle, involving unpacking equipment, rinsers, fillers, cappers, labelers, and packing equipment. These costs dif- © Borden packages some of its Realemon and ReaLime in small plastic containers. that are in the shape of lemons and times. If the price of glass containers were to increase, Borden would not shift more of its product into these novelty packages. (Willers, Tr. 1726-28.) Initial Decision 115 F.T.C.

fered by line, but were in excess of $500,000 per line. (Bourque, Tr. 2071.) 176. Heat-setting is a process that allows PET to be used for some juices that are hot-fillable. (Bourque, Tr. 2065; CX 45E.) Regular PET will deform when filled at a temperature over 165 degrees and, as a result, cannot be used for hot-filled products. (Bourque, Tr. 2065-66.) Heat-set PET is not guaranteed above 190 degrees.

177. This heat-set plastic container would not be acceptable in sizes smaller than 64 oz. because of relative cost and shelf-life problems. As the container size goes down, the cost for plastic versus glass increases, so that the price premium for smaller sizes would be greater than it is in the 64 oz. size. (Bourque, Tr. 2075.) In addition, shelf-life decreases as the plastic container size gets smaller because there is more product (relative to volume) exposed to the walls of the container.’ (Rembert, Tr. 154; Bourque, Tr. 2076.) 178. Ocean Spray markets only cranberry-based flavors in the 64 oz. heat-set PET container because there might be a reduction in shelf-life for citrus juices. (Bourque, Tr. 2073.) 179. The 64 oz. heat-set PET container costs more to run on the filling lines because plastic is not as stable as glass, so the lines have to run slower. (Rembert, Tr. 152; CX 415A.) There are problems with leakage (Rembert, Tr. 154, 227; CX 415A), labeling (CX 415B), collapsing during hot-filling (CX 415C), and absorption of flavors. (CX 88B.) 180. Welch's evaluated a 64 oz. plastic container, but determined that it would not be a suitable substitute for glass. (Rembert, Tr. 150-51; CX 415A-D, CX 1456.) 181. Some juices are packaged in aseptic cartons for children's lunch boxes. (Rembert, Tr. 160-61.) 182. Aseptic packages have high cost relative to glass, short shelf-life (6 months for aseptic, two years for glass), leakage, and slow filling line speeds causes difficulties with stacking, vending, retail costs, and brand image. (CX 51Q; CX 265B; CX 266C-D; CX 1022Z141-Z142; CX 1023L.) 7 Because of its impermeable nature, this is not true of glass. (Rembert, Tr. 155.) OWENS-ILLINOIS, INC., ET AL. 215 179 Initial Decision 183. Respondents’ expert, Mr. Cavanagh, concluded that hot-4 1 3 1 2 0 549 670 1333 50 -1 5 1 3 1 2 1 549 670 101 36 96.508530 filled5 1 3 1 2 2 660 670 98 46 96.842255 juices 1 3 1 2 3 773 671 120 36 96.959328 drinks5 1 3 1 2 4 908 671 73 36 96.654701 will5 1 3 1 2 5 995 672 134 35 96.387794 remains 1 3 1 2 6 1144 683 19 24 96.517944 a5 1 3 1 2 7 1177 672 96 46 96.838737 large5 1 3 1 2 8 1287 673 95 46 96.994354 glass5 1 3 1 2 9 1396 673 152 35 96.288361 market despite aseptics, based5 1 3 1 3 2 705 729 37 35 95.643799 in5 1 3 1 3 3 766 736 76 40 95.643799 parts 1 3 1 3 4 866 741 47 24 96.564468 on5 1 3 1 3 5 937 741 191 25 95.918442 consumers 1 3 1 3 6 1150 731 157 36 96.302147 mistrust5 1 3 1 3 7 1331 731 43 36 96.754135 of5 1 3 1 3 8 1394 731 135 47 96.216026 aseptic5 1 3 1 3 9 1553 738 152 35 96.216026 cartons,5 1 3 1 3 10 1732 733 68 35 96.643875 ands 1 3 1 3 11 1824 733 59 35 96.807968 thea 1 3 1 4 0 547 787 1334 49 -1 5 1 3 1 4 1 547 797 173 36 96.855659 presence5 1 3 1 4 2 747 787 43 36 96.916916 of5 1 3 1 4 3 813 798 19 25 95.870544 a5 1 3 1 4 4 859 798 99 26 95.870544 more5 1 3 1 4 5 983 788 216 36 93.300880 convenient5 1 3 1 4 6 1223 790 180 35 92.160759 reclosure5 1 3 1 4 7 1429 789 136 36 96.421158 features 1 3 1 4 8 1591 800 47 26 96.766724 on5 1 3 1 4 9 1664 797 95 29 96.379082 most5 1 3 1 4 10 1785 791 96 45 96.941940 glass4 1 3 1 5 0 547 845 1333 49 -1 5 1 3 1 5 1 547 845 159 36 95.896255 bottles. (CX 90I.) Kraft has evaluated aseptic packaging for juices, but decided not to go forward with it because peoples 1 3 1 6 11 1625 907 170 35 96.766396 wouldn't5 1 3 1 6 12 1808 907 73 46 96.825813 buy4 1 3 1 7 0 547 961 510 44 -1 5 1 3 1 7 1 547 961 55 36 86.414360 it. (Erwin, Tr. 5138-39.) 184. If the price of glass containers increased 5 to 10%, juice producers who use glass would not shift more to aseptic packages. (Rembert, Tr. 161; Bourque, Tr. 2081.) 6. Mayonnaise 185. Glass containers are used for mayonnaise and other spoonable dressings. In this end-use, clarity, recloseability, relative costs, impermeability and quality image distinguish glass from other types of containers. (F 186-190.) Sales of glass jars for this use in 1986 amounted to $129 million. (CX 35.) 186. Clarity is important for mayonnaise containers because consumers want to see the color and consistency of the product. (Mitchell, Tr. 659; Willers, Tr. 1695; Buttermore, CX 24Z25.) 187. Impermeability is important because the product is oxygensensitive. (Clements, Tr. 756-57; Willers, Tr. 1695; Buttermore, CX 24225.) 188. The image that the glass container projects to the consumer is important in marketing mayonnaise.® (Mitchell, Tr. 659; Willers, Tr. 1696.) 189. Recloseability is an important attribute of mayonnaise containers. (Buttermore, CX 24Z25.) 190. Only glass containers fulfill the necessary requirements for the consumer sizes of mayonnaise.” (Willers, Tr. 1696, 1821; Trumbull, CX 25Z52.) 8 Hellmann's mayonnaise is packaged in a plastic tube in5 1 7 1 1 11 1492 2560 110 37 96.398682 Europe5 1 7 1 1 12 1612 2560 184 37 96.410828 someplace. The American consumer has a different taste perception of how mayonnaise should be packaged. (Mitchell, Tr. 667-68; Gigliotti, Tr. 5718-19.) ” The U.S. Government's bid programs for gallon mayonnaise require that the product be in glass. (Willers, Tr. 1812, 1829.) Initial Decision 115 F.T.C.

191. Metal cans would5 1 3 1 1 5 1226 608 44 35 96.334274 be5 1 3 1 1 6 1285 614 61 29 96.863197 outs 1 3 1 1 7 1360 608 43 35 96.640579 of5 1 3 1 1 8 1414 608 58 35 96.640579 thes 1 3 1 1 9 1486 608 184 46 93.227173 question for mayonnaise because they lack clarity and metal would not be acceptable with consumers. (Mitchell, Tr. 659-60, 670; Willers, Tr. 1696.) Metal may react with the acid and high vinegar content of mayonnaise and spoonable dressings. (Mitchell, Tr. 659-60; Willers, Tr. 1697.) If the price of glass mayonnaise jars were to increase by 5-10%, producers of mayonnaise would not switch to metal cans. (Mitchell, Tr. 670; Clements, Tr. 758; Willers, Tr. 1697.) 192. Wide-mouth plastic containers would not be acceptable to Borden for packaging mayonnaise for the retail trade. Part of Borden's sales of mayonnaise to the institutional trade, however, is packaged in plastic containers. (Willers, Tr. 1812, 1829.) So are those of CPC International. (Mitchell, Tr. 655.) The record does not show the amount of these sales. (Willers, Tr. 1697-98.) 193. Wide-mouth plastic containers sink in due to plastic's inability to sustain a vacuum. (Mitchell, Tr. 679-80; Willers, Tr. 1698.) Wide-mouth plastic containers do not have good shelf-life. (Clements, Tr. 759; Willers, Tr. 1698; CX 2211.) 194. Plastic containers are 25-30% more costly than comparable glass containers. (Mitchell, Tr. 660, 669; Erwin, Tr. 5113-14; CX 2211.) 195. If the price of glass containers were to increase by 5 to 10 percent, major producers of mayonnaise would not switch to plastic. (Mitchell, Tr. 668-69; Clements, Tr. 759; Willers, Tr. 1698.) Plastic would require an expenditure of $9-10 million for plant conversions plus an additional $5 million for molds. (Mitchell, Tr. 687.) 196. A small West Coast regional mayonnaise producer called Saffola uses plastic packaging. There are problems with paneling with this product. (Mitchell, Tr. 680.) Mayonnaise contains oils and if it is packed in plastic, oils show up as a film on top of the mayonnaise. (Erwin, Tr. 5114.) Saffola mayonnaise (RX 80Y) contains such oil separation, while Kraft's mayonnaise packaged in glass does not. (Erwin, Tr. 5116.) 197. Kraft markets some mayonnaise in a high-barrier, squeezable plastic container which has not been successful. (Zoon, Tr. 52; Willers, Tr. 1700; Erwin, Tr. 5103; CX 226D.) This container is not intended to replace glass but to encourage mayonnaise use as sandwich spread. (Erwin, Tr. 5103.) When the package is nearly OWENS-ILLINOIS, INC., ET AL. 217 179 Initial Decision empty it is difficult to squeeze mayonnaise out. (Erwin, Tr. 5105- 07.) Other members of the industry have reservations about the acceptability of the package. (Zoon, Tr. 52; Mitchell, Tr. 680-81; Willers, Tr. 1701.) Kraft's squeezable mayonnaise package peaked at a 1.5% share of the market in July, 1986 then dropped to a .7% share by year end. (CX 253.) 7. Wine 198. Imported wines, which do not use domestic glass, amounted to about 25% of the domestic market. (CX 90B, 90Q; 915V; CX 917F.) Major vintners, with their own glass plants, produced about 40% of all wine bottles. (CX 915V; CX 917F.) In 1986, Brockway had 2.4% of the wine market and planned expansion. (CX 903"0", CX 903Z5.) In a 1987-1989 strategic plan, Owens estimated that it had 50% of the non-self-manufacture glass wine bottle market and 18.3% of the total market. (CX 927Z6; CX 929V.) 199. There are no commercially viable substitutes for glass for premium wines. (Gigliotti, Tr. 5630; Cavanagh, CX 86D.) Attributes of glass that make the demand for glass wine bottles inelastic: quality image, impermeability, rigidity, consumer preference and clarity. (F 200-207.) Glass is a higher5 1 5 2 5 6 1128 1832 136 46 97.009705 quality5 1 5 2 5 7 1280 1833 150 45 96.415260 products 1 5 2 5 8 1446 1833 83 36 96.707779 than5 1 5 2 5 9 1546 1835 101 35 96.538223 others 1 5 2 5 10 1662 1836 203 46 96.804947 packaging4 1 5 2 6 0 532 1887 1333 52 -1 5 1 5 2 6 1 532 1887 207 37 78.615746 mediums. (Wilson, Tr. 2213.) Impermeability is important because wines may be kept in the bottle for a long period of time, so that shelf-life is critical to ensure that oxidation does not take place that would destroy the product. (Smith, Tr. 1939.) Rigidity is important because most wine bottles are sealed with a cork, and the finish area dimensions are critical to having a tight seal on the container. (Wilson, Tr. 2213.) Consumer preference and clarity are also important factors. (Wilson, Tr. 2215; Carter, Tr. 2587-88.) As Mr. Holzapfel of Owens remarked (CX 1019C):

Some products just naturally 'belong' in glass and will probably never be packaged in anything else. Wine's an excellent example. I find it difficult to imagine a fine California Cabernet Sauvignon in anything other than a glass bottle. 200. Metal cans are not acceptable substitutes for wine for image and marketing reasons. (Smith, Tr. 1939.) The metallic taste of the Initial Decision 115 F.T.C.

can may interfere with the taste of the product. Cans are not clear, and for some wines the color and clarity of the product are important. (Wilson, Tr. 2215.) If the price of glass wine bottles were to increase by 10%, it is unlikely that wineries would switch to cans. (Wilson, Tr. 2215-16.) 201. Plastic bottles would not be an acceptable substitute for glass in premium wines." There is no clear plastic container commercially available in the United States that is cost competitive with glass for the packaging of premium wine. (Zoon, Tr. 56.) 202. Plastic is not an acceptable substitute for glass for premium wine because glass has a premium image and because of oxidation problems. (Smith, Tr. 1940; Wilson, Tr. 2216.) 203. Unlike plastic, glass does not create oxidation problems. The shelf-life of wine packaged in glass is measured in years, while in plastic the shelf-life would be less5 1 3 4 3 8 1412 1424 82 34 96.659325 than5 1 3 4 3 9 1509 1423 53 35 96.479874 six5 1 3 4 3 10 1577 1424 173 34 86.964027 months. (Smith, Tr. 1940; Wilson, Tr. 2217.) Some wines are aged in the bottle, and for such wines plastic would not be acceptable because of oxygen permeation and because plastic containers would not permit the use of a cork. (Wilson, Tr. 2236-37.) 204. It is unlikely that wineries would switch to plastic if the price of glass were to increase by 10%. (Smith, Tr. 1940; Wilson, Tr. 2218, 2274.) 205. Plastic containers for wine have been used in very small sizes, which are used on airlines. (Gump, Tr. 4263.) Owens, however, acknowledges (CX 1022Z88):

Wine makers are extremely concerned about ‘image,’ and only glass carries the premium quality image with which wine makers want to be associated. PET has made some overtures to the industry, but plastic not only lacks the image but it suggests some serious shelf-life and storage problems. It is unlikely that PET will ever be a viable material for smaller sizes where there would be no significant bottle cost savings or advantages.

10 9 premium wine (such as a chardonnay) obtains from 75% to 100% of its juice from a specific high-end”5 1 6 1 2 5 1120 2618 115 29 97.008835 varietal5 1 6 1 2 6 1253 2626 93 29 96.735535 grape.5 1 6 1 2 7 1366 2619 26 27 96.394974 A5 1 6 1 2 8 1412 2617 63 37 95.398376 jug wine" is produced by blending various grape varietals, such as, green grapes found in grocery stores. (Wilson, Tr. 2211.) OWENS-ILLINOIS, INC., ET AL. 219 179 Initial Decision 206. Several companies who attempted to produce large size plastic wine bottles, including Owens, have left the business because of poor profitability and consumer preference for glass. (Carter, Tr. 2534; Trumbull, Tr. 4176-78.) 207. Some jug wines are packaged in bag-in-the-box containers. However, these are not an acceptable substitute for premium wines because of quality considerations. (Wilson, Tr. 2219, 2236.) It is unlikely that an increase of glass container prices by 10% would result in wineries shifting to bag-in-the-box containers. (Wilson, Tr. 2220.) 208. Respondents do not view other containers as a threat to glass in the wine market due to image, shelf-life, and consumer preference. (CX 49H; CX 63A; CX316Z14; CX 922Q; CX 928B.) 209. Owens does not price wine bottles competitively with PET in large-size jug wine. According to a study of the 3-4 liter wine market conducted by Owens in 1984, O-I5 1 3 4 3 8 1411 1493 96 45 96.674500 glass5 1 3 4 3 9 1524 1492 88 35 96.950768 does5 1 3 4 3 10 1628 1497 62 29 96.997925 not5 1 3 4 3 11 1706 1490 122 35 96.521545 intends 1 3 4 3 12 1844 1495 36 29 96.716743 to4 1 3 4 4 0 547 1548 1333 51 -1 5 1 3 4 4 1 547 1559 107 34 96.945274 chases 1 3 4 4 2 667 1557 87 35 96.450668 PETS 1 3 4 4 3 767 1556 199 36 96.313911 containers5 1 3 4 4 4 982 1554 84 36 96.589645 with5 1 3 4 4 5 1081 1565 19 24 96.628113 a5 1 3 4 4 6 1115 1554 72 35 96.766510 lows 1 3 4 4 7 1202 1553 96 46 96.621239 prices 1 3 4 4 8 1314 1558 152 38 96.971596 strategy5 1 3 4 4 9 1482 1551 42 35 96.965889 of5 1 3 4 4 10 1536 1550 43 35 96.965889 its5 1 3 4 4 11 1595 1560 82 25 96.961929 owns 1 3 4 4 12 1693 1549 35 35 96.613693 in5 1 3 4 4 13 1744 1549 58 35 96.613693 thes 1 3 4 4 14 1817 1548 63 36 96.977943 3-44 1 3 4 5 0 547 1605 1333 51 -1 5 1 3 4 5 1 547 1616 76 34 96.898933 liter5 1 3 4 5 2 635 1614 92 36 96.886337 wines 1 3 4 5 3 740 1613 161 36 95.481224 market. (CX 314I.) Wine is one of Owens' most profitable markets. (CX 915W; CX 917G, Y; CX 929V.) 8. Wine coolers 210. Since their introduction in 1983, wine coolers (a carbonated blend of wine and fruit juice usually sold in tall 12 oz. single-serve glass bottles) have been the fastest growing beverage in the United States, and by 1987 the number of glass containers used for wine coolers surpassed those used for traditional wine. (CX 86D; CX 90Q; CX 929U; CX 1022271.) 211. Wine coolers are almost exclusively sold in glass bottles." (CX 51M; CX 335D; CX 1022Z78.) Quality image and impermeability are important factors in that decision. (Smith, Tr. 1931.) Metal cans are not an alternative to glass bottles. Seagram testmarketed wine coolers in cans and thes 1 5 2 5 8 1335 2480 125 35 96.963570 results5 1 5 2 5 9 1476 2490 94 24 96.692619 were5 1 5 2 5 10 1585 2476 214 37 77.226501 disastrous and q Respondents’ evidence to the contrary included uncarbonated wine, wine of small companies, wine sold in other countries, and wine sold to the institutional market.

Initial Decision 115 F.T.C.

there5 1 3 1 1 2 809 635 85 31 92.822021 was,5 1 3 1 1 3 928 626 217 47 96.596283 essentially,5 1 3 1 1 4 1179 639 47 25 94.462463 no5 1 3 1 1 5 1257 640 192 27 95.390610 consumers 1 3 1 1 6 1479 636 248 43 95.126709 acceptance.”5 1 3 1 1 7 1761 637 143 42 95.126709 (Smith,5 1 3 1 1 8 1937 639 55 35 96.590004 Tr.4 1 3 1 2 0 663 680 186 45 -1 5 1 3 1 2 1 663 680 186 45 94.652649 1932-33.)3 1 3 2 0 0 649 740 1342 521 -1 4 1 3 2 1 0 731 740 1260 57 -1 5 1 3 2 1 1 731 740 83 36 95.229752 212.5 1 3 2 1 2 852 742 108 36 96.905800 Gallo5 1 3 2 1 3 979 744 70 35 93.174248 ands 1 3 2 1 4 1067 745 200 46 93.165932 Seagrams,5 1 3 2 1 5 1287 748 85 36 96.590118 with5 1 3 2 1 6 1391 749 87 36 96.590118 68%5 1 3 2 1 7 1498 750 42 35 96.581360 of5 1 3 2 1 8 1555 751 58 35 96.581360 thes 1 3 2 1 9 1632 753 94 35 96.675713 wines 1 3 2 1 10 1744 755 124 35 95.982445 coolers 1 3 2 1 11 1886 757 105 40 96.979004 sales,4 1 3 2 2 0 655 797 1335 59 -1 5 1 3 2 2 1 655 797 87 36 96.231445 both5 1 3 2 2 2 767 800 245 36 96.231445 manufactures 1 3 2 2 3 1038 812 101 25 96.764229 some5 1 3 2 2 4 1164 804 95 45 96.764229 glass5 1 3 2 2 5 1285 806 211 36 96.835754 containers.5 1 3 2 2 6 1548 808 141 43 96.183113 (Smith,5 1 3 2 2 7 1716 811 55 35 96.183113 Tr.5 1 3 2 2 8 1798 812 192 44 95.814171 2031-32.)4 1 3 2 3 0 655 855 1333 67 -1 5 1 3 2 3 1 655 855 190 48 92.828087 Seagrams5 1 3 2 3 2 865 858 87 36 96.690506 does5 1 3 2 3 3 971 866 63 29 96.316071 not5 1 3 2 3 4 1051 861 244 37 96.670937 manufactures 1 3 2 3 5 1314 864 95 46 96.934448 glass5 1 3 2 3 6 1429 866 200 37 96.768013 containers5 1 3 2 3 7 1649 868 56 35 96.932388 for5 1 3 2 3 8 1723 869 94 36 96.989326 wines 1 3 2 3 9 1836 867 152 55 96.868896 coolers,4 1 3 2 4 0 654 914 1335 61 -1 5 1 3 2 4 1 654 914 69 36 96.502869 ands 1 3 2 4 2 741 914 92 47 96.820816 buys5 1 3 2 4 3 851 916 97 36 96.634239 them5 1 3 2 4 4 966 917 94 37 96.617241 from5 1 3 2 4 5 1078 918 133 38 96.578949 Owens5 1 3 2 4 6 1229 920 150 43 96.934555 instead,5 1 3 2 4 7 1396 923 183 48 96.999100 primarily5 1 3 2 4 8 1597 925 155 38 96.510674 because5 1 3 2 4 9 1770 928 42 35 96.749672 of5 1 3 2 4 10 1826 929 59 34 96.749672 thes 1 3 2 4 11 1903 929 86 46 96.947128 high4 1 3 2 5 0 652 973 1336 60 -1 5 1 3 2 5 1 652 979 79 29 96.833260 costs 1 3 2 5 2 746 973 43 36 96.951134 of5 1 3 2 5 3 802 976 214 42 96.426018 automated,5 1 3 2 5 4 1033 977 87 46 96.820297 high5 1 3 2 5 5 1135 979 214 45 96.545906 productions 1 3 2 5 6 1365 981 208 47 96.689583 equipments 1 3 2 5 7 1588 995 191 37 96.092285 necessary5 1 3 2 5 8 1796 992 36 30 96.362259 to5 1 3 2 5 9 1849 998 47 35 96.362259 go5 1 3 2 5 10 1912 987 76 37 96.343857 into4 1 3 2 6 0 652 1031 1336 52 -1 5 1 3 2 6 1 652 1031 58 36 97.019569 thes 1 3 2 6 2 725 1031 177 38 96.194717 business.5 1 3 2 6 3 934 1034 142 43 96.440170 (Smith,5 1 3 2 6 4 1092 1036 55 36 95.891136 Tr.5 1 3 2 6 5 1170 1037 102 42 95.891136 1960,5 1 3 2 6 6 1289 1038 75 43 96.778809 61.)5 1 3 2 6 7 1393 1040 135 36 96.820038 Owens5 1 3 2 6 8 1543 1042 64 35 96.611938 has5 1 3 2 6 9 1624 1043 108 36 95.917694 about5 1 3 2 6 10 1746 1044 88 37 95.917694 40%5 1 3 2 6 11 1850 1047 138 36 96.613388 market4 1 3 2 7 0 651 1090 1335 57 -1 5 1 3 2 7 1 651 1090 103 35 87.315956 shares 1 3 2 7 2 777 1091 36 35 96.861748 in5 1 3 2 7 3 838 1092 76 36 96.409134 units 1 3 2 7 4 935 1094 213 45 96.739822 productions 1 3 2 7 5 1173 1095 42 36 96.431435 of5 1 3 2 7 6 1234 1096 96 46 95.741623 glass5 1 3 2 7 7 1354 1097 130 37 96.434425 bottles5 1 3 2 7 8 1508 1099 57 36 96.680222 for5 1 3 2 7 9 1587 1101 94 36 96.968864 wines 1 3 2 7 10 1704 1103 152 36 96.281616 coolers.5 1 3 2 7 11 1904 1105 82 42 96.627235 (CX4 1 3 2 8 0 650 1148 1333 55 -1 5 1 3 2 8 1 650 1148 155 43 0.000000 92726.)5 1 3 2 8 2 835 1150 201 47 96.600296 Brockway5 1 3 2 8 3 1052 1153 165 46 96.957291 supplied5 1 3 2 8 4 1233 1156 136 35 96.853004 several5 1 3 2 8 5 1386 1157 115 46 96.778534 majors 1 3 2 8 6 1513 1159 148 44 96.630157 packers5 1 3 2 8 7 1678 1160 43 35 96.630157 of5 1 3 2 8 8 1733 1161 94 35 96.976021 wines 1 3 2 8 9 1843 1163 140 36 96.488380 coolers4 1 3 2 9 0 649 1207 1081 54 -1 5 1 3 2 9 1 649 1207 68 35 97.014160 ands 1 3 2 9 2 731 1208 156 45 96.809662 planned5 1 3 2 9 3 902 1214 36 31 96.972427 to5 1 3 2 9 4 953 1209 160 38 96.859474 increases 1 3 2 9 5 1128 1211 44 37 96.861656 its5 1 3 2 9 6 1186 1213 136 36 96.420631 markets 1 3 2 9 7 1337 1214 112 36 96.125854 share.5 1 3 2 9 8 1479 1216 83 43 93.254082 (CX5 1 3 2 9 9 1576 1217 154 44 86.386734 903Z5.)3 1 3 3 0 0 643 1265 1344 282 -1 4 1 3 3 1 0 721 1265 1266 58 -1 5 1 3 3 1 1 721 1265 82 37 96.490044 213.5 1 3 3 1 2 832 1266 128 37 96.906540 Plastics 1 3 3 1 3 975 1268 198 37 96.922096 containers5 1 3 3 1 4 1189 1281 57 25 96.288361 ares 1 3 3 1 5 1260 1278 61 29 96.288361 not5 1 3 3 1 6 1335 1283 43 25 96.943199 an5 1 3 3 1 7 1393 1273 205 37 96.010498 alternatives 1 3 3 1 8 1612 1281 36 30 96.884010 to5 1 3 3 1 9 1662 1277 96 46 96.884010 glass5 1 3 3 1 10 1773 1277 156 37 96.964592 because5 1 3 3 1 11 1944 1280 43 34 97.000977 of4 1 3 3 2 0 647 1323 1337 54 -1 5 1 3 3 2 1 647 1323 119 46 96.425209 images 1 3 3 2 2 781 1326 69 34 96.425209 ands 1 3 3 2 3 866 1326 176 36 96.275810 shelf-life5 1 3 3 2 4 1056 1328 192 46 96.760292 problems.5 1 3 3 2 5 1279 1330 142 43 96.960220 (Smith,5 1 3 3 2 6 1438 1332 55 35 96.834091 Tr.5 1 3 3 2 7 1514 1333 120 44 96.297356 1933.)5 1 3 3 2 8 1650 1335 113 36 96.297356 There5 1 3 3 2 9 1778 1336 30 35 97.006126 is5 1 3 3 2 10 1825 1347 46 24 96.918190 no5 1 3 3 2 11 1887 1338 97 35 96.548058 clear4 1 3 3 3 0 644 1382 1335 51 -1 5 1 3 3 3 1 644 1382 127 45 96.722191 plastics 1 3 3 3 2 787 1384 184 35 96.333923 containers 1 3 3 3 3 984 1386 269 47 96.364624 commercially5 1 3 3 3 4 1270 1388 175 37 96.470581 available5 1 3 3 3 5 1459 1389 36 36 96.954353 in5 1 3 3 3 6 1510 1390 59 36 96.713730 thes 1 3 3 3 7 1585 1392 131 36 96.850380 United5 1 3 3 3 8 1732 1393 115 36 96.854050 States5 1 3 3 3 9 1863 1395 73 36 96.587936 that5 1 3 3 3 10 1950 1395 29 36 96.587936 is4 1 3 3 4 0 644 1442 1336 53 -1 5 1 3 3 4 1 644 1446 78 30 96.769455 costs 1 3 3 4 2 745 1442 233 45 91.397820 competitive5 1 3 3 4 3 1002 1443 85 36 96.773346 with5 1 3 3 4 4 1111 1444 96 46 97.019669 glass5 1 3 3 4 5 1231 1446 57 35 97.015999 for5 1 3 3 4 6 1310 1446 58 36 96.823875 thes 1 3 3 4 7 1390 1448 203 47 96.395073 packaging5 1 3 3 4 8 1617 1449 42 36 93.257698 of5 1 3 3 4 9 1683 1451 179 37 92.360519 12-ounces 1 3 3 4 10 1885 1453 95 36 96.368515 wine4 1 3 3 5 0 643 1499 663 48 -1 5 1 3 3 5 1 643 1499 151 35 93.243217 coolers.5 1 3 3 5 2 825 1500 128 42 92.777946 (Zoon,5 1 3 3 5 3 970 1502 55 34 95.815338 Tr.5 1 3 3 5 4 1042 1501 58 41 96.695160 56;5 1 3 3 5 5 1117 1503 67 35 93.224289 CX5 1 3 3 5 6 1198 1503 108 44 84.074188 90R.)2 1 4 0 0 0 1127 1619 363 48 -1 3 1 4 1 0 0 1127 1619 363 48 -1 4 1 4 1 1 0 1127 1619 363 48 -1 5 1 4 1 1 1 1127 1619 32 35 95.164803 9.5 1 4 1 1 2 1188 1620 168 36 96.707169 Distilled5 1 4 1 1 3 1372 1622 118 45 96.902023 spirits2 1 5 0 0 0 631 1731 1343 627 -1 3 1 5 1 0 0 638 1731 1336 169 -1 4 1 5 1 1 0 714 1731 1260 57 -1 5 1 5 1 1 1 714 1731 82 35 95.618469 214.5 1 5 1 1 2 824 1731 65 36 95.102226 Pers 1 5 1 1 3 902 1733 115 46 95.102226 capita5 1 5 1 1 4 1031 1734 117 45 95.984924 liquors 1 5 1 1 5 1161 1736 253 46 95.984924 consumption5 1 5 1 1 6 1429 1737 62 36 96.999474 has5 1 5 1 1 7 1507 1739 91 35 96.949112 been5 1 5 1 1 8 1612 1740 138 46 96.722992 falling.5 1 5 1 1 9 1768 1741 206 47 96.874809 Shipments4 1 5 1 2 0 639 1788 1335 48 -1 5 1 5 1 2 1 639 1788 42 36 96.000977 of5 1 5 1 2 2 689 1789 95 44 96.000977 glass5 1 5 1 2 3 798 1789 116 47 96.950424 liquors 1 5 1 2 4 925 1791 142 36 96.920128 bottlers5 1 5 1 2 5 1081 1791 62 36 95.971016 fell5 1 5 1 2 6 1157 1793 85 36 95.971016 33%5 1 5 1 2 7 1257 1794 91 36 96.885864 from5 1 5 1 2 8 1366 1795 91 36 96.617447 19805 1 5 1 2 9 1470 1803 35 29 96.311554 to5 1 5 1 2 10 1523 1797 90 36 96.583054 19865 1 5 1 2 11 1627 1799 67 34 96.583054 ands 1 5 1 2 12 1706 1800 63 35 96.773613 has5 1 5 1 2 13 1784 1800 190 36 96.565292 continued4 1 5 1 3 0 638 1846 1104 54 -1 5 1 5 1 3 1 638 1852 36 29 96.802208 to5 1 5 1 3 2 689 1846 74 37 95.189758 fall.5 1 5 1 3 3 793 1848 82 42 95.712318 (CX5 1 5 1 3 4 891 1848 83 42 95.627602 905;5 1 5 1 3 5 991 1849 66 36 92.671021 CX5 1 5 1 3 6 1072 1850 119 43 92.155182 917D;5 1 5 1 3 7 1207 1851 28 36 93.194313 F5 1 5 1 3 8 1248 1851 82 43 96.648026 215,5 1 5 1 3 9 1347 1853 82 42 96.619217 216,5 1 5 1 3 10 1446 1854 82 42 96.808006 219,5 1 5 1 3 11 1545 1855 82 42 96.971458 224,5 1 5 1 3 12 1644 1856 98 44 95.393173 225.)3 1 5 2 0 0 635 1905 1337 164 -1 4 1 5 2 1 0 712 1905 1258 55 -1 5 1 5 2 1 1 712 1905 81 36 96.509476 215.5 1 5 2 1 2 819 1906 112 36 96.509476 There5 1 5 2 1 3 944 1908 62 35 96.730408 has5 1 5 2 1 4 1019 1908 90 36 93.775215 been5 1 5 2 1 5 1124 1920 19 24 93.775215 a5 1 5 2 1 6 1157 1911 120 44 96.592484 steady5 1 5 2 1 7 1291 1911 72 35 95.292999 loss5 1 5 2 1 8 1377 1911 42 36 96.943398 of5 1 5 2 1 9 1429 1912 57 35 96.943398 thes 1 5 2 1 10 1499 1914 133 36 96.942574 markets 1 5 2 1 11 1645 1920 35 30 96.739975 to5 1 5 2 1 12 1693 1915 125 45 96.842735 plastics 1 5 2 1 13 1832 1917 138 36 95.308014 bottles.4 1 5 2 2 0 637 1962 1335 48 -1 5 1 5 2 2 1 637 1962 82 43 88.855545 (CX5 1 5 2 2 2 733 1962 107 36 88.855545 922N,5 1 5 2 2 3 866 1965 37 40 92.985992 P;5 1 5 2 2 4 920 1965 66 35 87.029411 CX5 1 5 2 2 5 1000 1965 130 44 87.029411 927T.)5 1 5 2 2 6 1157 1968 75 34 95.907532 Thes 1 5 2 2 7 1252 1968 76 36 96.667000 1.755 1 5 2 2 8 1345 1968 79 36 96.971085 liter5 1 5 2 2 9 1438 1970 75 35 96.313431 sizes 1 5 2 2 10 1527 1971 86 35 96.924919 PETS 1 5 2 2 11 1628 1983 73 24 96.927010 was5 1 5 2 2 12 1717 1973 112 35 96.235695 lowers 1 5 2 2 13 1843 1974 35 34 96.235695 in5 1 5 2 2 14 1894 1981 78 29 96.904236 costa 1 5 2 3 0 635 2020 699 49 -1 5 1 5 2 3 1 635 2020 83 36 96.801857 than5 1 5 2 3 2 733 2022 96 44 96.570541 glass5 1 5 2 3 3 845 2022 36 35 96.298050 in5 1 5 2 3 4 901 2022 102 37 91.485336 1987.5 1 5 2 3 5 1033 2024 83 42 93.267036 (CX5 1 5 2 3 6 1130 2025 204 44 88.577599 932Z141.)3 1 5 3 0 0 634 2079 1336 160 -1 4 1 5 3 1 0 709 2079 1261 55 -1 5 1 5 3 1 1 709 2079 82 35 96.680046 216.5 1 5 3 1 2 826 2079 135 37 96.751251 Owens5 1 5 3 1 3 978 2080 30 36 96.980339 is5 1 5 3 1 4 1027 2081 58 36 96.867035 thes 1 5 3 1 5 1102 2082 130 46 96.867035 largest5 1 5 3 1 6 1250 2085 157 46 96.834297 suppliers 1 5 3 1 7 1423 2085 43 36 96.855568 of5 1 5 3 1 8 1479 2086 96 45 94.739906 glass5 1 5 3 1 9 1593 2086 117 48 96.926422 liquors 1 5 3 1 10 1726 2088 141 37 96.653107 bottles.5 1 5 3 1 11 1888 2090 82 43 96.653107 (CX4 1 5 3 2 0 634 2136 1335 53 -1 5 1 5 3 2 1 634 2136 132 43 85.182014 917D.)5 1 5 3 2 2 792 2138 140 35 91.571129 Owens'5 1 5 3 2 3 945 2140 131 35 96.659508 markets 1 5 3 2 4 1090 2141 98 35 96.659508 shares 1 5 3 2 5 1202 2152 71 25 96.956810 was5 1 5 3 2 6 1288 2142 104 37 96.102921 about5 1 5 3 2 7 1405 2144 85 35 96.582741 20%5 1 5 3 2 8 1504 2145 36 35 96.582741 in5 1 5 3 2 9 1558 2145 99 36 96.384346 1986.5 1 5 3 2 10 1686 2147 80 41 88.961685 (CX5 1 5 3 2 11 1780 2147 108 42 81.138489 918F;5 1 5 3 2 12 1904 2148 65 36 96.527679 CX4 1 5 3 3 0 634 2193 347 46 -1 5 1 5 3 3 1 634 2193 118 42 93.222656 922N;5 1 5 3 3 2 769 2195 67 35 93.142326 CX5 1 5 3 3 3 851 2194 130 45 89.411819 934E.)3 1 5 4 0 0 631 2253 1336 105 -1 4 1 5 4 1 0 707 2253 1260 50 -1 5 1 5 4 1 1 707 2253 83 35 96.487465 217.5 1 5 4 1 2 826 2254 40 35 96.325439 In5 1 5 4 1 3 889 2254 103 42 96.265221 1983,5 1 5 4 1 4 1011 2256 117 46 96.265221 liquors 1 5 4 1 5 1146 2268 73 25 96.676285 was5 1 5 4 1 6 1237 2259 183 44 96.670509 produced5 1 5 4 1 7 1438 2259 36 36 96.798431 in5 1 5 4 1 8 1492 2260 58 36 96.130440 thes 1 5 4 1 9 1568 2261 132 36 97.014175 United5 1 5 4 1 10 1720 2262 115 37 96.794510 States5 1 5 4 1 11 1855 2264 35 35 96.539650 in5 1 5 4 1 12 1909 2265 58 34 96.539650 thea 1 5 4 2 0 631 2310 592 48 -1 5 1 5 4 2 1 631 2310 191 47 96.491753 following5 1 5 4 2 2 838 2312 92 36 96.664894 sizes5 1 5 4 2 3 947 2313 82 42 93.223991 (CX5 1 5 4 2 4 1044 2313 179 45 91.891304 317Z16):2 1 6 0 0 0 776 2426 668 275 -1 3 1 6 1 0 0 777 2426 71 35 -1 4 1 6 1 1 0 777 2426 71 35 -1 5 1 6 1 1 1 777 2426 71 35 96.502373 Size3 1 6 2 0 0 776 2473 668 228 -1 4 1 6 2 1 0 778 2473 666 36 -1 5 1 6 2 1 1 778 2473 39 30 95.869194 505 1 6 2 1 2 830 2475 50 28 95.611671 ml.5 1 6 2 1 3 1393 2479 51 30 96.297089 9%4 1 6 2 2 0 777 2521 666 36 -1 5 1 6 2 2 1 777 2521 60 30 96.918205 2005 1 6 2 2 2 849 2524 50 28 92.661377 ml.5 1 6 2 2 3 1371 2527 72 30 96.208130 23%4 1 6 2 3 0 777 2570 665 35 -1 5 1 6 2 3 1 777 2570 133 30 84.766243 375/5005 1 6 2 3 2 922 2572 49 29 87.681046 ml.5 1 6 2 3 3 1375 2576 67 29 96.778229 11%4 1 6 2 4 0 776 2619 666 34 -1 5 1 6 2 4 1 776 2619 60 29 96.803642 7505 1 6 2 4 2 849 2620 49 29 87.404701 ml.5 1 6 2 4 3 1369 2623 73 30 96.332268 22%4 1 6 2 5 0 779 2667 662 34 -1 5 1 6 2 5 1 779 2667 10 29 96.290489 15 1 6 2 5 2 807 2667 64 30 95.925720 liter5 1 6 2 5 3 1369 2672 72 29 96.174667 21%2 1 7 0 0 0 778 2716 662 34 -1 3 1 7 1 0 0 778 2716 662 34 -1 4 1 7 1 1 0 778 2716 662 34 -1 5 1 7 1 1 1 778 2716 23 29 91.461700 1.5 1 7 1 1 2 816 2716 37 30 92.442520 755 1 7 1 1 3 868 2716 64 30 96.732224 liter5 1 7 1 1 4 1373 2721 67 29 96.908463 14% OWENS-ILLINOIS, INC., ET AL. 221 179 Initial Decision 218. Miniature liquor bottles in the 50 ml. size converted to plastic in 1983 because of demand from airlines for reduced weight. (Smith, Tr. 1920-21.) Plastic also has had success in traveler packages where the lighter weight of plastic makes the container preferable to glass. (Smith, Tr. 2038-39.) 219. In October 1986, Owens estimated that 20% of the 1.75 liter size was being filled in plastic and projected that 80% would be converted to PET by 1991. (CX 49H-I.) 220. By 1988, Seagrams, the market share leader (CX 317W), already had 85-90% of its 1.75 liter size, which is 20% of its liquor sales, in PET. (Smith, Tr. 1969-70.) Heublin, the second largest distiller with 10% of the market, uses plastic for 50 ml. and part of its 1.75 liter production in lower priced vodkas. (CX 1022Z97-98.) National, the number three distiller with 8% market share, uses PET in 50 ml., its 750 ml. traveler bottle, and a major part of its 1.75 liter production. It also has tested PET in 1-liter. (CX 932Z141.) 221. There is no technical reason why distilled liquors could not be packaged in plastic in all sizes. (Smith, Tr. 1983-84.) 222. The quality image of glass remains more important than the lighter weight of plastic for distilled spirits in the 200 ml., 375 ml., 750 ml. and 1-liter sizes. (Smith, Tr. 1921, 1923; CX 1022Z98.) 223. Seagrams is the leading distiller with about 15% of the market. (CX 317W.) Seagrams premium brands and sizes from 200 mil. through 1 liter are sold in glass, because of its quality image and because glass makes the smaller sizes look bigger in glass than in plastic. The 750 ml. size is 40% of Seagram's sales; the 1 liter is 20%. (Smith, Tr. 1928-29, 1967.) They have tested the middle sizes in plastic but had no plans to convert in 1987. (CX 9327149.) 224. Johnson Controls, the leading producer of PET, makes clear PET container for packaging liquor in 1.75 liter, 1-liter, 750 ml., 375 ml., and 200 ml. sizes (Zabinko, Tr. 5380-81), and sells these containers to Jim Beam, Hiram Walker, Glenmore Distilleries, A. Smith Bowman, and Florida Distilleries. (Zabinko, Tr. 5382.) PET is used for lower priced liquors. (CX 1022Z98.) 225. Cans are not used for distilled spirits because of image. (Smith, Tr. 1927.) Initial Decision 115 F.T.C.

10. Single-serve soft drinks 226. Soft drinks are packaged in 12 oz. cans; 10 0z., 16 oz. and 1-liter glass bottles; 1, 2, and 3 liter PET bottles; and, in some areas 16 oz. or % liter PET. “Single-serve” in “take-home” soft drinks include 16 oz. and below. (Cavanagh, CX 90.) 227. Most glass soft drink bottles are 10 oz." or 16 oz. “Plasti- Shield” bottle introduced by Owens in the late 1970's. (Lemieux, CX 26Z17.) These plasti-shield bottles differ only in the label and the cap. (Kalil, Tr. 2392-95.) They are lighter than regular glass bottles and stronger because of the wrap-around styrofoam label which cushions the bottle and allows the glass to be thinner and lighter. (Langer, Tr. 1431.) Glass container producers are licensed by Owens to produce this container. (Lanigan, Tr. 6223-24.) 228. Many consumers prefer the light weight and convenience of cans, and others prefer glass because of its clarity, image recloseability, the perceived taste of the product.’? (Langer, Tr. 1450; Harralson, Tr. 1561, 1564; Ayres, Tr. 1856.) 229. Soft drink mixers are not sold in metal cans because cans are not resealable. Mixers are often resealed for later consumption. (Kalil, Tr. 2357.) 230. Pre-packaged soft drinks in plastic containers and cans account for 30% and 45% of total gallonage, respectively, with the remaining 25% split about evenly between nonreturnable glass containers and refillable glass containers. (RX 878.) 231. Cans account for 46-47% of the volume of RC Cola bottlers, with 2 liter PET accounting for 30-31% and 16 oz. PET and nonreturnable 16 oz. glass containers together accounting for 11%. (Harralson, Tr. 1558, 1560.) 232. Pepsi-Denver's volume is 80% in 12 oz. cans, and 14% in 16 oz. nonreturnable glass containers. (Ayres, Tr. 1847.) Similarly, 80% of Coca-Cola's output in the Denver area is in cans. (Ayres, Tr. a Only glass is used for 10 oz. size carbonated soft drinks. (Harralson, Tr. 1560.) ’8 Glass is breakable. Cans can break, develop pinholes that leak, or leak from the seal, and destroy other cases. Glass is inert, so that if one bottle breaks, it will not affect other containers. (Langer, Tr. 1452-53; Honickman, Tr. 3824-25.) OWENS-ILLINOIS, INC., ET AL. 223 179 Initial Decision 1888.) In the Phoenix and Tucson areas, cans account for about 60-65% of the existing packaging mix. (Kalil, Tr. 2421.) 233. Mr. Honickman operates twelve bottling companies on the east coast, including Pepsi-New York; 55% of his production is in 1, 2 and 3 liter plastic bottles; 32% is in 12 oz. metal cans; and 12.5% is divided among 7, 10 and 16 oz. glass containers. (Honickman, Tr. 3813-14.) 234. According to complaint counsel's witness from Leone, which devotes one-third of its production to single-serve glass soft drink bottles (Leone, Tr. 2661, 2691), if the price of these bottles were to increase by 5%, soft drink producers would increase the promotion of products packaged in non-glass containers, specifically the 12 oz. can and the | and 2 liter plastic bottle. (Leone, Tr. 2700.) According to Mr. Leone, even if Leone faced no competition from other glass container producers, we'd5 1 3 3 8 6 1328 1434 90 36 96.977158 have5 1 3 3 8 7 1422 1425 22 63 96.933968 a5 1 3 3 8 8 1473 1436 50 35 96.933968 lots 1 3 3 8 9 1540 1436 42 35 96.997124 of5 1 3 3 8 10 1595 1437 138 36 96.887840 troubles 1 3 3 8 11 1750 1438 133 46 95.915054 raising4 1 3 3 9 0 550 1486 830 49 -1 5 1 3 3 9 1 550 1486 71 35 96.723854 soft5 1 3 3 9 2 636 1487 104 35 96.723854 drinks 1 3 3 9 3 753 1488 160 45 44.912754 prices. (Leone, Tr. 2686-87.) 235. In many parts of the country the only soft drink packages available on retail store shelves are 12 oz. cans and plastic containers. (Honickman, Tr. 3866; Haworth, Tr. 3902; Lemieux, Tr. 5517.) 236. An August, 1987 Owens memorandum notes that promotions of cans at $.99 a six-pack followed by another promotion of a 24-pack of cans at $4.00 makes it5 1 3 5 3 8 1236 1839 157 36 96.548851 difficult5 1 3 5 3 9 1408 1847 35 29 96.549149 to5 1 3 5 3 10 1458 1849 163 38 96.549149 promotes 1 3 5 3 11 1636 1842 95 46 97.005737 glass5 1 3 5 3 12 1747 1854 47 24 96.868042 on5 1 3 5 3 13 1810 1855 68 34 96.796425 any4 1 3 5 4 0 544 1892 1333 55 -1 5 1 3 5 4 1 544 1892 85 36 96.712463 kinds 1 3 5 4 2 643 1893 43 35 96.712463 of5 1 3 5 4 3 697 1904 190 25 96.991959 consumers 1 3 5 4 4 901 1895 142 46 96.941872 savings5 1 3 5 4 5 1058 1896 113 36 96.134270 basis and is making5 1 3 5 4 9 1498 1899 26 36 96.961090 it5 1 3 5 4 10 1539 1900 158 35 94.584984 difficult5 1 3 5 4 11 1711 1901 57 35 96.619102 for5 1 3 5 4 12 1781 1902 96 45 96.813477 glass4 1 3 5 5 0 544 1953 533 44 -1 5 1 3 5 5 1 544 1957 35 29 95.942734 to5 1 3 5 5 2 595 1953 196 44 92.343201 compete. (RX 24A-B.) 237. Owens developed the 10 oz. and 16 oz. plasti-shield container to compete directly with cans, and now prices the 16 oz. glass package at a level to deter the growth of 16 oz. PET containers. (Lemieux, Tr. 5510.) 238. In single-serve sizes, soft drinks are packaged predominantly in 12 oz. cans. (Kalil, Tr. 2417, 2421; Honickman, Tr. 3814; RX 66A.) About 47% of the production of RC Cola bottlers is packaged in cans, with 16 oz. nonreturnable glass and 16 oz. plastic bottles accounting for 11%, (Harralson, Tr. 1558-59); 70% of Kalil's output of soft drinks is in 12 oz. cans, (Kalil, Tr. 2417); 80% of Pepsi-Denver's volume is in 12 oz. cans, with 16 oz. glass accounting for 14%. (Ayres, Tr. 1847-48.) Johnson Controls, which is the nation's leading supplier of PET soft drink bottles of all sizes, regards cans as its principal competition. (Zabinko, Tr. 5377-78; RX 974G.) Initial Decision LIS F.T.C, 239. In 1987, the sales of soft drinks in single-serve glass containers were 8 billion units while sales of soft drinks in cans were 40 billion units. (RX 66A-B; RX 1003Q.) Cans are the most economical package when filling line efficiencies and other packaging and distributional costs are considered. (Zoon, Tr. 36; Bachey, Tr. 3351-52.) 240. Sixteen ounce PET has been approved for use by all major soft drink companies. (Harralson, Tr. 1670; Honickman, Tr. 3818.) 241. In 1983, 16 oz. PET accounted for 10% of shipments of soft drinks in 16 oz. nonreturnable containers. (RX 1003Q.) By 1987, that percentage had increased to 30%, and sales of 2 billion units. (RX 1003Q.) 242. All national brands are distributed by store door delivery by route salesmen who rotate the stock and pull off out-of-date products. (Honickman, Tr. 3820-21.) For this reason, and also because of the fast retail movement of soft drinks, shelf-life is not considered to be an issue by major bottlers. (Honickman, Tr. 3826; Zabinko, Tr. 5377.) 243. According to Johnson Controls, which is the nation's leading supplier of PET soft drink bottles, we5 1 3 5 2 9 1486 1736 71 35 96.617485 feels 1 3 5 2 10 1573 1737 72 34 96.814392 that5 1 3 5 2 11 1660 1746 64 24 96.814392 ours 1 3 5 2 12 1737 1735 98 46 96.836823 prices 1 3 5 2 13 1853 1736 61 41 96.826370 [on5 1 3 5 2 14 1933 1735 42 35 96.587021 164 1 3 5 3 0 641 1793 1335 46 -1 5 1 3 5 3 1 641 1808 54 24 96.458939 oz.5 1 3 5 3 2 724 1797 87 34 96.696671 PETS 1 3 5 3 3 838 1796 72 35 96.838875 soft5 1 3 5 3 4 936 1795 103 35 96.943634 drinks 1 3 5 3 5 1065 1795 143 41 96.479538 bottles]5 1 3 5 3 6 1238 1801 94 28 96.509094 must5 1 3 5 3 7 1357 1794 45 35 96.440910 be5 1 3 5 3 8 1429 1800 34 29 96.440910 at5 1 3 5 3 9 1489 1794 89 34 96.324661 least5 1 3 5 3 10 1605 1800 33 28 96.937279 at5 1 3 5 3 11 1663 1793 114 46 96.456673 parity5 1 3 5 3 12 1805 1793 85 34 96.694328 with5 1 3 5 3 13 1918 1793 58 34 96.908783 thea 1 3 5 4 0 641 1850 1332 49 -1 5 1 3 5 4 1 641 1854 224 45 95.355408 competitive5 1 3 5 4 2 879 1854 92 44 96.184067 glass5 1 3 5 4 3 985 1853 166 45 96.807907 package.5 1 3 5 4 4 1177 1851 210 36 96.561172 Sometimes5 1 3 5 4 5 1401 1851 25 35 96.941063 it5 1 3 5 4 6 1439 1851 29 34 97.001274 is5 1 3 5 4 7 1482 1851 116 34 96.584595 below5 1 3 5 4 8 1611 1851 57 34 96.584595 thes 1 3 5 4 9 1681 1851 93 44 96.885750 glass5 1 3 5 4 10 1788 1850 185 45 95.230865 package. (Zabinko, Tr. 5379; RX 974G.) 244. In deposit states where retailers do not want to handle glass, soft drinks are package in 16 oz. (or half-liter) PET containers. (Cavanagh, CX 90.) 245. Soft drinks packaged in 16 oz. or ¥% liter plastic have less shelf-life (6-12 weeks) than soft drinks in glass (indefinite shelflife).'* (Harralson, Tr. 1565.) 246. The higher the temperature, the more quickly carbonation is lost through the plastic and the shorter the shelf-life. (Harralson, Tr. 1570.) 247. Two-liter PET containers provide a longer shelf-life than 16-ounce PET containers due to their smaller surface-to-volume M4 Aseptic packages cannot be used for carbonated beverages because they do not hold carbonation. (Langer, Tr. 1450.) OWENS-ILLINOIS, INC., ET AL. 225 179 Initial Decision ratio. (Harralson, Tr. 1567; Ayres, Tr. 1858, 1878; Kalil, Tr. 2358-59.) 248. These shelf problems with 16 oz. and % liter PET are important in small stores and for brands that do not move off the shelf quickly. (Malone, Tr. 5942; CX 66A-B.) Shelf-life is important for brands delivered through warehouses, as opposed to by store-door delivery, because the bottler loses control over rotation of the product. (Langer, Tr. 1440.) 249. On March 16, 1988, glass had a 22% price advantage over 16 oz. PET in addition to the glass cullet (recycling) value. (CX 2444.) 250. The prices of PET containers increased relative to glass during 1988 and probably will not decline for the next several years. (CX 768L, M, P; Towse, CX 1220 at 160-164.) 251. Some bottlers switched into PET from glass because of recent glass shortages. Royal Crown would not have approved 16 oz. PET for use by its bottlers but for supply shortages of glass. (Harralson, Tr. 1575-76, 1614-16; Zabinko, Tr. 5486-87; CX 353.) 252. Some bottlers who switched to 16 oz. PET switched back to glass because of the shelf-life, lower line speeds, and consumer preference. (CX 67B; CX 68; CX 1032N.) 253. Bottlers have not switched from 2-liter PET to glass or metal cans during the 20% price increase in PET resin (and bottle) in the last year. (Ayres, 1859, 1897; Kalil, Tr. 2375-76; Zabinko, Tr. 5465.) Family size soft drinks in 2-liter PET are in a separate market from single-serve soft drinks.

254. The 2-liter PET package started in the late 1970's when it took over the family-size soft drink segment from glass because of its lighter weight. (Honickman, Tr. 3859-60.) Product quality was of little importance in this size; this market required only that the product be cold, sweet and low cost. (CX 90P.) 255. Owens projects glass to continue to do well in soft drinks. (CX 1017G-I.) However, cans5 1 3 9 2 5 1224 2493 68 34 96.480423 ands 1 3 9 2 6 1312 2493 127 46 96.672791 plastics 1 3 9 2 7 1461 2494 73 34 96.672791 will5 1 3 9 2 8 1556 2494 169 35 96.316795 continues 1 3 9 2 9 1745 2495 136 35 96.773247 market4 1 3 9 3 0 545 2550 699 45 -1 5 1 3 9 3 1 545 2559 164 35 96.635406 pressures 1 3 9 3 2 724 2560 47 24 93.241455 on5 1 3 9 3 3 787 2550 201 45 90.914017 glass.... (CX 915L.) Initial Decision 115 F.T.C.

D. Production 256. Only the current producers of glass containers could switch production of glass containers easily enough to be considered in the relevant market. (F 305-325.) 257. The production of metal cans and plastic containers is different from the process used to make glass containers. Glass containers cannot be produced in metal can plants and plastic containers cannot be produced in glass container plants. (Zoon, Tr. 49- 50.) 258. Glass containers are made from sand, soda ash, and limestone, which are mixed together, put into a furnace, and melted. The furnaces melt glass at 3,000 degrees Fahrenheit. Molten glass flows by gravity through a depressed throat into a refining area, where additional heat is applied to ensure total melting. It then flows through a forehearth, a ceramic channel about six inches deep, where the temperature is lowered. (Cavanagh, Tr. 5193-95.) 259. The molten glass drops into the feeder, a bow] with a hole in the bottom. A plunger moves up and down in the feeder, forcing the molten glass out of the opening where shears cut the stream of glass into gobs. The gobs drop from the glass feeder, by gravity, into molds on the glass forming machine (usually an Individual4 1 4 4 6 0 636 1920 956 46 -1 5 1 4 4 6 1 636 1923 164 36 95.717690 Section ("IS") machine). (Cavanagh, Tr. 5195.) 260. The feeder cuts one, two, three or four glass gobs simultaneously, with the machine having a matching number of mold cavities per section. The IS machine has from five to ten sections per machine, usually six, eight or ten. A six section single gob machine ("6-single") has six mold cavities producing six containers per cycle; an eight section double ("8-double") has 16 mold cavities producing 16 containers per cycle; and a ten section quad (‘‘10-quad") has 40 mold cavities producing 40 containers per cycle. (Cavanagh, Tr. 5196.) 261. Each gob is blown or pressed into a mold. The formed container exits from the forming machine on a conveyer belt, which carries it to an annealing lehr, an oven-like device, where it is heated up once again. (Cavanagh, Tr. 5197.) OWENS-ILLINOIS, INC., ET AL. 227 179 Initial Decision 262. From the lehr, the bottle is inspected, returned to the furnace to be re-melted as cullet if rejected, or packed for warehousing or shipping. (Zoon, Tr. 40; Cavanagh, Tr. 5198, 5208.) 263. With some limitation, switching from one type or size of glass container to another can be accomplished by changing the molds, so different containers can be produced on each machine. (Cavanagh, Tr. 5206-07.) Changing from one type of container takes five to eight hours. (Zoon, Tr. 42-43.) 264. Producing a gross of 16-ounce soft drink bottles costs from $8.05 on a 10-quad machine to $14.70 on a 6-double machine; producing a gross of 12-ounce wine cooler bottles costs from $7.08 on a 10-quad machine to $14.36 on a 6-double machine. (CX 78B, E.) IV. RELEVANT GEOGRAPHIC MARKET 265. Imports account for a small portion of domestic glass container sales: 2.7% of total U.S. dollar sales and 5.57% of total U.S. unit volume. (CX 1514F-G.)'5 266. Domestic glass container customers do not look to foreign suppliers because of high freight costs, poor reliability, a lack of technical support, and quality concerns. (Mitchell, Tr. 666-67; Jameson, Tr. 806-07; Rottman, Tr. 946; Willers, Tr. 1814.) 267. Reliability of supply is critical to glass customers. Instead of storing glass, customers want a flow of trucks coming into their plants, sometimes loading glass directly onto the filling lines. (Mitchell, Tr. 662-63; Jardis, Tr. 1339; Langer, Tr. 1466-67; Smith, Tr. 1943.) 268. Foreign suppliers cannot maintain quality because of their distant locations. (Rottman, Tr. 947; Wilson, Tr. 2275-76.) 269. Customers doubt the quality of glass from foreign sources, especially Mexico. (Mitchell, Tr. 667; Jameson, Tr. 806; Wilson, Tr. 2229-30.) 270. Foreign glass container producers have less efficient production machinery and higher prices than U.S. producers. (Smith, Tr. 'S Dollars and units of imports differ because imported containers are of small size, such as cosmetic and toiletry bottles. (Nelson, Tr. 2796-97.) Initial Decision 115 F.T.C.

1952; Kalil, Tr. 2386; CX 42D.) Canadian containers are sized differently from the containers made in the United States, and the Canadian glass companies are machined to produce the Canadian sizes. (Rottman, Tr. 946.) 271. Most imported glass containers are specialty items (such as perfume bottles and cosmetic jars or unique colors or designs) produced in low volume. Specialty glass bottles can be economically imported from Europe because of their small size and high value; but it5 1 3 2 5 2 713 1110 122 36 96.082817 would5 1 3 2 5 3 856 1116 62 30 96.592224 not5 1 3 2 5 4 938 1110 45 36 96.747169 be5 1 3 2 5 5 1005 1109 227 36 96.233536 economical5 1 3 2 5 6 1253 1115 36 29 96.233536 to5 1 3 2 5 7 1312 1109 79 46 81.646164 ships 1 3 2 5 8 1414 1137 6 7 55.993645 .5 1 3 2 5 9 1447 1137 5 7 55.993645 .5 1 3 2 5 10 1478 1137 6 6 78.433167 .5 1 3 2 5 11 1508 1119 19 25 96.500053 a5 1 3 2 5 12 1549 1109 101 45 96.831276 Ragu5 1 3 2 5 13 1672 1108 129 35 94.657227 bottle because you'd5 1 3 2 6 2 793 1169 45 34 96.065826 be5 1 3 2 6 3 854 1167 167 47 96.325027 shipping5 1 3 2 6 4 1028 1162 15 57 96.325027 a5 1 3 2 6 5 1071 1167 51 36 96.947739 lots 1 3 2 6 6 1135 1166 43 37 96.835426 of5 1 3 2 6 7 1189 1166 52 37 96.960472 air5 1 3 2 6 8 1255 1166 136 46 96.350807 space. (Rowe, Tr. 2626.) 272. Few large glass containers are imported. They are unique in design, and are not available in the United States. (Harralson, Tr. 1677-78; Smith, Tr. 2043-48; Wilson, Tr. 2238-39.) 273. Vitro has 75-80% of the Mexican glass container market. (Lemieux, Tr. 5607.) Consumers Glass Co. and Dominion are the only two glass container suppliers in Canada. (Jones, Tr. 588; Mc- Mackin, Tr. 5848-49.) Vitro is one of Owens' licensees. (Lemieux, Tr. 5568, 5604.) Consumers was a Brockway licensee since 1961, and is now an Owens licensee. (Lemieux, Tr 5604.) Dominion licenses Owens' Plasti-shield technology. (CX 1111C.) 274. Consumers has an interlocking directorate with Owens and has maintained interlocking directorates with Brockway for years."® (McMackin, Tr. 5851-52.) 275. Because of cost, reliability and quality problems with foreign producers, glass container customers would not switch to foreign producers even if the price of glass containers from domestic producers were to increase by 10 percent. (Jameson, Tr. 806-07; Rottman, Tr. 947; Langer, Tr. 1466-67.) 276. Foreign glass producers are located far from U.S. production facilities. (Silvani, Tr. 3800; Blecharz, Tr. 4960-61; Erwin, Tr. 5163.) Shipping glass over long distances is not a good way to do business. It hurts quality, results in breakage, and could result in losses to the customer because deliveries were not timely. (Coakley, CX 23Z34-Z37.) 6 Brockway owned 15% of Consumers. (McMackin, Tr. 5848.) OWENS-ILLINOIS, INC., ET AL. 229 179 Initial Decision 277. The geographic market in which to analyze the competitive effects of the merger is the continental United States. (F 265-276; Owens Answer {16; Brockway Answer 714.) 278. Owens/Brockway and the other large glass container manufacturers have multiple plants that serve most of the United States. (CX 31; CX 1451F, N-Q; CX 551T-U.) Multiple plants provide a back-up supply where one plant may be running at full capacity, allow producers to spread R&D over a larger base, and save sales costs with respect to large buyers. (F 328-337.) 279. National buyers such as CPC, Ragu, Gerber, and Beech-Nut have plants throughout the country and buy glass containers at uniform prices for all plants. (CX 20D.) Multi-plant customers often receive the same price at all locations, or a slightly higher price for plants located on the West Coast. (Faulkner, Tr. 1275.) V. MARKET STRUCTURE A. Concentration 280. The Herfindahl-Hirschmann Index ("HHI") is calculated by squaring the individual market share of each firm in the market and summing the squares to derive a single figure. The HHI increases as fewer firms hold larger market shares. (Nelson, Tr. 2782-84.) 281. The acquisition substantially increased concentration in the domestic glass container industry (CX 1451A, F, G, H, M): Initial Decision 115 F.T.C.

Concentration Ratios HHI 2-Firm 4-Firm FURNACE MELT CAPACITY:

Pre-Merger 1581 48.0 73.5 Increase 656 Post-Merger 2237 61.8 81.2 DOLLAR SALES:

Pre-Merger 1507 46.8 60.9 Increase 663 Post-Merger 2170 60.9 79.6 UNIT SALES:

Pre-Merger 1514 46.6 70.1 Increase 790 Post-Merger 2304 61.0 78.5 TONNAGE PRODUCTION:

Pre-Merger 1518 45.7 71.5 Increase 663 Post-Merger 2181 60.5 81.1 UNIT PRODUCTION:

Pre-Merger 1626 47.9 73.3 Increase 852 Post-Merger 2478 63.6 82.5 OWENS-ILLINOIS, INC., ET AL. 231 179 Initial Decision TABLE A SHARE OF 1987 FURNACE CAPACITY Furnace Melt Capacity (Tons Per Day) Share Owens-Illinois 11,387 23.68 Brockway 6,656 13.84 Combined Owens/Brockway 18,043 37.52 Anchor/Diamond-Bathurst 11,674 24.28 Ball-Incon 5,617 11.68 Triangle (Foster-Forbes) 3,721 7.74 Gallo 2,055 4.27 Kerr Glass 1,465 3.05 Industrial (Seagram/Tropicana) 1,100 2.29 Liberty Glass 750 1.56 Latchford Glass 703 1.46 Central N.Y. (Miller) 625 1.30 Wheaton Industries 532 1.11 Coors 521 1.08 Glenshaw Glass 520 1.08 Hillsboro (Hiram Walker) 260 54 Leone Industries 200 42 Anchor-Hocking (Carr-Lowrey) 165 34 Arkansas Glass _135 .28 Total 48,086 Pre-Merger HHI: 1,581 Change: 656 Post-Merger HHI: 2,237 Pre-Merger Post-Merger Two-firm Concentration: 48.0 61.8 Four-firm Concentration: 73.5 81.2 Source: CX 1451A Initial Decision 115 F.T.C, TABLE B SHARE OF 1987 DOLLAR SALES ($ 000) Share Owens-Illinois 1,152,864 23.59 Brockway 686,874 14.06 Combined Owens/Brockway 1,839,738 37.65 Anchor/Diamond-Bathurst 1,135,421 23.24 Ball-Incon 524,992 10.74 Triangle (Foster-Forbes) 386,900 7.92 Kerr Glass 145,592 2.98 Central N.Y. (Miller) 101,677 2.08 Latchford Glass 101,088 2.07 Wheaton Industries 87,540 1.79 Gallo 86,145 1.76 Coors 72,140 1.48 Industrial (Seagram/Tropicana) 69,693 1.43 Liberty Glass 60,060 1,23 Glenshaw Glass 44,890 92 Anchor-Hocking (Carr-Lowrey) 29,543 .60 Hillsboro (Hiram Walker) 26,182 54 Leone Industries 15,200 31 Arkansas Glass 14,438 30 Imports - Canada 42,232 86 Imports - Mexico 25,492 52 Imports - Other 77,537 1.59 Total Imports 145,261 2.97 Total 4,886,500 Pre-Merger HHI: 1,507 Change: 663 Post-Merger HHI: 2,170 Pre-Merger Post-Merger Two-firm Concentration: 46.8 60.9 Four-firm Concentration: 71.6 79.6 Source: CX 1451F OWENS-ILLINOIS, INC., ET AL. 233 179 Initial Decision TABLE C SHARE OF 1987 UNIT SALES (M GROSS) Share Owens- Illinois 85,445 27.42 Brockway 44,876 14.40 Combined Owens/Brockway 130,321 41.82 Anchor/Diamond-Bathurst 59,700 19.16 Triangle (Foster-Forbes) 28,342 9.09 Ball-Incon 26,317 8.44 Kerr Glass 9,022 2.90 Central N.Y. (Miller) 6,324 2.03 Wheaton Industries 5,650 1.81 Coors 5,527 1.77 Liberty Glass 5,383 1.73 Gallo 5,358 1.72 Industrial (Seagram/Tropicana) 3,725 1.20 Latchford Glass 3,407 1.09 Glenshaw Glass 2,115 .68 Anchor-Hocking (Carr-Lowrey) 1,320 42 Leone Industries 825 .26 Hillsboro (Hiram Walker) 608 .20 Arkansas Glass 338 Jl Imports - Canada 2,708 87 Imports - Mexico 2,193 .70 Imports - Other 12,454 4.00 Total Imports 17,355 5.57 Total 311,637 Pre-Merger HHI: 1,514 Change: 790 Post-Merger HHI: 2,304 Pre-Merger Post-Merger Two-firm Concentration: 46.6 61.0 Four-firm Concentration: 70.1 78.5 Source: CX 1451G Initial Decision 115 F.T.C.

TABLE D SHARE OF 1987 TONNAGE PRODUCTION (Tons Produced) Share Owens-Illinois 2,589,686 22.52 Brockway 1,692,183 14.72 Combined Owens/Brockway 4,281,869 37.24 Anchor/Diamond-Bathurst 2,670,000 23.22 Ball-Incon 1,264,226 10.99 Triangle (Foster-Forbes) 1,109,883 9.65 Gallo 406,846 3.54 Kerr Glass 371,513 3.23 Latchford Glass 247,900 2.16 Central N.Y. (Miller) 207.997 1.81 Coors 188,538 1.64 Industrial (Seagram/Tropicana) 187,000 1.63 Liberty Glass 182,188 1,58 Wheaton Industries 123,292 1.07 Glenshaw Glass 111,426 97 Hillsboro (Hiram Walker) 45,704 .40 Arkansas Glass 40,250 35 Leone Industries 38,000 .33 Anchor-Hocking (Carr-Lowrey) 21,897 19 Total 11,498,529 Pre-Merger HHI: 1,518 Change: 663 Post-Merger HHI: 2,181 Pre-Merger Post-Merger Two-firm Concentration: 45.7 60.5 Four-firm Concentration: 71.5 81.1 Source: CX 1451H OWENS-ILLINOIS, INC., ET AL. 235 179 Initial Decision TABLE E SHARE OF 1987 UNIT PRODUCTION (M GROSS ) Share Owens-Illinois 79,188 27.07 Brockway 46,028 15.74 Combined Owens/Brockway 125,216 42.81 Anchor/Diamond-Bathurst 60,932 20.83 Triangle ( Foster-Forbes ) 28,341 9.69 Ball-Incon 26,725 9.14 Kerr Glass 9,331 3.19 Wheaton Industries 6,605 2.26 Central N.Y. (Miller) 6,324 2.16 Liberty Glass 5,625 1.92 Coors 5,527 1.89 Gallo 5,384 1.84 Industrial (Seagram/Tropicana) 3,600 1.23 Latchford Glass 3,413 1.17 Glenshaw Glass 2,115 72 Anchor-Hocking (Carr-Lowrey) 1,373 47 Leone Industries 1,028 35 Hillsboro (Hiram Walker) 614 21 Arkansas Glass 343 12 Total 292,496 Pre-Merger HHI: 1,626 Change: 852 Post-Merger HHI: 2,478 Pre-Merger Post-Merger Two-firm Concentration: 47.9 63.6 Four-firm Concentration: 73.3 82.5 Source: CX 1451M 282. Owens’ own estimates of market share show that high concentration exists in end-use categories as a result of this acquisition. Initial Decision 115 F.T.C.

TABLE F SHARES OF 1986 UNIT SHIPMENTS BY END USE Soft Drinks Wine Liquor Food O-I 39.9 26.9 22.2 15.7 Brockway 16.0 7A 8.0 18.8 Anchor/DB 20.4 18.7 41.4 22.0 Triangle 9.2 1 6.5 6.0 Ball-Incon 2.9 9.7 2.2 18.8 Kerr m7. woes oe 9.5 Gallo m=." 35.6 nor. nose Wheaton* ooo. i a. a--,- Miller’ aso. ie a =-+.- Latchford nos. 1.6 8.3 2.6 Liberty 6.9 aos. we, a Tropicana m7. none 5.0 3.7 Coors” ---.- ---- a--.- aon Glenshaw 3.3 nos a 1.5 Anchor Hocking” ---.- ee a a Hillsboro nose oon. 6.4 oe Arkansas ne. o--.- ---. 1.4 Leone 1.4 oon o--- o--.

Total: 100.0 100.0 100.0 100.0 Pre-Merger HHI 2,418 2,492 2,453 1,588 Change 1,277 398 355 590 Post-Merger HHI 3,695 2,890 2,808 2,178 Pre-Merger C2 Ratio 60.3 62.5 63.6 40.8 Post-Merger C2 Ratio 76.3 69.9 71.6 56.5 Pre-Merger C4 Ratio 85.5 90.9 79.9 75.3 Post-Merger C4 Ratio 92.4 98.3 86.4 84.8 “Wheaton and Anchor Hocking participate almost exclusively in the drug and cosmetics portion of the industry; Miller and Coors participate only in beer. Source: CX 30F; CX-41 OWENS-ILLINOIS, INC., ET AL. 237 179 Initial Decision B. Buyers 283. Owens-Brockway's largest customer, the Pepsi Bottling Group in soft drinks, accounts for 3.3% of Owens-Brockway’s sales. (CX 1153A; CX 1451F.) The largest food customer, Heinz, accounts for less than 3% of total sales. (CX 1153A; CX 1451F.) The top 50 customers account for 51% of Owens-Brockway's sales. (CX 1153B; CX 1451F.) None of the customers who testified that there were no viable substitutes for glass, represented as much as 2.5% of total glass container purchases ($100 million), even though many of them are among the leading producers in their end-uses: Glass Purchases Company ($ Millions) Beech-Nut Nutrition $21.0 (Tr. 510) Borden, Inc. 23.5 (Tr. 1319) Charles F. Cates & Sons 6.0 (Tr. 1264) Clements Food Co. 4.3 (Tr. 739) CPC International 45.0 (Tr. 658) Gerber Products Co. 50.0+ (Tr. 908) Kalil Bottling Co. 2.0 (Tr. 2352) L &A Juice Co. 4.5 (Tr. 1427) Ocean Spray 80.0 (Tr. 2063) Pepsi-Cola of Denver 3.0 (Tr. 1848) Ragu 52.0 (Tr. 794) Joseph E. Seagram & Sons 92.0 (Tr. 1955) Welch Foods 25.0 (Tr. 131) Wine World 10.0 = (Tr. 2234) Total $418.34 284. Customers do not know costs or what productivity gains have been achieved by Owens or the glass industry. (Rottman, 984- 85; Faulkner, Tr. 1310-11; Smith, Tr. 2049-50; Honickman, Tr. 3877; Lankester, Tr. 4068; Stollsteimer, Tr. 4365-66; Blecharz, Tr. 4969- 72.) 285. Buyer power is an unlikely source of defeating an attempt to price anticompetitively in this industry. (Nelson, Tr. 2845-46.) 286. Many glass containers are made from molds. (Jones, Tr. 555; Jardis, Tr. 1421; Blecharz, Tr. 4963-64.) It is not likely that a Initial Decision 115 F.T.C.

customer would be willing to sell such containers to others. (Nelson, Tr. 2847-49, 2852-53.) 287. Companies have used proprietary molds because of image, and marketing and production line capabilities, even though stock bottles were cheaper. (Lemieux, Tr. 5596-98.) 288. Containers that look similar are not necessarily interchangeable, due to minor variations in height, diameter, shoulder positioning, cap thread size and style, thickness, and surface. Slight variations can result in jamming on the filling lines, breakage and downtime. (Mitchell, Tr. 665-66; Clements, Tr. 764-65; Jameson, Tr. 804.) Containers that are not identical cannot be interchanged on high speed filling lines without modifications to the glass, which may require substantial time. (Blecharz, Tr. 4967.) 289. Because containers are used for food and beverages, they must meet high quality standards. (Mitchell, Tr. 664-65; Rottman, Tr. 943; Jardis, Tr. 1344-45.) 290. Arbitrage’’ is limited by costs. Since a third party is involved, resale would involve additional shipping costs, additional risk of breakage, billing costs, and additional profit. (Jones, Tr. 555; Clements, Tr. 765-66.) 291. Some containers are sold pre-labeled, and it is unlikely that a customer would use a bottle or carton with a competitor's name on it. (Rembert, Tr. 174; Langer, Tr. 1522.) 292. Buyers deal directly with the manufacturer for technical assistance in running the containers, to handle defects, and to ensure reliable supply. (Rottman, Tr. 943; Jardis, Tr. 1345; Langer, Tr. 1521-22.) 293. Owens-Brockway accounts for 85-90% of total glass container sales through distributors. If Owens does not want them to resell, it could refuse to give the distributors enough containers to allow it. (Nelson, Tr. 2849.) 7 By “arbitrage” customers could theoretically purchase glass containers through other customers who receive lower prices. (Nelson, Tr. 2846.) OWENS-ILLINOIS, INC., ET AL. 239 179 Initial Decision C. Small Producers ]. Integrated producers 294. Coors is vertically integrated, operating one glass plant in Colorado close to its beer plant, where it produces amber beer bottles. All of the bottles are produced for its own use. None are sold on the open market. (Larson, Tr. 2299.) The plant is operating at full capacity, and the company also purchases bottles. (Larson, Tr. 2302-03, 2305.) 295. Miller operates one plant located in New York that produces flint and amber beer bottles. (CX 1412B-D.) The company has no external sales of bottles, and has a policy against selling containers that it has purchased on the open market. (Langer, Tr. 1523; CX 1412A.) 296. Gallo operates one plant in California and uses all of its production. (CX 1405A.) 297. Hillsboro (Hiram-Walker) operates one single-furnace glass plant in Illinois which produces only amber glass and has no high speed production equipment. (CX 1407B-D.) 298. Tropicana, now owned by Seagram, operates a single threefurnace glass plant, called the Industrial Glass Division, located in Florida. (CX 1414A-F.) Tropicana has only double-gob machines (CX 1414C-E), and therefore is not properly machined to produce containers like wine cooler bottles at a competitive cost. Seagram does not intend to use the plant for this purpose. (Smith, Tr. 1960-61.) 2. Other small producers 299. Arkansas is a single plant firm located in Jonesboro, Arkansas (CX 1403A-D.) The company produces no glass containers for baby food or baby juice, wine coolers, distilled spirits, single serve soft drinks or beer. (Ramply, Tr. 1002-04.) The company operates five Lynch glass-making machines that were originally made in the 1920's and 1930's, described as thes 1 6 1 6 10 1513 2659 67 34 96.557411 lasts 1 6 1 6 11 1593 2658 41 35 97.014893 of5 1 6 1 6 12 1644 2659 58 34 97.016876 thes 1 6 1 6 13 1716 2658 185 35 96.710411 dinosaurs4 1 6 1 7 0 568 2716 1332 46 -1 5 1 6 1 7 1 568 2718 36 35 96.435417 in5 1 6 1 7 2 624 2718 59 35 96.801239 thes 1 6 1 7 3 702 2718 134 35 96.208138 United5 1 6 1 7 4 856 2717 145 41 94.942215 States, and one six-section single gob IS machine. (Ramply, Tr. 1017.) Unlike most other glass companies, Arkansas Initial Decision 115 F.T.C.

has no automated inspection equipment and instead employees visually inspect the containers before hand-packing them. (Ramply, Tr. 1024-25.) Two of the company’s three furnaces are high cost and inefficient. (Ramply, Tr. 1026; Cavanagh, Tr. 5262.) Arkansas has a corporate5 1 3 1 5 3 902 862 141 47 76.741066 policy”5 1 3 1 5 4 1065 863 139 46 96.688789 against5 1 3 1 5 5 1222 863 145 47 96.961700 making5 1 3 1 5 6 1387 864 200 37 96.231339 containers5 1 3 1 5 7 1607 865 57 36 96.231339 for5 1 3 1 5 8 1681 866 96 42 96.968803 beer,5 1 3 1 5 9 1798 866 118 46 96.502426 liquors 1 3 1 5 10 1933 878 41 25 96.966705 or4 1 3 1 6 0 637 919 1336 49 -1 5 1 3 1 6 1 637 919 96 36 96.646645 wines 1 3 1 6 2 752 920 153 36 96.338913 coolers.5 1 3 1 6 3 943 920 29 37 96.816620 It5 1 3 1 6 4 991 920 77 37 96.684227 also5 1 3 1 6 5 1088 921 88 36 96.553360 does5 1 3 1 6 6 1197 928 62 29 96.993614 not5 1 3 1 6 7 1276 923 158 45 96.858170 produces 1 3 1 6 8 1455 923 71 36 96.810570 soft5 1 3 1 6 9 1545 923 102 37 96.853806 drinks 1 3 1 6 10 1666 924 130 36 96.767677 bottles5 1 3 1 6 11 1816 925 157 37 96.147247 because4 1 3 1 7 0 637 979 1334 51 -1 5 1 3 1 7 1 637 979 202 35 96.512878 containers5 1 3 1 7 2 865 980 73 35 96.286591 that5 1 3 1 7 3 961 980 191 36 96.607506 withstand5 1 3 1 7 4 1176 992 163 35 96.799950 pressures 1 3 1 7 5 1363 982 139 46 96.416046 requires 1 3 1 7 6 1526 983 195 36 96.895935 additional5 1 3 1 7 7 1747 984 130 46 96.713478 testing5 1 3 1 7 8 1903 985 68 35 96.776878 anda 1 3 1 8 0 636 1037 622 47 -1 5 1 3 1 8 1 636 1037 199 36 93.296463 insurance.5 1 3 1 8 2 865 1037 181 47 90.901802 (Ramply,5 1 3 1 8 3 1061 1038 56 36 96.778404 Tr.5 1 3 1 8 4 1138 1039 120 43 96.006142 1029.)3 1 3 2 0 0 633 1096 1336 336 -1 4 1 3 2 1 0 711 1096 1258 47 -1 5 1 3 2 1 1 711 1096 81 35 93.133453 300.5 1 3 2 1 2 816 1096 191 35 92.825897 Latchford5 1 3 2 1 3 1021 1103 160 40 96.917572 operates5 1 3 2 1 4 1194 1104 71 29 96.952621 two5 1 3 2 1 5 1278 1098 113 45 96.196198 plants5 1 3 2 1 6 1406 1098 35 35 97.011070 in5 1 3 2 1 7 1454 1099 196 35 96.461060 California5 1 3 2 1 8 1663 1100 82 43 93.240753 (CX5 1 3 2 1 9 1763 1100 206 43 91.280754 1409A-H),4 1 3 2 2 0 635 1154 1332 48 -1 5 1 3 2 2 1 635 1154 70 35 96.540253 ands 1 3 2 2 2 724 1154 123 35 96.540253 would5 1 3 2 2 3 865 1160 62 29 96.276405 not5 1 3 2 2 4 945 1154 44 35 96.543335 be5 1 3 2 2 5 1008 1154 80 36 96.543335 able5 1 3 2 2 6 1107 1161 36 29 96.889198 to5 1 3 2 2 7 1162 1161 164 40 96.331062 competes 1 3 2 2 8 1345 1156 208 46 96.679405 effectively5 1 3 2 2 9 1572 1164 75 28 96.709412 east5 1 3 2 2 10 1665 1157 43 35 96.709412 of5 1 3 2 2 11 1723 1158 58 35 96.720917 thes 1 3 2 2 12 1799 1158 168 36 96.497253 Rockies.4 1 3 2 3 0 635 1211 1332 50 -1 5 1 3 2 3 1 635 1211 144 43 96.592049 (Smith,5 1 3 2 3 2 799 1212 55 36 96.584526 Tr.5 1 3 2 3 3 874 1212 124 43 92.827911 2051.)5 1 3 2 3 4 1033 1213 194 35 92.827911 Latchford5 1 3 2 3 5 1246 1220 160 40 96.701431 operates5 1 3 2 3 6 1426 1215 85 45 96.580612 only5 1 3 2 3 7 1530 1215 132 36 96.714180 doubles 1 3 2 3 8 1681 1216 72 45 96.809868 gob5 1 3 2 3 9 1771 1216 196 35 96.486610 machines.4 1 3 2 4 0 635 1270 1333 48 -1 5 1 3 2 4 1 635 1270 81 43 93.051300 (CX5 1 3 2 4 2 734 1270 195 44 91.276825 1409C-E.)5 1 3 2 4 3 954 1271 74 35 96.939758 Thes 1 3 2 4 4 1041 1271 227 47 96.240677 relationships 1 3 2 4 5 1281 1272 159 36 96.746796 between5 1 3 2 4 6 1454 1272 132 36 96.771797 Owens5 1 3 2 4 7 1600 1273 67 36 91.949165 ands 1 3 2 4 8 1680 1274 190 35 91.949165 Latchford5 1 3 2 4 9 1884 1274 29 36 96.706291 is5 1 3 2 4 10 1928 1285 40 25 97.013367 so4 1 3 2 5 0 634 1329 1333 39 -1 5 1 3 2 5 1 634 1329 99 35 96.557053 closes 1 3 2 5 2 747 1329 72 36 96.978630 that5 1 3 2 5 3 833 1340 69 25 97.004372 ones 1 3 2 5 4 916 1330 143 35 96.473755 witness5 1 3 2 5 5 1075 1330 185 35 93.299461 described5 1 3 2 5 6 1275 1331 190 35 91.819191 Latchford5 1 3 2 5 7 1480 1342 37 24 96.938362 as5 1 3 2 5 8 1534 1332 76 35 96.680405 the sales and marketing agent" for Owens-Illinois on the West Coast. (Wilson, Tr. 2240.) 301. Leone operates a single one-furnace plant located in New Jersey. (Leone, Tr. 2645-46; CX 1410A-D.) Because of its single plant location, most of Leone's sales are concentrated in the Northeast Corridor and would not be competitive outside of this region. (Leone, Tr. 2653-55.) The company has only 8 section double gob machines. (Leone, Tr. 2646; CX 1410C.) Less than 5% of the company's sales are to national accounts, and the company has difficulty selling to such accounts because of its single-plant location. (Leone, Tr. 2664-65.) Leone is operating close to full capacity. (Leone, Tr. 2673.) Expansion would require a new furnace, which the company believes would not be economically feasible. (Leone, Tr. 2675.) 302. Glenshaw operates a single plant in Pennsylvania. (Lusby, Tr. 2455; CX 1406A-F.) Glenshaw sells glass containers principally to customers located in Pennsylvania and contiguous states. (Lusby, Tr. 2459.) Glenshaw is operating at close to full capacity. (Lusby, Tr. 2461-62, 2487.) 303. Liberty is a single-plant supplier located in Oklahoma (CX 1411A-G) that produces only non-returnable soft drink bottles. (CX 1411D-F.) The company is operating at capacity. (Kalil, Tr. 2383.) 304. Carr-Lowrey manufactures small specialty glass containers for toiletry and cosmetic applications, which are very5 1 3 6 2 10 1786 2609 173 36 92.546394 difficult-4 1 3 6 3 0 625 2667 1334 48 -1 5 1 3 6 3 1 625 2668 175 34 92.085365 to-make and which differ from the glass containers manufactured by general5 1 3 6 4 2 812 2726 72 36 96.392647 lines 1 3 6 4 3 907 2726 97 46 96.770760 glass5 1 3 6 4 4 1027 2726 184 36 95.907310 containers 1 3 6 4 5 1233 2727 310 35 80.298920 manufacturers. (Rowe, Tr. 2596.) Wheaton is the company's principal competitor in this segment. OWENS-ILLINOIS, INC., ET AL. 941 179 Initial Decision (Rowe, Tr. 2599, 2601.) Carr-Lowrey does not consider Owens- Illinois or other general5 1 3 1 2 5 1082 679 89 35 88.315689 line producers as competitors. (Rowe, Tr. 2601-03.) Carr-Lowrey does not manufacture or sell any glass containers for packaging baby food, jams and jellies, spaghetti sauce, mayonnaise, pickles, wine, wine coolers, shelf-stable juices, or soft drinks. (Rowe, Tr. 2609-10.) The largest machine Carr-Lowrey operates is an 8-section, double-gob machine. (Rowe, Tr. 2611.) VI. ENTRY 305. There has been no successful new entry into glass container production since before 1980. (Cavanagh, Tr. 5266.) A. Lead Time 306. Owens' most recent plant, at Toano, Virginia, took four years to bring on stream. (CX 27Z14.) Brockway acknowledges that it would take 24 to 30 months for a firm to enter the manufacture and sale of glass containers. (CX 28Z.) 307. Even after it is built, a new glass container plant faces obstacles to effective entry. Customers are reluctant to accept a new supplier. (F 326, 327.) Often, long-term supply contracts with current suppliers makes it difficult for customers to purchase from a new supplier. (Bachey, Tr. 3472-73.) Qualification for new suppliers may take from three to eighteen months. (Jameson, Tr. 800; Rottman, Tr. 938; Jardis, Tr. 1333; Bourque, Tr. 2086; Wilson, Tr. 2220.) B. Sunk Costs 308. Sunk costs are costs that are not recoverable in the event of failure of new entry. (Nelson, Tr. 2813-14.) 309. The replacement costs of O-I's glass container plants range from $40 million to $110 million. (CX 27Z17-Z18.) Owens acknowledges that the sunk costs associated with high5 1 9 2 3 9 1783 2527 131 45 95.735329 capital4 1 9 2 4 0 578 2585 853 47 -1 5 1 9 2 4 1 578 2586 216 36 96.843880 investments 1 9 2 4 2 808 2586 232 46 96.015106 discourages5 1 9 2 4 3 1055 2586 130 46 91.694809 entry. (CX 933J.) Initial Decision 115 F.T.C.

C. Scale Economies 310. To succeed in the marketplace, glass container companies must enjoy substantial economies of scale. (CX 2448H.) 311. Minimum efficient scale for a glass plant is at least 1% of total U.S. glass container capacity. (Cavanagh, Tr. 5260; CX 28Z2; CX 1451B, E.) 312. American-National Can's Foster-Forbes division was unable to serve the glass container market on a national basis with only five plants; it purchased four additional glass plants from Kerr, the purpose of which was to5 1 4 3 4 6 1129 1210 139 45 93.297386 expands 1 4 3 4 7 1285 1210 301 43 91.950706 [Foster-Forbes]5 1 4 3 4 8 1603 1217 36 29 96.990028 to5 1 4 3 4 9 1653 1211 92 35 96.989296 have5 1 4 3 4 10 1760 1222 20 24 96.916458 a5 1 4 3 4 11 1794 1211 158 36 96.701279 national4 1 4 3 5 0 617 1266 888 47 -1 5 1 4 3 5 1 617 1267 191 46 85.467583 presence in the industry. (Zoon, Tr. 31-32.) 313. Owens estimates a5 1 4 4 1 5 1210 1326 217 36 96.260735 break-even5 1 4 4 1 6 1442 1328 163 46 96.260735 capacity5 1 4 4 1 7 1620 1328 200 36 96.653824 utilization5 1 4 4 1 8 1835 1328 57 36 96.980095 for5 1 4 4 1 9 1907 1339 44 25 96.861824 an4 1 4 4 2 0 617 1383 1255 47 -1 5 1 4 4 2 1 617 1383 165 36 97.010544 efficient5 1 4 4 2 2 794 1384 99 46 96.981964 plants 1 4 4 2 3 907 1384 184 46 96.992790 operations 1 4 4 2 4 1106 1384 36 35 97.003265 in5 1 4 4 2 5 1156 1385 59 34 96.496506 thes 1 4 4 2 6 1229 1396 108 34 96.496506 ranges 1 4 4 2 7 1351 1385 43 35 96.896446 of5 1 4 4 2 8 1405 1385 184 36 86.291168 65-80%. (CX 27Z86.) 314. Owens believes that the industry needs to be taking5 1 4 5 1 11 1843 1445 107 35 96.823418 down4 1 4 5 2 0 617 1501 1332 47 -1 5 1 4 5 2 1 617 1507 34 29 96.115166 at5 1 4 5 2 2 669 1501 90 35 96.115166 least5 1 4 5 2 3 777 1512 20 24 96.818253 a5 1 4 5 2 4 813 1501 98 45 96.325256 plants 1 4 5 2 5 930 1512 20 24 96.948265 a5 1 4 5 2 6 967 1512 84 34 96.475113 years 1 4 5 2 7 1068 1501 56 35 96.475113 for5 1 4 5 2 8 1142 1512 19 24 96.777313 a5 1 4 5 2 9 1180 1502 95 45 96.717010 goods 1 4 5 2 10 1294 1502 124 35 92.621674 while in order to prevent prices from falling. (Lemieux, Tr. 5588; F 380.) D. Environmental Regulations 315. Environmental regulatory approvals have become increasingly stringent in recent years for new plants (Nelson, Tr. 2818) while exempting or grandfathering existing glass plant furnaces. (Larson, Tr. 2330, 2334-35, 2676-77.) 316. Asa result of these environmental regulations, an entrant would face higher costs than existing producers from either operating an electric furnace, which has higher operating costs than a gas furnace, or adding precipitators to natural gas furnaces. (Larson, Tr. 2333; Cavanagh, Tr. 5236.) 317. Electric furnaces require more frequent rebuilds which add to the higher per unit cost. (Larson, Tr. 2331, 2333.) 318. If a new entrant were to use a gas furnace with a precipitator, capital costs would increase and rate of return would decrease. Smokestack precipitators cost a million dollars per furnace. Operating costs would go up because precipitators need frequent maintenance. (Larson, Tr. 2333-34.) OWENS-ILLINOIS, INC., ET AL. 243 179 Initial Decision E. Customer Acceptance 319. Owens has multi-year supply agreements with Gerber (2 years), Ragu (3 years), Campbell (3 years), Smuckers (3 years), Heinz (3 years), Seagram (2 years) and Nestle (3 years). (Bachey, Tr. 3472-73.) 320. Customers require new glass container suppliers to go through lengthy testing programs to ensure that there are no quality problems with the supplier's glass that would jeopardize the customer's brand name. (Mitchell, Tr. 661-62; Jameson, Tr. 799-800; Faulkner, Tr. 1272.) 321. A supplier's ability to make a glass container that can run on the customer's filling line without breaking is an important factor in selecting a glass supplier. (Rottman, Tr. 915; Jardis, Tr. 1331; Smith, Tr. 1942.) 322. Because glass containers are used in packaging food, beverages and other consumable products, customers choose suppliers with a proven quality record, which increases the difficulty faced by a new entrant. (Jones, Tr. 552; Blecharz, Tr. 4889; CX 227A.) 323. Suppliers generally amortize a customer's custom glass molds over 25,000 to 30,000 gross. (Bachey, Tr. 3663.) Customers are reluctant to switch to a new supplier when glass molds are not paid for. (Jardis, Tr. 1361; CX 1472.) F, Vertical Integration 324. Glass container customers acknowledge that vertical integration is not feasible because of insufficient volume; inability to serve all plants from a single glass plant; and environmental problems of glass plants. (Mitchell, Tr. 679; Faulkner, Tr. 1276; Blecharz, Tr. 4969.) G. Foreign Entry 325. It is unlikely that a new entrant could successfully build a new plant outside of the United States (as in Canada or Mexico) and ship in. (F 265-79.) Initial Decision 115 F.T.C.

VII. EXPANSION A. Quality 326. Quality is important to users of glass containers because of line speeds, breakage, glass contamination in the product, and brand image (Jameson, Tr. 798; Willers, Tr. 1748; Smith, Tr. 1942.) * 7. Customers are reluctant to deal with new suppliers, particularl’’ single-plant suppliers. (Rembert, Tr. 164, 167; Jones, Tr. 551-52; Smith, Tr. 1944-46.) B. Plant Location 328. Customers prefer multi-plant suppliers with back-up supply in case of an accident. (Rembert, Tr. 166-67; Rottman, Tr. 917-18, 942; Jardis, Tr. 1339-41.) 329. Glass containers are difficult to ship long distances due to freight costs. (Rembert, Tr. 176; Larson, Tr. 2303-04; Rowe, Tr. 2627; Leone, Tr. 2665.) Multi-plant firms have an advantage over single-plant firms because glass containers are costly to ship. (Leone, Tr. 2653-54.) 330. Customers do not store large quantities of glass and need reliable deliveries to avoid running out of containers. (Jameson, Tr. 797-98; Langer, Tr. 1455-56; Willers, Tr. 1748-49; Smith, Tr. 1943-44.) C. Efficient Production 331. Firms with small furnaces have higher costs than firms with efficient equipment. Because high-speed equipment, such as triple gob and quad machines, can produce more bottles faster than smaller single and double gob machines, it is most efficient to assign the largest volume possible to high-speed machines. (Zoon, Tr. 75; Leone, Tr. 2672-73; CX 29B.) 332. Ten-triples and ten-quads are the most efficient machines for all types of glassware and are the only machines Owens makes for its own use. (Lemieux, CX 1225 at 63.) Producers who have this OWENS-ILLINOIS, INC., ET AL. 945 179 Initial Decision equipment have lower costs than small producers who have only singles and doubles. (CX 1006C; CX 1012Z1-Z2; CX 1017F.) 333. Latchford, Glenshaw, Leone, Arkansas, Tropicana and Hillsboro have no machines larger than double gob. (CX 1403, 1406, 1407, 1409, 1410, 1414.) Owens’ output per machine is 35% better than the rest of the industry. (CX 19 at 19; CX 9331.) 334. Brockway acknowledges that modernization of production lines to increase capacity can take two years to accomplish. (CX 28Z36.)' 335. Hillsboro and Coors produce only amber glass for beer and distilled spirits containers. (CX 1407; CX 1419.) Color changes require a furnace to be down for about 3-5 days. (Lemieux, CX 1225 at 59; CX 923B.)”

336. Expanding production by electric boosting” is not cost efficient because of the high cost of electricity (Cavanagh, Tr. 5236; CX 502B) and the increased rate of brickwork erosion. (Larson, Tr. 2332.) Electric boosting requires higher productivity forming machinery, which would require capital costs at Owens’ plants ranging between $3 million and $13 million. (CX 27Z24-Z28.) 337. Small glass container producers lack the engineering of the larger multi-plant firms because single firms cannot defray such expenses. (Rembert, Tr. 166-67; Rottman, Tr. 916-17; Willers, Tr. 1750; Leone, Tr. 2653, 2658.) D. Capacity 338. Small firms operate at capacity, and are unable to produce additional glass. (Smith, Tr. 2005; Larson, Tr. 2304, 2327; Kalil, Tr. 2383; Lusby, Tr. 2461-62, 2487; Leone, Tr. 2673; Silvani, Tr. 3715, CX 1153A.) 8 Tf electric boosting has not been used, furnace rebuilds occur once every seven or eight years and take about 60 days. (Cavanagh, Tr. 5198-5200.) '? Most beer is packaged in amber bottles to protect against ultraviolet light. (Larson, Tr. 2305.) Miller is the only large producer that uses flint glass for beer. *° Electric boosting is a means of using electrodes in the furnace to melt additional glass in order to obtain more capacity and to refine the glass. (Larson, Tr. 2327.) Initial Decision 115 F.T.C.

339. Expansion is limited at many glass plants by lack of land. (Zoon, Tr. 87-88; Rowe, Tr. 2619, 2624.) 340. Environmental regulations make expansion less likely. (Larson, Tr. 2337; Leone, Tr. 2675-76.) VIII. PRICE COMPETITION A. Pricing Behavior 341. When larger glass container producers raise prices, smaller producers usually follow. (Jones, Tr. 557; Jardis, Tr. 1349; Harralson, Tr. 1644-45; Willers, Tr. 1834; Smith, Tr. 1953, 1964; Wilson, Tr. 2241-42, 2244.) 342. Small producers operate small plants and do not have the production capacity of leading producers. (CX 1451.) It is unlikely that small firms could constrain a price increase by the leading firms. (Rembert, Tr. 177; Jameson, Tr. 807; Jardis, Tr. 1345-46; Smith, Tr. 1953; CX 1451.) B. Excess Capacity 1. Capacity utilization 343. Capacity utilization is affected by four factors: the size of the furnace; the size of machines and other possible choke-points in the manufacturing process; the product mix; and the number of days a plant operates. (F 344-349.) 344, Physical capacity is tonnage that can be melted daily by the furnace. The number of containers produced on each furnace depends on the types of machines on the furnace, and the size of bottles. (CX 28Z35.) Heavier bottles draw more glass from the furnace than light bottles. (Cavanagh, Tr. 5292-93.) The amount of glass pulled from a furnace depends on the products. (Ramply, Tr. 1027-28.) 345. The productive capacity of a furnace is limited by the type of machines, the condition of the furnace, and the product mix. (Zoon, Tr. 84.) 346. Some companies, including Brockway, use machine hours in determining capacity utilization. (Rowe, Tr. 2633; Cavanagh, Tr. OWENS-ILLINOIS, INC., ET AL. 247 179 Initial Decision 5286; CX 28Z35.) Owens and others measure capacity based on machine operating days. (Leone, Tr. 2674-75; Cavanagh, Tr. 5289; CX 520A-C.) Some companies use machine operating rates. (Cavanagh, Tr. 5290.) Coors uses a method based on batch usage and fusion loss. (Larson, Tr. 2317; Cavanagh, Tr. 5290-91.) 347. A furnace or machine cannot be used for actual production 24 hours a day, 365 days a year. Some days are holidays by union contract. Furnaces and machines require rebuilds. (Lemieux, CX 26 at 82-83.) Color changes require several days of downtime in each direction. (Lemieux, CX 26 at 82-83.) Owens uses 335 days per year in calculating practical operating capacity, (Lemieux, Tr. 5608- 09.) Brockway uses 340 days in calculating capacity utilization. (CX 9208S.) 348. Demand for glass containers increases during summer months because of the stronger demand for beer, soft drinks, and juices, and seasonal fruits and vegetables at this time of the year. (Lemieux, Tr. 5560.) Owens runs at full capacity almost5 1 3 3 4 10 1768 1574 107 34 96.849754 every4 1 3 3 5 0 541 1612 1334 45 -1 5 1 3 3 5 1 541 1612 187 35 94.857979 summer. (Lemieux, Tr. 5560.) Rebuilds and maintenance are scheduled during the first and fourth quarters to coincide with holiday shutdowns and decreased demand. (CX 2447D.) Because glass companies run ful] out during the summer and have downtime during the winter, the industry has operated with some excess capacity. (Lemieux, Tr. 5624-26.) Owens tries to operate at 83% capacity. (Lemieux, Tr. 5624.) 349. The most probative evidence on capacity utilization comes from non-interested glass container producers, regarding their productive capabilities, customers regarding their abilities to obtain glass containers, the actions of glass producers seeking or turning down business, and documentary evidence regarding Owens’ and Brockway's perceptions of capacity utilization. That evidence shows that capacity utilization has been high in recent years as the result of plant shutdowns, that there have been shortages of glass bottles, that the industry has controlled capacity utilization to prevent prices from falling, and that capacity utilization is not expected to fall. (F 350-378.) Initial Decision 115 F.T.C.

2. Utilization history 350. Beginning in the late 1970's and early 1980's, demand for glass containers declined due to the loss of the family-size (2-liter) soft drink business to PET, and a shift of the beer industry from glass to metal cans. (CX 49R; CX 50Z10; CX 1009M; CX 1013N; CX 10261; CX 1038L; CX 1039C, G.) In response, the glass industry began in 1980 to shut down plants and furnaces. (CX 27Z73-Z75; CX 79G; CX 816T.) The industry closed 30 plants, took 100 glass furnaces out of operation, and eliminated 350 glass-forming machines. (CX 20; CX 27Z73-Z75; CX 79G; CX 816T.) 351. By December 1984, capacity utilization had improved to the point where Owens was expecting to operate at 93% utilization for 1985. (Lemieux, CX 1038A, L.) 352. William Laimbeer, Owens' former Executive Vice President (CX 19 at 2) observed in May 1985: Ours 1 4 3 2 11 1576 1504 94 45 96.775154 glass5 1 4 3 2 12 1684 1505 180 35 96.926323 containers 1 4 3 2 13 1876 1506 114 45 96.873131 plants4 1 4 3 3 0 655 1557 1336 51 -1 5 1 4 3 3 1 655 1568 58 24 97.014931 ares 1 4 3 3 2 727 1557 151 46 96.707031 running5 1 4 3 3 3 892 1559 195 45 95.979614 extremely5 1 4 3 3 4 1102 1560 93 34 96.831596 well.5 1 4 3 3 5 1224 1560 116 35 96.853783 These5 1 4 3 3 6 1355 1561 202 45 96.872536 operations5 1 4 3 3 7 1573 1563 91 34 96.906479 have5 1 4 3 3 8 1678 1563 92 35 97.015236 been5 1 4 3 3 9 1784 1563 207 45 96.443886 positioned4 1 4 3 4 0 655 1615 1334 51 -1 5 1 4 3 4 1 655 1621 35 29 96.138184 to5 1 4 3 4 2 708 1615 110 35 96.893181 breaks 1 4 3 4 3 835 1626 91 24 96.936905 even5 1 4 3 4 4 944 1616 107 34 96.553474 while5 1 4 3 4 5 1069 1617 184 45 96.545219 operating5 1 4 3 4 6 1271 1624 33 28 97.007935 at5 1 4 3 4 7 1321 1618 46 35 96.952873 605 1 4 3 4 8 1384 1626 145 37 96.909935 percent5 1 4 3 4 9 1545 1620 42 33 96.858673 of5 1 4 3 4 10 1600 1620 193 45 61.534962 capacity. By May 1985, the industry was at 90% capacity utilization. (CX 816S.) 353. By early spring of 1985, bottlers were complaining to Owens about the lack of glass containers. (CX 524; CX 525A-B.) Owens was sold out. (Ayres, Tr. 1865.) In response to a complaint by one bottler, Owens claimed that it had brought5 1 4 4 4 10 1730 1920 47 24 96.721809 on5 1 4 4 4 11 1799 1910 46 34 95.959869 all5 1 4 4 4 12 1868 1910 43 34 96.489456 of5 1 4 4 4 13 1929 1911 58 34 96.940826 thea 1 4 4 5 0 651 1962 608 46 -1 5 1 4 4 5 1 651 1962 162 46 96.439079 capacity5 1 4 4 5 2 829 1974 56 24 96.855133 we5 1 4 4 5 3 899 1963 96 35 92.593819 can. (CX 526A.) 354. Brockway's 1986-88 Strategic Plan projects that Brockway would operate at 90% each year through 1990 (CX 902S), because of consolidation among glass producers. (CX 902248.) 355. In September 1985, according to Mr. Lemieux, the glass industry was operating5 1 4 6 2 4 1143 2261 33 29 96.988625 at5 1 4 6 2 5 1192 2255 86 45 96.986443 high5 1 4 6 2 6 1296 2256 161 46 96.924942 capacity5 1 4 6 2 7 1475 2256 228 42 90.929565 utilization, Owens' competitors were trying to raise prices, and OI5 1 4 6 3 9 1567 2315 102 43 96.823845 [was]5 1 4 6 3 10 1692 2315 146 46 96.687386 making5 1 4 6 3 11 1858 2316 126 35 96.876411 record4 1 4 6 4 0 647 2370 455 43 -1 5 1 4 6 4 1 647 2370 167 35 92.616028 returns. (CX 1012G.) 356. For the year 1985, Owens operated at 92.1% of practical capacity (CX 936Z26) and estimated that capacity utilization in the glass container industry was 99.9%. (CX 19 at 19; CX 833B.) 357. During early 1986, Owens turned down customers because of its tight capacity situation. (CX 361B; CX 1483.) 358. In May 1986, the capacity situation resulted in Owens being oversold and making5 1 4 9 2 4 1135 2789 20 25 96.157364 a5 1 4 9 2 5 1169 2779 51 35 96.421944 lots 1 4 9 2 6 1234 2779 43 35 96.421944 of5 1 4 9 2 7 1288 2780 162 45 93.359734 money. (CX 19 at 48.) OWENS-ILLINOIS, INC., ET AL. 249 179 Initial Decision 359. In October 1986, Les Garton, the Vice President and General Manager of the Glass Container Division, reported that during 1986 Owens operated5 1 3 1 3 5 1201 744 34 29 96.510551 at5 1 3 1 3 6 1259 738 66 36 96.943573 full5 1 3 1 3 7 1350 741 181 46 79.211708 capacity (CX 50Z8), and achieved records 1 3 1 4 3 906 793 182 46 95.673134 earnings (CX 50Z8), and that Thes 1 3 1 4 9 1648 800 161 48 93.291199 industry5 1 3 1 4 10 1825 813 63 35 93.232430 op-4 1 3 1 5 0 553 848 1336 58 -1 5 1 3 1 5 1 553 848 120 34 96.148033 erated5 1 3 1 5 2 691 854 33 29 96.942467 at5 1 3 1 5 3 740 848 45 36 96.940544 its5 1 3 1 5 4 803 849 141 46 96.058304 highest5 1 3 1 5 5 960 852 163 46 96.936111 capacity5 1 3 1 5 6 1140 854 93 35 96.961273 levels 1 3 1 5 7 1251 854 36 35 96.961273 in5 1 3 1 5 8 1304 863 120 28 96.880463 recent5 1 3 1 5 9 1440 867 162 37 96.435745 memory5 1 3 1 5 10 1619 859 68 35 97.010345 this5 1 3 1 5 11 1705 870 85 36 93.151772 years 1 3 1 5 12 1806 881 29 5 90.824768 --5 1 3 1 5 13 1854 868 35 29 96.978264 at4 1 3 1 6 0 553 904 1333 59 -1 5 1 3 1 6 1 553 904 106 35 97.007858 about5 1 3 1 6 2 672 905 47 36 96.904190 925 1 3 1 6 3 730 914 146 37 96.968765 percent5 1 3 1 6 4 889 908 41 35 97.003693 of5 1 3 1 6 5 939 909 167 45 96.874962 practical5 1 3 1 6 6 1120 912 170 45 80.514664 capacity.5 1 3 1 6 7 1331 941 29 7 80.514664 ...5 1 3 1 6 8 1375 914 65 35 97.019012 We5 1 3 1 6 9 1454 916 166 44 96.990341 operated5 1 3 1 6 10 1633 927 64 25 96.542900 ours 1 3 1 6 11 1715 918 42 34 97.006363 145 1 3 1 6 12 1771 919 115 44 95.476631 plants4 1 3 1 7 0 551 963 1259 55 -1 5 1 3 1 7 1 551 968 33 29 96.899178 at5 1 3 1 7 2 599 963 122 45 96.871536 nearly5 1 3 1 7 3 740 964 69 35 96.729065 1005 1 3 1 7 4 822 972 145 38 96.617813 percent5 1 3 1 7 5 981 967 167 45 96.677299 practical5 1 3 1 7 6 1164 970 222 45 63.861752 capacity...5 1 3 1 7 7 1405 971 26 36 63.861752 . (CX 50Z11-Z12.) 360. The fact that Owens operated at full practical capacity utilization during 1986, at 92%, was confirmed by Mr. Lemieux. (Lemieux, CX 26Z57-Z58.) 361. This capacity utilization level resulted in Owens achieving “record net earnings for the second consecutive year" in 1986. (CX 18Q.) Operating profit of Owens' domestic Glass Container Division increased by 20% in 1986, following an increase in 1985 of 140% over 1984. (CX 18J.) 362. Owens estimated that the entire glass industry operated at a 92% utilization rate during 1986. (CX 40F.) This full capacity utilization continued into 1988. (CX 20N-O.) 363. In April 1987, Brockway advised Borden that it was in5 1 3 5 1 12 1815 1677 57 35 96.819588 thea 1 3 5 2 0 538 1719 1333 57 -1 5 1 3 5 2 1 538 1719 179 36 96.938408 awkward5 1 3 5 2 2 739 1721 61 35 96.475052 but5 1 3 5 2 3 820 1733 84 35 96.475052 very5 1 3 5 2 4 925 1725 236 36 96.411720 comfortable5 1 3 5 2 5 1180 1727 158 45 96.411720 positions 1 3 5 2 6 1358 1728 43 36 96.989731 of5 1 3 5 2 7 1417 1730 107 46 96.712090 beings 1 3 5 2 8 1545 1732 79 35 97.009583 sold5 1 3 5 2 9 1645 1734 79 33 95.387390 out”5 1 3 5 2 10 1746 1745 47 24 96.629852 on5 1 3 5 2 11 1813 1734 58 36 96.961388 thea 1 3 5 3 0 536 1776 1335 56 -1 5 1 3 5 3 1 536 1776 90 36 96.798386 lines5 1 3 5 3 2 641 1779 118 34 96.428955 where5 1 3 5 3 3 773 1779 27 35 96.957794 it5 1 3 5 3 4 814 1781 120 35 96.924599 would5 1 3 5 3 5 949 1793 64 24 96.918411 runs 1 3 5 3 6 1027 1783 97 44 95.381126 glass5 1 3 5 3 7 1139 1784 57 35 96.949486 for5 1 3 5 3 8 1208 1785 171 37 87.812096 Borden's5 1 3 5 3 9 1395 1788 162 36 96.800110 bouillon5 1 3 5 3 10 1573 1791 212 41 96.536362 containers,5 1 3 5 3 11 1802 1793 69 34 96.819839 anda 1 3 5 4 0 535 1834 1334 59 -1 5 1 3 5 4 1 535 1834 162 36 96.793251 declined5 1 3 5 4 2 710 1843 35 28 96.989449 to5 1 3 5 4 3 759 1838 130 35 93.130424 submits 1 3 5 4 4 901 1849 19 24 93.130424 a5 1 3 5 4 5 932 1839 69 35 96.401947 bid.5 1 3 5 4 6 1028 1841 80 41 96.784157 (CX5 1 3 5 4 7 1126 1842 117 42 93.251579 1484.)5 1 3 5 4 8 1267 1843 222 47 92.028534 Brockway's5 1 3 5 4 9 1503 1847 159 46 96.621071 capacity5 1 3 5 4 10 1675 1849 194 35 96.825401 utilization4 1 3 5 5 0 535 1894 1333 59 -1 5 1 3 5 5 1 535 1902 72 25 96.865440 was5 1 3 5 5 2 622 1894 151 46 96.652267 running5 1 3 5 5 3 788 1902 33 28 96.561783 at5 1 3 5 5 4 836 1897 282 47 96.561783 approximately5 1 3 5 5 5 1134 1899 86 36 96.947762 90%5 1 3 5 5 6 1237 1901 36 34 96.946800 in5 1 3 5 5 7 1288 1902 157 36 96.222771 October5 1 3 5 5 8 1465 1904 101 35 96.647881 1987.5 1 3 5 5 9 1597 1905 189 48 95.909058 (Coakley,5 1 3 5 5 10 1802 1908 66 35 96.801720 CX4 1 3 5 6 0 533 1950 156 43 -1 5 1 3 5 6 1 533 1950 156 43 53.562122 23228.)3 1 3 6 0 0 533 2008 1332 106 -1 4 1 3 6 1 0 607 2008 1258 57 -1 5 1 3 6 1 1 607 2008 81 36 95.412376 364.5 1 3 6 1 2 716 2010 39 35 96.443405 In5 1 3 6 1 3 769 2011 96 46 96.443405 early5 1 3 6 1 4 885 2013 101 41 96.799820 1988,5 1 3 6 1 5 1002 2014 132 36 96.889503 Owens5 1 3 6 1 6 1150 2026 72 24 95.712814 was5 1 3 6 1 7 1238 2016 69 36 94.927933 still5 1 3 6 1 8 1323 2019 139 46 87.072113 turning5 1 3 6 1 9 1475 2020 107 36 96.886444 downs 1 3 6 1 10 1597 2031 79 25 96.251312 news 1 3 6 1 11 1690 2022 175 37 95.421608 business.4 1 3 6 2 0 533 2066 827 48 -1 5 1 3 6 2 1 533 2066 82 43 96.807915 (CX5 1 3 6 2 2 634 2067 105 42 96.669106 1482;5 1 3 6 2 3 756 2069 66 35 92.570946 CX5 1 3 6 2 4 837 2070 160 44 91.206894 2432H.)3 1 3 7 0 0 528 2125 1342 224 -1 4 1 3 7 1 0 606 2125 1264 59 -1 5 1 3 7 1 1 606 2125 81 36 96.718117 365.5 1 3 7 1 2 714 2127 138 46 96.462723 During5 1 3 7 1 3 870 2129 102 41 95.814316 1988,5 1 3 7 1 4 988 2137 159 40 96.951294 contrary5 1 3 7 1 5 1162 2138 36 29 96.946899 to5 1 3 7 1 6 1212 2133 58 34 96.901703 thes 1 3 7 1 7 1283 2134 164 36 96.975616 tradition5 1 3 7 1 8 1461 2136 36 34 96.959183 in5 1 3 7 1 9 1510 2136 58 35 96.622513 thes 1 3 7 1 10 1582 2137 169 47 96.705887 industry,5 1 3 7 1 11 1767 2139 46 35 96.520325 all5 1 3 7 1 12 1828 2139 42 36 96.996597 of4 1 3 7 2 0 530 2182 1334 61 -1 5 1 3 7 2 1 530 2182 143 36 92.202080 Owens'5 1 3 7 2 2 686 2184 115 46 97.009293 plants5 1 3 7 2 3 817 2186 67 35 96.940292 ands 1 3 7 2 4 900 2197 100 26 96.910896 some5 1 3 7 2 5 1014 2187 43 37 96.405190 of5 1 3 7 2 6 1067 2189 57 35 97.011078 thes 1 3 7 2 7 1138 2190 199 47 96.402466 Brockway5 1 3 7 2 8 1350 2193 115 45 96.816727 plants5 1 3 7 2 9 1479 2205 60 25 96.816727 ran5 1 3 7 2 10 1555 2196 145 45 96.320267 Straight5 1 3 7 2 11 1714 2196 150 47 95.977844 through4 1 3 7 3 0 529 2241 1333 58 -1 5 1 3 7 3 1 529 2241 131 43 96.757919 Easter,5 1 3 7 3 2 674 2243 191 38 96.734032 Memorials 1 3 7 3 3 880 2245 89 47 96.793045 Day,5 1 3 7 3 4 984 2247 57 35 96.793045 thes 1 3 7 3 5 1054 2247 128 37 96.545967 Fourths 1 3 7 3 6 1195 2249 43 35 96.545967 of5 1 3 7 3 7 1246 2250 79 46 96.790123 July5 1 3 7 3 8 1339 2251 68 36 96.438835 ands 1 3 7 3 9 1420 2252 115 36 96.438835 Labor5 1 3 7 3 10 1547 2253 90 46 95.762909 Day.5 1 3 7 3 11 1663 2255 199 43 96.316055 (Lemieux,4 1 3 7 4 0 528 2300 635 49 -1 5 1 3 7 4 1 528 2300 54 35 94.979095 Tr.5 1 3 7 4 2 600 2301 109 41 92.746269 5561;5 1 3 7 4 3 725 2303 226 42 92.395409 McMackin,5 1 3 7 4 4 968 2305 54 36 96.406143 Tr.5 1 3 7 4 5 1039 2306 124 43 96.406143 5803.)3 1 3 8 0 0 526 2358 1335 165 -1 4 1 3 8 1 0 602 2358 1259 50 -1 5 1 3 8 1 1 602 2358 81 37 94.905121 366.5 1 3 8 1 2 718 2361 34 34 94.905121 A5 1 3 8 1 3 769 2361 89 36 95.348473 June5 1 3 8 1 4 876 2362 56 42 96.200218 26,5 1 3 8 1 5 957 2364 90 35 93.296783 19875 1 3 8 1 6 1066 2364 142 37 92.176979 Owens'5 1 3 8 1 7 1226 2369 271 35 96.107262 memorandum5 1 3 8 1 8 1514 2370 188 37 96.160812 estimated5 1 3 8 1 9 1720 2372 72 36 93.259460 that5 1 3 8 1 10 1809 2373 52 35 93.239609 in-4 1 3 8 2 0 526 2416 1330 51 -1 5 1 3 8 2 1 526 2416 122 46 96.805351 dustry5 1 3 8 2 2 671 2419 163 45 96.772285 capacity5 1 3 8 2 3 856 2420 198 37 96.781143 utilization5 1 3 8 2 4 1076 2423 72 35 96.965614 will5 1 3 8 2 5 1170 2425 134 35 96.938553 remains 1 3 8 2 6 1326 2425 35 36 96.970879 in5 1 3 8 2 7 1382 2426 59 35 96.970879 thes 1 3 8 2 8 1462 2427 70 35 96.645515 lows 1 3 8 2 9 1554 2428 74 36 95.763771 90's5 1 3 8 2 10 1649 2429 94 36 96.701302 from5 1 3 8 2 11 1769 2431 87 36 96.902557 19914 1 3 8 3 0 526 2476 544 47 -1 5 1 3 8 3 1 526 2476 151 45 96.591553 through5 1 3 8 3 2 697 2477 103 36 80.248596 1995.5 1 3 8 3 3 830 2479 82 42 96.746338 (CX5 1 3 8 3 4 932 2479 138 44 96.111992 123M.)2 1 4 0 0 0 1051 2597 280 38 -1 3 1 4 1 0 0 1051 2597 280 38 -1 4 1 4 1 1 0 1051 2597 280 38 -1 5 1 4 1 1 1 1051 2598 31 34 96.357452 3.5 1 4 1 1 2 1124 2597 207 38 96.247818 Customers2 1 5 0 0 0 521 2708 1335 118 -1 3 1 5 1 0 0 521 2708 1335 118 -1 4 1 5 1 1 0 597 2708 1259 63 -1 5 1 5 1 1 1 597 2708 82 37 93.093475 367.5 1 5 1 1 2 727 2710 139 46 96.561501 Buyers5 1 5 1 1 3 891 2712 42 35 96.964546 of5 1 5 1 1 4 953 2713 95 45 96.697502 glass5 1 5 1 1 5 1073 2714 201 37 96.703987 containers5 1 5 1 1 6 1298 2716 155 36 96.694473 confirms 1 5 1 1 7 1477 2719 71 35 96.287231 that5 1 5 1 1 8 1572 2719 95 46 96.287231 glass5 1 5 1 1 9 1693 2716 163 55 96.696320 capacity4 1 5 1 2 0 521 2766 1335 60 -1 5 1 5 1 2 1 521 2766 197 37 96.596329 utilization5 1 5 1 2 2 732 2768 63 35 96.955276 has5 1 5 1 2 3 810 2770 90 35 96.631218 been5 1 5 1 2 4 915 2770 85 46 96.778908 high5 1 5 1 2 5 1017 2773 68 34 96.949379 ands 1 5 1 2 6 1100 2773 72 35 96.848305 that5 1 5 1 2 7 1186 2773 82 46 96.659569 they5 1 5 1 2 8 1284 2775 91 36 96.659569 have5 1 5 1 2 9 1389 2776 69 35 96.551582 had5 1 5 1 2 10 1474 2776 181 48 96.719818 difficulty5 1 5 1 2 11 1670 2779 186 47 96.621338 obtaining Initial Decision 115 F.T.C.

glass containers. (Mitchell, Tr. 678; Jameson, Tr. 805; Rottman, Tr. 944; Jardis, Tr. 1346; Langer, Tr. 1466.) 4, Other producers 368. Anchor has recently operated at production levels high enough that it has been able to increase prices. (CX 2447B.) Anchor recently refused to bid on soft drink business in the western U.S. (Kalil, Tr. 2386-88), informed one customer that it is “running most of [its] machines at close to capacity" (Jones, Tr. 598), and has shown disinterest in other business. (Willers, Tr. 1757-58.) Prior to the Diamond-Bathurst acquisition, Anchor was operating its plants at near practical capacity. (CX 2448E, F.) After acquiring Diamond- Bathurst, Anchor shut down plants during June and July of 1988. (CX 1401B, C, D, E, F, G.) 369. Ball-Incon reported in May 1988 that it was running at 95% of capacity. (CX 408G.) Customers confirm that Ball's capacity is sold5 1 5 2 3 2 768 1608 92 35 94.875793 out. (Jones, Tr. 598; Jameson, Tr. 805.) 370. Coors is operating at full capacity. (Larson, Tr. 2304, 2327.) 371. Foster-Forbes has sales for everything the company can produce. (Zoon, Tr. 62; Jameson, Tr. 805.) 372. Gallo sometimes looks outside of its own self-manufacture for supply (Smith, Tr. 2005; Silvani, Tr. 3715), indicating that the company is not able to meet all of its needs for glass containers. 373. Glenshaw is operating at very5 1 5 6 1 7 1515 2078 100 35 96.704170 closes 1 5 6 1 8 1638 2085 36 29 96.218834 to5 1 5 6 1 9 1696 2079 67 35 96.515373 full5 1 5 6 1 10 1786 2080 195 46 94.641083 capacity. (Lusby, Tr. 2461-62, 2487.) Glenshaw expects to operate near full capacity throughout 1989. (Lusby, Tr. 2496.) Borden understands that Glenshaw is pretty5 1 5 6 4 5 1124 2249 105 35 96.725533 much5 1 5 6 4 6 1243 2250 127 35 96.592178 maxed5 1 5 6 4 7 1383 2251 77 35 96.341713 out on what it can produce for Realemon bottles. (Willers, Tr. 1732, 1760.) 374. Hiram-Walker, which owns Hillsboro, has been buying glass containers from Owens (CX 1153B), indicating that Hillsboro is not able to produce all of Hiram-Walker's needs. 375. Customers confirm that Kerr is sold5 1 5 8 1 8 1563 2543 89 35 91.909355 out. (Jones, Tr. 598; Jameson, Tr. 805.) 376. Leone is operating close to full capacity utilization, and operated at 95% of capacity in 1988. (Leone, Tr. 2673.) OWENS-ILLINOIS, INC., ET AL. 251 179 Initial Decision 377. Liberty told at least one customer that its capacity situation is full, and there5 1 3 1 2 5 935 691 57 25 96.945213 ares 1 3 1 2 6 1004 679 142 46 97.017784 periods5 1 3 1 2 7 1160 678 126 46 96.837570 during5 1 3 1 2 8 1300 678 86 35 96.929192 each5 1 3 1 2 9 1399 688 84 35 96.601318 years 1 3 1 2 10 1495 677 104 35 96.554794 when5 1 3 1 2 11 1612 677 82 45 96.493599 they5 1 3 1 2 12 1711 675 169 46 96.737747 [Liberty]4 1 3 1 3 0 547 734 1333 49 -1 5 1 3 1 3 1 547 740 119 36 96.911041 refuses 1 3 1 3 2 679 740 120 36 97.000587 orders5 1 3 1 3 3 813 750 40 25 96.808105 or5 1 3 1 3 4 865 745 77 29 96.704910 turns 1 3 1 3 5 955 739 107 35 96.723457 downs 1 3 1 3 6 1075 738 120 35 96.251282 orders5 1 3 1 3 7 1210 748 39 25 96.438843 or5 1 3 1 3 8 1263 748 61 35 96.438843 says 1 3 1 3 9 1339 737 80 45 96.630516 they5 1 3 1 3 10 1434 736 93 35 92.670547 don't5 1 3 1 3 11 1541 741 93 29 97.011284 wants 1 3 1 3 12 1648 746 68 35 97.010551 any5 1 3 1 3 13 1730 734 150 36 96.594650 orders. (Kalil, Tr. 2383.) 378. Miller has been buying beer bottles from both Owens and Brockway (CX 1153A), indicating that the company is not able to produce all of its needs.

5. Effects of high utilization 379. Glass container manufacturers recognize that excess capacity tends to decrease prices, and that full capacity utilization raises prices. Price wars occurred in the early 1980's because of excess capacity in the industry. Manufacturers will keep full utilization in the future, not by price competition, but by further plant closings to keep prices up. (Lemieux, CX 47G and 1026H; CX 372B; CX 829D-E; CX 922E; CX 929F.) 380. Owens will close plants over the next few years to avoid the prices 1 5 2 2 2 691 1669 109 35 96.017998 wars of the early 1980's. (CX 843A-Z12.) Mr. Owens, Director of Planning, testified that this was Owens' share of industry-wide reduction needed to keep utilization flat to avoid the prices 1 5 2 5 2 685 1845 121 34 81.603806 wars. (Whiting, CX 1221 at 188-89.) Owens is deciding which two plants it intends to take down next year. (Lemieux, Tr. 5588, 5623-24.) C. Likelihood of Price Cuts 381. Glass container customers are reluctant to switch suppliers. Mold production costs inhibit moving from one company to another because molds are not interchangeable due to machine variations. (Jardis, Tr. 1341; Lemieux, CX 1225 at 49.) Molds are owned by the customer. A customer shifting suppliers would have to invest in new molds. (Jardis, Tr. 1337, 1360-61.) 382. Other than Miller, almost all beer is in amber glass rather than flint. (Larson, Tr. 2305.) Except for wine and wine coolers (which are flint or green) and distilled spirits (which are amber), most of the end-uses are in flint glass. Changing colors requires several days of down-time. (Nelson, Tr. 2914.) Initial Decision 115 F.T.C.

383. Among the major producers who would be part of any collusion in this industry -- Owens, Anchor, Ball, Foster-Forbes and Kerr -- there is little excess capacity. (F 368-378.) 384. Anchor is losing money, and has unsuccessfully attempted to raise prices during the past year. (Mitchell, Tr. 670-72; CX 450D, H.) Customers desire a supplier that is financially sound. (CX 722E.) Owens believes that Anchor's incentive is to looks 1 3 2 4 10 1783 977 36 29 93.289207 to5 1 3 2 4 11 1832 977 159 40 93.086075 support-4 1 3 2 5 0 656 1022 1334 54 -1 5 1 3 2 5 1 656 1022 60 46 96.859627 ings 1 3 2 5 2 734 1034 44 24 96.859627 an5 1 3 2 5 3 794 1023 141 46 96.936066 orderly5 1 3 2 5 4 952 1025 153 35 92.517204 market rather than taking the risks of price-cutting. (CX 818A.) 385. Owens is not likely to cut prices because it has the most to gain as a result of its market share. Owens realizes the danger of price wars in this industry and has a debt of $3.9 billion. (CX 539B; CX 1037Z8.) 386. Foster-Forbes would not cut prices if there were a collusive arrangement; Foster-Forbes would raise its prices of glass containers if Owens and the other major producers raised theirs. (Zoon, Tr. 76-77.) Foster-Forbes has more than 50% of its production in either amber or green glass (CX 1451S), so that it would be costly to change to flint. (F 335.) 387. Ball and Kerr both recently attempted to raise prices. (Mitchell, Tr. 670-72; Lemieux, Tr. 5612-13.) 388. Glass producers follow price increases in response to Owens' price increase announcement. (Bachey, Tr. 3628-29.) Anchor already has indicated that it intends to raise prices, and Owens received reports from the field that Kerr was also planning to increase prices. (Lemieux, Tr. 5613.) 389. Users of glass containers feel that prices are likely to increase as a result of this merger. (Rembert, Tr. 195; Mitchell, Tr. 690; Jameson, Tr. 811; Clements, CX 1460A; Langer, Tr. 1468-69; Willers, Tr. 1765; Ayres, Tr. 1868; Kalil, Tr. 2398; Blecharz, Tr. 4974; CX 60A.) D. Detection of Price Cutting 390. Glass container manufacturers frequently visit plants of customers and can determine the identity of glass suppliers. (Silvani, Tr. 3703; Lankester, Tr. 4061; CX 23Z98.) OWENS-ILLINOIS, INC., ET AL. 253 179 Initial Decision 391. Each glass bottle shows the identity of the company and plant which produced it, and when it was produced. (Silvani, Tr. 3703; Lankester, Tr. 4059 and CX 2026C; CX 454A-F.) 392. Prices are known in the industry because customers tell their suppliers. (Bachey, Tr. 3627.) Customers informed Owens that Anchor intends to raise prices in reaction to Owens’ most recent price increase announcement. (McMackin, Tr. 5824; CX 610; CX 754A-C and Towse, CX 1220 at 139-141.) 393. Respondents track competitors’ capacity, production and shipments, and how the business is split at customers. (CX 40A-F; CX 62A-V; CX 118A-K; CX 121A-K; 1127A-C and CX 1130A-H; CX 1151A-Z82.) 394. Brockway obtains information about its competitors from employees who were formerly employed by competitors (CX 79Z14, Z34, Z66), from plant tours (CX 79Z72, Z78) and from employees of trade associations, such as the Glass Technical Institute. (CX 79Z62.) Foster-Forbes knows who is supplying glass containers to its major customers and how much they are supplying. (Zoon, Tr. 63.) 395. Owens and other glass container manufacturers get clauses in supply agreements that give them the right to meet a price decrease if a competitor should offer a lower price. (Zoon, Tr. 60; CX 302M; CX 765; CX 1481C; Bachey, CX 1222 at 53, 57.) 396. Distributors report to their suppliers about competitive bids in the marketplace, including price quotes and the competitors that quoted those prices. (Silvani, Tr. 3713, 3771.) E. Owens' Power to Retaliate 397. Owens is the lowest-cost domestic producer of glass containers. (Lemieux, CX 26Z61.) Owens’ equipment is 40% more productive than the most advanced equipment available to its competition and Owens is the only producer close to having a fullyautomated production facility. (CX 101]; CX 101Z10.) 398. Owens is the only producer with quadruple gob forming machines, which are more productive than 10-triples, the next best machine (500 bottles per minute for 10-quad versus 350 bottles per minute for 10-triple). (CX 101Z18.) Owens' first 10-quad was in- Initial Decision 115 F.T.C.

stalled in 1982. (CX 1012M.) The company now has seven of these machines installed in various plants, together with 20 10-triples and 19 8-triples, the next most productive machines. (CX 1416A-Z37.) 399. Since 1980, Owens' productivity has increased at a greater rate than the rest of the industry. (CX 829B-E; CX 1013Q; CX 1037Q.) 400. Brockway was, with 10 triple-gob machines of its own (CX 1417A-Z8), also a low cost producer compared to other companies in the market. (CX 50Z12.) 401. During recent years, Owens has reduced the costs. From 1979 through 1986, productivity improvements averaged 10% a year, the number of plants was reduced from 22 to 14 and the number of employees was reduced from 19,000 to 10,000. (CX 19 at 19; CX 101E.) 402. During 1986, the OI Glass Container Division's unit production costs were down 13% from five years previously, a period during which inflation increased 13.5%. (CX 50Z24.) In 1986, Owens' gross output by machine line was 152% greater than its 1975 output (CX 50Z22); raw material costs were down $21.5 million in 1986 from 1982, (CX 50Z23); natural gas costs were down $22 million in 1986 from 1982, and costs per cubic foot were expected to be down 17.1% in 1986 from 1985 (CX 50Z23); and salaried headcount in 1986 was down 43% below four years previously. (CX 50Z23.) 403. As a result of these productivity increases, lower costs and flat prices, Owens has been able to increase its profit margins. (CX 1034227.) 404. Owens is installing equipment that allows the production of narrow-neck containers at about 15% greater speed and about 15% lighter weight than previous containers, which reduces costs about 4-5%. (Lemieux, Tr. 5602, 5563.) 405. Prior to the acquisition by Owens, Brockway planned on installing 20 narrow-neck press and blow machines in its plants during the time period 1988-1991. (CX 1139D.) Brockway expected to get a productivity improvement of about 4-5% per year as a result of installing this technology. (McMackin, CX 1202 at 50.) For the five previous years, Brockway had been achieving average annual OWENS-ILLINOIS, INC., ET AL. 255 179 Initial Decision productivity increases of about 3% based on improvements to existing machinery. (McMackin, CX 1202 at 49-50.) 406. Owens tries to get customers to switch containers to those made by high productivity equipment, but does not pass all its savings to the customer. (CX 50R and CX 1012Z129.) 407. Between 1982 and 1986, the cost to Owens of producing and distributing a gross of 16-oz. single-serve soft drink bottles decreased from $13.03 to $11.05, while Owens’ price per gross decreased only slightly, from $13.39 to $13.24. (CX 381.) 408. Owens’ costs declined during recent years, while the company's profit margins increased. Owens' glass cost in 1982 was $53.03 per ton compared to $45.86 per ton in 1987, and its cost of natural gas in 1983 was $4.82 per MCF versus $2.75 per MCF in 1987. (CX 511B.) Owens' gross profit margins increased from 14% in 1982 to 19.5% in 1987, and were projected to remain at about that level during 1988. (CX 1037Z2.) 409. Mr. Bachey, Owens' Vice President, told Anchor that Owens would gets 1 3 5 2 4 901 1617 106 36 96.407814 even with Anchor for undercutting Owens at one of Owens' bottling accounts, and over the next three and one half months took five accounts away from Anchor by lower prices. (CX 2440A-B.) IX. REMEDY 410. Divestiture is appropriate in this case. Brockway's glass plants can be spun off, together with an organization necessary to run those plants. (Lanigan, CX 1219 at 418; McMackin, Tr. 5859-60.) LEGAL DISCUSSION I. INTRODUCTION Glass containers for cosmetics, perfumes and ointments were used in Egypt in 2000 B.C. Until a hundred years ago, glass bottles and jars were still made individually, with a glass blower and four assistants turning out about 216 a day. (CX 51B.) Michael Owens developed the first practical bottle making machine in 1903, and since then the technology has continuously improved. Initial Decision 115 F.T.C.

The glass container industry grew steadily until the 1980's when overproduction and price cutting, and increasing competition from other packaging material, caused several companies to go out of business. After a series of mergers and plant closings, the glass industry by 1986 was again dynamic and growing. (CX 51I.) The acquisition involved in this proceeding then took place. Il. THE RELEVANT PRODUCT MARKET Section 7 requires a determination of (1) a relevant lines 1 5 1 1 11 1963 1143 43 36 96.688438 of4 1 5 1 2 0 665 1196 1338 50 -1 5 1 5 1 2 1 665 1196 233 41 95.957817 commerce, or product market, and (2) a sections 1 5 1 2 9 1643 1199 43 36 96.879242 of5 1 5 1 2 10 1696 1200 58 35 96.986763 thes 1 5 1 2 11 1768 1201 178 45 96.313995 country, or geographic market in which to assess the potential effects of the acquisition. Brown Shoe Co. v. United States, 370 U.S. 294, 324 (1962).

There is little doubt that the relevant geographic market is the continental United States. (F 265-279.) The contested issue in this case is whether the relevant product market includes all rigid containers, or is limited to glass containers. Complaint counsel allege that the manufacture and sale of glass containers is a relevant product market with submarkets in which customers could be harmed, and that, because specified users have no close substitute for glass they would not switch to other packages in the event of an increase in price of glass. The alleged submarkets were:

Baby food and baby juice Distilled spirits Spaghetti sauce Wine Mayonnaise Wine coolers Pickles Single-serve soft drinks Jams and jellies Certain scientific and Shelf-stable juice chemical applications The outer boundaries of a product market are determined by reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it. Within the broad market, well-defined submarkets may exist which constitute product markets for antitrust purposes, and the boundaries of such submarkets may be determined by looking at (Brown Shoe, 370 U.S. at 325): OWENS-ILLINOIS, INC., ET AL. 957 179 Initial Decision 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. Not all of these criteria must be met before a relevant submarket is found. Indeed, in Brown Shoe itself, the Court upheld the submarkets of men's, women's and children's shoes based only on public recognition, separate production plants, peculiar product characteristics and distinct customers. 370 U.S. at 326. And in United States v. Aluminum Co. of America, 377 U.S. 271 (1964), the Court observed that aluminum and copper electrical conductors perform the same job equally well. 377 U.S. at 276. Nevertheless, the Court found the two in separate submarkets, relying on only two factors: distinctive characteristics and prices. Id. at 276-77.” The record in this case clearly establishes numerous “area[s] of effective competition." United States v. Continental Can Co., 378 U.S. 441, 456 (1964), in which to test the competitive effects of this acquisition.

A. Characteristics 1. Glass Glass containers have distinctive characteristics: - Glass is clear, permitting the contents to be visible. This is an advantage for food and beverages. (F 40.) - Glass is impermeable, keeping oxygen out and carbonation in, and maintains a vacuum to prevent spoilage. (F 42.) - Glass is retortable, permitting food to be sterilized. (F 44.) - Glass is hot-fillable. (F 44.) - Glass is inert, and does not affect the taste of the contents. (F 47.) - Glass conveys a quality image. (F 50.) - Glass is easily reclosable. (F 45.) - Glass is microwaveable. (F 51.) 21 See also Abex Corp. v. FTC, 420 F.2d 928, 931-932 (6th Cir.), cert. denied, 400 U.S. 865 (1970); see other cases cited in Reichhold Chemicals, Inc., 91 FTC 246, 284- 285 (1978), aff'd, 13 FTC Court Decisions 158 (4th Cir. 1979). Initial Decision 115 F.T.C.

- Glass is rigid, facilitating filling, proper sealing, and stacking. (F 48.) - Glass is recyclable. (F 96.) Glass, however, is heavy, and shatters, and may be less desirable for containers handled by children.

2. Cans Cans also are impermeable, retortable, rigid, and recyclable, but they have disadvantages:

- Cans are not clear. (F 41.) - Cans are not readily reclosable. (F 46.) - Cans lack a quality image. (F 218 (distilled spirits); F 211, (wine coolers); F 200 (wine).) Cans may impart a taste to the contents of the container. (F 47.) 3. Plastic Plastic is light and strong. It is used for large containers, such as 2-liter soft drinks, and bleach, where the weight and brittleness of glass are a disadvantage. (F 56.) Plastic containers for products like peanut butter and ice cream topping are convenient for use by children. (F 77.) Plastic containers are squeezeable, which is good for a ketchup container. (F 76.) Plastic has disadvantages: - There are no clear impermeable plastic containers. (F 69.) Multi-layer high barrier plastics are more expensive than glass and lack its clarity. (F 33.) - There are no clear wide-mouth plastic containers that can be retorted or hot-filled. (F 68, 69, 71, 74.) - Plastic lacks a quality image. (F 202 (wine); F 212 (wine coolers); F 222 (distilled spirits).) - Plastic lacks rigidity, so it has slow filling speeds, and inferior stacking strength. (F 49.) - Plastic has recycling problems. Recycled plastic cannot be used for food or beverages. Some forms of plastic packaging are banned in the State of Washington. (F 96-104.) - Plastic containers are generally more costly than glass, from 25-30% for mayonnaise to double the cost of glass for baby juice. (F 52.) OWENS-ILLINOIS, INC., ET AL. 259 179 Initial Decision Many users are committed to glass and would not switch away from glass if prices were to increase as a result of this merger.” Glass has clarity, impermeability, retortability, resealability, inertness, rigidity, quality image, microwaveability, and recyclability, that are not found in the same combination in plastic or metal. Glass is the most cost effective container for many uses. (F 39, 52.) B. Uses If the presence of substitute materials were the only test to determine a relevant submarket, single-serve soft drinks would be inappropriate as a measure of the effect of the merger.” Demand is elastic, and 75% of the product is packaged in plastic and cans. (F 226-255.) Even without considering that submarket, however, the record contains substantial evidence of preference for glass con- 22 . .

Many customers who use glass containers for packaging have no acceptable substitute for glass or would not switch from glass to some other type of container if glass prices were increased: Baby food and baby juice: Gerber (Rottman, Tr. 922-23, 934); Beech-Nut (Jones, Tr. 521-22, 529); Spaghetti sauce: Ragu (Jameson, Tr. 795, 797); Borden (Prince and Classico) (Jardis, Tr. 1325, 1330); Jams and jellies: Welch's (Rembert, Tr. 142, 144); Borden (Bama) (Willers, Tr. 1706); Clements Foods (Clements, Tr. 752, 756); Pickles: Cates (Faulkner, Tr. 1267, 1271); Shelf-stable juice: Ocean Spray (Bourque, Tr. 2079-81, 2084); Welch (Rembert, Tr. 155, 159-60, 161); Borden (Realemon) (Willers, Tr. 1725); L&A Juice (Langer, Tr. 1443, 1449); Clements Foods (Clements, Tr. 762); Mayonnaise: CPC (Hellman's and Best Foods) (Mitchell, Tr. 668-70); Borden (Bama) (Willers, Tr. 1697- 98), Clements Foods (Clements, Tr. 758-59); Wine: Wine World (Wilson, Tr. 2215-16, 2218, 2220, 2274); Seagram (Smith, Tr. 1940).

Some soft drink bottlers testified that they would not switch to plastic or cans in the event of a 5-10% increase in the price of glass. RC Cola (Harralson, Tr. 1564, 1582, 1645-46); L&A Juice Co. (Langer, Tr. 1442-43, 1448); Pepsi-Cola Bottling Co. of Denver (Ayres, Tr. 1854, 1856); Kalil Bottling Co. (Royal Crown, Dr Pepper, Canada Dry, 7-Up) (Kalil, Tr. 2353, 2358). This may be because the cost of the container is relatively low and a 10% increase would amount to only one cent a bottle. (Harralson, Tr. 1564.) Or it may be because cans already dominate the market. (Ayres, Tr. 1854.) Other evidence shows that other soft drink producers would promote cans or plastic in the event of a price increase in glass. (Ibid., F 234.) While single-serve soft drinks may well be a relevant submarket based on criteria other than use, supra. n. 21, that issue was not joined and is unnecessary to this decision.

Initial Decision 115 F.T.C.

tainers in several end-uses™ where cans or plastic are regarded as inferior.”° Producers of glass containers can raise prices to some buyers who have no practical substitute for packaging their products. Glass containers are used to package almost all of the submarkets for baby food, spaghetti sauce, jams and jellies, pickles, mayonnaise, and wine coolers. Sales of glass jars and bottles for these products in 1986 totaled over $500 million. (F 105, 134, 146, 157 and 185.) Plastic and metal are not usually used for consumer packages for these products because they lack the technical qualities of glass (F 110, 140, 148, 161), or for perhaps more tenuous reasons such as the perceived quality image of the product packaged in glass, or the desire of the consumer for a clear package in order to see the contents.”° Even in submarkets where other packaging materials are used more extensively, glass dominates certain sizes and quality: shelf-stable juice (F 165-184), distilled spirits (F 222), and premium wine. (F 199.) Sales of glass bottles in these submarkets total hundreds of millions of dollars annually. (CX 90B, F 165.) In all of 2 Although complaint counsel alleged that glass containers used in scientific, chemical and laboratory applications was a relevant market the proof was minimal (Proposed Findings, Vol. II, p. 168), and the allegation must be denied for failure of proof. They also argued that glass containers for instant coffee was a relevant market. Their proffer was excluded from evidence. (Tr. 308 at 5-94.) 25 Although other packaging materials exist, these packages are not viewed as substitutes by customers. Squeezeable plastic containers for mayonnaise, jelly and relish are being used by a few producers, but are not acceptable substitutes for glass because of their high cost, lack of clarity, low filling speeds, inferior shelf-life, poor consumer acceptance, and similar considerations. (F 152-156, 164, 192-197.) Gerber has tried a translucent, multi-layer, heat-resistant plastic container for baby juice and met similar problems (plus permeability problems that restricted its use to only a few types of juice), so that the company decided not to expand its limited marketing area for that product. (F 127-132.) Two customers in the juice segment use plastic containers for some applications in the 64-ounce size, but these containers have permeability and heat-resistance problems, as well as high cost relative to glass. (F 173-180.) 26 Much of respondents’ defense relies heavily on numerous exhibits of packages using materials other than glass. Many of these products were from foreign, or irrelevant markets. Their materiality was left largely unexplained in the record. The colorful grocery5 1 8 1 4 3 937 2788 88 29 90.197945 shelf exhibits are misleading and have been given little weight. OWENS-ILLINOIS, INC., ET AL. 261 179 Initial Decision these submarkets, the demand for glass containers is inelastic, and purchasers would accept substantial price increases without switching to a substitute material. There is little doubt that the public interest is served by regulating market practices involving this amount of commerce. Topps Chewing Gum, Inc., 67 FTC 744, 836 (1965). C. Price Prices for glass containers and other containers differ: glass prices do not move with prices of other containers. Plastic prices change more than glass and sometimes move in a different direction than glass. (F 52, 83.) During 1988, glass prices remained flat (F 83), while PET bottle prices increased by 20%. (F 88.) The cost for plastic typically is higher as container sizes become smaller, so that relative price differences vary depending on size. (F 55.) The price premium for plastic is from 20% (F 245) to three times the price of glass. (F 52, 120.) Plastic bottles, metal cans and glass containers have different raw material costs. (F 84-89.) These price differences between glass and other containers show glass containers to be a relevant product market. If prices of various products differ over time, those products comprise separate lines of commerce. Brown Shoe, 370 U.S. at 325; B.F. Goodrich Co., 110 FTC 207, 290 (1988); Grand Union Co., 102 FTC 812, 1041 (1983). [S]ensitivity5 1 5 3 1 2 880 1964 35 29 96.727135 to5 1 5 3 1 3 937 1957 97 46 96.727135 prices 1 5 3 1 4 1057 1957 175 45 94.975273 changes is relevant to product market definition. Brown Shoe, 370 U.S. at 325. Producers of glass containers for most uses do not take into account the prices of other types of containers when making their bids. (F 82.) Users of these containers do not shift between glass and other types of containers based on prices (F 59), and would not shift to other forms of packaging if glass prices were to increase by 20%. The price of a glass container is less than 10% of the retail price. A 10% increase on the price of the container would result in a far lesser increase on the retail shelf price of the product. (F 58.) This tends to make buyers of glass containers less sensitive to changes in price. Initial Decision 115 F.T.C.

D. Industry Recognition [I]Jndustry5 1 4 1 1 2 989 739 40 25 96.315681 or5 1 4 1 1 3 1051 728 122 46 96.815041 public5 1 4 1 1 4 1197 730 242 46 96.057922 recognition of a product as distinct is evidence that a product constitutes a line of commerce. Brown Shoe, 370 USS. at 325.

Buyers and sellers of containers recognize glass containers to be a distinct line of commerce. Owens computes its own market shares based on a glass only market, without including other rigid packaging. (F 94.) The glass and plastic container divisions at Owens employ separate sales forces, have separate research and development departments, constitute separate profit centers, and market their products separately. (F 92.) There is a trade association for producers of glass containers that does not include other types of packaging material. (F 95.) Glass producers employ different distribution practices from producers of other types of containers. Plastic and metal containers are sold FOB plant of manufacture, while glass containers are sold delivered. (F 90.) Producers of one type of container do not take into account the prices of other types of containers when making bids. (F 82.) Customers maintain separate buyers or buying departments for different types of containers (F 93), and solicit bids only from producers of one type of container for specific packaging requirements. (F 81.) The price of glass (not plastic or metal cans) is likely to rise as a result of the merger. (F 389.) Customers would not buy plastic and metal if such an increase were to occur. E. Production Facilities The existence of unique5 1 6 1 1 5 1233 2244 210 44 96.497154 productions 1 6 1 1 6 1457 2244 184 35 94.531822 facilities is evidence that a product constitutes a line of commerce. Brown Shoe Co., 370 U.S. at 325.

Glass containers are manufactured in unique production facilities. Glass container plants cannot economically produce other types of containers, nor can plants that manufacture cans or plastic containers produce glass containers. (F 257.) Cross-elasticity of supply is a relevant factor in defining a product market for antitrust purposes. Brown Shoe Co. v. United States, 370 U.S. at 325 n. 42; Weyerhaeuser Co., 106 FTC 172, 274 (1985). OWENS-ILLINOIS, INC., ET AL. 263 179 Initial Decision Depending on the cost and speed of the shift, production substitution may allow firms that do not currently produce the relevant product to respond to an increase in the price of that product, and thereby defeat the price increase. B.F. Goodrich Co., 110 FTC at 290. If a product has unique5 1 3 1 5 3 802 850 213 46 96.497337 productions 1 3 1 5 4 1043 848 198 42 94.748825 facilities, however, producers of other products cannot competitively respond to a price increase, which indicates a line of commerce. Brown Shoe Co. v. United States, 370 USS. at 325.

Glass container plants produce only glass containers, and do not produce other types of products. (F 257.) Plants used for producing metal or plastic containers cannot be used to produce glass containers.”’ There is some production substitutability within the glass container industry. Glass lines are capable of switching from one type of glass container to another. Producers can switch from making one type of glass container to another (such as from mayonnaise to beer bottles). (F 263.) Even if a glass container manufacturer does not make a glass container, that firm is in the relevant market. (F 256.) F, Case Law on Product Market United States v. Continental Can Co., 378 U.S. 441 (1964), held that the product market is determined by (1) the products produced by the merging firms and (2) the end-uses for which they compete. Continental Can involved a merger between a metal can producer and a glass container producer, and resulted in a finding that thea 1 5 1 6 0 528 2184 1334 49 -1 5 1 5 1 6 1 528 2187 252 46 92.237579 interindustry5 1 5 1 6 2 797 2186 234 46 96.648590 competitions 1 5 1 6 3 1046 2187 163 34 96.553635 between5 1 5 1 6 4 1225 2186 97 45 96.829224 glass5 1 5 1 6 5 1339 2185 69 36 93.133492 ands 1 5 1 6 6 1424 2184 250 46 91.746704 interindustry5 1 5 1 6 7 1690 2184 172 36 92.341766 end-uses4 1 5 1 7 0 528 2242 1335 47 -1 5 1 5 1 7 1 528 2245 105 36 96.962990 metals 1 5 1 7 2 647 2244 197 37 97.003357 containers5 1 5 1 7 3 859 2244 29 37 96.706406 is5 1 5 1 7 4 904 2244 179 36 96.520065 sufficient5 1 5 1 7 5 1096 2250 35 29 96.944885 to5 1 5 1 7 6 1144 2250 148 29 96.999084 warrants 1 5 1 7 7 1304 2243 145 46 96.775528 treating5 1 5 1 7 8 1463 2253 37 25 96.824165 as5 1 5 1 7 9 1515 2253 20 25 96.722221 a5 1 5 1 7 10 1547 2243 156 35 96.478477 relevant5 1 5 1 7 11 1715 2242 148 46 96.695541 product4 1 5 1 8 0 528 2300 1334 49 -1 5 1 5 1 8 1 528 2304 137 36 96.392677 markets 1 5 1 8 2 685 2304 59 35 96.309517 thes 1 5 1 8 3 765 2303 191 36 96.402664 combined5 1 5 1 8 4 978 2303 95 46 96.492790 glass5 1 5 1 8 5 1095 2302 68 36 96.968948 ands 1 5 1 8 6 1184 2302 107 35 96.534348 metals 1 5 1 8 7 1312 2301 183 36 96.738510 containers 1 5 1 8 8 1514 2300 189 36 96.430145 industries5 1 5 1 8 9 1726 2301 69 34 96.728806 ands 1 5 1 8 10 1816 2300 46 35 96.509735 all2 1 6 0 0 0 527 2442 594 9 -1 3 1 6 1 0 0 527 2442 594 9 -1 4 1 6 1 1 0 527 2442 594 9 -1 5 1 6 1 1 1 527 2442 594 9 95.000000 2 1 7 0 0 0 526 2485 1360 330 -1 3 1 7 1 0 0 526 2485 1360 330 -1 4 1 7 1 1 0 596 2485 1267 50 -1 5 1 7 1 1 1 596 2485 27 21 33.418098 275 1 7 1 1 2 651 2499 87 28 88.779976 Glass5 1 7 1 1 3 752 2498 24 29 96.904037 is5 1 7 1 1 4 790 2498 145 37 96.876205 produced5 1 7 1 1 5 948 2498 38 36 97.012108 by5 1 7 1 1 6 999 2497 113 36 96.923271 heating5 1 7 1 1 7 1126 2497 79 32 96.711632 sand,5 1 7 1 1 8 1219 2496 160 32 96.905792 limestone,5 1 7 1 1 9 1393 2495 70 29 96.908051 soda5 1 7 1 1 10 1476 2495 59 32 96.908051 ash,5 1 7 1 1 11 1561 2495 54 28 90.772919 ands 1 7 1 1 12 1628 2494 163 32 90.772919 colorizers,5 1 7 1 1 13 1806 2494 29 28 93.627518 in5 1 7 1 1 14 1848 2502 15 20 93.627518 a4 1 7 1 2 0 527 2542 1335 42 -1 5 1 7 1 2 1 527 2548 69 36 96.914062 high5 1 7 1 2 2 613 2555 106 29 96.688728 energy5 1 7 1 2 3 736 2546 125 29 95.955734 furnace.5 1 7 1 2 4 890 2546 60 29 96.898895 Thes 1 7 1 2 5 965 2554 57 20 96.611305 raw5 1 7 1 2 6 1038 2545 141 29 96.787918 materials5 1 7 1 2 7 1195 2545 71 28 96.643387 used5 1 7 1 2 8 1281 2549 29 24 96.763977 to5 1 7 1 2 9 1324 2544 125 37 96.510254 produces 1 7 1 2 10 1465 2544 79 28 96.872101 others 1 7 1 2 11 1558 2548 81 32 96.900993 types5 1 7 1 2 12 1655 2542 34 29 96.903603 of5 1 7 1 2 13 1702 2542 160 29 96.794434 containers4 1 7 1 3 0 527 2589 1359 41 -1 5 1 7 1 3 1 527 2593 87 29 96.506126 differs 1 7 1 3 2 629 2593 75 29 96.152443 from5 1 7 1 3 3 719 2593 86 37 96.152443 glass.5 1 7 1 3 4 835 2593 60 28 96.762337 Thes 1 7 1 3 5 910 2592 138 37 96.641037 principals 1 7 1 3 6 1063 2600 58 20 96.883781 raw5 1 7 1 3 7 1136 2591 127 29 96.963440 materials 1 7 1 3 8 1279 2591 45 28 96.696388 for5 1 7 1 3 9 1339 2590 84 29 96.629349 metals 1 7 1 3 10 1438 2599 68 19 96.810135 cans5 1 7 1 3 11 1522 2590 24 28 96.984039 is5 1 7 1 3 12 1562 2590 158 28 96.419724 aluminum5 1 7 1 3 13 1736 2597 32 20 96.419724 or5 1 7 1 3 14 1783 2589 78 28 95.930939 steel.5 1 7 1 3 15 1882 2593 4 1 38.524414 ©4 1 7 1 4 0 527 2635 1334 42 -1 5 1 7 1 4 1 527 2641 102 28 96.877365 Plastics 1 7 1 4 2 639 2640 89 29 96.877365 resins5 1 7 1 4 3 739 2649 46 19 96.940903 ares 1 7 1 4 4 794 2638 258 39 95.704536 petroleum-based5 1 7 1 4 5 1063 2647 31 20 96.984627 so5 1 7 1 4 6 1104 2639 58 28 96.961861 that5 1 7 1 4 7 1170 2638 71 28 96.864082 theirs 1 7 1 4 8 1250 2643 75 23 96.342537 costs5 1 7 1 4 9 1336 2646 46 20 96.342537 ares 1 7 1 4 10 1392 2637 162 28 96.487160 influenced5 1 7 1 4 11 1564 2637 37 36 97.011833 by5 1 7 1 4 12 1612 2636 89 29 96.884285 world5 1 7 1 4 13 1712 2635 38 29 96.853355 oils 1 7 1 4 14 1761 2635 100 37 96.296181 prices.4 1 7 1 5 0 527 2683 1335 41 -1 5 1 7 1 5 1 527 2687 108 36 96.944916 During5 1 7 1 5 2 646 2687 48 28 96.843613 thes 1 7 1 5 3 704 2692 62 32 96.843613 past5 1 7 1 5 4 777 2695 74 29 96.895676 year,5 1 7 1 5 5 863 2686 75 37 96.100204 glass5 1 7 1 5 6 950 2686 144 27 96.954529 containers 1 7 1 5 7 1103 2685 91 37 96.916008 prices5 1 7 1 5 8 1206 2685 72 28 96.917397 have5 1 7 1 5 9 1289 2685 72 28 96.854599 been5 1 7 1 5 10 1372 2684 58 28 95.436394 flat.5 1 7 1 5 11 1451 2683 69 29 96.952965 PETS 1 7 1 5 12 1530 2683 91 37 96.998764 prices5 1 7 1 5 13 1633 2683 73 28 96.999939 have5 1 7 1 5 14 1717 2683 145 27 96.279449 increased4 1 7 1 6 0 527 2729 1335 41 -1 5 1 7 1 6 1 527 2734 76 28 96.414726 from5 1 7 1 6 2 615 2734 34 28 92.813637 515 1 7 1 6 3 665 2733 191 37 92.813637 cents/pounds 1 7 1 6 4 868 2733 53 28 96.819138 lasts 1 7 1 6 5 933 2740 68 29 96.901237 years 1 7 1 6 6 1012 2737 28 23 95.756805 to5 1 7 1 6 7 1054 2732 85 29 95.756805 about5 1 7 1 6 8 1152 2731 36 29 93.306221 685 1 7 1 6 9 1201 2731 189 37 92.679390 cents/pounds 1 7 1 6 10 1404 2735 26 24 96.912155 at5 1 7 1 6 11 1442 2735 120 32 96.303703 present.5 1 7 1 6 12 1587 2730 69 28 96.632378 PETS 1 7 1 6 13 1668 2730 89 28 96.787209 bottles 1 7 1 6 14 1770 2729 92 37 96.737373 prices4 1 7 1 7 0 526 2776 1033 39 -1 5 1 7 1 7 1 526 2780 73 28 96.700592 have5 1 7 1 7 2 611 2780 149 28 96.606506 increased5 1 7 1 7 3 772 2779 86 28 96.705772 while5 1 7 1 7 4 870 2779 75 36 96.841270 glass5 1 7 1 7 5 958 2778 92 37 97.012985 prices5 1 7 1 7 6 1063 2779 72 27 96.924423 have5 1 7 1 7 7 1147 2778 72 28 96.756180 been5 1 7 1 7 8 1232 2778 98 28 93.281494 stable.5 1 7 1 7 9 1345 2777 33 34 93.217079 (F5 1 7 1 7 10 1390 2776 97 33 95.804939 83-86,5 1 7 1 7 11 1501 2776 58 33 96.970543 88.) Initial Decision 115 F.T.C.

end-uses for which they compete." /d., 378 U.S. at 457.2 The evidence in the present case shows that there are end-uses for which metal cans and glass containers do not compete. (F 105-255.) In finding a combined metal/glass container market, the Court did not hold that glass containers separately or metal cans separately could not be relevant markets. The Court specifically held that there may be other narrower lines of commerce involving the same products, 378 U.S. at 456-58:

Glass and metal containers were recognized [by the district court] to be two separate lines of commerce. But given the area of effective competition between these lines, there is necessarily implied one or more other lines of commerce embracing both industries.

* * * * Nor are we concerned by the suggestion that if the product market is to be defined in these terms it must include plastic, paper, foil and any other materials competing for the same business. That there may be a broader product market made up of metal, glass and other competing containers does not necessarily negative the existence of submarkets of cans, glass, plastic or cans and glass together, for within5 1 6 1 5 13 1843 1559 55 28 96.390694 this5 1 6 1 5 14 1913 1560 89 27 96.948799 broad4 1 6 1 6 0 667 1605 1335 37 -1 5 1 6 1 6 1 667 1605 117 33 96.607452 market,5 1 6 1 6 2 799 1605 196 28 93.280296 well-defined5 1 6 1 6 3 1009 1605 177 28 92.697060 submarkets5 1 6 1 6 4 1200 1613 65 28 96.593666 may5 1 6 1 6 5 1278 1605 72 28 96.820328 exists 1 6 1 6 6 1363 1605 103 33 96.949982 which,5 1 6 1 6 7 1480 1605 28 28 96.504066 in5 1 6 1 6 8 1522 1605 181 33 96.385414 themselves,5 1 6 1 6 9 1717 1605 152 28 96.591736 constitutes 1 6 1 6 10 1882 1605 120 37 96.723129 product4 1 6 1 7 0 667 1652 1335 37 -1 5 1 6 1 7 1 667 1653 120 28 96.703491 markets5 1 6 1 7 2 799 1652 45 28 96.870819 for5 1 6 1 7 3 855 1652 125 28 96.636772 antitrust5 1 6 1 7 4 991 1652 160 37 91.002411 purposes. [Citing Brown Shoe Co. v. United States, 370 U.S. at 325.] See also General Foods Corp., 69 FTC 380, 411 (1966), aff'd, 386 F.2d 936 (3d Cir. 1967), cert. denied, 391 U.S. 919 (1968): The Court [in Continental Can] held that metal and glass containers were in the same product market for the purposes of considering the effects of the acquisition, even though the Court considered the products of the two companies to be in separate2 1 9 0 0 0 663 2166 593 10 -1 3 1 9 1 0 0 663 2166 593 10 -1 4 1 9 1 1 0 663 2166 593 10 -1 5 1 9 1 1 1 663 2166 593 10 95.000000 2 1 10 0 0 0 662 2209 1338 610 -1 3 1 10 1 0 0 662 2209 1338 610 -1 4 1 10 1 1 0 738 2209 1261 50 -1 5 1 10 1 1 1 738 2209 27 21 77.676018 85 1 10 1 1 2 788 2223 60 28 92.014938 Thes 1 10 1 1 3 859 2223 154 36 96.637558 complaints 1 10 1 1 4 1025 2223 110 36 96.392639 alleged5 1 10 1 1 5 1147 2223 56 28 96.921646 that5 1 10 1 1 6 1215 2223 45 28 96.989059 thes 1 10 1 1 7 1272 2223 167 36 96.646347 acquisitions 1 10 1 1 8 1452 2222 33 29 97.017212 of5 1 10 1 1 9 1493 2223 45 28 93.301620 thes 1 10 1 1 10 1551 2223 185 28 92.381088 Hazel-Atlas5 1 10 1 1 11 1748 2222 86 29 96.030441 Glass5 1 10 1 1 12 1846 2222 153 36 96.433281 Company4 1 10 1 2 0 664 2270 1335 38 -1 5 1 10 1 2 1 664 2271 106 35 96.753441 (which5 1 10 1 2 2 781 2271 68 28 96.989159 later5 1 10 1 2 3 857 2271 119 28 96.762360 became5 1 10 1 2 4 986 2276 60 32 96.642548 parts 1 10 1 2 5 1055 2271 33 28 96.943863 of5 1 10 1 2 6 1096 2271 171 37 96.425804 Brockway)5 1 10 1 2 7 1278 2271 37 37 96.331245 by5 1 10 1 2 8 1326 2271 179 28 96.591057 Continental5 1 10 1 2 9 1516 2271 61 28 96.444839 Cans 1 10 1 2 10 1588 2271 150 37 95.913521 Company5 1 10 1 2 11 1750 2270 123 29 96.964668 violated5 1 10 1 2 12 1885 2270 114 29 96.757950 Section4 1 10 1 3 0 664 2316 1335 38 -1 5 1 10 1 3 1 664 2319 16 27 96.772881 75 1 10 1 3 2 697 2318 34 28 96.440605 of5 1 10 1 3 3 743 2318 48 28 96.669373 thes 1 10 1 3 4 806 2317 123 37 96.707123 Clayton5 1 10 1 3 5 944 2318 56 27 96.705688 Acts 1 10 1 3 6 1015 2317 37 36 96.854370 by5 1 10 1 3 7 1068 2317 143 36 96.797653 lessening5 1 10 1 3 8 1227 2317 185 37 96.740776 competitions 1 10 1 3 9 1428 2317 28 28 95.748207 in5 1 10 1 3 10 1472 2323 45 22 96.485733 tens 1 10 1 3 11 1534 2322 126 31 96.713501 separates 1 10 1 3 12 1675 2317 120 36 96.443344 products 1 10 1 3 13 1810 2317 132 32 93.269768 markets,5 1 10 1 3 14 1958 2316 41 28 93.263916 in-4 1 10 1 4 0 664 2363 1335 38 -1 5 1 10 1 4 1 664 2364 115 37 96.773842 cluding5 1 10 1 4 2 790 2364 46 28 96.064888 thes 1 10 1 4 3 850 2364 97 28 96.064888 metal can" market, the glass5 1 10 1 4 8 1326 2364 157 28 84.277466 container market, the packaging market, and seven other markets defined principally by end-uses within the overall industry. The district court found that three constituted relevant markets for purposes of Section 7: (1) the metal can market (/d., 217 F. Supp. at 788); (2) the glass container market (id., 217 F. Supp. at 791); and (3) the beer container market (/d., 217 F. Supp. at 794-95). Since the merger was between a can producer and a glass producer, the district court dismissed. The Supreme Court reversed the judgment of the district court, holding that “the inter-industry competition between glass and metal containers is sufficient to warrant treating as a relevant product market the combined glass and metal container industries and all end-uses for which they compete." Jd., 378 U.S. at 457. OWENS-ILLINOIS, INC., ET AL. 265 179 Initial Decision industries" and to comprise distinct products 1 3 1 1 7 1254 617 147 28 93.212738 markets. The market defined by the Court in Continental Can was that delimited by the “outer boundaries” referred to in the Brown Shoe opinion; but the Court took pains to point out that its findings with respect to this broader market did not preclude the finding of narrower submarkets within the more comprehensive market.

See Liggett & Myers, Inc., 87 FTC 1074, 1155 n. 13 (1976) (Continental Can recognized glass as separate line of commerce), aff'd, 567 F.2d 1273 (4th Cir. 1977); Borden, Inc., 92 FTC 669, 766 (Initial Decision), aff'd 92 FTC at 784 (1978). And See Posner and Easterbrook, Antitrust Cases, Economic Notes and Other Materials 366-67 (2d ed. 1981) ("[I]f the merger [in Continental Can] had been between two manufacturers of cans (or of bottles), the Court would surely have held that cans (or bottles) were an appropriate 'submarket' in which to appraise the effects of the merger.") Even if there does exist an all5 1 4 2 1 8 1294 1434 92 46 96.781158 rigid5 1 4 2 1 9 1412 1434 200 36 94.528564 container market, as respondents have argued in this case, that would not foreclose a separate glass container market. Within any broad market, well-4 1 4 2 4 0 518 1608 1335 48 -1 5 1 4 2 4 1 518 1611 148 36 92.899635 defined5 1 4 2 4 2 696 1611 221 36 92.816704 submarkets5 1 4 2 4 3 946 1621 83 35 96.699615 may5 1 4 2 4 4 1058 1610 92 35 96.699615 exists 1 4 2 4 5 1179 1610 129 40 96.728935 which,5 1 4 2 4 6 1338 1610 36 34 96.334381 in5 1 4 2 4 7 1403 1610 228 40 96.334381 themselves,5 1 4 2 4 8 1662 1608 191 36 96.831375 constitute4 1 4 2 5 0 518 1667 1337 48 -1 5 1 4 2 5 1 518 1670 150 45 96.305130 products 1 4 2 5 2 683 1670 154 35 96.039177 markets5 1 4 2 5 3 853 1669 57 35 96.873978 for5 1 4 2 5 4 925 1669 160 35 96.322891 antitrust5 1 4 2 5 5 1099 1669 205 45 58.813328 purposes. Brown Shoe Co. v. United States, 370 US. at 325.

Lines5 1 4 3 1 2 742 1785 42 36 96.332344 of5 1 4 3 1 3 804 1785 218 36 95.642929 commerce may be based on users' preferences, needs, or perceptions of quality, whether or not substitutes exist. For example, both glass bottles and plastic containers hold liquids, but they are not in the same relevant market for premium wines. (F 198-209.) Times Picayune Pub. Co. v. United States, 345 U.S. 594, 612 n. 31 (1953):

[flor every product, substitutes exist. But a relevant market cannot meaningfully encompass that infinite range. The circle must be drawn narrowly to exclude any other product to which, within reasonable variations in price, only a limited number of buyers will turn; in technical terms, products whose ‘cross-elasticities of demand’ are small.”

29 See also United States v. Grinnell Corp., 384 U.S. 563, 573-74 (1966) (accredited central station service a line commerce even though there5 1 8 1 2 11 1624 2604 54 25 96.971298 are,5 1 8 1 2 12 1691 2600 30 23 95.419807 to5 1 8 1 2 13 1732 2596 36 27 95.419807 be5 1 8 1 2 14 1780 2603 72 25 96.470177 sure,4 1 8 1 3 0 519 2642 1333 37 -1 5 1 8 1 3 1 519 2647 173 29 95.639641 substitutes such as watchmen and audible alarms); Borden, Inc. v. FTC, 674 F.2d 498, 508 (6th Cir. 1982), vacated and remanded for entry of consent order, 461 U.S. 940 (1983) (bottled lemon juice a line of commerce distinct from fresh lemons: regardless4 1 8 1 6 0 517 2782 1182 41 -1 5 1 8 1 6 1 517 2787 34 28 96.962975 of5 1 8 1 6 2 561 2788 126 27 97.005043 whether5 1 8 1 6 3 698 2795 55 20 97.009300 ones 1 8 1 6 4 765 2786 119 37 96.817398 products 1 8 1 6 5 896 2785 122 36 96.766319 actually5 1 8 1 6 6 1030 2793 54 20 96.964020 cans 1 8 1 6 7 1095 2785 36 28 96.725426 be5 1 8 1 6 8 1144 2784 169 29 96.725426 substituted5 1 8 1 6 9 1324 2783 46 29 96.454384 for5 1 8 1 6 10 1380 2784 47 28 96.848190 thes 1 8 1 6 11 1438 2791 51 21 96.920906 uses 1 8 1 6 12 1501 2782 34 30 93.296394 of5 1 8 1 6 13 1544 2782 155 34 89.513321 another.) Initial Decision 115 F.T.C, The Cellophane decision, United States, v. EI. du Pont de Nemours & Co., 351 U.S. 377 (1956), does not support respondents' rigid container market. In that decision, the Court concluded that cellophane was part of an overall flexible5 1 3 1 4 8 1533 791 113 46 96.802971 wrap market along with aluminum foil and other materials. The Court determined that a4 1 3 1 6 0 682 905 1334 47 -1 5 1 3 1 6 1 682 905 109 45 96.048111 slight5 1 3 1 6 2 814 905 169 36 96.594269 decreases 1 3 1 6 3 1007 905 37 36 96.937180 in5 1 3 1 6 4 1069 905 58 36 96.739525 thes 1 3 1 6 5 1150 906 98 45 96.427742 prices 1 3 1 6 6 1273 906 42 36 96.337448 of5 1 3 1 6 7 1335 907 212 45 96.337448 cellophane5 1 3 1 6 8 1571 918 126 25 96.121880 causes5 1 3 1 6 9 1723 919 19 24 96.113800 a5 1 3 1 6 10 1767 908 249 36 96.862457 considerable4 1 3 1 7 0 680 963 1335 48 -1 5 1 3 1 7 1 680 963 151 36 96.468987 numbers 1 3 1 7 2 858 963 43 36 95.959663 of5 1 3 1 7 3 925 969 199 30 96.586632 customers5 1 3 1 7 4 1153 964 43 35 96.681549 of5 1 3 1 7 5 1221 965 100 35 96.442711 others 1 3 1 7 6 1348 964 148 36 96.405502 flexible5 1 3 1 7 7 1525 965 202 46 96.382500 wrappings5 1 3 1 7 8 1758 972 35 30 96.401871 to5 1 3 1 7 9 1823 966 126 36 96.268555 switch5 1 3 1 7 10 1979 974 36 28 96.944603 to4 1 3 1 8 0 680 1021 1332 49 -1 5 1 3 1 8 1 680 1021 245 45 83.164459 cellophane, such that there was reasonable5 1 3 1 8 7 1637 1023 375 47 74.363235 interchangeability among flexible wrappings. Id. at 400, 404. The Court determined that cellophane, met5 1 3 1 10 4 1108 1139 231 45 96.558289 competitions 1 3 1 10 5 1354 1139 94 34 96.297043 from5 1 3 1 10 6 1463 1139 99 35 96.297043 others 1 3 1 10 7 1576 1140 178 35 96.315811 materials5 1 3 1 10 8 1771 1140 35 35 96.275574 in5 1 3 1 10 9 1822 1151 107 35 96.275574 every5 1 3 1 10 10 1945 1151 69 25 96.996758 one4 1 3 1 11 0 679 1196 1334 48 -1 5 1 3 1 11 1 679 1196 42 35 96.775879 of5 1 3 1 11 2 732 1196 43 35 96.775879 its5 1 3 1 11 3 791 1197 114 34 92.432991 uses. Id. at 399. As a result, cellophane could not constitute a relevant market. In contrast to Cellophane, however, glass containers do not meet competition in every one of their uses. Rather, for customers in many end-uses, glass is the only packaging choice. Further, Cellophane preceded the Court's market analyses in Brown Shoe, Alcoa-Rome, Continental Can and Grinnell.*° Respondents argue that in the future technology may make plastic more competitive with glass. That argument fails. That a product has the potential to become a substitute does not save an anticompetitive merger. United States v. Connecticut National Bank, 418 U.S. 656, 663-64, 666 (1974); United States v. Empire Gas Corp., 537 F.2d 296, 304 (1976); RSR Corp., 88 FTC 800, 891 (1976). The District Court in the preliminary injunction proceeding believed that the volume of commerce in the inelastic uses should be measured in relation to the glass container market. FTC v. Owens- Illinois, Inc., 681 F. Supp. 27 (D.D.C.), vacated as moot, 850 F.2d 694 (D.C. Cir. 1988). The District Court found that the inelastic uses constituted $450 million, or 25.88%, of total glass container sales. The District Court held that a merger is lawful if only part of an overall market is adversely affected -- even where the volume of commerce affected amounts to hundreds of millions of dollars. This holding seems to be contrary to precedent. United States v. Connecticut National Bank, 418 U.S. at 664; United States v. 30 Columbia Metal Culvert Co. v. Kaiser Aluminum & Chemical Corp., 579 F.2d 20, 27, cert. denied, 439 U.S. 876 (1978) (Supreme Court decisions after Cellophane countenance separating products into narrow markets where facts justify such treatment); United States v. CBS Inc., 459 F. Supp. 832, 837 (C.D. Cal. 1978). OWENS-ILLINOIS, INC., ET AL. 267 179 Initial Decision Household Finance Corp., 602 F.2d 1255, 1257, 1264-65 (7th Cir. 1979), cert. denied, 444 U.S. 1044 (1980); FTC v. Food Town Stores, Inc., 539 F.2d 1339, 1344, 1345 (4th Cir. 1976). Ill. GEOGRAPHIC MARKET Section 7 also requires a determination of the effects of the acquisition in an appropriate sections 1 5 1 2 6 1323 1004 42 36 96.957603 of5 1 5 1 2 7 1381 1005 58 35 96.837547 thes 1 5 1 2 8 1459 1006 178 45 83.721130 country, or relevant geographic market. The geographic market is sometimes defined as the area in5 1 5 1 4 4 776 1121 117 36 96.632973 which5 1 5 1 4 5 907 1122 57 35 96.935776 thes 1 5 1 4 6 979 1121 102 36 96.575714 sellers 1 5 1 4 7 1094 1128 169 39 96.652885 operates,5 1 5 1 4 8 1279 1122 67 35 96.825630 ands 1 5 1 4 9 1361 1128 34 29 96.963036 to5 1 5 1 4 10 1410 1122 115 36 96.894173 which5 1 5 1 4 11 1540 1123 57 35 96.859207 thes 1 5 1 4 12 1609 1123 190 45 96.233681 purchasers 1 5 1 4 13 1811 1134 66 24 96.960968 can4 1 5 1 5 0 542 1179 1335 47 -1 5 1 5 1 5 1 542 1179 217 46 92.959831 practicably5 1 5 1 5 2 772 1186 77 29 96.403244 turns 1 5 1 5 3 863 1179 56 36 95.796013 for5 1 5 1 5 4 931 1180 187 46 89.159210 supplies. Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 327 (1961).

Glass container imports represent 2.7% of the total dollar value of United States glass container sales. (F 265.) The facts of this case indicate a geographic market consisting of the continental United States. (F 277-279.) FTC v. Bass Bros. Enterprises, Inc., 1984-1 Trade Cas. (CCH) { 66,041 at 68,609 (N.D. Ohio 1984) (relevant geographic market is United States; “imports accounted for less than 2.5% of U.S. consumption”).

The foreign glass containers that are sold in the United States consist primarily of small, high-volume glassware such as cosmetic and other specialized bottles, for which demand is so low that domestic production runs would be uneconomical. (F 270.) Foreign producers are located a far distance from United States buyers; the result is high transportation and freight costs and higher prices. Foreign firms cannot offer technical assistance and research and development support, which buyers consider important. (F 266.) Customers are concerned about the reliability and quality of foreign firms, particularly Mexican glass producers. (F 269.) Major users would not switch to foreign glass suppliers if domestic glass prices increased by 10%. (F 275, 276.) The fact that customers do not view foreign producers as a source of supply, defines the geographic market. Grand Union Co., 102 FTC at 1041; B.F. Goodrich Co., 110 FTC at 289. Thus, the appropriate geographic market within which to assess the anticompetitive effects of this merger is the entire continental United States. Initial Decision 115 F.T.C.

IV. COMPETITIVE EFFECT In horizontal merger cases, the Commission “has focused on the extent to which the mergers confer market power on the acquiring firm or enhance the ability of firms to collude, either expressly or tacitly." Weyerhaeuser Co., 106 FTC at 273-74. [T]he5 1 4 1 4 9 1749 907 115 35 96.897758 worry5 1 4 1 4 10 1877 896 30 36 96.381760 is5 1 4 1 4 11 1921 896 71 37 96.941002 that4 1 4 1 5 0 658 953 1335 47 -1 5 1 4 1 5 1 658 953 73 43 71.557083 {thes 1 4 1 5 2 755 953 230 46 96.756081 acquisition]5 1 4 1 5 3 1010 964 83 35 96.756081 may5 1 4 1 5 4 1117 953 126 36 96.899986 enables 1 4 1 5 5 1267 953 58 36 96.428162 thes 1 4 1 5 6 1348 953 184 47 96.927628 acquiring5 1 4 1 5 7 1556 953 83 37 96.707008 firms 1 4 1 5 8 1661 961 36 29 96.011101 to5 1 4 1 5 9 1720 961 192 39 96.898155 cooperate5 1 4 1 5 10 1936 956 57 42 96.785599 (or4 1 4 1 6 0 655 1011 1337 48 -1 5 1 4 1 6 1 655 1018 193 40 96.447021 cooperate5 1 4 1 6 2 872 1011 127 44 96.447021 better)5 1 4 1 6 3 1025 1011 85 36 96.810760 with5 1 4 1 6 4 1135 1012 100 35 96.481705 others 1 4 1 6 5 1259 1012 143 46 96.301346 leading5 1 4 1 6 6 1427 1012 231 46 96.301346 competitors5 1 4 1 6 7 1683 1023 47 25 96.450897 on5 1 4 1 6 8 1754 1013 173 46 96.324989 reducing5 1 4 1 6 9 1952 1024 40 24 96.324989 or4 1 4 1 7 0 655 1070 1337 46 -1 5 1 4 1 7 1 655 1070 155 46 96.339882 limiting5 1 4 1 7 2 836 1076 136 40 96.371399 output,5 1 4 1 7 3 998 1070 147 46 96.371399 thereby5 1 4 1 7 4 1169 1070 155 46 96.611778 pushing5 1 4 1 7 5 1349 1081 48 35 96.712074 up5 1 4 1 7 6 1422 1070 59 36 96.181755 thes 1 4 1 7 7 1506 1070 135 36 96.835693 markets 1 4 1 7 8 1665 1070 128 46 93.370560 price. Hospital Corporation of America v. FTC, 807 F.2d 1381, 1386 (7th Cir. 1986), cert. denied, 481 U.S. 1038 (1987).

Collusive behavior is likely to occur when a small number of firms control a large share of market output. The fewer competitors there are in a market, the easier it is for them to collude. Hospital Corporation of America v. FTC, 807 F.2d at 1387. The Owens- Brockway merger created a highly concentrated market. (F 281.) A. Concentrated Market As concentration increases, thes 1 6 1 1 5 1405 1717 136 39 96.842598 greater5 1 6 1 1 6 1561 1711 30 35 96.981575 is5 1 6 1 1 7 1614 1711 58 35 96.638863 thes 1 6 1 1 8 1694 1711 199 35 96.388046 likelihood5 1 6 1 1 9 1915 1711 73 34 96.942154 that4 1 6 1 2 0 652 1768 1333 47 -1 5 1 6 1 2 1 652 1770 145 45 96.513107 parallels 1 6 1 2 2 810 1769 150 46 96.762260 policies5 1 6 1 2 3 974 1769 42 35 96.954659 of5 1 6 1 2 4 1026 1769 133 34 96.315613 mutual5 1 6 1 2 5 1173 1769 206 45 96.682259 advantage,5 1 6 1 2 6 1394 1775 61 28 96.796089 not5 1 6 1 2 7 1468 1768 242 46 96.612114 competition,5 1 6 1 2 8 1725 1768 73 35 96.563980 will5 1 6 1 2 9 1813 1768 172 45 94.461960 emerge. United States v. Aluminum Co. of America, 377 U.S. at 280. Thus, a5 1 6 1 4 2 712 1886 135 35 96.646614 crucial5 1 6 1 4 3 868 1885 112 35 95.673622 initials 1 6 1 4 4 1001 1884 165 47 96.117676 questions 1 6 1 4 5 1187 1884 35 36 96.117676 in5 1 6 1 4 6 1242 1896 140 34 96.490623 mergers 1 6 1 4 7 1400 1885 120 35 86.773170 cases is whether the merger produces5 1 6 1 5 2 878 1956 19 24 95.290718 a5 1 6 1 5 3 924 1944 83 36 95.290718 firms 1 6 1 5 4 1034 1944 215 46 96.496246 controlling5 1 6 1 5 5 1277 1954 43 25 96.193214 an5 1 6 1 5 6 1348 1944 118 35 96.193214 undue5 1 6 1 5 7 1493 1950 213 40 96.316811 percentages 1 6 1 5 8 1734 1944 101 34 96.539291 shares 1 6 1 5 9 1863 1942 43 36 96.758652 of5 1 6 1 5 10 1929 1943 59 35 96.734543 thea 1 6 1 6 0 652 2001 1334 46 -1 5 1 6 1 6 1 652 2004 159 34 96.398216 relevant5 1 6 1 6 2 826 2002 147 42 96.398216 market,5 1 6 1 6 3 991 2002 69 36 96.518211 ands 1 6 1 6 4 1075 2002 127 35 96.315048 results5 1 6 1 6 5 1219 2001 36 36 96.486656 in5 1 6 1 6 6 1271 2012 20 25 96.486656 a5 1 6 1 6 7 1307 2001 207 46 96.150726 significant5 1 6 1 6 8 1529 2001 160 36 96.666565 increases 1 6 1 6 9 1705 2001 36 35 96.723221 in5 1 6 1 6 10 1757 2001 59 35 93.294373 thes 1 6 1 6 11 1832 2011 154 25 92.078697 concen-4 1 6 1 7 0 652 2059 1333 41 -1 5 1 6 1 7 1 652 2061 126 36 96.966797 tration5 1 6 1 7 2 791 2061 42 35 96.624611 of5 1 6 1 7 3 843 2061 101 35 96.624611 firms5 1 6 1 7 4 958 2061 36 34 96.737701 in5 1 6 1 7 5 1007 2061 73 34 96.787910 that5 1 6 1 7 6 1092 2060 163 35 83.168457 market. B.F. Goodrich Co., 110 FTC at 303.

This question is crucial because, other things being equal, a high level of concentration in a market can facilitate collusive behavior and thereby lessen price competition. B.F. Goodrich Co., 110 FTC at 303; Hospital Corp. of America, 106 FTC at 489. Prior to the merger, Owens and Brockway were two of the three largest manufacturers of glass containers in the United States, with 23.7% and 13.8% shares, respectively, of furnace capacity. (F 281, Table A.) Owens and Brockway competed across all of the major food and beverage segments. (F 281, Table F.) The acquisition eliminated this competition. In so doing, the merger also transformed Owens into the largest domestic glass container manufacturer, with OWENS-ILLINOIS, INC., ET AL. 269 179 Initial Decision a 37.5% share of furnace capacity, surpassing Anchor Glass, which has a 24.3% share. (F 281, Table A.) The Commission uses the Herfindah]-Hirschmann Index ("HHI") to analyze market structure. B.F. Goodrich Co., 110 FTC at 304-14; Hospital Corp. of America, 106 FTC at 488; Weyerhaeuser Co., 106 FTC at 280. Federal courts* do so as well. The HHI measures market concentration by squaring the individual market shares of all firms in the market and adding up the squares. The HHI shows market shares between firms and gives greater weight to the market shares of the larger firms, which5 1 3 2 8 7 1233 1139 110 46 96.332314 likely5 1 3 2 8 8 1360 1139 148 35 96.498062 accords5 1 3 2 8 9 1526 1139 85 34 96.822952 with5 1 3 2 8 10 1628 1139 90 35 96.571388 theirs 1 3 2 8 11 1733 1138 148 35 96.415611 relative4 1 3 2 9 0 547 1196 1342 47 -1 5 1 3 2 9 1 547 1198 220 45 96.723221 importance5 1 3 2 9 2 785 1198 37 35 96.602684 in5 1 3 2 9 3 841 1208 68 35 96.490578 any5 1 3 2 9 4 928 1197 305 46 96.465706 anticompetitive5 1 3 2 9 5 1251 1197 239 36 93.697014 interaction. Hospital Corp. of America, 106 FTC at 488. This method reflects the greater market power from horizontal mergers, for the HHI increases as the number of firms in the market decreases and as the disparity in size among those firms increases. FTC v. PPG Industries Inc., 789 F.2d at 1503. HHI provides5 1 3 3 1 3 930 1499 19 25 95.573662 a5 1 3 3 1 4 965 1488 113 36 96.279175 better5 1 3 3 1 5 1094 1499 162 25 96.814117 measures 1 3 3 1 6 1273 1488 42 36 96.989029 of5 1 3 3 1 7 1329 1488 57 36 96.796143 thes 1 3 3 1 8 1405 1488 183 36 96.547768 structural5 1 3 3 1 9 1606 1488 181 36 96.719666 characters 1 3 3 1 10 1804 1488 42 35 96.883003 of5 1 3 3 1 11 1860 1498 20 25 96.936127 a4 1 3 3 2 0 544 1546 1335 41 -1 5 1 3 3 2 1 544 1547 157 35 96.690720 relevant5 1 3 3 2 2 715 1547 137 35 96.740189 markets 1 3 3 2 3 866 1547 82 35 96.580093 than5 1 3 3 2 4 964 1547 266 34 96.208954 concentrations 1 3 3 2 5 1244 1547 138 35 90.145142 ratios. B.F. Goodrich Co., 110 FTC at 304. It reflects the combined share of the largest firms, and their shares relative to all other firms in the industry. B.F. Goodrich Co., 110 FTC at 304. The HHI also5 1 3 3 5 9 1280 1721 165 46 95.893402 provides5 1 3 3 5 10 1462 1732 19 24 95.893402 a5 1 3 3 5 11 1495 1722 95 34 96.808685 basis5 1 3 3 5 12 1606 1721 55 35 96.936653 for5 1 3 3 5 13 1675 1721 202 45 96.476379 estimating4 1 3 3 6 0 544 1780 1332 46 -1 5 1 3 3 6 1 544 1780 58 35 96.732277 thes 1 3 3 6 2 624 1780 130 44 96.778694 degrees 1 3 3 6 3 775 1786 36 29 96.863678 to5 1 3 3 6 4 833 1780 117 35 96.634514 which5 1 3 3 6 5 972 1791 19 24 96.357155 a5 1 3 3 6 6 1012 1780 104 35 96.543327 small5 1 3 3 6 7 1137 1780 149 35 96.948166 numbers 1 3 3 6 8 1306 1780 43 35 96.676910 of5 1 3 3 6 9 1365 1780 101 35 96.615082 firms5 1 3 3 6 10 1487 1780 108 35 96.664490 could5 1 3 3 6 11 1616 1791 118 24 93.236061 assess5 1 3 3 6 12 1757 1791 119 35 91.740570 supra-4 1 3 3 7 0 544 1837 1330 47 -1 5 1 3 3 7 1 544 1837 229 46 95.726463 competitive5 1 3 3 7 2 786 1837 115 46 96.562607 prices5 1 3 3 7 3 917 1837 147 35 96.771797 without5 1 3 3 7 4 1078 1837 181 46 96.814453 expressly5 1 3 3 7 5 1274 1837 228 47 96.570625 cooperating5 1 3 3 7 6 1517 1837 85 35 96.887833 with5 1 3 3 7 7 1617 1848 68 24 96.307793 ones 1 3 3 7 8 1700 1837 174 35 94.612953 another. Id., at 304, n. 106.

An HHI calculated on melt capacity, dollar sales, unit sales, tonnage production, or unit production shows that this merger resulted in an increase in concentration to a post-merger level exceeding 2150. (F 281.) This post-merger structure creates a dangerous probability and a presumption of anticompetitive effects. B.F. Goodrich, 110 FTC at 314.

The Owens-Brockway merger created a four-firm concentration ratio in excess of 78% and a two-firm concentration ratio in excess of 60%. (F 281.) Lower levels of concentration establish a rebuttable presumption of violation. Grand Union Co., 102 FTC at 1055 31 FTC v. PPG Industries, Inc., 789 F.2d 1500, 1502-03 (D.C. Cir. 1986); FTC v. Illinois Cereal Mills, Inc., 691 F. Supp. 1131, 1144 (N.D. Ill. 1988), affd sub nom., FTC v. Elders Grain, Inc., 868 F.2d 901 (7th Cir. 1989). Initial Decision 115 F.T.C.

(four-firm concentration in 50% range establishes prima facie case); Hospital Corp. of America, 106 FTC at 488 (the post-merger HHI was 2,416, the four-firm concentration ratio was over 90%, and the merger was found unlawful).

A trend to concentration in the manufacture and sale of glass containers grew rapidly since 1980, due primarily to horizontal mergers. Since 1980, the number of firms in the industry has deceased from 26 to 17. (F 21.) Two major mergers occurred in 1987 (Ball/Incon and Anchor/Diamond-Bathurst). (CX 1451T-U.) [W]here5 1 3 2 5 5 1705 1087 96 35 95.695107 there5 1 3 2 5 6 1813 1087 62 35 96.510170 has5 1 3 2 5 7 1889 1088 90 35 96.510170 been4 1 3 2 6 0 645 1142 1333 49 -1 5 1 3 2 6 1 645 1154 20 24 8.403633 a5 1 3 2 6 2 677 1142 141 46 8.403633 ‘history5 1 3 2 6 3 829 1142 43 36 96.987511 of5 1 3 2 6 4 879 1143 173 46 96.655586 tendency5 1 3 2 6 5 1065 1143 132 36 96.735466 towards 1 3 2 6 6 1210 1144 259 35 96.265068 concentrations 1 3 2 6 7 1482 1144 35 35 96.771919 in5 1 3 2 6 8 1529 1145 58 35 93.280884 thes 1 3 2 6 9 1599 1145 164 46 91.017647 industry'5 1 3 2 6 10 1775 1145 203 36 96.338676 tendencies4 1 3 2 7 0 644 1202 1332 49 -1 5 1 3 2 7 1 644 1202 137 36 96.494736 towards 1 3 2 7 2 798 1202 134 36 96.445801 furthers 1 3 2 7 3 947 1202 267 36 96.485092 concentrations 1 3 2 7 4 1233 1203 65 36 57.753296 ‘ares 1 3 2 7 5 1315 1209 35 30 96.974632 to5 1 3 2 7 6 1366 1203 45 36 97.010490 be5 1 3 2 7 7 1426 1203 133 36 96.996010 curbed5 1 3 2 7 8 1575 1203 36 36 96.991592 in5 1 3 2 7 9 1627 1204 91 36 93.256981 theirs 1 3 2 7 10 1732 1204 244 47 58.875504 incipiency."4 1 3 2 8 0 647 1260 1331 43 -1 5 1 3 2 8 1 647 1260 131 36 96.160393 United5 1 3 2 8 2 790 1260 117 36 92.483337 States5 1 3 2 8 3 922 1272 27 24 92.483337 v.5 1 3 2 8 4 970 1261 232 35 96.152870 Continental5 1 3 2 8 5 1217 1261 78 35 92.487724 Cans 1 3 2 8 6 1312 1262 76 40 90.456413 Co.,5 1 3 2 8 7 1405 1262 70 35 95.499939 3785 1 3 2 8 8 1491 1262 83 35 96.237411 U.S.5 1 3 2 8 9 1591 1268 34 29 96.259689 at5 1 3 2 8 10 1638 1262 85 41 94.792320 461;5 1 3 2 8 11 1738 1263 131 35 95.939026 Brown5 1 3 2 8 12 1884 1263 94 35 96.521866 Shoe4 1 3 2 9 0 645 1318 802 43 -1 5 1 3 2 9 1 645 1319 62 35 92.193016 Co.5 1 3 2 9 2 727 1330 27 23 92.193016 v.5 1 3 2 9 3 777 1318 131 36 95.580666 United5 1 3 2 9 4 920 1319 129 42 92.032295 States,5 1 3 2 9 5 1065 1319 71 36 92.032295 3705 1 3 2 9 6 1151 1319 84 36 92.143814 U.S.5 1 3 2 9 7 1252 1326 33 29 95.817268 at5 1 3 2 9 8 1300 1319 147 37 94.820274 345-46.2 1 4 0 0 0 1132 1437 357 43 -1 3 1 4 1 0 0 1132 1437 357 43 -1 4 1 4 1 1 0 1132 1437 357 43 -1 5 1 4 1 1 1 1132 1437 41 34 92.105927 B.5 1 4 1 1 2 1201 1437 109 43 96.802185 Entry5 1 4 1 1 3 1323 1437 166 34 96.127945 Barriers2 1 5 0 0 0 637 1552 1343 977 -1 3 1 5 1 0 0 640 1552 1340 278 -1 4 1 5 1 1 0 719 1552 1258 47 -1 5 1 5 1 1 1 719 1552 90 43 54.439487 {I]n evaluating the prospect of anticompetitive effects from a particular acquisition, the Commission must first determine whether any barriers or impediments to entry make the sustained exercise of market power feasible." B.F. Goodrich Co., 110 FTC at 296, n. 63. Entry into the glass container market is difficult. (F 305-325.) The ease of entry into the relevant market is important in analyzing the likelihood of collusion. FTC v. Procter & Gamble Co., 386 U.S. at 568, 579 (1967). High barriers to entry may confirm4 1 5 2 4 0 640 2016 1334 46 -1 5 1 5 2 4 1 640 2017 68 35 96.299393 ands 1 5 2 4 2 720 2028 91 24 96.336807 even5 1 5 2 4 3 823 2016 159 46 96.320419 magnify5 1 5 2 4 4 995 2017 57 35 96.963142 thes 1 5 2 4 5 1066 2016 178 36 96.504616 inferences 1 5 2 4 6 1256 2022 36 30 96.390831 to5 1 5 2 4 7 1304 2017 44 35 96.721733 be5 1 5 2 4 8 1360 2017 136 35 96.825531 drawn from high concentration levels. Hospital Corp. of America, 106 FTC at 489. Thus, [t]he5 1 5 3 1 3 977 2133 247 35 96.137665 Commissions 1 5 3 1 4 1244 2132 183 35 96.518990 considers5 1 5 3 1 5 1449 2139 98 40 96.823845 entry5 1 5 3 1 6 1569 2133 203 35 96.320702 conditions5 1 5 3 1 7 1794 2139 35 29 96.741402 to5 1 5 3 1 8 1850 2133 45 35 96.775612 be5 1 5 3 1 9 1915 2133 58 35 96.775612 thea 1 5 3 2 0 639 2190 1334 47 -1 5 1 5 3 2 1 639 2197 95 29 96.918228 most5 1 5 3 2 2 751 2191 190 46 96.271362 important5 1 5 3 2 3 958 2190 43 36 96.812927 of5 1 5 3 2 4 1014 2190 57 36 96.442612 thes 1 5 3 2 5 1089 2201 98 35 96.442612 array5 1 5 3 2 6 1204 2190 43 36 96.940826 of5 1 5 3 2 7 1259 2190 135 36 96.278412 markets 1 5 3 2 8 1410 2190 280 36 96.483795 characteristics5 1 5 3 2 9 1708 2190 213 36 96.568260 considered5 1 5 3 2 10 1937 2190 36 36 96.515282 in4 1 5 3 3 0 639 2249 1334 46 -1 5 1 5 3 3 1 639 2249 160 36 96.362671 additions 1 5 3 3 2 817 2256 37 29 96.724579 to5 1 5 3 3 3 871 2250 136 35 96.486115 markets 1 5 3 3 4 1022 2249 269 35 96.730743 concentrations 1 5 3 3 5 1307 2249 165 46 71.767548 figures. Weyerhaeuser Co., 106 FTC at 286; Echlin Manufacturing Co., 105 FTC at 410, 484 (1985). In analyzing entry conditions, it is important to assess the time required for entry to occur. As5 1 5 3 6 7 1273 2425 58 35 95.577667 thes 1 5 3 6 8 1345 2425 84 35 96.502609 times 1 5 3 6 9 1443 2425 68 36 95.765274 ands 1 5 3 6 10 1525 2425 246 46 95.765274 expenditures5 1 5 3 6 11 1786 2425 138 36 96.746284 needed5 1 5 3 6 12 1937 2431 36 29 96.892509 to4 1 5 3 7 0 638 2483 1335 46 -1 5 1 5 3 7 1 638 2494 192 25 96.745651 overcome5 1 5 3 7 2 844 2483 147 36 96.210732 barriers5 1 5 3 7 3 1006 2484 68 34 96.210732 ands 1 5 3 7 4 1089 2483 249 46 96.621429 impediments5 1 5 3 7 5 1354 2489 34 29 96.967178 to5 1 5 3 7 6 1403 2490 98 39 96.966995 entry5 1 5 3 7 7 1516 2483 169 41 96.863045 increase,5 1 5 3 7 8 1700 2484 58 34 96.879623 thes 1 5 3 7 9 1774 2483 199 35 96.425064 likelihood2 1 6 0 0 0 636 2584 595 13 -1 3 1 6 1 0 0 636 2584 595 13 -1 4 1 6 1 1 0 636 2584 595 13 -1 5 1 6 1 1 1 636 2584 595 13 95.000000 2 1 7 0 0 0 637 2629 1337 189 -1 3 1 7 1 0 0 637 2629 1337 189 -1 4 1 7 1 1 0 693 2629 1277 50 -1 5 1 7 1 1 1 693 2629 27 22 40.161835 325 1 7 1 1 2 743 2643 68 28 76.860710 RSR5 1 7 1 1 3 823 2643 83 36 93.305756 Corp.5 1 7 1 1 4 920 2652 22 19 91.859138 v.5 1 7 1 1 5 956 2643 78 31 93.249603 FTC,5 1 7 1 1 6 1047 2642 56 29 93.249603 6025 1 7 1 1 7 1114 2642 68 29 95.182549 F.2d5 1 7 1 1 8 1193 2647 27 24 95.801262 at5 1 7 1 1 9 1234 2642 80 33 93.163063 1317,5 1 7 1 1 10 1330 2642 122 29 93.163063 1324-255 1 7 1 1 11 1465 2642 60 35 96.670097 (9th5 1 7 1 1 12 1536 2642 56 29 96.114441 Cir.5 1 7 1 1 13 1607 2642 94 34 96.856331 1979),5 1 7 1 1 14 1714 2649 64 22 94.430573 cert.5 1 7 1 1 15 1792 2642 112 32 96.133324 denied,5 1 7 1 1 16 1915 2643 55 28 96.818909 4454 1 7 1 2 0 637 2691 1337 36 -1 5 1 7 1 2 1 637 2692 67 28 94.763374 U.S.5 1 7 1 2 2 718 2691 57 29 96.721283 9275 1 7 1 2 3 790 2691 102 35 91.253212 (1980)5 1 7 1 2 4 907 2691 157 34 91.253212 (four-firms 1 7 1 2 5 1077 2691 212 28 96.532379 concentrations 1 7 1 2 6 1302 2691 130 31 96.665413 72.41%;5 1 7 1 2 7 1445 2691 153 28 96.455154 combined5 1 7 1 2 8 1612 2691 80 28 95.748093 shares 1 7 1 2 9 1709 2691 139 34 96.770027 19.18%);5 1 7 1 2 10 1862 2692 112 35 26.802750 Liggett4 1 7 1 3 0 638 2737 1334 37 -1 5 1 7 1 3 1 638 2739 26 28 91.999420 &5 1 7 1 3 2 674 2739 102 35 96.919212 Myers,5 1 7 1 3 3 790 2739 55 28 87.519440 Inc,5 1 7 1 3 4 859 2747 22 19 88.211456 v.5 1 7 1 3 5 920 2738 53 32 91.603569 FTC,5 1 7 1 3 6 985 2737 55 29 91.603569 5675 1 7 1 3 7 1051 2737 69 29 93.551735 F.2d5 1 7 1 3 8 1134 2737 80 33 95.827057 1273,5 1 7 1 3 9 1230 2737 122 29 95.844017 1275-765 1 7 1 3 10 1364 2737 59 34 97.007607 (4th5 1 7 1 3 11 1435 2737 54 29 96.307877 Cir.5 1 7 1 3 12 1506 2737 83 34 93.250786 1977)5 1 7 1 3 13 1601 2737 153 34 93.125565 (four-firms 1 7 1 3 14 1765 2737 207 28 96.707382 concentration4 1 7 1 4 0 637 2783 544 35 -1 5 1 7 1 4 1 637 2785 130 32 95.597572 54.44%;5 1 7 1 4 2 780 2784 155 29 96.459076 combined5 1 7 1 4 3 947 2785 81 27 96.890778 shares 1 7 1 4 4 1044 2783 137 35 88.116135 15.76%). OWENS-ILLINOIS, INC., ET AL. 271 179 Initial Decision that a given acquisition will have anticompetitive effects, ceteris paribus, increases as well." B.F. Goodrich Co., 110 FTC at 297. Entry barriers are long run costs of an entrant that were not incurred by incumbent firms. Thes 1 3 2 2 6 1293 785 171 36 96.754593 rationale5 1 3 2 2 7 1483 786 212 46 96.444611 underlying5 1 3 2 2 8 1714 786 69 35 93.306183 this5 1 3 2 2 9 1803 787 90 34 92.333496 defi-4 1 3 2 3 0 559 841 1334 49 -1 5 1 3 2 3 1 559 841 114 35 96.823257 nition5 1 3 2 3 2 693 842 29 35 96.918060 is5 1 3 2 3 3 743 842 72 35 96.899651 that5 1 3 2 3 4 835 842 169 36 96.709183 low-costs 1 3 2 3 5 1021 842 208 36 96.817596 incumbents 1 3 2 3 6 1247 843 101 36 96.872826 firms5 1 3 2 3 7 1368 854 66 25 96.024979 cans 1 3 2 3 8 1453 844 91 46 96.857231 keeps 1 3 2 3 9 1563 844 116 46 96.462234 prices5 1 3 2 3 10 1699 845 117 35 96.792480 above5 1 3 2 3 11 1835 845 58 35 96.417023 thea 1 3 2 4 0 558 900 1336 48 -1 5 1 3 2 4 1 558 900 230 46 96.296997 competitive5 1 3 2 4 2 802 901 93 35 96.880646 levels 1 3 2 4 3 910 911 37 26 96.849197 as5 1 3 2 4 4 963 901 84 46 96.777138 long5 1 3 2 4 5 1062 912 37 25 96.959549 as5 1 3 2 4 6 1114 902 102 35 96.977798 those5 1 3 2 4 7 1229 902 114 46 96.626083 prices5 1 3 2 4 8 1358 902 135 36 96.662544 remains 1 3 2 4 9 1506 902 118 37 96.786781 below5 1 3 2 4 10 1638 903 58 36 96.862465 thes 1 3 2 4 11 1711 903 94 36 96.745728 levels 1 3 2 4 12 1822 904 72 35 96.737503 that4 1 3 2 5 0 558 959 1334 49 -1 5 1 3 2 5 1 558 959 120 36 96.423180 would5 1 3 2 5 2 690 959 149 46 96.706207 provides 1 3 2 5 3 852 971 43 25 96.591270 an5 1 3 2 5 4 908 960 177 36 96.591270 incentives 1 3 2 5 5 1097 967 36 29 93.254288 to5 1 3 2 5 6 1145 960 219 47 92.506248 higher-costs 1 3 2 5 7 1375 962 169 46 96.743713 potential5 1 3 2 5 8 1558 962 183 36 84.216766 entrants. Echlin Manufacturing Co., 105 FTC at 485. Environmental regulations (F 315) may represent entry barriers. Weyerhaeuser Co., 106 FTC at 287. Impediments to entry that do not rise to the level of entry barriers permit the continued exercise of market power. B.F. Goodrich Co., 110 FTC at 297.

Entry into the production and sale of glass containers is deterred by barriers and impediments to entry. (F 305-325.) De novo entry would take considerable time (F 306, 307), and not be easily accomplished (F 310-323), and an entrant could not withdraw from the market without incurring the loss of much of its investment. (F 308, 309.) Thus, it is unlikely that new entry into the glass container market could quickly correct anticompetitive conduct resulting from increased concentration.

1. Lead time Brockway acknowledges that it would take 24 to 30 months for a firm to enter the manufacture and sale of glass containers. Owens-Illinois acknowledges that the time required could be two years. Owens' most recent plant took four years to bring on stream. (F 306.) After a plant is built, a new firm must secure orders. (F 307, 319-323.) This can be time-consuming. (F 319.) Customers will buy glass containers only from producers that have proven their goods through a qualifying program. (F 320.) An entrant must establish a record of quality production. (F 321-323.) 2. Environmental barriers Because glass production plants create pollution, entry requires federal, state and local zoning permits. (F 315.) An entrant must Initial Decision 115 F.T.C.

install precipitators on gas furnaces, which are costly anti- pollutant devices requiring frequent maintenance putting the entrant at a cost disadvantage relative to other producers. (F 316-318.) An entrant could use more costly electric furnaces rather than gas furnaces. (F 317.) Regulations contain a grandfather clause for the existing glass furnaces operated by incumbent firms (F 315), which widens the cost disadvantage facing entrants. (F 316.) [NJewly5 1 3 1 7 9 1821 970 154 45 96.772133 adopted4 1 3 1 8 0 640 1025 1333 46 -1 5 1 3 1 8 1 640 1026 277 35 96.435440 environmental5 1 3 1 8 2 931 1025 213 35 96.801056 restrictions5 1 3 1 8 3 1158 1036 81 35 96.670845 may5 1 3 1 8 4 1253 1025 44 35 96.771423 be5 1 3 1 8 5 1311 1025 256 36 96.456619 characterized5 1 3 1 8 6 1581 1037 37 24 96.968552 as5 1 3 1 8 7 1633 1037 19 24 96.878113 a5 1 3 1 8 8 1666 1026 129 35 96.463577 barriers 1 3 1 8 9 1808 1032 35 29 96.931969 to5 1 3 1 8 10 1858 1026 115 45 94.606514 entry into the relevant market. B.F. Goodrich Co., 110 FTC at 299. 3. Sunk costs If entry efforts require the investment of sunk costs (costs not recoverable in case of business failure), entry is less likely to occur. B.F. Goodrich Co., 110 FTC at 302, n. 96. Much of the costs in glass container production are sunk costs. (F 308.) Glass container plants and machinery cannot be resold for their original cost. Costs for O-I's glass container plants range from $40 million to $110 million. (F 309.) Since a new entrant would require at least five plants to achieve multi-plant economies (F 312), capital expenditures would range from $200 million to $500 million. Costs for research and development, molds and sales efforts are also not recoverable. (F 309.) As a result of these sunk cost, entry is unlikely.

4. Scale economies A minimum efficient scale glass container plant requires the capacity to produce 1% of total industry production. (F 311.) A firm would need at least five production plants, due to the cost advantages in national distribution. (F 312.) As a result, minimum efficient scale for entry purposes would require capacity of 5% of the market. {S]ubstantial5 1 7 1 6 2 932 2482 190 36 95.658936 minimums 1 7 1 6 3 1143 2482 163 36 96.722031 efficient5 1 7 1 6 4 1328 2482 96 35 96.610756 scales 1 7 1 6 5 1444 2482 256 45 96.623497 requirements5 1 7 1 6 6 1723 2492 58 25 96.836685 ares 1 7 1 6 7 1804 2481 109 46 96.639091 likely5 1 7 1 6 8 1936 2488 36 28 97.010880 to4 1 7 1 7 0 638 2539 1306 48 -1 5 1 7 1 7 1 638 2542 143 45 96.790527 impedes 1 7 1 7 2 796 2542 118 45 95.837891 entry into a market. B.F. Goodrich Co., 110 FTC at 301. Glass container prices are sensitive to capacity utilization rates. When glass production capacity was underutilized, prices were depressed; as utilization rates increased, prices and profits have risen. (F 379, 380.) Entry is impeded when a new entrant must add so OWENS-ILLINOIS, INC., ET AL. 273 179 Initial Decision much capacity to the market that it would have the likely effect of depressing prices. B.F. Goodrich Co., 110 FTC at 300 and n. 85. 5. Capacity expansion Smaller firms in this industry would have great difficulty in expanding production capacity to compete with the three leading firms. Small firms in this industry have been operating near full capacity. (F 338.) Expansion would require adding a furnace -- and overcoming regulatory hurdles.*’ (F 340.) Lack of land may prevent expansion. (F 339.) Further, it takes time to increase capacity. Brockway's planned expansion at one of its plants was to take more than two years. (F 334.) Customers are reluctant to deal with new suppliers. (F 320-322.) Expansion by existing producers face the same problems as new entrants. (F 340.) 6. Foreign producers Glass containers produced in Mexico or Canada have little effect on domestic firms. A foreign entrant has high transportation cost. Many customers perceive that Mexican glass has poor quality and that Mexican firms cannot guarantee a dependable source of supply. (F 325.) Glass container purchasers prefer to buy from close plants (F 267), and doubt the reliability of supply from foreign sources. (F 268.) Owens has strong ties to the leading Mexican producer (Vitro, with 75-80% of that market) and both Canadian producers (Dominion and Consumers). (F 273, 274). None of these firms is a likely competitor of Owens. Hospital Corp. of America, 106 FTC at 504-05; FTC v. Bass Bros. Enterprises, Inc., 1984-1 Trade Cas. (CCH) { 66,041 at 68,609.

33 Blectric boosting is uneconomical, due to the high cost of electricity and to the increased rate of brickwork erosion. (F 336.) Initial Decision 115 F.T.C.

7. Vertical integration Vertical integration by customers into the production of glass containers is not likely. (F 324.) They would face the same difficulties any other entrant would face. Zoning ordinances and air pollution standards would discourage vertical integration. Long construction times, high sunk costs and minimum efficient scale would also deter vertical integration. They would need multiple glass plants in order to serve their multiple filling locations efficiently. C. Likelihood of Anticompetitive Behavior A merger that enhances collusive arrangements violates Section 7. Hospital Corp. of America, 106 FTC at 499. In FTC v. Elders Grain, Inc., 868 F.2d 901, 905 (7th Cir. 1989), Judge Posner held: The supply of [the relevant product] was already highly concentrated before the acquisition, with only six firms of any significance. The acquisition has reduced that number to five. This will make it easier for leading members of the industry to collude on price and output without committing a detectable violation of Section 1 of the Sherman Act or Section 5 of the FTC Act, both of which forbid price-fixing. The penalties for price-fixing are now substantial, but they are brought into play only where sellers actually agree on price or output or other dimensions of competition; and if conditions are ripe, sellers may not have to communicate or otherwise collude overtly in order to coordinate their price and output decisions; at least they may not have to collude in a readily detectable manner. [Citations omitted.] 1. Inelastic demand for glass containers If a product has no practical substitute, demand for the product diminishes only slightly when price increases. This is known as inelastic demand.** Inelastic demand enhances the anticompetitive dangers of an acquisition. Hospital Corporation of America v. FTC, 807 F.2d at 1388-89; Marathon Oil Co. v. Mobil Corp., 669 F.2d 378, 381 (6th Cir. 1981), cert. denied, 455 U.S. 982 (1982); B.F. Goodrich Co., 110 FTC at 317-18. The likelihood of collusion is greater when 34 Inelastic demand exists when demand for a product does not fall if the price of the product increases. FTC v. Bass Brothers Enterprises, Inc., 1984-1 Trade Cas. (CCH) J 66,041 at 68,613.

OWENS-ILLINOIS, INC., ET AL. 275 179 Initial Decision demand is inelastic. The more inelastic is demand, the greater the degree to which producers could collusively sustain a price increase without losing a sale. Hospital Corporation of America v. FTC, 807 F.2d at 1388-89.

Here, there are several glass container submarkets in which demand is highly inelastic: baby food and baby juice (F 105-133), spaghetti sauce (F 134-145), jams and jellies (F 146-156), pickles (F 157-164), mayonnaise (F 185-197), wine coolers (F 210-213). In other submarkets, the demand for glass containers is inelastic in certain sizes or quality: premium wine (F 199), shelf-stable juice (F 165, 169, 172, 184), distilled spirits (F 222). 2. Buyer power Buyer concentration in the glass container market is low. The exercise of buyers 1 5 1 2 4 963 1497 140 45 95.236801 power is unlikely to thwart the effects of a collusive agreement among the leading glass container producers. None of the customers has more than 2.5% of total glass container purchases, or $100 million in glass volume. Owens' largest food customer accounted for 3% of Owens' sales volume. (F 283-285.) This disparity in concentration between glass sellers and buyers is conducive to seller market power, not buyer power. B.F. Goodrich, 110 FTC at 324. Further, in this industry, buyers are not informed. They lack information about their suppliers’ costs. (F 284.) Little arbitrage occurs in this industry.*> Beer bottles, which are narrow-neck containers, could not be used to package pickles, mayonnaise and jams and jellies, which require wide-mouth containers. And, containers that look similar are not necessarily interchangeable. A buyer risks damage and down-time if a supply of glass causes a production breakdown. (F 290.) Many end-users, including beer companies such as Anheuser-Busch, use glass containers produced from proprietary molds bearing the company's logo; a company would not jeopardize its trademark and marketing image by allowing other companies to use such bottles. (F 286.) 35 In markets where consumers cannot5 1 7 1 1 7 1259 2692 138 37 96.550140 arbitrage5 1 7 1 1 8 1409 2701 32 20 96.638512 or5 1 7 1 1 9 1451 2692 99 29 95.817322 resell the relevant product, “discrimination among different groups of consumers is possible." Hospital Corp. of America, 106 FTC at 499-500.

Initial Decision 115 F.T.C.

Distributors who deal in stock containers are supplied by the firms most likely to collude as a result of the merger. Owens can prevent arbitrage through this channel by limiting its sales of stock containers to distributors. (F 293.) Many customers would not substitute stock containers for their own proprietary containers. Such firms pay more for a proprietary jar for brand image. (F 287.) Arbitrage is costly. Shipping costs increase. Risk of breakage from added transport increases, and the reliability of supply decreases. The reselling customer requires a profit. (F 290, 291.) Customers buying through arbitrage would for go services which manufacturers provide, such as technical assistance and research and development. (F 292.) Vertically integrated firms also would be unlikely to sell glass to competitors, and their competitors would be unlikely to rely on them for supply. Containers used for food and beverages must meet high quality standards. Endusers cannot risk their good will by purchasing containers that have not been proven to meet quality standards. (F 289.) It is unlikely that arbitrage could be used to defeat a price increase in this industry; as a result effective collusion is more likely. The merger is likely to create adverse effects on competition and pricing. Many buyers expect glass producers to raise prices or shut down capacity. Here, representatives5 1 3 3 5 5 1453 1857 94 35 96.379013 from5 1 3 3 5 6 1570 1868 132 34 95.903061 groups5 1 3 3 5 7 1727 1857 111 45 95.903061 likely5 1 3 3 5 8 1861 1863 37 29 96.327599 to5 1 3 3 5 9 1921 1857 46 35 96.719727 be4 1 3 3 6 0 631 1914 1336 47 -1 5 1 3 3 6 1 631 1916 148 35 96.987289 harmed5 1 3 3 6 2 799 1916 47 45 96.144257 by5 1 3 3 6 3 868 1926 68 35 96.588425 any5 1 3 3 6 4 958 1915 215 35 96.249939 diminution5 1 3 3 6 5 1195 1915 41 35 95.689789 of5 1 3 3 6 6 1253 1915 252 46 90.718544 competition in the glass container market testified that anticompetitive effects are a likely result from the acquisition. (F 389.) FTC v. Great Lakes Chemical Corp., 528 F. Supp. 84, 94-95 (N.D. Il. 1981).

3. Small producers The small glass container producers are unlikely to disrupt noncompetitive behavior by the larger firms. (F 294-304.) [I]n5 1 5 1 2 10 1922 2391 43 24 96.989471 an4 1 5 1 3 0 631 2438 1334 48 -1 5 1 5 1 3 1 631 2440 245 46 92.487305 oligopolistic5 1 5 1 3 2 895 2440 146 40 96.940765 market,5 1 5 1 3 3 1062 2440 103 34 96.256035 small5 1 5 1 3 4 1184 2439 207 46 96.256035 companies5 1 5 1 3 5 1411 2449 82 36 96.437546 may5 1 5 1 3 6 1511 2439 45 35 96.996254 be5 1 5 1 3 7 1573 2438 175 47 96.888802 perfectly5 1 5 1 3 8 1767 2445 145 28 96.331757 contents 1 5 1 3 9 1929 2445 36 28 96.954880 to4 1 5 1 4 0 631 2497 1330 46 -1 5 1 5 1 4 1 631 2499 127 35 96.801575 follows 1 5 1 4 2 775 2499 59 34 96.901337 thes 1 5 1 4 3 849 2498 86 45 96.139336 high5 1 5 1 4 4 951 2498 116 45 96.139336 prices5 1 5 1 4 5 1084 2503 53 30 96.961929 sets 1 5 1 4 6 1152 2498 47 45 96.932327 by5 1 5 1 4 7 1215 2498 58 35 96.833603 thes 1 5 1 4 8 1289 2497 185 35 96.795853 dominant5 1 5 1 4 9 1489 2497 132 35 92.974747 firms. United States v.

Philadelphia National Bank, 374 U.S. 321, 367 n. 43 (1963). In the glass container market small firms follow price increases by the major firms. (F 341.) They have higher production and distribution cost than the large firms. Having only one or two plants, they could not easily expand or divert production. (F 326-338.) OWENS-ILLINOIS, INC., ET AL. 277 179 Initial Decision Many small producers do not operate minimum-efficient scale plants. Their unit production costs are higher than the larger, more efficient plants. (F 294-304, 310, 311, 341, 342.) High-speed equipment of the leading glass producers lowers production costs for long production runs. Most small firms produce glass on slower, more costly machines. These firms would have difficulty producing glass containers at a cost that would allow them profitably to sell below the collusive price. (F 331-333.) Large firms have lower costs because they have several plants. (F 311, 312, 337, 338.) Five glass container manufacturers have multiple plants across the country. Of the other twelve glass container manufacturers, one has plants in more than one state. An efficient firm requires five plants, but no firm outside the larger group operates more than two plants. Small firms have higher costs because their plants are less efficient than the major producers’ plants, and because they operate only one or two plants while the major firms operate five or more. (F 294-304, 311-313, 331-335.) Small producers operate their plant at capacity. They are producing as many containers as their equipment will make. This is known as “high capacity utilization." (F 338.) Small firms produce glass on inferior equipment and with small furnaces. (F 331-335.) These companies face barriers to expanding their reduction capacity. (F 305-334.) In aconcentrated market with difficult entry and expansion, small firms are unlikely to be able to competes 1 3 3 7 11 1599 1967 119 44 91.729996 away business from the largest firms if those firms collude. Hospital Corp. of America, 106 FTC at 488, n. 19.

4. Price cutting If the glass container industry did collude to raise price or restrict output, it is unlikely that one of these firms would be able to gain business by cutting price ("cheat") despite the cartel. A colluding firm can cheat on an anticompetitive agreement by using excess capacity, or by diverting capacity, to gain business by cutting prices. Both possibilities are unlikely to occur. Initial Decision 115 F.T.C.

a. Capacity Utilization Excess capacity in an industry exerts downward pressure on prices. Firms with no excess capacity have no incentive to cut prices in hope of selling more of their product. B.F. Goodrich Co., 110 FTC at 328-29. Glass container producers have recently made numerous plant and furnace shutdowns and capacity utilization is high. (F 350.) The glass container industry currently is operating at near full capacity. (F 352-378.) Owens' major competitors are operating at near full capacity. (F 368-378.) Owens presently has some excess capacity, but that is likely to be a temporary condition. (F 379, 380.) Owens' chairman stated that the objective of the acquisition is to increase Owens' share of the total glass container market by adding to Owens' capacity without adding new capacity to the industry. (F 10.) Owens intends to shut down two or three plants within the coming year in order to prevent any excess capacity. (F 380.) b. Diversion Another factor that facilitates collusion in this industry is that diversion by members of the collusive group is unlikely to occur. (F 381-400.) Once a supplier drops a customer, it is difficult to regain that customer's business. It is unlikely that firms would defeat a collusive agreement by diverting capacity to new customers. (F 384-388.) 5. Detection Collusive agreements last if participating firms can detect and retaliate against deviations from the agreed prices. B.F. Goodrich Co., 110 FTC at 294-95. Prices are widely known in the glass container market. (F 390-396.) This facilitates collusion by detection of cheating on a collusive arrangement. United States v. United States Gypsum Co., 438 U.S. 422, 441, n. 16 (1978); United States v. Container Corp. of America, 393 U.S. 333, 337 (1969). Glass producers keep track of competitive bids. They also know productive capacity rates of competitors. (F 393-396.) B.F. Goodrich OWENS-ILLINOIS, INC., ET AL. 279 179 Initial Decision Co., 110 FTC at 336. They know their customers’ packaging plants, and can detect attempts to switch suppliers. Producers mark their containers with a company logo and with codes identifying the container's production plant and year of production. (F 390, 391.) Buyers in the glass container market prefer to stay with their current suppliers. (F 319.) Users do not switch their business frequently. (F 320-323.) Major customers have long supply contracts. (F 319.) This makes it easier to track prices.*° Purchasers discuss the details of competitive bids with potential suppliers. (F 392.) Glass container supply agreements contain a meeting competition clause (F 395), which allows the glass container supplier to quickly4 1 3 3 3 0 568 1270 1332 47 -1 5 1 3 3 3 1 568 1270 170 36 96.623596 discover5 1 3 3 3 2 764 1271 99 46 96.815796 prices 1 3 3 3 3 891 1271 233 35 96.724594 concessions5 1 3 3 3 4 1153 1271 140 35 95.780579 offered5 1 3 3 3 5 1321 1271 47 46 95.780579 by5 1 3 3 3 6 1396 1271 207 46 96.473518 competing5 1 3 3 3 7 1631 1271 133 35 65.221878 firms. B.F.

Goodrich Co., 110 FTC at 325. Pursuant to such clauses, buyers5 1 3 3 4 12 1846 1340 58 25 96.425110 area 1 3 3 5 0 567 1386 1335 46 -1 5 1 3 3 5 1 567 1386 189 45 96.256668 permitted5 1 3 3 5 2 786 1392 36 30 96.415909 to5 1 3 3 5 3 851 1386 125 35 96.082855 cancel5 1 3 3 5 4 1005 1386 192 45 96.469292 purchases5 1 3 3 5 5 1227 1386 32 35 96.858315 if5 1 3 3 5 6 1285 1386 82 45 96.445328 they5 1 3 3 5 7 1396 1397 67 24 96.835266 cans 1 3 3 5 8 1493 1397 123 24 96.032333 secures 1 3 3 5 9 1646 1386 112 36 96.414093 lowers 1 3 3 5 10 1786 1386 116 46 96.878899 prices4 1 3 3 6 0 567 1444 1336 47 -1 5 1 3 3 6 1 567 1444 208 41 96.448929 elsewhere,5 1 3 3 6 2 794 1445 63 35 96.448929 but5 1 3 3 6 3 875 1455 58 25 96.851067 ares 1 3 3 6 4 950 1444 164 47 96.436485 required5 1 3 3 6 5 1132 1451 36 29 97.000481 to5 1 3 3 6 6 1186 1444 83 47 96.188713 gives 1 3 3 6 7 1288 1445 122 35 96.393677 sellers5 1 3 3 6 8 1429 1445 59 35 96.908638 thes 1 3 3 6 9 1507 1445 228 46 96.161560 opportunity5 1 3 3 6 10 1753 1451 37 29 95.976463 to5 1 3 3 6 11 1808 1452 95 28 96.956696 meet4 1 3 3 7 0 566 1503 1335 46 -1 5 1 3 3 7 1 566 1503 207 46 96.454971 competing5 1 3 3 7 2 788 1503 144 36 94.247154 offers. Jd. By encouraging customers to disclose competing price offers, these clauses make cheating on a collusive arrangement less likely, because when5 1 3 3 9 6 1420 1621 92 35 96.240784 sales5 1 3 3 9 7 1540 1632 58 24 96.313347 ares 1 3 3 9 8 1624 1621 106 35 96.780884 made5 1 3 3 9 9 1756 1621 144 46 96.487999 openly,4 1 3 3 10 0 565 1679 1336 46 -1 5 1 3 3 10 1 565 1680 166 45 96.838501 cheating5 1 3 3 10 2 747 1689 67 25 95.483780 cans 1 3 3 10 3 828 1680 46 34 95.483780 be5 1 3 3 10 4 889 1680 162 34 96.435829 detected5 1 3 3 10 5 1066 1680 145 45 96.865547 quickly5 1 3 3 10 6 1228 1680 67 34 96.316963 ands 1 3 3 10 7 1311 1679 125 46 96.556313 easily,5 1 3 3 10 8 1452 1680 68 34 96.556313 ands 1 3 3 10 9 1535 1680 200 34 96.887016 retaliation5 1 3 3 10 10 1750 1680 46 45 96.737724 by5 1 3 3 10 11 1811 1679 90 35 96.737724 rival4 1 3 3 11 0 565 1736 1337 46 -1 5 1 3 3 11 1 565 1736 100 35 96.413116 firms5 1 3 3 11 2 681 1737 29 34 96.743011 is5 1 3 3 11 3 726 1737 258 45 96.363991 consequently5 1 3 3 11 4 999 1747 99 25 96.829582 more5 1 3 3 11 5 1113 1737 140 45 55.258965 likely. B.F. Goodrich Co., 110 FTC at 325.

Glass container producers give customers advance notice of price increases, which are communicated to competitors. (F 392.) The demand for glass containers is stable. (F 17.) Detection of price cuts is easy. These factors make any collusive scheme a simple task. 6. Policing With Brockway, Owens controls 38% of the market, and is the largest firm in the industry. Owens also has the lowest-cost output per machine in the industry. (F 397-399.) Owens can discipline a cheater by underbidding it. (F 397.) The Brockway acquisition provides it with a greater ability to take disciplinary actions. (F 400.) Owens can set a high price knowing that the other firms will follow. (F 341, 342.) These glass producers can raise prices because 36 FTC v. Bass Bros. Enterprises, Inc., 1984-1 Trade Cas. (CCH) J 55,041 at 68,612.

Initial Decision 115 F.T.C.

inelastic customers will not switch from glass in response to a price increase above the competitive level. Hospital Corporation of America v. FTC, 807 F.2d at 1388.

7. Past antitrust violations The leading firms in the glass container market have a history of violations of the antitrust laws.*’ In Hartford-Empire Co. v. United States, 323 U.S. 386 (1945), affirming with modified relief, 46 F. Supp. 541 (W.D. Ohio 1942), the Supreme Court ruled that the leading glass container manufacturers at that time, including Owens- Illinois, violated Sections 1 and 2 of the Sherman Act (15 U.S.C. 1, 2) by unlawful monopolization and restraint of trade in the glass container industry. The defendants illegally conspired to restrict the licensing of two competing glass container technologies in order to4 1 5 1 10 0 632 1509 1332 48 -1 5 1 5 1 10 1 632 1520 167 34 96.480255 suppress5 1 5 1 10 2 816 1509 234 45 96.448273 competitions 1 5 1 10 3 1067 1509 35 35 96.616356 in5 1 5 1 10 4 1119 1509 58 36 96.813972 thes 1 5 1 10 5 1194 1510 244 35 96.449890 manufactures 1 5 1 10 6 1454 1511 42 34 96.723038 of5 1 5 1 10 7 1509 1512 214 45 96.611862 unpatented5 1 5 1 10 8 1740 1513 224 44 60.768860 glassware, to maintains 1 5 1 11 3 894 1567 147 45 82.156410 prices, and to allot5 1 5 1 11 7 1328 1569 230 44 95.209564 production of glass containers. 323 U.S. at 400.

In Hartford-Empire, violations occurred over a 25 year period, 46 F, Supp. at 547. In 1903, Owens invented the first fully automatic glassware manufacturing machine (the suction feeder), and licensed its use to certain glass manufacturers for5 1 5 2 4 8 1436 1859 147 46 96.786690 specifics 1 5 2 4 9 1596 1860 102 35 96.698807 kinds5 1 5 2 4 10 1713 1860 42 35 96.896896 of5 1 5 2 4 11 1765 1861 121 35 91.108025 ware. Jd. at 546-48.

Owens maintained5 1 5 3 1 3 1105 1985 43 24 96.641602 an5 1 5 3 1 4 1164 1974 182 36 96.546204 influences 1 5 3 1 5 1360 1986 87 24 95.841812 overs 1 5 3 1 6 1461 1975 57 36 96.722275 thes 1 5 3 1 7 1534 1975 158 46 96.816147 industry5 1 5 3 1 8 1709 1977 118 34 96.748413 which5 1 5 3 1 9 1843 1977 25 34 96.891235 it5 1 5 3 1 10 1883 1977 79 35 96.839752 thus4 1 5 3 2 0 628 2032 1335 45 -1 5 1 5 3 2 1 628 2032 146 35 95.706047 divided5 1 5 3 2 2 802 2032 47 45 96.680901 by5 1 5 3 2 3 878 2032 185 45 96.629860 acquiring5 1 5 3 2 4 1093 2033 207 35 96.866600 substantial5 1 5 3 2 5 1330 2034 103 34 96.950081 stocks 1 5 3 2 6 1459 2034 163 35 96.367188 interests5 1 5 3 2 7 1651 2034 35 35 96.367188 in5 1 5 3 2 8 1715 2035 58 34 96.621292 thes 1 5 3 2 9 1802 2035 161 35 96.484276 licensed4 1 5 3 3 0 627 2090 1336 46 -1 5 1 5 3 3 1 627 2090 235 46 85.314301 companies. Jd. at 547. The non-licensed firms were5 1 5 3 3 9 1690 2092 103 36 96.915779 faced5 1 5 3 3 10 1807 2092 84 36 96.907310 with5 1 5 3 3 11 1906 2093 57 35 96.473991 thea 1 5 3 4 0 626 2148 1336 48 -1 5 1 5 3 4 1 626 2154 165 40 96.927338 prospects 1 5 3 4 2 805 2148 43 35 96.743431 of5 1 5 3 4 3 857 2148 107 46 96.790367 beings 1 5 3 4 4 979 2148 123 35 96.626915 forced5 1 5 3 4 5 1117 2148 146 46 96.626915 entirely5 1 5 3 4 6 1279 2155 60 29 96.576370 outs 1 5 3 4 7 1354 2148 41 36 96.576370 of5 1 5 3 4 8 1405 2149 163 36 96.872261 business5 1 5 3 4 9 1584 2150 120 35 96.312187 unless5 1 5 3 4 10 1721 2161 19 24 96.845085 a5 1 5 3 4 11 1755 2151 207 45 96.792862 competing4 1 5 3 5 0 627 2205 1333 44 -1 5 1 5 3 5 1 627 2206 162 35 96.425140 machines 1 5 3 5 2 805 2205 67 43 96.382553 [for5 1 5 3 5 3 884 2206 57 35 96.997536 thes 1 5 3 5 4 955 2206 138 35 95.905533 suction5 1 5 3 5 5 1105 2206 121 35 96.646118 feeder5 1 5 3 5 6 1237 2207 175 42 96.898521 machine]5 1 5 3 5 7 1428 2208 105 34 96.696457 could5 1 5 3 5 8 1546 2208 44 34 96.687859 be5 1 5 3 5 9 1603 2208 140 34 94.239365 found. Jd. at 548.

Hartford Company and Empire Company (which merged in 1922) pioneered development of a competing machine - the gob feeder and proceeded to license the machine to firms to make specific kinds of ware. Id.

Owens and Hartford were competitors until 1924, when they entered into an agreement to restrict licensing practices. (/d. at 37 [T]he5 1 7 1 1 3 847 2704 232 36 92.127022 pre-acquisitions 1 7 1 1 4 1091 2704 240 37 96.567314 anticompetitive5 1 7 1 1 5 1342 2705 121 28 96.653870 conducts 1 7 1 1 6 1474 2705 34 28 96.940094 of5 1 7 1 1 7 1516 2714 16 19 96.594482 a5 1 7 1 1 8 1543 2705 65 28 96.594482 firms 1 7 1 1 9 1620 2706 22 28 96.958244 is5 1 7 1 1 10 1654 2706 145 37 96.597672 probative5 1 7 1 1 11 1812 2706 33 28 96.918510 of5 1 7 1 1 12 1855 2706 106 28 96.955551 similar2 1 8 0 0 0 623 2752 1335 84 -1 3 1 8 1 0 0 623 2752 1335 84 -1 4 1 8 1 1 0 623 2752 1335 37 -1 5 1 8 1 1 1 623 2753 125 28 96.070801 conducts 1 8 1 1 2 762 2752 86 37 96.705078 beings 1 8 1 1 3 863 2752 132 37 96.102013 repeated5 1 8 1 1 4 1011 2752 28 28 96.102013 in5 1 8 1 1 5 1054 2753 47 27 96.629410 thes 1 8 1 1 6 1117 2752 116 29 81.751404 future. Crouse-Hinds Co. v. InterNorth Co., 518 F. Supp. 416, 422, n. 10 (N.D.N.Y. 1980).

OWENS-ILLINOIS, INC., ET AL. 281 179 Initial Decision 548-49.) They conspired in violation of the Sherman Act to monopolize the production and sale of glass containers generally, milk bottles (/d. at 580) and fruits 1 3 1 3 7 1136 740 105 45 90.146057 jars. (/d. at 582.) Following the Supreme Court's decision, a judgment was entered in 1945 enjoining, inter alia, patent monopoly, restrictions of glass-making machinery, price-fixing, market allocation, interlocking directorates, and acquisitions without prior approval. United States v. Hartford-Empire Co. et al., 1978 Trade Cas. (CCH) {{ 62,057 at 74,567 (N.D. Ohio 1976) (amending judgment in part, but not injunctive provisions). The judgement terminated on October 31, 1985. Id.

D. Productivity Improvements Cost decreases are expected from technology improvements in the production of glass containers. (F 401-408.) By coordinating their behavior, Owens and the other major suppliers with efficient, high productivity equipment will be able to withhold from customers these expected cost savings. In a noncompetitive market, producers can maintain prices at supracompetitive levels even as costs decrease. United States v. Hartford Empire Co., 46 F. Supp. at 620. V. CONCLUSION The issue here is whether the acquisition is likely to hurt consumers, as by making it easier for firms to collude, expressly or tacitly, and thereby force price above the competitive level. Hospital Corporation of America v. FTC, 807 F.2d 1381, 1386 (7th Cir. 1986), cert. denied, 481 U.S. 1038 (1987). The intent of Section 7 is to arrest such a restraint of trade in its incipiency. Brown Shoe Co. v. United States, 370 U.S. 294, 317-18 (1962); FTC v. Procter & Gamble Co., 386 U.S. 568, 577 (1967).*® The merger put Owens-Illinois first in the market, with 38% of the production and sale of glass container in the United States. (F 38 Aan acquisition that violates Section 7 also violates Section 5. United States v. Papercraft Corp., 540 F. 2d 131, 136-38 (3rd Cir. 1976). Initial Decision 115 F.T.C.

281, Table B, D.) The top two firms control 60%. (F 281, Table A.) The merger eliminated the firm that Owens regarded as its strongest competitor and will facilitate collusion. (F 341-409.) The relevant product market has high entry barriers (F 305-25), and a history of market allocation and antitrust violations. The glass container industry is ripe for collusion. The facts of this case establish a violation of Section 7 of the Clayton Act, 15 U.S.C. 18, and Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45. VI. REMEDY Once an acquisition is found to be unlawful under Section 7, the principle purpose of relief is5 1 5 1 2 6 1248 1314 36 30 96.992638 to5 1 5 1 2 7 1301 1315 132 29 96.674377 restores 1 5 1 2 8 1451 1310 233 46 96.845291 competitions 1 5 1 2 9 1702 1317 36 29 96.987289 to5 1 5 1 2 10 1756 1311 58 35 96.690895 thes 1 5 1 2 11 1832 1318 89 29 96.690895 states 1 5 1 2 12 1938 1312 36 35 96.983620 in4 1 5 1 3 0 638 1365 1335 46 -1 5 1 5 1 3 1 638 1365 119 35 96.914146 which5 1 5 1 3 2 772 1365 26 35 96.405830 it5 1 5 1 3 3 813 1365 138 36 96.630150 existed5 1 5 1 3 4 965 1365 96 46 96.556259 prior5 1 5 1 3 5 1076 1372 47 35 96.556259 to,5 1 5 1 3 6 1140 1367 68 34 96.375214 ands 1 5 1 3 7 1223 1367 121 35 96.254471 would5 1 5 1 3 8 1359 1368 91 35 96.683365 have5 1 5 1 3 9 1465 1368 192 36 96.260651 continued5 1 5 1 3 10 1672 1375 35 29 96.945267 to5 1 5 1 3 11 1723 1369 92 35 96.133698 exists 1 5 1 3 12 1829 1370 62 34 96.990952 but5 1 5 1 3 13 1906 1370 67 41 96.957062 for,4 1 5 1 4 0 637 1422 1337 47 -1 5 1 5 1 4 1 637 1422 58 36 96.255409 thes 1 5 1 4 2 709 1422 121 46 96.255409 illegal5 1 5 1 4 3 844 1424 167 45 80.006844 merger. B.F. Goodrich Co., 110 FTC at 345. The most effective method for accomplishing this purpose is divestiture. Ford Motor Co. v. United States, 405 U.S. 562, 573 (1972); United States v. E.l. du Pont de Nemours & Co., 366 U.S. 316, 328-31 (1961). To ensure that the divestiture is not made ineffectual, future mergers or acquisitions in the same market should be prohibited for ten years without the prior approval of the Commission. CONCLUSIONS OF LAW 1. The Federal Trade Commission has jurisdiction over the subject matter of this proceeding and over respondents Owens- Illinois, Inc. ("Owens"), BI Acquisition Corporation ("BIAC"), and Brockway, Inc. ("Brockway").

2. At all times relevant herein, Owens has been, and is now, a corporation engaged in commerce, as commerce is defined in Section 1 of the Clayton Act, as amended, 15 U.S.C. 12, and is a corporation whose business is in or affecting commerce as com-4 1 7 2 5 0 630 2459 1334 44 -1 5 1 7 2 5 1 630 2459 134 35 72.742874 merce is defined in Section 4 of the Federal Trade Commission Act, as amended, 15 U.S.C. 44.

3. At all times relevant herein, BIAC has been, and is now, a corporation engaged in commerce, as commerce is defined in Section 1 of the Clayton Act, as amended, 15 U.S.C. 12, and is a corporation whose business is in or affecting commerce as com- OWENS-ILLINOIS, INC., ET AL. 283 179 Initial Decision merce" is defined in Section 4 of the Federal Trade Commission Act, as amended, 15 U.S.C. 44.

4. At all times relevant herein, Brockway has been, and is now, a corporation engaged in commerce, as commerce is defined in Section 1 of the Clayton Act, as amended, 15 U.S.C. 12, and is a corporation whose business is in or affecting commerce as com-4 1 3 2 5 0 577 969 1335 42 -1 5 1 3 2 5 1 577 971 136 35 96.284882 merce is defined in Section 4 of the Federal Trade Commission Act, as amended, 15 U.S.C. 44.

5. Owens, BIAC and Brockway entered into an Agreement and Plan of Merger, dated September 17, 1987, pursuant to which Owens, through BIAC, commenced a cash tender offer for all outstanding voting securities of Brockway for $60 per share. Pursuant to a second agreement dated September 17, 1987, among Owens, BIAC and Brockway, Owens acquired the right to purchase up to 2,300,000 shares of authorized but unissued shares of Brockway for $60 per share. The total value of the cash tender offer was approximately $750 million for the shares, plus an additional $110 million for expenses and debt retirement. The acquisition was completed on April 12, 1988.

6. A line of commerce within which to evaluate the competitive effects of the acquisition is the manufacture and sale of glass containers. Additional lines of commerce are the markets for the supply of glass containers to the following end-use segments: (a) Baby food and baby juice; (b) Spaghetti sauce; (c) Jams and jellies; (d) Pickles; (e) Shelf-stable juices; (f) Mayonnaise; (g) Wine; (h) Wine coolers; and (i) Distilled spirits.

7. An appropriate section of the country within which to evaluate the competitive effects of the acquisition is the continental United States.

8. Prior to and at the time of the acquisition, Owen and Brockway were competitors in the manufacture and sale of glass containers in the United States.

9. The effect of the acquisition has been or may be substantially to lessen competition or tend to create a monopoly in the aforesaid lines of commerce and section of the country in violation of Section 7 of the Clayton Act, as amended, and Section 5 of the Federal Trade Commission Act, as amended, in the following ways: Initial Decision 115 F.T.C.

(a) It eliminates Brockway as a competitive force in the relevant market;

(b) It eliminates direct competition between Owens and Brockway in the relevant market; and (c) It increases concentration and the likelihood of anticompetitive conduct among firms in the relevant market. (d) It increases the likelihood that firms in the relevant market will increase prices.

10. An order is necessary and appropriate to remedy the violation of law.

ORDER It is ordered, That for purposes of this order the following definitions shall apply:

A. Owens means respondent Owens-Illinois, Inc., a corporation organized, existing and doing business under and by virtue of the laws of the State of Delaware, with its principal place of business in Toledo, Ohio, its directors, officers, agents, and employees, and its parents, subsidiaries, including BIAC, divisions, affiliates, successors, and assigns.

B. BIAC means respondent BI Acquisition Corporation, a corporation organized, existing and doing business under and by virtue of the laws of the State of New York, with its principal place of business in Toledo, Ohio, its directors, officers, agents, and employees, and its parents, subsidiaries, divisions, affiliates, successors, and assigns.

C. Brockway means respondent Brockway, Inc., a corporation organized, existing and doing business under and by virtue of the laws of the State of New York, with its principal place of business located in Jacksonville, Florida, its directors, officers, agents, and employees, and its parents, subsidiaries, divisions, affiliates, successors, and assigns.

OWENS-ILLINOIS, INC., ET AL. 285 179 Initial Decision D. Glass5 1 3 1 1 3 870 632 200 35 92.680450 container means a bottle, jar, or other container made of glass that can be used to contain food, beverages, or other products.

E. Brockway5 1 3 2 1 3 970 805 100 45 96.802467 glass5 1 3 2 1 4 1088 805 190 34 96.720078 containers 1 3 2 1 5 1294 802 183 36 94.919518 business means the glass container business acquired by Owens through the acquisition of Brockway including all manufacturing, production, marketing, sales, warehousing, distribution, and research and development facilities and all other assets, titles, properties, interests, and rights and privileges, tangible and intangible, related thereto, together with all additions and improvements thereto, and all other facilities, assets, titles, properties, interests, and rights and privileges as may be necessary to reconstitute Brockway as a viable competitor in the manufacture and sale of glass containers to the same extent as existed prior to the acquisition by Owens.

(1) Such facilities shall include all of the Brockway plants producing glass containers acquired by Owens, namely, the plants located in Montgomery, Alabama; Zanesville, Ohio; Freehold, New Jersey; Lapel, Indiana; Pomona and Oakland, California; Crenshaw and Brockway, Pennsylvania; Muskogee and Ada, Oklahoma; and Danville, Virginia.

(2) Such assets, titles, properties, interests, and rights and privileges shall include leases; funded employee benefit pension plans; raw material supply arrangements; glass container technology; patents; licenses; customer lists; trademarks; trade names; manufacturing, production, marketing, sales, warehousing, distribution, and research and development know-how; and goodwill. (3) If any Brockway glass container plant has been sold, closed, shut down, disposed of, or is otherwise no longer operational, the Brockway glass container business shall include the closest operational Owens' plant that has glass container production tonnage capacity equal to or greater than the tonnage capacity of such Brockway plant.

(4) If any other Brockway facilities, assets, titles, properties, interests, and rights and privileges have been sold, closed, shut down, disposed of, or are otherwise no longer operational, the Brockway glass container business shall include such other facilities, assets, Initial Decision 115 F.T.C.

titles, properties, interests, and rights and privileges that are in the same or better condition than those that were acquired. (5) In the event that any Brockway facilities, assets, titles, properties, interests, and rights and privileges are no longer operational to the same extent as existed prior to the acquisition by Owens, except for normal wear and tear, then the Brockway glass container business shall include such other facilities, assets, titles, properties, interests, and rights and privileges that are in the same or better condition than those that were acquired.

IL.

It is furthered ordered, That within twelve (12) months from the date this order becomes final, Owens shall divest, absolutely and in good faith, the Brockway glass container business. The purpose of the divestiture is to reestablish the Brockway glass container business as a viable competitor engaged in the manufacture, distribution, sale, and research and development glass containers; and to remedy the lessening of competition resulting from the acquisition of Brockway by Owens. The divestiture shall be only to an acquirer, and only in a manner, that receive the prior approval of the Federal Trade Commission and, if the divestiture of the Brockway glass container business is to be accomplished by a public offering all stock and other share capital of a corporation containing the Brockway glass container business, such public offering shall also only be in a manner that receives the prior approval of the Commission. In the event of a public offering, Owens shall submit to the Commission for its prior approval the plan for such public offering at least 90 days prior to such public offering. No person who is an officer, director or executive employee of Owens or who owns or controls directly or indirectly more than one (1) percent of the stock of Owens shall be an officer, director or executive employee of the corporation or shall own or control directly or indirectly more than one (1) percent of the stock of the corporation.

Pending divestiture, Owens shall take all measures necessary to maintain the Brockway glass container business in its present condition and to prevent any deterioration, except for normal wear and tear, of any part of the Brockway glass container business, so as OWENS-ILLINOIS, INC., ET AL. 287 179 Initial Decision not to impair the operating viability or market value of the Brockway glass container business.

II.

It is further ordered, That at the time of the divestiture required by this order, Owens shall provide to the acquirer of the Brockway glass container business, or to the corporation in the event of a public offering, on a nonexclusive basis, all glass container technology (including patents, licenses, and know-how) not acquired from Brockway and used by Owens, or developed by Owens for use, in connection with the Brockway glass container business; Owens shall not interfere with any attempt by such acquirer of the Brockway glass container business, or the corporation in the event of a public offering, to employ any personnel previously or presently employed by Brockway, or presently employed by Owens, in connection with the operation of the business to be divested nor seek to enforce any employment contract against such personnel; and Owens shall not burden the Brockway glass container business, or the corporation in the event of a public offering, with any obligations that may impair the viability of the business or frustrate the purposes of the divestiture, and in no event shall any obligations, apart from funded employee benefit pension funds, transferred by Owens be any greater than those carried by Brockway at the time of its acquisition by Owens.

IV.

It is further ordered, That at the time of the divestiture required by this order, Owens shall assign to the acquirer of the Brockway glass container business, or to the corporation in the event of a public offering, all customer agreements or understandings, whether formal or informal, and all customer records and files relating to the sale of glass containers produced in or supplied by the Brockway glass container business.

Initial Decision 115 F.T.C.

V.

It is further ordered, That:

A. If Owens has not divested the Brockway glass container business within the twelve-month period provided in paragraph II of this order, Owens shall consent to the appointment of a trustee to effect the divestiture pursuant to paragraph II (1) by the Federal Trade Commission or (2) in any action that the Commission brings pursuant to Section 5(a)(1) of the Federal Trade Commission Act, 15 U.S.C. 45(a)(1), or any other statute enforced by the Commission. Neither the appointment of a trustee nor a Commission decision not to appoint a trustee under this paragraph shall preclude the Commission from seeking civil penalties and any other relief available to it, including a court-appointed trustee, pursuant to Section 5(a)(1) of the Federal Trade Commission Act, 15 U.S.C. 45(a)(1), or any other statute enforced by the Commission, for any failure by Owens to comply with this order. B. If a trustee is appointed by the Commission or a court pursuant to this paragraph, Owens shall consent to the following, terms and conditions regarding the trustee's powers, authority, duties, and responsibilities:

(1) The Commission shall select the trustee, subject to the consent of Owens, which consent shall not be unreasonably withheld. The trustee shall be a person with experience and expertise in acquisitions and divestitures.

(2) The trustee shall have the exclusive power and authority, subject to the prior approval of the Commission, to divest the Brockway glass container business. The trustee shall have twelve (12) months from the date of appointment to accomplish the divestiture. If, however, at the end of the twelve-month period, the trustee has submitted a plan of divestiture or believes that divestiture can be accomplished within a reasonable time, the divestiture period may be extended by the Commission and, in the case of a court-appointed trustee, by the court.

(3) The trustee shall have full and complete access to the personnel, books, records and facilities of the Brockway glass con- OWENS-ILLINOIS, INC., ET AL. 289 179 Initial Decision tainer business, and Owens shall develop such financial or other information relevant to the Brockway glass container business as the trustee may reasonably request. Owens shall cooperate with the trustee, and shall take no action to interfere with or impede the trustee's accomplishment of the divestiture. Any delays in divestiture caused by Owens shall extend the time for divestiture under this paragraph in an amount equal to the delay, as determined by the Commission.

(4) The trustee shall use his or her best efforts to negotiate the most favorable price and terms available in such contract that is submitted to the Federal Trade Commission, subject to Owens' absolute and unconditional obligation to divest at no minimum price and the purpose of the divestiture as stated in paragraph II of this order and subject to the prior approval of the Commission. If the divestiture is not to be through a public offering of a corporation containing the Brockway glass container business and the trustee receives bona fide offers from more than one prospective acquirer, and if the Commission approves more than one such acquirer, the trustee shall divest to the acquirer selected by Owen from among those approved by the Commission.

(5) The trustee shall serve, without bond or other security, at the cost and expense of Owens on such reasonable and customary terms and conditions as the Commission may set. The trustee shall have authority to retain, at the cost and expense of Owens, such consultants, attorneys, investment bankers, business brokers, accountants, appraisers, and other representatives and assistants as are reasonably necessary to carry out the trustee's duties and responsibilities. The trustee shall account for all monies derived from the divestiture and for all expenses incurred. After approval by the Commission and, in the case of a court-appointed trustee, by the court of the account of the trustee, including fees for his or her services, al] remaining monies shall be paid to Owens, and the trustee's power shall be terminated. The trustee's compensation shall be based at least in significant part on a commission arrangement contingent on the trustee divesting the Brockway glass container business. (6) Owens shall indemnify the trustee and hold the trustee harmless against any losses, claims, damages, or liabilities arising in Initial Decision 115 F.T.C.

any manner out of, or in connection with, the trustee's duties under this order.

(7) Within sixty (60) days after appointment of the trustee and subject to the approval of the Commission and, in the case of a court-appointed trustee, of the court, Owens shall, consistent with provisions of this order, transfer to the trustee all rights and powers necessary to permit the trustee to effect the divestiture required by this order.

(8) If the trustee ceases to act or fails to act diligently, a substitute trustee shall be appointed in the same manner as provided in this order.

(9) The Commission and, in the case of a court-appointed trustee, the court may on its own initiative or at the request of the trustee issue such additional orders or directions as may be necessary or appropriate to accomplish the divestiture required by this order. (10) The trustee shall have no obligation or authority to operate or maintain the Brockway glass container business. (11) The trustee shall report in writing to Owens and to the Commission every sixty (60) days concerning the trustee's efforts to accomplish divestiture.

VI.

It is further ordered, That for a period of ten (10) years from the date this order becomes final Owens shall not, without the prior approval of the Federal Trade Commission, directly or indirectly acquire all or any part of the stock, share capital, equity interest, or assets of any person engaged in the manufacture or sale of glass containers in the United States other than the acquisition of manufactured product in the ordinary course of business. VIL.

It is further ordered, That:

A. Owens shall, within sixty (60) days after the date this order becomes final and every sixty (60) days thereafter until it has fully complied with the provisions of paragraph II of this order, submit in OWENS-ILLINOIS, INC., ET AL. 29] 179 Opinion writing to the Commission a verified written report setting forth in detail the manner and form in which it intends to comply, is complying, and has complied with these provisions. Such compliance reports shall include, among other things that may be required from time to time, a full description of all contacts and negotiations relating to the divestiture of the Brockway glass container business, including the name and address of all parties contacted, copies of all written communications to and from such parties, and all internal memoranda, reports and recommendations concerning divestiture. B. On the first anniversary of the date this order becomes final, on every anniversary thereafter for the following nine (9) years, and at such other times as the Commission or its staff may request, Owens shall submit a verified written report setting forth in detail the manner and form in which Owens intends to comply, is complying, and has complied with paragraph VI of this order. VII.

It is further ordered, That Owens shall notify the Federal Trade Commission at least thirty (30) days prior to any proposed corporate change, 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 with the obligations arising out of this order. OPINION OF THE COMMISSION BY STEIGER, Chairman:

I. INTRODUCTION On September 17, 1987, Owens-Illinois, Inc. ("Owens"), one of the nation’s two largest producers of glass containers, acting through its acquisition subsidiary, BI Acquisition Corp., initiated a cash tender offer to acquire Brockway, Inc., the third largest producer of glass containers in the United States. The acquisition was completed on April 12, 1988, after the United States District Court for the District of Columbia refused to issue a preliminary injunction, FTC Opinion 115 F.T.C.

v. Owens-Illinois, Inc., 681 F. Supp. 27 (D.D.C.), vacated as moot, 850 F.2d 694 (D.C. Cir. 1988), and the United States Court of Appeals for the District of Columbia Circuit denied the Commission's request for an injunction pending appeal. An administrative complaint was issued, and an administrative trial ensued. On September 11, 1989, Administrative Law Judge James P. Timony issued an initial decision finding that the effect of the acquisition has been or may be substantially to lessen competition or tend to create a monopoly in violation of Section 7 of the Clayton Act and Section 5 of the Federal Trade Commission Act and ordered Owens to divest the Brockway glass container business. Owens, BI Acquisition Corp., and Brockway have appealed. For the reasons set forth below, the complaint is dismissed.

Owens is a manufacturer of various packaging products, including glass containers, plastic containers, and specialty packaging products. For the year ended December 31, 1987, Owens had net sales of approximately $3.1 billion and total assets of approximately $4.5 billion. That year it produced glass containers in 16 widely dispersed plants. CX 1451B.' Its principal place of business is in Toledo, Ohio.

Brockway manufactured glass, plastic and metal containers, caps, lids and closures for packaging consumer and industrial products. In 1986 Brockway had net sales of $1.1 billion and assets of $494.3 million. That year it produced glass containers in 11 widely dispersed plants (CX 1451B), and its principal place of business was in Jacksonville, Florida.

! The following abbreviations are used in this opinion: ID -- Initial decision page number IDF -- Initial decision finding number Tr. -- Transcript of testimony page number OA Tr. -- Transcript of Commission oral argument page number CX -- Complaint counsel's exhibit number RX -- Respondents’ exhibit number RAB -- Respondents’ appeal brief CAB~ -- Complaint counsel's answering brief RRB~ -- Respondents’ reply brief OWENS-ILLINOIS, INC., ET AL. 293 179 Opinion Owens and Brockway are not the only producers of glass containers in the United States. Anchor/Diamond-Bathurst (with the industry's greatest tonnage production and capacity and with dollar sales only slightly below Owens' pre-acquisition levels), Ball-Incon, and Triangle all hold more than 7.9% market shares based on 1987 dollar sales. In addition, the initial decision lists 13 other glasscontainer producers with 1987 market shares ranging from .3% to 3.0%. See ID 45 at Table B, a copy of which is appended hereto. Glass containers are used for packaging a variety of goods, including food, soft drinks, alcoholic beverages, juices, chemicals, and cosmetics. The containers vary in shape, size, color, and method of closure, and the characteristics of each packaged good affect the attributes needed in its glass containers. Glass containers have some characteristics which other types of packaging materials, such as metal cans and plastic containers, historically have found difficult to duplicate. Glass containers are clear, impermeable (preventing air or moisture from entering and gases from escaping), resealable, retortable (allowing sterilization within the jar at high temperature and high pressure), rigid (facilitating high-speed filling), inert (not interacting with and affecting the taste of their contents), and recyclable. In contrast, metal cans are opaque, cannot be readily resealed, and may impart a taste to their contents. Plastic containers are more permeable (particularly in smaller sizes), lack rigidity, have not combined clarity with retortability, and have some recycling disadvantages. However, recent years have seen the introduction of polyethylene terephthalate ("PET") and multi-layer plastic containers which replicate many of the qualities formerly unique to glass.

Characteristics of each end-use good dictate its packaging needs and define the range and relative desirability of its packaging options. For some uses glass has prevailed; for others plastic, metal, or paper has predominated. In recent years several products previously packaged largely in glass, such as ketchup, peanut butter, and family-size soft drinks, have converted in significant part to plastic. Other goods, perhaps with greater need for impermeability, retortability or other qualities better provided by glass, have remained predominantly glass users. A central factual issue in this case concerns the degree to which glass containers for these remaining Opinion 115 F.T.C.

predominantly glass-packaged end-uses are subject to competition from metal, plastic, or paper.

The initial decision defines two distinct classes of product market. First, it concludes that a broad market consisting of all glass containers is a relevant product market for purposes of this case. Second, it finds that in nine end-use segments the ability to substitute away from glass packaging remains limited. These uses, referred to by complaint counsel as the inelastic end-use segments, are (1) shelfstable juices; (2) distilled spirits; (3) spaghetti sauce; (4) jams and jellies; (5) mayonnaise; (6) pickles; (7) wine coolers; (8) wine; and (9) baby food and baby juice.? Complaint counsel assert, and the initial decision held, that in addition to an all-glass-container market, the supply of glass containers for each of the nine allegedly inelastic end-use segments constitutes a relevant product market in which the effect of Owens' acquisition of Brockway may be substantially to lessen competition.

Respondents have appealed on two principal grounds. They argue first that the appropriate product market includes all rigid containers, whether made of glass, plastic, metal, or paper. Second, respondents claim that anticompetitive effects from the Brockway acquisition are economically implausible because of the difficulties that would confront any collusive effort selectively to raise price only on glass containers destined to the allegedly inelastic end-use segments, We address these contentions below.’ ? As this case has progressed, the list of allegedly inelastic end-use segments has been narrowed. In earlier stages of this litigation, complaint counsel included glass containers used for soluble beverage products (focusing on instant tea and coffee), scientific, chemical and laboratory applications, and single-serve soft drinks among the allegedly inelastic end-use segments. The administrative law judge excluded from evidence complaint counsel's proffer of proof as to soluble beverage products, ID at 71 n.24, denied complaint counsel's claims as to scientific, chemical and laboratory application for failure of proof, id., and determined that, to the extent issues had been joined, single-serve soft drinks had not been shown to be a relevant market. ID at 70. Complaint counsel have not appealed these rulings.

3 In addition to the primary arguments identified in the text, respondents raise numerous subsidiary challenges to the procedural and substantive validity of the initial decision and complaint counsel's case. Indeed, respondents dispute 224 of the initial decision's findings of fact. Because of the determinations reached on OWENS-ILLINOIS, INC., ET AL. 295 179 Opinion Il. RELEVANT MARKETS The first step in analyzing the likely competitive effects of an acquisition is to define the relevant product and geographic markets. We find the initial decision's conclusions as to geographic market well-supported, but conclude after review of both theoretical and factual considerations that only a portion of the initial decision's product market determinations can be sustained. A. Product Market: Theoretical Considerations 1. General Principles In merger/acquisition analysis, the goal of the market definition process is to identify those sectors of the economy which may be exposed by the transaction to anticompetitive price increases. To the extent that a grouping of sales in which customers may be victimized by market power can be identified, concerns which may justify invoking the antitrust laws are raised.

In keeping with these considerations, a market may be defined as any5 1 5 2 2 2 634 1789 178 46 96.072006 groupings 1 5 2 2 3 832 1789 42 35 96.393768 of5 1 5 2 2 4 891 1790 92 34 96.840096 sales5 1 5 2 2 5 1004 1790 124 35 96.563049 whose5 1 5 2 2 6 1148 1791 135 40 96.623634 sellers,5 1 5 2 2 7 1303 1791 33 34 96.905609 if5 1 5 2 2 8 1352 1791 137 35 96.372215 unified5 1 5 2 2 9 1508 1791 47 45 95.995941 by5 1 5 2 2 10 1576 1802 19 24 96.973831 a5 1 5 2 2 11 1615 1791 242 45 96.108040 hypothetical4 1 5 2 3 0 523 1847 1334 48 -1 5 1 5 2 3 1 523 1847 106 34 96.093544 cartel5 1 5 2 3 2 644 1857 40 25 97.000435 or5 1 5 2 3 3 697 1858 148 35 96.715622 merger,5 1 5 2 3 4 860 1848 109 35 96.744461 could5 1 5 2 3 5 982 1848 93 35 96.981102 raises 1 5 2 3 6 1088 1848 116 46 96.628212 prices5 1 5 2 3 7 1221 1848 244 46 96.668854 significantly5 1 5 2 3 8 1480 1849 116 35 96.962349 above5 1 5 2 3 9 1611 1850 58 34 93.275223 thes 1 5 2 3 10 1684 1849 173 46 92.281898 competi-4 1 5 2 4 0 522 1905 1334 48 -1 5 1 5 2 4 1 522 1905 71 36 96.986549 tives 1 5 2 4 2 607 1906 121 36 92.125298 level. H. J., Inc. v. International Telephone & Telegraph Corp., 867 F.2d 1531, 1537 (8th Cir. 1989), quoting, P. Areeda & H. Hovenkamp, Antitrust Law { 518.1 (1987 Supp.) ("Areeda"). Similarly, paragraph 2.0 of the U.S. Department of Justice Merger Guidelines, reprinted in 4 Trade Reg. Rep. (CCH) J 13,103 (1984) ("Merger Guidelines")* explains:

respondents’ principal arguments, it is unnecessary for the Commission to address their subsidiary claims or to resolve factual disputes other than as set forth in this opinion.

Analytical principles which underlie the Commission's evaluation of horizontal mergers are set forth in the Statement of Federal Trade Commission Concerning Horizontal Mergers, reprinted in 4 Trade Reg. Rep. (CCH) J 13,200 (1982) ("FTC Statement"). In many instances the Commission’s evaluation is also informed by principles and standards articulated in the Merger Guidelines. Opinion 115 F.T.C.

The standards in the Guidelines are designed to ensure that the Department analyzes the likely competitive effect of a merger within economically meaningful markets, i.e., markets that could be subject to the exercise of market power. Accordingly, for each product of each merging firm, the Department seeks to define a market in which firms could effectively exercise market power if they were able to coordinate their actions. Formally, a market is defined as a product or group of products and a geographic area in which it is sold such that a hypothetical, profit-maximizing firm, not subject to price regulation, that was the only present and future seller of those products in that area would impose a small5 1 3 1 9 10 1478 1012 50 30 96.981247 but5 1 3 1 9 11 1540 1012 166 38 96.698311 significant5 1 3 1 9 12 1717 1013 56 28 91.980492 ands 1 3 1 9 13 1785 1012 227 38 84.297180 nontransitory increase in price above prevailing or likely future levels. The ability of present suppliers to increase price is subject to constraint by the reactions of customers and the responses of other suppliers. To the extent that buyers are able to shift their purchases to alternative products (i.e., to engage in demand-side substitution), lost sales may render supracompetitive price increases unprofitable. The Supreme Court alludes to these demand-side considerations with references to reasonable5 1 4 1 7 4 1208 1519 354 47 92.589172 interchangeability5 1 4 1 7 5 1584 1519 42 35 97.010857 of5 1 4 1 7 6 1644 1513 98 41 34.900429 use? and cross-4 1 4 1 8 0 676 1577 1337 49 -1 5 1 4 1 8 1 676 1580 179 46 96.713097 elasticity5 1 4 1 8 2 874 1579 42 37 96.819420 of5 1 4 1 8 3 931 1579 154 36 96.640823 demands 1 4 1 8 4 1102 1579 163 35 96.649796 between5 1 4 1 8 5 1284 1578 58 36 96.893341 thes 1 4 1 8 6 1359 1578 150 48 96.776764 products 1 4 1 8 7 1526 1578 101 36 96.563591 itself5 1 4 1 8 8 1642 1578 68 36 96.964279 ands 1 4 1 8 9 1730 1577 207 37 96.498184 substitutes5 1 4 1 8 10 1956 1577 57 36 96.958649 fora 1 4 1 9 0 676 1633 1336 51 -1 5 1 4 1 9 1 676 1633 73 42 35.644951 it.° To the extent that suppliers not presently producing the product are likely to redirect existing facilities (i.e., to engage in supply-4 1 4 1 11 0 677 1753 1334 49 -1 5 1 4 1 11 1 677 1756 93 36 96.552483 side or production substitution) to supply the product, their shortrun output may prevent price from rising. See Brown Shoe, 370 U.S. at 325 n.42 ("The cross-elasticity of production facilities may also be an important factor in defining a product market within which a vertical merger is to be viewed."); Weyerhaeuser Co., 106 FTC 172, 274 (1985). By (1) delineating a grouping of sales for which demand-side substitution is unlikely to deter supracompetitive pricing and (2) identifying all producers of those sales, either as of the present or after supply-side substitution, we have defined the scope 5 Brown Shoe Co. v. United States, 370 U.S. 294, 325 (1962). See also United States v. E. I. du Pont de Nemours & Co., 351 U.S. 377, 395 (1956) ("Cellophane").

© Brown Shoe, 370 U.S. at 325. Similarly, the Commission seeks to5 1 8 1 1 13 1897 2549 100 29 96.584282 define4 1 8 1 2 0 676 2596 1336 44 -1 5 1 8 1 2 1 676 2611 17 21 96.318779 a5 1 8 1 2 2 704 2602 123 38 96.318779 products 1 8 1 2 3 839 2610 33 21 96.976303 or5 1 8 1 2 4 883 2609 92 30 96.819649 groups 1 8 1 2 5 988 2600 34 30 96.904907 of5 1 8 1 2 6 1031 2600 138 38 96.963867 products5 1 8 1 2 7 1182 2599 180 38 96.944611 sufficiently5 1 8 1 2 8 1375 2599 119 29 96.944611 distinct5 1 8 1 2 9 1506 2599 60 29 96.528740 that5 1 8 1 2 10 1578 2599 107 37 96.528740 buyers5 1 8 1 2 11 1698 2597 89 30 96.746819 could5 1 8 1 2 12 1801 2602 50 24 96.835213 not5 1 8 1 2 13 1864 2596 100 30 96.852219 defeat5 1 8 1 2 14 1976 2605 36 21 96.852219 an4 1 8 1 3 0 676 2645 1336 44 -1 5 1 8 1 3 1 676 2650 161 39 96.706596 attempted5 1 8 1 3 2 854 2650 133 29 96.450966 exercises 1 8 1 3 3 1004 2649 35 29 96.651321 of5 1 8 1 3 4 1053 2649 112 29 96.579529 markets 1 8 1 3 5 1180 2657 103 29 96.922653 powers 1 8 1 3 6 1298 2656 38 21 96.884033 on5 1 8 1 3 7 1354 2647 48 30 96.884033 thes 1 8 1 3 8 1418 2652 63 33 96.994637 parts 1 8 1 3 9 1496 2647 36 29 96.970032 of5 1 8 1 3 10 1546 2647 101 29 96.827171 sellers5 1 8 1 3 11 1665 2646 35 30 96.956078 of5 1 8 1 3 12 1714 2647 85 28 96.564766 those5 1 8 1 3 13 1816 2646 140 38 96.456367 products5 1 8 1 3 14 1972 2645 40 38 96.456367 by4 1 8 1 4 0 677 2694 1335 43 -1 5 1 8 1 4 1 677 2698 123 39 96.939507 shifting5 1 8 1 4 2 813 2698 160 39 96.853798 purchases5 1 8 1 4 3 986 2702 30 26 96.880180 to5 1 8 1 4 4 1030 2697 58 30 96.216217 still5 1 8 1 4 5 1101 2696 140 31 96.973297 different5 1 8 1 4 6 1253 2695 164 40 73.214630 products. Hospital Corporation of America, 106 FTC 361, 464 (1985), aff'd, 807 F.2d 1381 (7th Cir. 1986), cert. denied, 481 US. 1038 (1987).

OWENS-ILLINOIS, INC., ET AL. 297 179 Opinion of and the participants in a relevant antitrust market, in which customers potentially are exposed to anticompetitive harm. 2. The All-Glass-Container Market Applying these principles to the case at hand, we conclude that respondents are correct in arguing that an all-glass-container market is not supported by the evidence. Demand-side substitution prevents assertion of such a market. The critical fact here is not contested: complaint counsel concede that an across-the-board price increase by glass container producers could not be sustained because of the ability of consumers to switch their purchases to alternative packaging materials such as plastic and metal. Thus they state, Complaints 1 5 1 9 2 766 1380 145 35 96.345451 counsels 1 5 1 9 3 926 1390 102 36 96.507324 agrees 1 5 1 9 4 1042 1380 71 35 97.014343 that5 1 5 1 9 5 1127 1386 59 30 96.515381 not5 1 5 1 9 6 1198 1391 108 35 96.448380 every5 1 5 1 9 7 1319 1380 149 36 96.448380 end-uses 1 5 1 9 8 1481 1380 30 36 96.762093 is5 1 5 1 9 9 1525 1380 170 42 96.396828 inelastic,5 1 5 1 9 10 1711 1382 68 35 96.905685 ands 1 5 1 9 11 1793 1382 72 35 96.669907 that4 1 5 1 10 0 529 1439 1333 47 -1 5 1 5 1 10 1 529 1439 97 46 96.665154 glass5 1 5 1 10 2 643 1440 192 45 96.405388 producers5 1 5 1 10 3 851 1439 107 35 96.864487 could5 1 5 1 10 4 974 1446 61 28 93.296730 not5 1 5 1 10 5 1050 1439 343 46 91.585213 anticompetitively5 1 5 1 10 6 1408 1440 92 35 96.751732 raises 1 5 1 10 7 1515 1440 116 46 93.294617 prices5 1 5 1 10 8 1648 1441 214 35 92.497124 across-the-4 1 5 1 11 0 529 1491 1333 51 -1 5 1 5 1 11 1 529 1497 138 34 92.109383 board. CAB 10 (emphasis in original)’ This concession is fatal to an all-glass container market. If price cannot be raised and consumers cannot be harmed because of the ability of enough customers to defeat the price increase by taking their business elsewhere, the grouping of all glass containers is not a relevant product market. ’ The transcript of the administrative trial includes the following interchange between counsel for respondents and Dr. Steven R. Nelson, complaint counsel's expert economist:

Q. And you're also agreed, aren't you, sir, that it would be impossible for this collusion, or cartel of glass container producers to exercise market power by imposing an across the board increase in the prices of all glass containers. A. Correct.

Q. And that's because a large number of glass container customers have substitutes for glass containers, as we discussed earlier this morning. Is that correct? A. Correct.

Q. And these customers would defeat such an attempt at across the board price increase by switching to these substitute containers. Isn't that right? A. Correct.

Nelson, Tr. 2974-75. Dr. Nelson goes on to identify brewers and some soft drink bottlers as customers who could help to defeat supracompetitive prices and concludes that in a market composed of all rigid containers, Owens' acquisition of Brockway poses no competitive concerns. /d. at 2975-76. Opinion 115 F.T.C.

3. The End-Use Segment Markets In contrast, respondents’ additional claim, that as a matter of theory no grouping of sales based on particular end-uses of glass containers can constitute a relevant product market, lacks merit.® Respondents present three bases for their claim: they argue that the initial decision's treatment as markets of the supply of glass containers to the allegedly inelastic end-use segments is premised on a discredited submarket theory; (2) they contend that a market cannot be defined by the current preferences of a small minority of customers when manufacturers compete in a broader market for the majority of their sales; and (3) they claim that the undisputed potential for supply-side substitution from elastic end-uses precludes treating the inelastic end-use segments as relevant submarkets (or, to apply the better usage, as relevant markets). a. Submarkets The contention that the initial decision's handling of the nine allegedly inelastic end-use segments rests on a discredited theory of submarkets misses a fundamental point: if in fact price could be raised above competitive levels for the glass containers sold in these end-use segments, those segments would be proper topics of antitrust concern not because they are submarkets, but because they would be relevant product markets in their own right. At least in theory, each end-use segment could stand as a grouping of sales for which a hypothetical monopolist might be able to impose a significant price increase.

This is precisely the reasoning adopted by the Merger Guidelines. Paragraph 2.11 of the Guidelines sets forth a procedure which (1) starts with each product narrowly5 1 6 2 3 6 1432 2377 165 36 95.556412 defined produced by each merging firm; (2) asks whether a hypothetical monopolist could 8 To the extent that the District Court opinion which denied a preliminary injunction in this case might suggest otherwise, we note that the court itself recognized its ruling as only a preliminary assessment," Owens-Illinois, 681 F. Supp. at 33, quoting FTC v. Warner Communications, Inc., 742 F.2d 1156, 1162 (9th Cir. 1984), and acknowledged that the evidence and arguments had not been reviewed in detail. Id. at 54.

OWENS-ILLINOIS, INC., ET AL. 299 179 Opinion successfully impose a small but significant and nontransitory increase in price; and (3) progressively broadens the market by adding the nearest substitute products up to the point that a grouping susceptible .to such a price increase is first reached. Thus, the Guidelines suggest that we should considers 1 3 1 5 5 1085 862 59 35 96.005112 thes 1 3 1 5 6 1168 863 158 34 95.733841 relevant5 1 3 1 5 7 1350 862 149 45 96.580505 products 1 3 1 5 8 1524 863 136 34 96.446457 markets 1 3 1 5 9 1684 869 37 28 96.629272 to5 1 3 1 5 10 1746 863 45 34 96.747169 be5 1 3 1 5 11 1816 863 58 34 96.747169 thea 1 3 1 6 0 540 919 1332 47 -1 5 1 3 1 6 1 540 919 161 35 96.541260 smallest5 1 3 1 6 2 721 930 115 35 96.461914 groups 1 3 1 6 3 856 919 43 35 96.843414 of5 1 3 1 6 4 915 920 167 46 96.788406 products5 1 3 1 6 5 1105 920 73 34 96.841629 that5 1 3 1 6 6 1198 920 155 34 96.500404 satisfies5 1 3 1 6 7 1375 920 67 34 96.500404 this5 1 3 1 6 8 1465 920 96 34 78.663376 test. Jd. (emphasis added).

This makes analytical sense. To the extent that submarkets in fact accurately delineate relevant antitrust product markets, they should be treated as markets. Focusing attention on larger groupings which contain the submarkets merely sows unnecessary confusion. As Professor Areeda's treatise explains:

[T]Jalk of markets and submarkets is both superfluous and confusing in an antitrust case, where the courts correctly search for a relevant market, that is, a market relevant to the legal issue before the court.... When, for example, we appraise a merger between two producers of high5 1 5 1 1 13 1756 1578 112 38 96.272270 quality4 1 5 1 2 0 534 1623 1333 39 -1 5 1 5 1 2 1 534 1623 89 28 94.463463 men's5 1 5 1 2 2 637 1623 103 29 93.263382 shoes (HQMS), the relevant question is whether a hypothetical union of all producers of HQMS would possess significant power over price. If so, HQMS is a relevant market. If that is the case, it would be altogether irrelevant that a hypothetical union of all shoe producers would have power over shoe prices. Areeda, J 518.lc at 463-64 (1990 Supp.).? Professor Areeda concludes, [N]othing5 1 6 1 2 3 919 1935 121 35 95.847198 would5 1 6 1 2 4 1059 1935 44 35 96.306221 be5 1 6 1 2 5 1122 1935 69 36 96.866539 lost5 1 6 1 2 6 1209 1935 47 46 96.591560 by5 1 6 1 2 7 1275 1935 156 46 96.715752 deleting5 1 6 1 2 8 1450 1936 58 35 96.662224 thes 1 6 1 2 9 1526 1937 99 34 93.280945 words 1 6 1 2 10 1645 1937 220 35 87.464699 'submarket'4 1 6 1 3 0 531 1990 757 38 -1 5 1 6 1 3 1 531 1990 94 36 95.742622 from5 1 6 1 3 2 640 1992 58 34 95.742622 thes 1 6 1 3 3 714 1992 160 35 96.736542 antitrust5 1 6 1 3 4 889 1992 173 35 96.104805 lexicon. Jd. at 466.

° Emphasizing the reverse effects, where the market, but not the alleged submarket, satisfies demand-side and supply-side substitution tests, then Professor Richard A. Posner, now an appellate judge, concludes: The submarket approach is unsound. If the outer5 1 10 1 1 9 1448 2404 190 30 91.312622 boundaries of the market include only the product's good substitutes in both consumption and production, which seems a fair reading of Brown Shoe's reformulation of the cellophane test, then a submarket would be a group of sellers from which sellers of good substitutes in consumption or production had been excluded, and these exclusions would deprive any market-share statistics of their economic significance.

R. Posner, Antitrust Law, An Economic Perspective 129 (1976). Opinion 115 F.T.C.

Respondents acknowledge that [a]5 1 3 1 1 5 1447 624 217 35 72.171982 'submarket'5 1 3 1 1 6 1678 624 30 35 96.958115 is5 1 3 1 1 7 1723 624 145 35 96.732079 defined5 1 3 1 1 8 1882 625 49 44 97.003754 by5 1 3 1 1 9 1945 625 58 34 96.199402 thea 1 3 1 2 0 667 682 1336 37 -1 5 1 3 1 2 1 667 694 98 25 95.682350 same5 1 3 1 2 2 778 683 187 36 96.466339 economics 1 3 1 2 3 979 683 162 35 96.301521 standards 1 3 1 2 4 1154 682 117 35 96.469521 which5 1 3 1 2 5 1285 682 136 35 96.784340 defines5 1 3 1 2 6 1436 692 20 25 93.061447 a5 1 3 1 2 7 1468 683 197 34 0.000000 market..... RAB 18. As the United States Court of Appeals for the Eighth Circuit recently explained, [T]he5 1 3 1 4 3 1037 809 99 25 96.835022 same5 1 3 1 4 4 1153 798 109 47 96.837891 proofs 1 3 1 4 5 1278 798 117 35 96.634331 which5 1 3 1 4 6 1414 798 211 35 96.631729 establishes5 1 3 1 4 7 1645 798 58 35 96.259163 thes 1 3 1 4 8 1723 798 183 35 96.928131 existence5 1 3 1 4 9 1925 797 42 36 96.686325 of5 1 3 1 4 10 1983 809 20 24 96.759468 a4 1 3 1 5 0 665 856 1337 48 -1 5 1 3 1 5 1 665 859 156 35 96.575821 relevant5 1 3 1 5 2 834 858 147 46 96.605827 products 1 3 1 5 3 994 857 133 36 96.329567 markets 1 3 1 5 4 1141 857 75 36 96.329567 also5 1 3 1 5 5 1231 857 117 35 96.802422 shows5 1 3 1 5 6 1363 857 55 43 96.968330 (or5 1 3 1 5 7 1430 857 36 35 96.999489 in5 1 3 1 5 8 1480 857 66 35 96.990425 this5 1 3 1 5 9 1561 867 92 30 96.084084 case,5 1 3 1 5 10 1668 856 80 36 96.084084 fails5 1 3 1 5 11 1763 863 36 29 96.571373 to5 1 3 1 5 12 1813 857 116 42 96.099876 show)5 1 3 1 5 13 1945 857 57 34 96.932487 thea 1 3 1 6 0 666 914 1335 48 -1 5 1 3 1 6 1 666 916 181 36 96.824745 existence5 1 3 1 6 2 862 915 42 36 96.439774 of5 1 3 1 6 3 914 926 21 25 96.439774 a5 1 3 1 6 4 947 915 149 47 93.275574 products 1 3 1 6 5 1111 914 230 37 74.552536 submarket. H.J., Inc., 867 F.2d at 1540. See Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 218-19 (D.C. Cir. 1986), cert. denied, 479 U.S. 1033 (1987) (treating submarket indicia as proxies5 1 3 1 9 5 1273 1091 57 36 93.249901 for5 1 3 1 9 6 1345 1091 401 36 90.431885 cross-elasticities...in5 1 3 1 9 7 1763 1091 201 46 96.468941 predicting5 1 3 1 9 8 1982 1101 19 25 96.889404 a4 1 3 1 10 0 665 1148 1334 49 -1 5 1 3 1 10 1 665 1151 108 36 96.798050 firm's5 1 3 1 10 2 788 1151 123 46 96.982262 ability5 1 3 1 10 3 923 1157 36 29 95.106750 to5 1 3 1 10 4 972 1150 135 36 95.106750 restricts 1 3 1 10 5 1120 1156 123 40 96.584167 output5 1 3 1 10 6 1256 1150 68 35 96.959641 ands 1 3 1 10 7 1337 1150 112 35 96.883293 hence5 1 3 1 10 8 1462 1156 35 29 95.855179 to5 1 3 1 10 9 1511 1150 99 35 95.855179 harms 1 3 1 10 10 1622 1149 255 42 95.567932 consumers). This, however, in no way suggests that anticompetitive effects within the smaller unit should be ignored. To the contrary, if an end-use segment within the larger grouping of all glass containers meets thea 1 3 1 14 0 665 1382 1335 42 -1 5 1 3 1 14 1 665 1396 99 26 95.715736 same5 1 3 1 14 2 793 1385 190 36 95.715736 economics 1 3 1 14 3 1012 1384 165 36 96.424866 standards 1 3 1 14 4 1205 1383 118 36 96.668343 which5 1 3 1 14 5 1351 1383 139 36 96.431061 defines5 1 3 1 14 6 1519 1394 19 24 96.732399 a5 1 3 1 14 7 1565 1383 166 41 87.503563 market, the end-use segment may properly be analyzed as a product market in its own right.

Thus, if a hypothetical monopolist could impose a small but significant and nontransitory price increase on the supply of, say, wine bottles, we have identified a grouping of sales and consumers that are exposed to anticompetitive harm, i.e., we have delineated a product market. There is no analytical reason why the antitrust laws should afford wine producers less protection from supracompetitive prices than any other grouping of customers. The fact that wine bottles may be a subset of a larger category of goods consisting of all glass bottles or all rigid containers is simply irrelevant to the ability of a hypothetical monopolist to inflict anticompetitive damage on the market for the supply of wine bottles.

b. Demand-Side Contentions Respondents’ next claim, that a market cannot be defined by the preferences of a small minority of customers when manufacturers compete in a broader market for the majority of their sales, adds the thought that a market cannot be predicated on the preferences of infra-marginal consumers, i.e., those consumers whose purchases would be unaffected by a small but significant and nontransitory price increase. This is true, but not determinative. The proper question is whether enough customers within an end-use segment OWENS-ILLINOIS, INC., ET AL. 301 179 Opinion selectively subjected to anticompetitive prices would substitute alternative products to make the hypothesized small but significant price increase unprofitable. If the proportion of customers at the margin is sufficiently small, a supracompetitive price increase can be sustained.

The testimony of major customers who state that they would not switch to alternative products if faced with a price increase for glass containers is relevant evidence for predicting the likely consumer response to a hypothetical monopolist's small but significant price increase. See FTC Statement supra note 4, at 20,905 (treating thea 1 3 2 6 0 535 1215 1335 56 -1 5 1 3 2 6 1 535 1215 208 46 96.781769 preferences 1 3 2 6 2 760 1217 43 36 96.574966 of5 1 3 2 6 3 817 1228 19 25 96.662155 a5 1 3 2 6 4 855 1218 150 36 96.974594 numbers 1 3 2 6 5 1021 1219 43 35 97.002617 of5 1 3 2 6 6 1077 1220 209 45 96.738197 purchasers5 1 3 2 6 7 1306 1221 82 36 96.884171 who5 1 3 2 6 8 1406 1222 240 47 96.800140 traditionally5 1 3 2 6 9 1664 1235 64 25 96.944801 uses 1 3 2 6 10 1747 1225 85 46 96.662575 only5 1 3 2 6 11 1851 1235 19 25 96.950943 a4 1 3 2 7 0 533 1273 1337 49 -1 5 1 3 2 7 1 533 1273 192 47 96.942513 particulars 1 3 2 7 2 739 1274 86 37 96.921494 kinds 1 3 2 7 3 841 1275 43 36 96.734520 of5 1 3 2 7 4 895 1276 150 46 96.539261 products 1 3 2 7 5 1060 1277 57 36 96.656906 for5 1 3 2 7 6 1132 1288 19 25 96.971512 a5 1 3 2 7 7 1166 1277 144 37 96.861145 distinct5 1 3 2 7 8 1327 1280 81 35 92.751213 use as evidence of distinct product markets). Respondents had every opportunity to provide countervailing evidence indicating that other customers within the allegedly inelastic end-use segments would switch to non-glass alternatives. The mere fact that the initial decision and complaint counsel have relied on such evidence as is of record does not indicate error.

Nothing in the case law suggests that markets cannot be defined on the basis of inelastic demand in end-use segments within a larger grouping of goods as to which suppliers compete. To the contrary, in United States v. Connecticut National Bank, 418 U.S. 656 (1973), the Supreme Court defined a commercials 1 3 3 5 7 1369 1921 175 46 96.604134 banking product market notwithstanding the fact that savings banks and commercial banks were fierce competitors “to the degree that they offer identical or essentially fungible services." Jd. at 662. The Court reasoned: From the vantage point of at least one significant consumer of bank services, the commercial enterprise, commercial banks in Connecticut offer a clusters 1 4 1 2 10 1826 2259 36 30 96.319214 of4 1 4 1 3 0 522 2299 1335 44 -1 5 1 4 1 3 1 522 2299 136 38 96.658875 products5 1 4 1 3 2 670 2301 57 28 96.658875 ands 1 4 1 3 3 739 2300 141 30 95.971428 services that their savings bank counterparts do not. The facts of this case indicate that the differences in what commercial banks in the State can offer to that important category of bank customers are sufficient to establish commercial banking as a distinct line of commerce.

Id. at 664. Similarly, in United States v. Grinnell Corp., 384 U.S. 563, 574 (1966), the Court found a product market consisting of accredited central station protection services despite the presence of alternative forms of protection because thes 1 5 1 4 7 1526 2734 85 46 96.292786 high5 1 5 1 4 8 1648 2736 130 45 96.292786 degrees 1 5 1 4 9 1815 2737 43 34 96.775238 of4 1 5 1 5 0 517 2787 1335 50 -1 5 1 5 1 5 1 517 2787 278 37 96.216858 differentiation5 1 5 1 5 2 808 2788 161 36 95.654915 between5 1 5 1 5 3 982 2791 130 35 95.654915 central5 1 5 1 5 4 1127 2791 127 36 96.347168 stations 1 5 1 5 5 1267 2792 196 45 96.417671 protections 1 5 1 5 6 1477 2794 69 35 97.002251 ands 1 5 1 5 7 1558 2794 58 36 97.014565 thes 1 5 1 5 8 1629 2794 101 36 96.824234 others 1 5 1 5 9 1741 2794 111 36 96.783882 forms Opinion 115 F.T.C.

means that for many customers, only central station protection will do."

The lower courts have not hesitated to delineate product markets consisting of inelastic end-use segments within a broader range of competition among the suppliers. For example, in United States v. Household Finance Corp., 602 F.2d 1255 (7th Cir. 1979), cert. denied, 444 U.S. 1044 (1980), the court held the lending services of finance companies to higher-risk customers to constitute a distinct product market notwithstanding the fact that banks5 1 3 2 7 8 1817 1108 69 35 96.469368 ands 1 3 2 7 9 1915 1108 100 35 96.481094 other4 1 3 2 8 0 679 1166 1335 46 -1 5 1 3 2 8 1 679 1166 171 36 29.151405 financial]5 1 3 2 8 2 886 1166 219 35 96.752716 institutions5 1 3 2 8 3 1141 1172 165 40 96.621742 competes 1 3 2 8 4 1341 1166 85 35 96.621742 with5 1 3 2 8 5 1462 1166 143 35 96.464111 finances 1 3 2 8 6 1639 1166 209 46 96.505547 companies5 1 3 2 8 7 1884 1166 36 34 90.613823 in5 1 3 2 8 8 1955 1166 59 35 90.613823 thea 1 3 2 9 0 677 1223 1337 46 -1 5 1 3 2 9 1 677 1224 184 45 96.719086 provisions 1 3 2 9 2 874 1224 43 35 96.842056 of5 1 3 2 9 3 926 1225 100 34 96.891335 others 1 3 2 9 4 1039 1224 185 35 92.514297 services. /d. at 1259. [I]n5 1 3 2 9 9 1585 1223 234 46 96.111908 determining5 1 3 2 9 10 1833 1224 58 35 96.875595 thes 1 3 2 9 11 1904 1223 110 36 96.831558 effect4 1 3 2 10 0 678 1280 1335 48 -1 5 1 3 2 10 1 678 1282 42 35 96.921997 of5 1 3 2 10 2 730 1281 232 47 96.115891 competitions 1 3 2 10 3 976 1281 35 36 96.357712 in5 1 3 2 10 4 1025 1292 156 35 96.618294 mergers5 1 3 2 10 5 1195 1281 43 36 96.651573 of5 1 3 2 10 6 1247 1292 68 25 96.829498 ones 1 3 2 10 7 1329 1287 82 40 97.009888 types 1 3 2 10 8 1425 1281 42 36 96.972900 of5 1 3 2 10 9 1478 1281 206 41 96.735435 institution,5 1 3 2 10 10 1699 1281 26 36 96.735435 it5 1 3 2 10 11 1739 1281 28 36 96.805824 is5 1 3 2 10 12 1783 1281 57 36 96.645607 thes 1 3 2 10 13 1854 1280 110 37 96.605766 effects 1 3 2 10 14 1977 1281 36 35 96.942978 in4 1 3 2 11 0 678 1339 1335 47 -1 5 1 3 2 11 1 678 1352 67 34 96.721275 any5 1 3 2 11 2 759 1351 79 25 96.799232 areas 1 3 2 11 3 850 1340 43 35 97.006248 of5 1 3 2 11 4 901 1341 131 45 96.741356 unique5 1 3 2 11 5 1046 1340 153 35 96.413383 services5 1 3 2 11 6 1213 1341 70 34 96.072998 that5 1 3 2 11 7 1296 1346 92 29 96.070587 must5 1 3 2 11 8 1400 1340 45 35 96.957863 be5 1 3 2 11 9 1458 1340 236 35 95.465485 considered. Jd. The United States Court of Appeals for the Third Circuit made much the same point in Columbia Metal Culvert Co. v. Kaiser Aluminum & Chemical Corp., 579 F.2d 20, 30 (3d Cir.), cert. denied, 439 U.S. 876 (1978): [T]he5 1 3 2 15 3 982 1573 184 36 96.629578 existence5 1 3 2 15 4 1182 1573 43 36 96.329346 of5 1 3 2 15 5 1237 1572 234 48 96.253403 competitions 1 3 2 15 6 1487 1573 163 36 96.276642 between5 1 3 2 15 7 1667 1579 71 29 96.577271 two5 1 3 2 15 8 1754 1572 151 47 96.072517 products 1 3 2 15 9 1921 1572 91 36 96.904434 lines4 1 3 2 16 0 677 1631 1335 48 -1 5 1 3 2 16 1 677 1634 87 35 96.587433 does5 1 3 2 16 2 790 1639 63 29 96.184509 not5 1 3 2 16 3 877 1633 105 35 96.846298 alone5 1 3 2 16 4 1006 1632 169 47 96.748886 precludes 1 3 2 16 5 1199 1632 135 36 96.673126 markets 1 3 2 16 6 1357 1643 123 35 96.535461 powers 1 3 2 16 7 1503 1632 123 36 96.566681 within5 1 3 2 16 8 1651 1632 88 35 96.566681 each5 1 3 2 16 9 1763 1632 83 40 96.707336 line,5 1 3 2 16 10 1871 1631 32 35 96.198936 if5 1 3 2 16 11 1924 1632 88 35 96.426910 each4 1 3 2 17 0 676 1690 1336 48 -1 5 1 3 2 17 1 676 1692 152 46 96.790314 products 1 3 2 17 2 851 1692 63 35 96.386406 has5 1 3 2 17 3 941 1703 19 24 96.386406 a5 1 3 2 17 4 985 1692 106 35 96.345383 cadre5 1 3 2 17 5 1116 1692 42 35 96.121262 of5 1 3 2 17 6 1179 1698 197 28 96.545349 customers5 1 3 2 17 7 1402 1691 36 35 96.337303 in5 1 3 2 17 8 1462 1691 118 35 96.411674 which5 1 3 2 17 9 1606 1691 25 34 96.741707 it5 1 3 2 17 10 1656 1691 125 45 96.524361 enjoys5 1 3 2 17 11 1807 1701 20 24 96.747162 a5 1 3 2 17 12 1852 1690 160 35 96.403343 decisive4 1 3 2 18 0 677 1750 228 45 -1 5 1 3 2 18 1 677 1750 228 45 78.183350 advantage. None of the cases cited by respondents establishes their claim. Although the Supreme Court's Cellophane decision found the relevant market to encompass all flexible packaging materials, it first determined that cellophane has5 1 3 3 4 5 1360 1986 36 29 96.700874 to5 1 3 3 4 6 1420 1986 94 29 96.612610 meets 1 3 3 4 7 1537 1980 233 46 96.312714 competitions 1 3 3 4 8 1794 1979 94 35 95.096031 from5 1 3 3 4 9 1912 1980 100 34 96.885506 other4 1 3 3 5 0 676 2037 1334 48 -1 5 1 3 3 5 1 676 2040 180 36 96.612427 materials5 1 3 3 5 2 876 2040 36 35 96.281296 in5 1 3 3 5 3 932 2050 108 35 96.281296 every5 1 3 3 5 4 1059 2050 69 24 96.613785 ones 1 3 3 5 5 1147 2039 43 35 96.061981 of5 1 3 3 5 6 1204 2039 44 35 96.598717 its5 1 3 3 5 7 1268 2039 113 35 49.946808 uses. 351 U.S. at 399. This leaves unresolved the issue of market definition when price in certain end-use segments is not constrained by intermaterial competition. Respondents also cite the Court's delineation of a combined glass container/metal can market in evaluating a merger between a metal can producer and a glass container producer. United States v. Continental Can Co., 378 U.S. 441 (1964). However, the Court twice suggested that in evaluating the likely competitive effects of different combinations, narrower markets might be appropriate: Glass and metal containers were recognized to be two separate lines of commerce. But given the area of effective competition between these lines, there is necessarily implied one or more other lines of commerce embracing both industries....the OWENS-ILLINOIS, INC., ET AL. 303 179 Opinion purpose of delineating a line of commerce is to provide an adequate basis for measuring the effects of a given acquisition... That there may be a broader product market made up of metal, glass and other competing containers does not necessarily negative the existence of submarkets of cans, glass, plastic or cans and glass together... Id, at 456-58. As two leading commentators now seated on the federal appellate bench have opined:

[I]f the merger had been between two manufacturers of cans (or of bottles), the Court would surely have held that cans (or bottles) were an appropriate “submarket” in which to appraise the effects of the merger. R. Posner and F. Easterbrook, Antitrust Cases, Economic Notes and Other Materials 366-67 (2d ed. 1981). Again, respondents' claim that designation of narrow markets within broader areas of competition is inappropriate is not supported. c. Supply-Side Contentions Respondents’ final theoretical objection to product market designations based on inelastic end-use segments is entirely misplaced. Respondents argue that because all producers of glass containers can readily shift production of their existing facilities into manufacturing glass containers for any end-use segment, any attempt to raise price by suppliers of glass containers for the allegedly inelastic end-use segments would be defeated by supply-side substitution. Hence, respondents conclude those segments cannot be product markets. Respondents' facts are correct, but their conclusion is wrong. The initial decision finds:

With some limitation, switching from one type or size of glass container to another can be accomplished by changing the molds, so different containers can be produced on each machine. Changing from one type of container takes five to eight hours.

IDF 263 (citations omitted). Complaint counsel acknowledge that [t]here5 1 10 1 2 2 673 2707 29 35 97.011978 is5 1 10 1 2 3 719 2708 214 44 96.900497 productions 1 10 1 2 4 949 2709 194 46 96.880035 flexibility5 1 10 1 2 5 1160 2721 132 35 96.901825 among5 1 10 1 2 6 1309 2712 57 34 97.008919 thes 1 10 1 2 7 1384 2712 142 45 96.949806 leading5 1 10 1 2 8 1543 2713 96 45 96.690842 glass5 1 10 1 2 9 1657 2714 184 35 96.666695 container4 1 10 1 3 0 502 2764 1336 52 -1 5 1 10 1 3 1 502 2764 228 45 95.186386 producers. CAB 31. The ability of glass container producers out- Opinion 115 F.T.C.

side an end-use segment to shift production into that segment would constrain the ability of current producers to raise price. However, this does not mean that the end-use segments cannot constitute markets. Rather, the presence of supply-side substitutability means only that if an end-use segment otherwise qualifies as a market, we should evaluate concentration and likely competitive effects by treating as participants in the market producers that are both (1) easily and economically able and (2) likely to shift production into the market in response to a small but significant price increase. See Merger Guidelines, {J 2.21, 2.4. In essence, the scope of the market is defined on the basis of demand-side substitution. The participants in that market are identified on the basis of supplyside substitution. See Merger Guidelines { 2.21 ("If a firm has existing productive and distributive facilities that could easily and economically be used to produce and sell the relevant product within one year in response to a ‘small but significant and nontransitory' increase in price, the Department will include that firm in the market") (emphasis added).'° This methodology matches the grouping of buyers who are exposed by their demand patterns to supracompetitive pricing with the set of sellers who are both readily able and likely to produce the pertinent output. It permits the Commission to evaluate whether, notwithstanding the supply-side substitutability, the merger or acquisition is likely to result in anticompetitive harm to consumers. In contrast, respondents would truncate the inquiry, dismissing the case for absence of a product market despite the presence of a grouping of sales in which customers may be exposed to anticompetitive harm even with supply-side substitution. In sum, respondents have identified no theoretical reason why the allegedly inelastic end-use segments cannot stand as relevant product markets. We turn, therefore, to the distinct issues of whether the nine end-use segments qualify as product markets under the factual record. 10 Consequently, when we measure concentration levels in those end-use segments which are determined to be product markets, all glass container producers are included in the calculations. See infra Section III. OWENS-ILLINOIS, INC., ET AL. 305 179 Opinion B. Product Market: Factual Considerations 1. Shelf-Stable Juices The initial decision's own findings undermine its conclusion that shelf-stable juices constitute a product market. It finds that shelfstable juice is presently sold in cans, plastic containers and aseptic containers in addition to glass. IDF 165. More specifically, the initial decision states, “About 47% of retail sales of shelf-stable juice is in non-glass containers.” Id.

The record suggests that existing competition from non-glass materials is substantial. Complaint counsel's expert witness conceded that large, 64-ounce sizes must be excluded from the claimed inelastic segment. Nelson, Tr. 3215-16. Indeed, customer testimony reveals existing, direct competition at the 64-ounce size between glass and PET plastic (Bourque, Tr. 2067, 2133-34 (regarding Gatorade and Ocean Spray)), and an Owens witness testified that this competition has taken away sales from glass. Bachey, Tr. 3330-31. Because 23% of total gallonage is packaged in 64-ounce glass containers, which admittedly are subject to intermaterial competition, and 47% of total gallonage is packaged in non-glass containers, only 30% of shelf-stable juice gallonage (representing 18% of the units) is purchased by customers alleged to lack ready substitutes for glass. Id, at 3329-30.

Complaint counsel argue that the intermaterial competition acknowledged at the 64-ounce size is inapplicable to smaller sizes because of a variety of factors such as shelf-life and costs. Yet the record shows substantial competition from aseptic paper packaging for single-serve sizes.’ Thus Ocean Spray uses aseptic paper packaging for 8.5-ounce juices (Bourque, Tr. 2062), and a Borden Company witness testified that it had replaced a 10-ounce glass container with an 8-9 ounce aseptic cardboard foil container. Willers, Tr. 1777-78. Although complaint counsel describe the single-serve aseptic packages as a mere niche’ for children's lunch boxes," CAB 24 n.17, the record shows additional competition from aseptic paper 1 Rather than being hot-filled, juices packaged in aseptic containers are cooled and filled in a sterile environment. Opinion 115 F.T.C.

packaging in the one-liter (approximately 32-ounce) size. Bourque, Tr. 2106. More importantly, the record reveals very significant competition from metal cans in both small and mid-range sizes. Beatrice/Hunt-Wesson (Stollsteimer, Tr. 4323), Welch (Bourque, Tr. 2103), Libby (/d.), and Del Monte (/d. at 2104) all sell shelf-stable juice packaged in 46-ounce cans. In addition, Welch packages in 5-1/2-ounce and 12-ounce cans (Rembert, Tr. 147), and Beatrice/Hunt-Wesson packages in 5-1/4-ounce and 15-ounce cans. Stollsteimer, Tr. 4323.

Moreover, competition from non-glass materials is expected to continue to grow. A witness from Johnson Controls, the nation's principal supplier of PET containers, termed the juice market [o]ur4 1 3 2 4 0 669 1329 1334 46 -1 5 1 3 2 4 1 669 1329 155 46 96.048424 primary5 1 3 2 4 2 841 1329 92 36 96.441025 sales5 1 3 2 4 3 949 1329 142 45 96.568016 target, and ours 1 3 2 4 6 1292 1329 78 35 95.753967 firsts 1 3 2 4 7 1384 1329 69 35 96.601929 ands 1 3 2 4 8 1469 1329 173 36 96.858757 foremost5 1 3 2 4 9 1657 1329 141 45 70.249298 target. Zabinko, Tr. 5363, 5388, 5391. Sales of 32-ounce plastic containers to a specified customer were forecasted (Id. at 5395), and the PET manufacturer testified that it was in the process of developing 16-ounce containers for two other identified juice customers. Id. Overall, the record regarding shelf-stable juices reveals substantial existing competition among glass, plastic, metal, and aseptic paper containers with recent conversions away from glass and the likelihood of continued extension of PET competition. In view of these facts, it appears unlikely that a small but significant and nontransitory price increase could be sustained, and we conclude that a product market for the supply of glass containers for shelf-stable juices has not been established.

2. Distilled Spirits Again, the initial decision's own findings contradict its conclusion that the supply of glass containers for use in bottling distilled spirits constitutes a product market. It finds, There5 1 5 1 3 8 1567 2376 64 36 97.004356 has5 1 5 1 3 9 1645 2376 92 36 96.743416 been5 1 5 1 3 10 1753 2386 20 25 96.911621 a5 1 5 1 3 11 1788 2375 122 47 96.819092 steady5 1 5 1 3 12 1927 2375 73 36 96.916000 loss4 1 5 1 4 0 666 2435 834 46 -1 5 1 5 1 4 1 666 2436 42 35 96.946724 of5 1 5 1 4 2 720 2437 58 33 96.857880 thes 1 5 1 4 3 793 2436 136 34 96.420021 markets 1 5 1 4 4 943 2442 36 28 96.925758 to5 1 5 1 4 5 994 2435 127 46 96.811890 plastics 1 5 1 4 6 1136 2435 160 35 73.086754 bottles. IDF 215.

Distilled spirits are produced in the United States in a variety of sizes: 50 ml. (9%); 200 ml. (23%); 375/500 ml. (11%); 750 ml. (22%); 1 liter (21%); and 1.75 liter (14%). IDF 217. The 50-ml. size was converted to plastic in 1983, reflecting a desire of the airlines and buyers of traveler packages for reduced weight. IDF 218. OWENS-ILLINOIS, INC., ET AL. 307 179 Opinion In October 1986, Owens estimated that 20% of the 1.75-liter size was being bottled in plastic and projected that 80% would be converted to PET by 1991. IDF 219. By 1988, Seagram already had 85-90% of its 1.75-liter size in PET. Smith, Tr. 1969-70. Despite this acknowledged competition from 50-ml. and 1.75-liter PET containers, complaint counsel argue that distilled spirits remain an inelastic end-use segment because of an absence of intermaterial competition in the mid-range sizes. The initial decision, however, finds, “There is no technical reason why distilled liquors could not be packaged in plastic in all sizes.” IDF 221. Complaint counsel argue that PET containers would not be adequate substitutes in the mid-ranges because liquor producers requires 1 3 2 8 6 1423 1269 198 36 96.978012 containers5 1 3 2 8 7 1635 1270 72 35 96.924103 that5 1 3 2 8 8 1720 1280 139 36 96.201988 convey4 1 3 2 9 0 523 1326 1336 49 -1 5 1 3 2 9 1 523 1336 21 25 96.720825 a5 1 3 2 9 2 560 1326 136 45 96.414474 quality5 1 3 2 9 3 714 1326 129 46 96.396530 image.5 1 3 2 9 4 877 1326 97 36 95.801170 CAB5 1 3 2 9 5 993 1326 57 36 96.851173 26.5 1 3 2 9 6 1084 1327 208 47 96.789024 Complaints 1 3 2 9 7 1307 1328 149 35 96.538834 counsels 1 3 2 9 8 1473 1328 47 35 96.657722 do5 1 3 2 9 9 1537 1334 61 30 96.577507 not5 1 3 2 9 10 1614 1329 145 45 96.424522 explains 1 3 2 9 11 1777 1329 82 46 96.920914 why4 1 3 2 10 0 523 1383 1336 48 -1 5 1 3 2 10 1 523 1383 84 46 96.582329 only5 1 3 2 10 2 621 1384 95 45 96.693054 glass5 1 3 2 10 3 730 1395 156 36 96.745316 conveys5 1 3 2 10 4 901 1395 19 25 96.832214 a5 1 3 2 10 5 933 1385 133 46 96.832214 quality5 1 3 2 10 6 1079 1385 117 46 96.518791 images 1 3 2 10 7 1209 1385 35 35 97.009857 in5 1 3 2 10 8 1258 1386 57 35 96.992241 thes 1 3 2 10 9 1329 1385 197 46 96.836136 mid-ranges 1 3 2 10 10 1540 1386 101 42 96.873917 sizes,5 1 3 2 10 11 1657 1386 103 36 96.576172 when5 1 3 2 10 12 1774 1387 85 35 96.576172 PET4 1 3 2 11 0 522 1442 979 48 -1 5 1 3 2 11 1 522 1442 30 35 96.125183 is5 1 3 2 11 2 568 1442 153 36 96.302658 deemed5 1 3 2 11 3 736 1443 207 45 96.511681 acceptable5 1 3 2 11 4 957 1443 57 36 96.909561 for5 1 3 2 11 5 1028 1444 144 35 95.768669 smaller5 1 3 2 11 6 1186 1444 69 35 96.660156 ands 1 3 2 11 7 1270 1444 114 46 96.839363 larger5 1 3 2 11 8 1398 1444 103 36 96.938812 sizes.3 1 3 3 0 0 517 1500 1342 852 -1 4 1 3 3 1 0 595 1500 1264 49 -1 5 1 3 3 1 1 595 1500 76 35 96.419258 Thes 1 3 3 1 2 693 1500 125 36 96.883560 records 1 3 3 1 3 841 1500 119 36 96.528992 shows5 1 3 3 1 4 983 1501 72 35 96.968307 that5 1 3 3 1 5 1077 1501 158 36 96.789528 distilled5 1 3 3 1 6 1257 1502 117 46 96.966866 spirits5 1 3 3 1 7 1396 1502 192 46 96.522408 producers5 1 3 3 1 8 1611 1513 58 26 96.796547 ares 1 3 3 1 9 1690 1503 107 46 96.699547 using5 1 3 3 1 10 1819 1514 40 25 97.016922 or4 1 3 3 2 0 522 1557 1333 51 -1 5 1 3 3 2 1 522 1557 155 47 96.450264 actively5 1 3 3 2 2 702 1559 205 46 96.887070 evaluating5 1 3 3 2 3 931 1559 226 37 96.521843 alternatives5 1 3 3 2 4 1182 1566 36 30 96.974564 to5 1 3 3 2 5 1242 1560 96 46 96.109390 glass5 1 3 3 2 6 1363 1560 56 36 96.792000 for5 1 3 3 2 7 1442 1560 58 36 96.596291 thes 1 3 3 2 8 1524 1560 202 48 96.542778 mid-ranges 1 3 3 2 9 1751 1561 104 37 96.854904 sizes.4 1 3 3 3 0 520 1615 1335 47 -1 5 1 3 3 3 1 520 1615 136 46 96.849747 Liquors 1 3 3 3 2 683 1617 193 45 95.473938 producers5 1 3 3 3 3 905 1617 248 41 95.473938 McCormick,5 1 3 3 3 4 1183 1618 168 35 96.155106 National5 1 3 3 3 5 1379 1618 191 42 95.923706 Distillers,5 1 3 3 3 6 1600 1620 107 35 96.507912 Hood5 1 3 3 3 7 1736 1620 119 41 96.507912 River,4 1 3 3 4 0 520 1674 1336 50 -1 5 1 3 3 4 1 520 1674 151 35 96.640137 Heaven5 1 3 3 4 2 688 1674 85 42 95.513718 Hill,5 1 3 3 4 3 791 1674 72 36 96.805191 Olds 1 3 3 4 4 878 1675 119 41 96.068886 Crow,5 1 3 3 4 5 1014 1676 68 35 96.760971 ands 1 3 3 4 6 1098 1675 164 47 96.149757 Virginia5 1 3 3 4 7 1277 1676 240 37 93.987221 Gentlemen's5 1 3 3 4 8 1534 1688 58 25 96.991081 ares 1 3 3 4 9 1607 1677 106 47 96.995316 using5 1 3 3 4 10 1728 1678 128 46 96.902962 plastic4 1 3 3 5 0 520 1731 1336 50 -1 5 1 3 3 5 1 520 1731 36 35 91.974884 in5 1 3 3 5 2 570 1732 150 35 91.576820 750-ml.5 1 3 3 5 3 737 1733 69 34 90.849815 ands 1 3 3 5 4 824 1733 114 35 90.612679 1-liter5 1 3 3 5 5 952 1733 102 36 95.555466 sizes.5 1 3 3 5 6 1083 1734 125 41 96.679153 Smith,5 1 3 3 5 7 1222 1734 55 36 95.822701 Tr.5 1 3 3 5 8 1297 1734 102 36 95.822701 1980.5 1 3 3 5 9 1426 1735 139 46 96.793045 Johnny5 1 3 3 5 10 1579 1736 144 35 96.763519 Walker5 1 3 3 5 11 1738 1737 82 35 96.307526 sells5 1 3 3 5 12 1837 1747 19 24 96.307526 a4 1 3 3 6 0 520 1790 1334 50 -1 5 1 3 3 6 1 520 1790 152 36 62.137428 375-ml].5 1 3 3 6 2 692 1791 162 46 96.543137 packages 1 3 3 6 3 872 1791 36 36 96.953094 in5 1 3 3 6 4 928 1792 96 35 96.252602 PET.5 1 3 3 6 5 1043 1791 48 36 52.119308 Jd.5 1 3 3 6 6 1115 1798 34 30 96.275124 at5 1 3 3 6 7 1172 1792 102 37 96.312057 1981.5 1 3 3 6 8 1311 1793 160 36 96.683014 Johnson5 1 3 3 6 9 1490 1794 168 36 96.619064 Controls5 1 3 3 6 10 1677 1795 177 45 96.293442 produces4 1 3 3 7 0 518 1848 1335 48 -1 5 1 3 3 7 1 518 1848 88 36 95.089226 PETS 1 3 3 7 2 631 1849 201 35 95.089226 containers5 1 3 3 7 3 858 1849 57 35 96.979103 for5 1 3 3 7 4 938 1850 155 46 96.921356 packings 1 3 3 7 5 1118 1851 118 45 95.988037 liquors 1 3 3 7 6 1260 1851 35 35 93.238228 in5 1 3 3 7 7 1321 1851 163 42 90.310646 200-ml.,5 1 3 3 7 8 1511 1852 150 35 91.612244 375-ml.5 1 3 3 7 9 1689 1853 164 41 90.248421 750-ml.,4 1 3 3 8 0 523 1907 1330 49 -1 5 1 3 3 8 1 523 1907 126 41 72.212799 1-liter,5 1 3 3 8 2 673 1908 68 35 93.017891 ands 1 3 3 8 3 767 1908 177 36 92.931381 1.75-liter5 1 3 3 8 4 965 1908 104 36 92.648689 sizes.5 1 3 3 8 5 1110 1909 174 42 91.495247 Zabinko,5 1 3 3 8 6 1306 1910 55 35 95.562302 Tr.5 1 3 3 8 7 1384 1910 172 36 91.873093 5380-81.5 1 3 3 8 8 1599 1911 171 45 91.873093 Seagram5 1 3 3 8 9 1790 1912 63 35 94.979492 has4 1 3 3 9 0 518 1965 1335 49 -1 5 1 3 3 9 1 518 1965 198 46 93.301003 developed5 1 3 3 9 2 729 1965 203 47 91.803940 first-phases 1 3 3 9 3 943 1973 185 41 96.534676 prototypes 1 3 3 9 4 1140 1968 86 35 96.514191 PETS 1 3 3 9 5 1238 1968 115 36 96.514191 molds5 1 3 3 9 6 1367 1968 55 36 97.013573 for5 1 3 3 9 7 1434 1968 71 36 97.011086 2005 1 3 3 9 8 1517 1969 68 36 93.180275 ands 1 3 3 9 9 1599 1969 147 36 91.717995 375-ml.5 1 3 3 9 10 1762 1969 91 36 96.835693 sizes4 1 3 3 10 0 518 2023 1335 50 -1 5 1 3 3 10 1 518 2024 79 41 96.882187 and,5 1 3 3 10 2 613 2023 35 36 96.775902 in5 1 3 3 10 3 662 2025 201 35 96.026077 December5 1 3 3 10 4 880 2025 102 41 96.776161 1988,5 1 3 3 10 5 997 2025 69 36 96.572517 had5 1 3 3 10 6 1082 2025 140 36 96.572517 within the last several weeks, gotten to the point of authorizing" construction of prototype PET molds for the 750-ml. size. Smith, Tr. 1976, 1979. Owens' September 3, 1987 “Liquor Strategic Plan Worksheet" estimated PETS 1 3 3 13 7 1552 2201 134 47 96.926361 impacts 1 3 3 13 8 1701 2202 97 35 96.762260 loss”5 1 3 3 13 9 1814 2202 42 35 96.627182 of4 1 3 3 14 0 522 2256 1331 50 -1 5 1 3 3 14 1 522 2256 82 37 96.593323 10%5 1 3 3 14 2 624 2256 36 37 95.470474 in5 1 3 3 14 3 679 2257 58 36 93.290482 thes 1 3 3 14 4 755 2257 150 37 78.564713 200-ml.5 1 3 3 14 5 926 2258 69 36 93.128662 ands 1 3 3 14 6 1013 2258 150 37 92.104958 375-ml.5 1 3 3 14 7 1184 2259 93 36 96.952583 sizes5 1 3 3 14 8 1294 2259 37 36 96.821373 in5 1 3 3 14 9 1354 2259 102 42 96.821373 1987,5 1 3 3 14 10 1475 2259 162 47 96.121330 growing5 1 3 3 14 11 1655 2266 36 30 95.642204 to5 1 3 3 14 12 1710 2260 87 36 96.912766 20%5 1 3 3 14 13 1816 2260 37 36 96.564484 in4 1 3 3 15 0 521 2315 333 37 -1 5 1 3 3 15 1 521 2315 103 37 91.801796 1988.5 1 3 3 15 2 653 2316 67 35 90.581612 CX5 1 3 3 15 3 736 2316 118 36 89.046471 334D.3 1 3 4 0 0 514 2374 1339 397 -1 4 1 3 4 1 0 590 2374 1262 48 -1 5 1 3 4 1 1 590 2374 76 36 96.958847 Thes 1 3 4 1 2 686 2375 127 35 96.960510 records 1 3 4 1 3 834 2385 38 25 96.993935 as5 1 3 4 1 4 893 2385 19 25 96.962532 a5 1 3 4 1 5 932 2375 119 35 96.500999 whole5 1 3 4 1 6 1072 2376 119 35 96.928703 shows5 1 3 4 1 7 1214 2376 207 36 96.412102 substantial5 1 3 4 1 8 1442 2376 155 46 96.248390 existing5 1 3 4 1 9 1617 2377 235 45 96.311440 competition4 1 3 4 2 0 516 2432 1335 48 -1 5 1 3 4 2 1 516 2432 164 35 95.853661 between5 1 3 4 2 2 700 2433 97 46 96.873009 glass5 1 3 4 2 3 819 2433 68 35 96.770744 ands 1 3 4 2 4 906 2433 128 46 96.542816 plastics 1 3 4 2 5 1054 2433 36 36 96.962776 in5 1 3 4 2 6 1111 2434 58 35 96.976097 thes 1 3 4 2 7 1189 2433 157 36 96.645546 distilled5 1 3 4 2 8 1367 2434 117 46 96.349380 spirits5 1 3 4 2 9 1505 2434 152 36 96.373512 end-uses 1 3 4 2 10 1678 2440 173 40 96.260223 segment,4 1 3 4 3 0 516 2491 1337 47 -1 5 1 3 4 3 1 516 2491 179 46 96.561485 primarily5 1 3 4 3 2 708 2491 56 36 96.939987 for5 1 3 4 3 3 776 2491 58 36 96.443626 thes 1 3 4 3 4 847 2491 127 46 96.564796 largest5 1 3 4 3 5 988 2492 67 35 96.672272 ands 1 3 4 3 6 1069 2492 156 35 96.373161 smallest5 1 3 4 3 7 1239 2492 89 35 96.941406 sizes5 1 3 4 3 8 1342 2492 61 35 97.014725 but5 1 3 4 3 9 1416 2492 188 46 96.622681 extending5 1 3 4 3 10 1618 2493 76 34 96.325562 also5 1 3 4 3 11 1708 2493 73 34 96.279472 into5 1 3 4 3 12 1795 2494 58 34 96.279472 thea 1 3 4 4 0 515 2548 1338 48 -1 5 1 3 4 4 1 515 2548 215 46 96.179916 mid-range.5 1 3 4 4 2 762 2550 90 34 96.880783 That5 1 3 4 4 3 866 2551 126 33 96.823868 records 1 3 4 4 4 1008 2551 87 34 96.973938 does5 1 3 4 4 5 1112 2557 62 28 96.524651 not5 1 3 4 4 6 1190 2557 146 39 96.658295 supports 1 3 4 4 7 1353 2561 19 24 96.946381 a5 1 3 4 4 8 1387 2550 141 46 96.677963 findings 1 3 4 4 9 1544 2551 73 35 96.814476 that5 1 3 4 4 10 1633 2562 19 24 96.985298 a5 1 3 4 4 11 1669 2551 104 35 95.307808 small5 1 3 4 4 12 1791 2551 62 36 97.010948 but4 1 3 4 5 0 516 2607 1335 48 -1 5 1 3 4 5 1 516 2607 206 46 96.576195 significant5 1 3 4 5 2 735 2608 68 36 93.172012 ands 1 3 4 5 3 817 2608 259 47 91.957932 nontransitory5 1 3 4 5 4 1089 2608 97 47 96.422974 prices 1 3 4 5 5 1199 2608 159 36 96.702675 increases 1 3 4 5 6 1371 2608 107 36 96.826981 could5 1 3 4 5 7 1490 2608 44 36 97.014877 be5 1 3 4 5 8 1549 2609 180 36 97.007683 sustained5 1 3 4 5 9 1743 2609 36 35 96.839691 in5 1 3 4 5 10 1794 2609 57 36 97.006294 thea 1 3 4 6 0 516 2666 1335 48 -1 5 1 3 4 6 1 516 2666 130 45 96.573189 supply5 1 3 4 6 2 669 2666 43 35 96.399445 of5 1 3 4 6 3 730 2667 96 45 96.768074 glass5 1 3 4 6 4 848 2667 201 35 96.324478 containers5 1 3 4 6 5 1072 2667 56 35 96.842377 for5 1 3 4 6 6 1148 2668 201 45 96.589714 packaging5 1 3 4 6 7 1372 2667 156 36 96.594627 distilled5 1 3 4 6 8 1551 2668 130 46 94.375641 spirits,5 1 3 4 6 9 1705 2668 68 35 96.062019 ands 1 3 4 6 10 1796 2679 55 24 96.062019 we4 1 3 4 7 0 514 2725 1219 46 -1 5 1 3 4 7 1 514 2725 178 35 96.626038 concludes 1 3 4 7 2 706 2725 73 35 96.764572 that5 1 3 4 7 3 795 2725 87 36 96.457840 such5 1 3 4 7 4 898 2736 19 25 96.239464 a5 1 3 4 7 5 930 2726 151 45 96.239464 products 1 3 4 7 6 1095 2726 136 35 96.924805 markets 1 3 4 7 7 1245 2726 62 35 96.758278 has5 1 3 4 7 8 1324 2732 61 29 96.647774 not5 1 3 4 7 9 1399 2726 90 35 96.982246 been5 1 3 4 7 10 1504 2726 229 36 96.873489 established. Opinion 115 F.T.C.

3. Spaghetti Sauce The record regarding glass spaghetti sauce containers is mixed. Here witnesses from two large customers testified that they would not convert their packaging from glass to metal cans or plastic even if the price of glass were to increase by 20%. Jameson, Tr. 795, 797 (Ragu); Jardis, Tr. 1325, 1330 (Classico). They pointed to the lack of clarity and of ready resealability of metal cans and the lack of clarity, oxygen permeability, and collapse under vacuum experienced with plastic (Jameson, Tr. 795-96) and asserted that metal and plastic containers would not appeal to consumers. Jardis, Tr. 1325, 1327. However, the record also shows that at least one significant competitor, Hunt's, has recently entered the market with spaghetti sauce packed in a metal can. Hunt's entered in 1987 and by the end of 1988 its canned spaghetti sauce had captured a 4-5% market share. Stollsteimer, Tr. 4317, 4320; CX 2163. The witness from Beatrice/Hunt-Wesson explained that cans were chosen because they minimized costs (Stollsteimer, Tr. 4318); stated that Hunt's spaghetti sauce competes directly with the major brands packaged in glass (/d. at 4321); and testified as to Hunt's canned product, “We view it as a success.” Id. The record further shows that Chef Boyardee, not a major competitor, also packages its spaghetti sauce in cans. Jardis Tr. 1324, Stollsteimer, Tr. 4321. Ragu, which uses only glass for its retail spaghetti sauce sales, uses cans for institutional sales. Jameson, Tr. 817.”

We conclude that a market for the supply of glass spaghetti sauce containers has not been proved. The existing presence of a substantial competitor with a well-known brand name and a 4-5% market share shows that metal cans compete with glass in this end-use segment. This market share was achieved in less than two 12 In addition, the record shows minor usage of plastic containers for spaghetti sauce. Furmano's, holding less than 1% of the market, uses a plastic container. Jameson, Tr. 796. Ragu once tested a similar container and experienced technical problems, wall collapse and improper sealing. /d. Ragu is continuing to test plastic containers. /d. at 823. A plastic container producer testified that Campbell's (Prego) had indicated a willingness to test plastic containers, but that the molds for such tests had not quite been completed as of February 1989, Zabinko, Tr. 5400-01.

OWENS-ILLINOIS, INC., ET AL. 309 179 Opinion years after entry, and there is no basis in the record for concluding that further conversions to canned sauces should not be expected if glass becomes more costly. To the contrary, Hunt's motivation for using cans was not to reach some limited subset of niche customers who preferred spaghetti sauce packed in cans, but rather to secure a cost advantage over spaghetti sauces packaged in glass in order to compete on the basis of price. Raising the price of glass would only enhance the cost advantage of cans, promoting further transfers of market share to cans. Given the proven ability of metal cans to compete with glass in this end-use segment, we do not believe that a hypothetical monopolist's small but significant and nontransitory price increase limited to glass spaghetti sauce containers would be likely to succeed.

4. Jams and Jellies The initial decision’s findings of fact concerning jams and jellies, IDF 146-56, are well-supported by the record, and we adopt them in their entirety. These findings establish that jams and jellies are hotpacked and that clarity, inertness, impermeability and resealability are important attributes for their containers. IDF 146-50. They find that metal cans are not acceptable for packaging jams and jellies. IDF 147. They determine that there are no clear, wide-mouth hot-fillable plastic containers commercially available in the United States that would meet the requirements for jams and jellies. IDF 151. They note that Welch packages some jelly in a squeezable plastic container which suffers cost, clarity, and functional disadvantages relative to glass containers. IDF 152-55. They observe that Welch's sales in the squeezable plastic package have declined by 50%, and that other jelly producers which introduced plastic containers withdrew them. IDF 155.'* They conclude that Welch B Although the General Manager of Owens' plastics and closures business testified that Smucker produced a plastic container for strawberry jam, he did not know if that container continued to be sold in the United States. Trumball, Tr. 4116-19. However, the Senior Vice President of Operations of Welch Foods testified that Smucker and Kraft had discontinued packaging jams and jellies in squeezable containers. Rembert, Tr. 141. The General Manager of Borden's Fruit Products Group stated his belief that Smucker had discontinued a test of a squeezable plastic container. Willers, Tr. 1708. Opinion 115 F.T.C.

would not shift more of its jams and jellies into this plastic container if the price of glass were to increase by 5-10%. IDF 156. To these findings we add the following. Welch sells approximately 4.7 million cases of jams and jellies annually, of which 700,000 are in plastic. Rembert, Tr. 132. Welch’s sales represent about 13-14% of United States jam and jelly sales. /d. at 133. Based on Welch's estimates, its plastic containers represent only approximately 2% of total jam and jelly sales. (A Borden witness estimated Welch’s plastic container share “as we sit here today" at less than 1%. Willers, Tr. 1707.) Welch must use a different formulation for the jam and jelly that it packages in plastic. Rembert, Tr. 135-36. Welch regards its squeezable plastic container as serving a niche4 1 3 2 11 0 673 1309 1333 47 -1 5 1 3 2 11 1 673 1311 154 35 95.566460 market which satisfies5 1 3 2 11 4 1175 1310 59 35 96.780220 thes 1 3 2 11 5 1250 1310 90 35 96.815048 needs 1 3 2 11 6 1357 1310 42 35 96.728760 of5 1 3 2 11 7 1411 1321 20 24 96.665596 a5 1 3 2 11 8 1447 1310 104 35 95.715752 small5 1 3 2 11 9 1567 1310 140 46 96.966667 portions 1 3 2 11 10 1724 1310 43 35 96.880096 of5 1 3 2 11 11 1780 1310 58 35 97.008850 thes 1 3 2 11 12 1853 1309 153 47 79.366791 public. Td. at 137. When it first started packaging in plastic, Welch projected its potential market as 700,000 cases, which is what it has attained. Id. at 247.

An Owens document which projected market opportunities five years forward from 1984 showed Jams,5 1 3 3 2 7 1482 1602 119 46 93.237625 jellies5 1 3 3 2 8 1618 1623 12 5 93.189255 -5 1 3 3 2 9 1650 1602 127 36 96.245392 100% and added, Majors 1 3 3 3 2 823 1662 192 47 96.521683 producers5 1 3 3 3 3 1030 1662 91 36 96.946716 have5 1 3 3 3 4 1135 1662 264 46 96.378258 experimented5 1 3 3 3 5 1414 1661 84 36 96.699387 with5 1 3 3 3 6 1513 1672 19 25 96.888374 a5 1 3 3 3 7 1546 1661 148 36 96.795006 numbers 1 3 3 3 8 1708 1661 42 36 96.910988 of5 1 3 3 3 9 1760 1661 114 36 96.498817 resins5 1 3 3 3 10 1889 1661 62 35 96.498817 but5 1 3 3 3 11 1966 1671 41 25 96.602966 so4 1 3 3 4 0 671 1719 1337 46 -1 5 1 3 3 4 1 671 1721 64 40 96.582161 far,5 1 3 3 4 2 754 1731 94 24 96.797745 none5 1 3 3 4 3 865 1731 58 24 96.756058 ares 1 3 3 4 4 940 1720 217 45 96.211205 acceptable.5 1 3 3 4 5 1189 1719 134 45 96.804581 Clarity5 1 3 3 4 6 1339 1719 30 35 96.973549 is5 1 3 3 4 7 1387 1731 84 33 96.940796 very5 1 3 3 4 8 1489 1719 200 45 96.585915 important,5 1 3 3 4 9 1706 1719 189 40 96.608444 therefore,5 1 3 3 4 10 1912 1719 96 34 96.269989 don't4 1 3 3 5 0 671 1776 1335 48 -1 5 1 3 3 5 1 671 1785 129 39 96.646866 expects 1 3 3 5 2 828 1778 207 45 96.661201 significant5 1 3 3 5 3 1061 1778 143 34 96.428474 inroads5 1 3 3 5 4 1233 1778 120 34 72.290283 soon. CX 1007G. This view was confirmed in the February 1989 testimony of one of respondents' own witnesses, the Johnson Controls executive in charge of non-soft-drink plastic container development. He indicated that jams/jellies was the last of Johnson Controls’ targets in order of priority (Zabinko, Tr. 5391), noted that there was an unclear5 1 3 3 10 8 1463 2066 132 35 96.768326 barriers 1 3 3 10 9 1609 2066 91 35 96.503914 needs 1 3 3 10 10 1715 2066 127 41 89.030121 there, id., and affirmed that Johnson Controls was not5 1 3 3 11 7 1526 2124 162 46 96.081627 workings 1 3 3 11 8 1711 2124 226 46 96.239708 specifically5 1 3 3 11 9 1959 2134 47 25 96.913620 on4 1 3 3 12 0 672 2184 844 47 -1 5 1 3 3 12 1 672 2185 170 46 96.652985 anything5 1 3 3 12 2 857 2184 57 36 96.652985 for5 1 3 3 12 3 922 2184 96 46 96.667816 jams5 1 3 3 12 4 1034 2184 69 35 96.771927 ands 1 3 3 12 5 1113 2184 154 46 96.777870 jellies.”5 1 3 3 12 6 1294 2184 48 34 96.086639 Jd.5 1 3 3 12 7 1361 2190 33 28 96.834991 at5 1 3 3 12 8 1409 2184 107 34 94.208946 5447.3 1 3 4 0 0 666 2241 1344 571 -1 4 1 3 4 1 0 745 2241 1261 46 -1 5 1 3 4 1 1 745 2244 106 34 95.446854 From5 1 3 4 1 2 869 2244 100 34 95.446854 these5 1 3 4 1 3 986 2243 90 35 96.631378 facts5 1 3 4 1 4 1096 2253 55 25 96.700096 we5 1 3 4 1 5 1168 2242 177 36 96.693062 concludes 1 3 4 1 6 1362 2242 73 35 96.591492 that5 1 3 4 1 7 1453 2242 57 35 96.208992 thes 1 3 4 1 8 1529 2242 129 45 96.208992 supply5 1 3 4 1 9 1676 2241 42 35 96.172035 of5 1 3 4 1 10 1732 2241 96 46 96.925972 glass5 1 3 4 1 11 1842 2241 77 45 96.468422 jams 1 3 4 1 12 1937 2241 69 34 96.768501 anda 1 3 4 2 0 666 2298 1340 49 -1 5 1 3 4 2 1 666 2301 89 46 95.177399 jelly5 1 3 4 2 2 766 2301 72 46 96.178749 jars5 1 3 4 2 3 853 2301 207 35 96.178749 constitutes5 1 3 4 2 4 1076 2311 20 24 94.801384 a5 1 3 4 2 5 1108 2301 157 34 94.801384 relevant5 1 3 4 2 6 1279 2300 148 45 96.619507 products 1 3 4 2 7 1441 2300 143 35 96.160477 market.5 1 3 4 2 8 1612 2300 145 34 96.575302 Presents 1 3 4 2 9 1771 2298 235 46 96.575302 competition4 1 3 4 3 0 671 2356 1334 48 -1 5 1 3 4 3 1 671 2361 164 34 96.753220 between5 1 3 4 3 2 851 2360 96 44 96.783737 glass5 1 3 4 3 3 964 2359 67 35 96.952057 ands 1 3 4 3 4 1048 2358 206 36 96.570442 alternatives 1 3 4 3 5 1270 2358 178 35 96.570442 materials5 1 3 4 3 6 1464 2358 29 34 96.986931 is5 1 3 4 3 7 1510 2358 172 40 96.416985 minimal,5 1 3 4 3 8 1699 2357 85 35 96.496902 with5 1 3 4 3 9 1800 2357 85 44 93.293213 only5 1 3 4 3 10 1905 2356 100 36 92.916351 1-2%4 1 3 4 4 0 671 2414 1335 47 -1 5 1 3 4 4 1 671 2418 42 35 96.271332 of5 1 3 4 4 2 727 2418 58 34 96.271332 thes 1 3 4 4 3 802 2418 136 34 95.980453 markets 1 3 4 4 4 955 2417 109 44 96.532265 going5 1 3 4 4 5 1081 2423 37 28 93.177155 to5 1 3 4 4 6 1134 2416 187 45 92.526878 non-glass5 1 3 4 4 7 1338 2415 200 35 96.654221 containers5 1 3 4 4 8 1556 2415 57 35 96.544571 for5 1 3 4 4 9 1627 2415 106 34 96.544571 niche5 1 3 4 4 10 1750 2425 93 24 95.995361 uses.5 1 3 4 4 11 1876 2414 130 35 96.573364 Plastic4 1 3 4 5 0 671 2472 1335 49 -1 5 1 3 4 5 1 671 2476 63 35 96.649956 has5 1 3 4 5 2 763 2475 207 46 96.808899 significant5 1 3 4 5 3 996 2475 275 44 96.573296 disadvantages5 1 3 4 5 4 1298 2473 147 36 96.813774 relatives 1 3 4 5 5 1472 2480 36 28 96.378517 to5 1 3 4 5 6 1535 2473 107 45 96.371178 glass,5 1 3 4 5 7 1671 2473 68 35 96.544037 ands 1 3 4 5 8 1766 2473 44 34 96.544037 its5 1 3 4 5 9 1838 2482 111 35 96.811890 usage5 1 3 4 5 10 1975 2472 31 34 96.792290 is4 1 3 4 6 0 671 2530 1335 49 -1 5 1 3 4 6 1 671 2533 189 46 96.507599 declining,5 1 3 4 6 2 874 2533 85 35 96.692566 with5 1 3 4 6 3 973 2533 112 45 96.663582 majors 1 3 4 6 4 1093 2533 75 45 96.663582 jams 1 3 4 6 5 1181 2533 68 34 96.959312 ands 1 3 4 6 6 1258 2532 87 46 96.688728 jelly5 1 3 4 6 7 1358 2532 189 45 96.482346 producers5 1 3 4 6 8 1562 2530 224 46 96.798012 abandoning5 1 3 4 6 9 1799 2530 125 46 96.229286 plastics 1 3 4 6 10 1939 2530 67 35 96.229286 anda 1 3 4 7 0 671 2588 1336 50 -1 5 1 3 4 7 1 671 2592 151 35 91.976776 Welch's5 1 3 4 7 2 838 2591 125 47 96.748108 plastics 1 3 4 7 3 979 2591 91 35 96.878639 sales5 1 3 4 7 4 1086 2590 77 36 96.941414 half5 1 3 4 7 5 1174 2590 42 36 96.353912 of5 1 3 4 7 6 1227 2590 131 36 96.353912 former5 1 3 4 7 7 1372 2590 123 36 96.464592 levels.5 1 3 4 7 8 1524 2590 75 35 96.909996 Thes 1 3 4 7 9 1613 2590 125 35 96.729797 records 1 3 4 7 10 1754 2595 165 40 96.682472 suggests5 1 3 4 7 11 1934 2588 73 35 97.014496 that4 1 3 4 8 0 670 2647 1336 50 -1 5 1 3 4 8 1 670 2650 127 47 96.176750 plastics 1 3 4 8 2 825 2650 193 46 96.440269 producers5 1 3 4 8 3 1046 2660 58 25 96.898338 ares 1 3 4 8 4 1131 2656 62 28 96.791389 not5 1 3 4 8 5 1219 2649 170 46 96.106293 devoting5 1 3 4 8 6 1417 2648 207 46 96.648064 significant5 1 3 4 8 7 1651 2653 138 30 96.384384 currents 1 3 4 8 8 1816 2647 126 36 96.674355 efforts5 1 3 4 8 9 1969 2653 37 29 96.674355 to4 1 3 4 9 0 670 2706 1336 50 -1 5 1 3 4 9 1 670 2710 222 46 96.562935 penetrating5 1 3 4 9 2 907 2709 69 35 96.927338 this5 1 3 4 9 3 992 2709 145 35 95.853996 market.5 1 3 4 9 4 1167 2708 76 35 95.853996 Thes 1 3 4 9 5 1258 2708 84 46 96.981819 only5 1 3 4 9 6 1358 2714 139 29 96.982613 currents 1 3 4 9 7 1512 2719 81 24 96.872139 users 1 3 4 9 8 1607 2707 42 36 96.818413 of5 1 3 4 9 9 1660 2707 128 46 96.950195 plastics 1 3 4 9 10 1804 2706 202 36 96.722298 containers4 1 3 4 10 0 671 2764 1339 48 -1 5 1 3 4 10 1 671 2769 36 35 96.569534 in5 1 3 4 10 2 725 2769 58 35 96.680023 thes 1 3 4 10 3 800 2768 135 35 96.849556 markets 1 3 4 10 4 954 2774 106 29 96.338287 states5 1 3 4 10 5 1078 2767 73 36 96.929184 that5 1 3 4 10 6 1168 2767 26 35 96.346153 it5 1 3 4 10 7 1210 2767 121 35 96.346153 would5 1 3 4 10 8 1349 2773 61 29 96.513435 not5 1 3 4 10 9 1427 2766 160 36 96.823685 increases 1 3 4 10 10 1604 2776 111 36 96.786606 usage5 1 3 4 10 11 1732 2765 31 35 96.750778 if5 1 3 4 10 12 1778 2765 57 35 96.750778 thes 1 3 4 10 13 1852 2764 98 47 97.014885 prices 1 3 4 10 14 1968 2764 42 36 96.243896 of OWENS-ILLINOIS, INC., ET AL. 311 179 Opinion glass were to rise by 5-10%. It therefore appears probable that a small but significant and nontransitory price increase by a hypothetical monopolist could be sustained.

5. Mayonnaise The initial decision's findings of fact concerning mayonnaise are generally well-supported by the record, and we adopt IDF 185-189, 191-92, and 195-97. The adopted findings establish that clarity, resealability, impermeability and quality image are important attributes provided by glass containers. IDF 185-89. They determine that metal cans would not be acceptable substitutes for glass mayonnaise containers even if the price of the latter were to increase by 5-10%. IDF 191. They find that plastic containers have been used in the institutional trade. IDF 192. They note that a small regional mayonnaise producer called Saffola uses plastic packaging, but has experienced technical problems. IDF 196. They determine that although Kraft markets some mayonnaise in a squeezable plastic container, that package has not been successful and had dropped to a .7% market share by the end of 1986. IDF 197.5 IDF 195 notes that the cost of converting to plastic would be substantial and concludes that if the price of glass containers were to increase by 5 to 10 percent, major producers of mayonnaise would not switch to plastic.

14 These are 128-ounce plastic containers sold primarily to institutional buyers such as food services. Mitchell, Tr. 655. Because plastic is a viable substitute for glass in the institutional trade, our findings as to the product market are limited to the smaller sizes sold in the non-institutional, retail trade. 154 Brockway document entitled Foods 1 9 1 1 6 1294 2346 124 33 96.787163 Market,5 1 9 1 1 7 1431 2345 16 29 96.887001 35 1 9 1 1 8 1460 2344 78 30 96.965569 Years 1 9 1 1 9 1547 2343 95 34 93.793274 Plan, corrected and reprinted on March 20, 1987, elaborates:

To date the squeeze bottle has met with only limited success in the market since it is satisfying only a niche portion. We expect the glass jar to continue to be the dominant container type used for mayonnaises, primarily due to barrier requirements and clarity. We do not anticipate the high barrier plastics squeeze bottle to gain significant market share in this segment. CX 226D.

Opinion 115 F.T.C.

Respondents argue that clear plastic containers have been developed which solve the shelf life and technical requirements of mayonnaise packaging. Witnesses from both of the major mayonnaise producers (CPC International, producer of Hellmann's and Best Foods brands, and Kraft) testified that this was so. Mitchell, Tr. 711; Erwin, Tr. 5173. Respondents claim that Kraft has already scheduled conversion of its mayonnaise to plastic packaging. However, the underlying facts cut against respondents. Kraft has scheduled conversion of only its 48-ounce mayonnaise container (Erwin, Tr. 5113, 5119, 5172),'® and sales in the 48-ounce size are trivial compared to those in smaller sizes.'’ Moreover, conversion to plastic of smaller sizes appears less likely because the relative economics of glass and plastic tend to favor glass as size is reduced. Erwin, Tr. 5110. The same study which Kraft relied upon in determining to convert the 48-ounce size reveals that conversion of 32-ounce sizes would not be economically justified. RX 148C."* In fact, using the Kraft study's numbers and assuming (1) the cost of plastic resin falls to historical levels and (2) the cost of glass containers rises 5-10%, conversion of 32-ounce mayonnaise containers from glass to plastic still would not be cost-justified.’”

16 Indeed, the record suggests that Hellmann's is also considering conversion of its 48-ounce size to plastic. Zabinko, Tr. 5398. Kraft5 1 6 1 1 2 905 2098 76 37 96.673294 buys5 1 6 1 1 3 994 2097 18 29 96.547966 75 1 6 1 1 4 1027 2097 115 29 96.618843 millions 1 6 1 1 5 1156 2096 77 29 96.845535 units5 1 6 1 1 6 1247 2096 30 29 96.948898 in5 1 6 1 1 7 1290 2096 48 29 93.251869 thes 1 6 1 1 8 1350 2096 152 29 92.605408 48-ounces 1 6 1 1 9 1516 2095 61 30 96.832924 sizes 1 6 1 1 10 1590 2094 159 38 96.738464 compared5 1 6 1 1 11 1762 2099 31 24 96.673027 to5 1 6 1 1 12 1807 2094 59 29 96.900238 2205 1 6 1 1 13 1880 2094 117 28 96.749527 million2 1 7 0 0 0 661 2143 1335 180 -1 3 1 7 1 0 0 661 2143 1335 180 -1 4 1 7 1 1 0 661 2143 1335 36 -1 5 1 7 1 1 1 661 2149 78 30 96.967934 units5 1 7 1 1 2 760 2148 29 30 96.559540 in5 1 7 1 1 3 809 2149 48 28 93.154694 thes 1 7 1 1 4 877 2148 151 30 91.381485 32-ounces 1 7 1 1 5 1048 2147 70 29 94.703720 size.5 1 7 1 1 6 1156 2146 107 33 96.844345 Erwin,5 1 7 1 1 7 1283 2146 46 29 95.907516 Tr.5 1 7 1 1 8 1350 2145 89 31 91.853561 5112.5 1 7 1 1 9 1477 2145 98 30 91.231888 CPC's5 1 7 1 1 10 1595 2144 178 30 96.178940 conversion5 1 7 1 1 11 1792 2143 36 30 93.279297 of5 1 7 1 1 12 1843 2144 153 29 93.057289 48-ounce4 1 7 1 2 0 661 2192 1333 43 -1 5 1 7 1 2 1 661 2197 168 30 96.383873 containers5 1 7 1 2 2 846 2196 171 39 96.583557 apparently5 1 7 1 2 3 1034 2195 99 30 96.024574 would5 1 7 1 2 4 1150 2195 121 29 96.841339 involves 1 7 1 2 5 1288 2194 70 38 96.854935 only5 1 7 1 2 6 1379 2194 35 30 96.935486 105 1 7 1 2 7 1430 2193 115 30 96.935486 millions 1 7 1 2 8 1562 2193 86 30 92.276665 units.5 1 7 1 2 9 1679 2193 145 33 92.276665 Zabinko,5 1 7 1 2 10 1841 2193 46 28 96.769127 Tr.5 1 7 1 2 11 1906 2192 88 29 96.660843 5398.4 1 7 1 3 0 661 2240 1335 42 -1 5 1 7 1 3 1 661 2245 165 37 96.789536 Brockway5 1 7 1 3 2 838 2244 152 29 96.535347 estimated5 1 7 1 3 3 1001 2244 70 28 96.835609 totals 1 7 1 3 4 1082 2242 192 39 96.559418 mayonnaise5 1 7 1 3 5 1285 2242 149 29 96.949966 containers 1 7 1 3 6 1445 2241 75 30 96.898659 sales5 1 7 1 3 7 1532 2241 29 29 96.777702 in5 1 7 1 3 8 1576 2241 75 30 96.931984 19865 1 7 1 3 9 1662 2247 27 23 96.809593 at5 1 7 1 3 10 1700 2241 99 37 96.585602 nearly5 1 7 1 3 11 1810 2240 59 30 96.556923 9225 1 7 1 3 12 1881 2240 115 29 96.556923 million4 1 7 1 4 0 661 2292 267 31 -1 5 1 7 1 4 1 661 2293 87 30 93.269310 units.5 1 7 1 4 2 772 2292 156 31 93.046799 CX226D.2 1 8 0 0 0 751 2354 1245 49 -1 3 1 8 1 0 0 751 2354 1245 49 -1 4 1 8 1 1 0 751 2354 1245 49 -1 5 1 8 1 1 1 751 2354 11 22 72.017441 85 1 8 1 1 2 806 2367 87 29 72.017441 From5 1 8 1 1 3 907 2375 36 20 95.717865 an5 1 8 1 1 4 957 2374 157 21 96.011116 economics 1 8 1 1 5 1127 2370 195 33 96.513504 perspective,5 1 8 1 1 6 1336 2372 178 21 96.708855 conversion5 1 8 1 1 7 1528 2368 29 24 96.781708 to5 1 8 1 1 8 1570 2363 105 38 96.595863 plastics 1 8 1 1 9 1689 2362 101 30 95.990936 would5 1 8 1 1 10 1803 2362 87 29 96.467964 makes 1 8 1 1 11 1906 2361 90 30 95.044304 even less sense" for still smaller sizes. Erwin, Tr. 5113. 19 Increasing the price of 32-ounce glass containers by 10% from the 10.8-cent mid-range level used by the Kraft study yields 11.9 cents. Decreasing the price of plastic containers by the 5% found appropriate by Kraft to adjust for the then current excess of resin prices over historical levels reduces plastic container prices to 14.8 cents. After deducting 2 cents to reflect the distributional savings attributed by Kraft to plastic, we still find the cost of 32-ounce plastic containers nearly 1 cent above the cost of glass containers. OWENS-ILLINOIS, INC., ET AL. 313 179 Opinion Consequently, the record indicates that for all but trivial portions of the retail mayonnaise trade, i.e., for all but 48-ounce sizes, a hypothetical monopolist would not be constrained from imposing a small but significant and nontransitory price increase by the presence of alternative packaging materials. Kraft's documentary evidence is confirmed by the testimony of customer witnesses. Mitchell, Tr. 668-69 (testifying on behalf of CPC that a 5-10% increase in the price of glass containers would5 1 2 1 8 6 1160 1030 61 30 96.971764 not5 1 2 1 8 7 1234 1024 98 36 96.543716 closes 1 2 1 8 8 1345 1025 58 36 96.486755 thes 1 2 1 8 9 1416 1025 187 37 96.724304 economics 1 2 1 8 10 1617 1037 68 36 96.976662 gaps 1 2 1 8 11 1699 1026 162 36 96.723671 between4 1 2 1 9 0 525 1080 1336 47 -1 5 1 2 1 9 1 525 1080 97 46 96.825676 glass5 1 2 1 9 2 648 1081 68 35 96.807930 ands 1 2 1 9 3 740 1081 177 46 95.214340 plastic); Clements, Tr. 759; Willers, Tr. 1698. We conclude that the supply of glass containers for retail sales of mayonnaise is a relevant product market.

6. Pickles The initial decision's findings of fact concerning pickles are fully supported by the record, and we adopt IDF 157-163 and, with the minor correction noted in n. 22, infra, IDF 164. The adopted findings establish that, for pickle jars, clarity, impermeability, resealability, and the capacity to withstand high temperature packing are important physical attributes of glass, and conclude that there presently is rclear, wide-mouth plastic container that is an economically feac:uie alternative for packaging retail sizes of hot-packed pickles. Alternatives to glass face both technological and econ xiic handicaps. Fresh-pack pickles are pasteurized and must be hot-f.lled. Faulkner, Tr. 1260, 1262. They require a container sufficis itly impermeable to sustain a shelf-life of 18-24 months. /d. at 1261. Respondents point to testimony which indicates that clear, wide-mouthed, hot-fillable plastic jars suitable for holding pickles have been developed (Trumball, Tr. 4171; Gigliotti, Tr. 5692), but none of their witnesses contends that such plastic containers represent economically viable competition for glass.” In contrast, complaint 20 Even as to the technological ability of plastic to substitute for glass, the cited testimony might be questioned in view of the conflicting deposition testimony of Robert S. Coakley, President of Brockway's Glass Container Division: So you never lost a pickle customer to plastic then? No, and I really question whether I could. Why do you question that? Because I don't think that plastic containers, to this day, are capable of handling pickles.

POPPA Opinion 115 F.T.C.

counsel's witness from Cates testified that an Owens design work-up of a suitable plastic pickle container showed that plastic was 60% more expensive than glass. Faulkner, Tr. 1266. As summarized by the witness from Cates, [T]he5 1 3 1 4 6 1353 775 138 47 96.219574 pricing5 1 3 1 4 7 1517 776 123 36 96.834152 makes5 1 3 1 4 8 1666 776 27 36 96.767349 it5 1 3 1 4 9 1720 776 155 46 96.765488 [plastic]5 1 3 1 4 10 1904 783 62 29 96.610542 not5 1 3 1 4 11 1992 788 20 24 96.994148 a4 1 3 1 5 0 676 830 1333 48 -1 5 1 3 1 5 1 676 831 150 36 96.516678 feasible5 1 3 1 5 2 839 831 153 47 95.540268 option. Jd. The remaining alternative, use of metal cans, is rendered unacceptable by metal’s absence of clarity. Jd. at 1270-71. Refrigerated pickles are not hot-filled, have shorter shelf lives than fresh-pack pickles, and might be more susceptible from a technological standpoint to competition between plastic and glass. A Kraft witness testified that Clausen, a producer of refrigerated pickles, was in the process of developing5 1 3 1 11 8 1495 1162 58 35 96.908813 thes 1 3 1 11 9 1566 1162 124 46 96.185966 plastics 1 3 1 11 10 1699 1162 83 46 55.816910 jar. Erwin, Tr. 5022, 5123. The record does not show the stage of Clausen's efforts or whether they met with technological or economic success. At the same time, all facts of record reveal only glass packaging in present use for retail sales of either fresh-pack or refrigerated pickles.” Faulkner, Tr. 1265, 1267; Haworth, Tr. 3895; Zabinko, Tr. 5417.” Why is that? I don't think that their oxygen barrier is adequate. Why is it and how is it different from glass? Glass is impermeable.

POPPA CX 23Z78-79.

21 The sole exception is for single-serve pickles sold in the delicatessen sections of some supermarkets and wrapped in plastic bags. Faulkner, Tr. 1263; Haworth, Tr. 3895.

?2 In contrast, intermaterial competition does appear significant for two groupings of sales whose needs differ from the norm. Pickle relish need not be pasteurized, and a major producer, Heinz, has successfully converted a portion of its pickle relish sales to plastic. IDF 164. (IDF 164's statement that Heinz's5 1 11 1 3 14 1908 2197 98 38 96.848244 pickle4 1 11 1 4 0 671 2244 1335 42 -1 5 1 11 1 4 1 671 2248 87 29 97.001434 relish5 1 11 1 4 2 771 2248 24 29 97.001434 is5 1 11 1 4 3 808 2247 113 39 96.695137 packed5 1 11 1 4 4 934 2247 29 29 95.956703 in5 1 11 1 4 5 975 2256 16 20 93.253334 a5 1 11 1 4 6 1003 2247 178 38 93.100739 squeezable5 1 11 1 4 7 1193 2247 105 37 96.991661 plastics 1 11 1 4 8 1312 2246 151 29 96.735329 containers 1 11 1 4 9 1475 2246 56 29 96.871132 ands 1 11 1 4 10 1545 2246 143 29 96.611794 achieved5 1 11 1 4 11 1701 2254 16 21 96.055061 a5 1 11 1 4 12 1729 2245 73 30 96.055061 48%5 1 11 1 4 13 1816 2245 84 29 96.696617 shares 1 11 1 4 14 1913 2244 35 30 96.976662 of5 1 11 1 4 15 1958 2245 48 28 97.015411 thea 1 11 1 5 0 671 2292 1335 41 -1 5 1 11 1 5 1 671 2296 109 30 96.881157 markets 1 11 1 5 2 791 2295 29 30 96.917946 in5 1 11 1 5 3 835 2295 89 31 95.176270 1988 is ambiguous. Although Heinz relish achieved a 46% market share (RX 1029G), Heinz continued to package a5 1 11 1 6 8 1417 2343 42 28 96.718826 lots 1 11 1 6 9 1471 2342 34 29 96.578331 of5 1 11 1 6 10 1515 2342 104 29 96.334877 relish in glass. Blecharz, Tr. 4910.) Nor do the advantages of glass appear controlling for sales in large containers to institutional buyers such as restaurants: the clarity needed to appeal to retail buyers is unnecessary, and the faster turnover of institutional sales avoids the taste problems from oxygen permeation that are experienced with plastic packaging in a period less than the shelf-life of retail sales. Faulkner, Tr. 1261, 1270-71, 1304-05. Both cans and plastic appear to compete successfully with glass for these institutional sales. IDF 161; Faulkner, Tr. 1270. We therefore exclude from our product market glass containers for pickle relish and the large glass containers sold for the institutional pickle trade. OWENS-ILLINOIS, INC., ET AL. 315 179 Opinion In view of the absence of existing intermaterial competition, the dearth of indications that competition from plastic will soon be economically viable, the admission of Brockway's Glass Container Division President that plastic suffers serious technological disadvantages, and the testimony to the effect that Cates would not switch from glass to plastic or metal containers if the price of glass containers were to rise 5-10% (Faulkner, Tr. 1267, 1271), we conclude that the supply of glass containers for retail sales of pickles is a relevant product market.

7. Wine Coolers The record supports a finding that the supply of glass containers for single-serve wine coolers is a relevant market. Wine coolers are usually sold in 12-ounce single-serve glass bottles. Smith, Tr. 1931 (Seagram uses 12-ounce glass packaging exclusively); CX 335D; CX 1022Z78. Quality image and impermeability contribute to that choice of packaging. Smith, Tr. 1931.

Because of adverse consumer image, metal cans are not a significant alternative to glass bottles for wine coolers. Sales in cans have been attempted but have not achieved significant shares. Jd. at 1932. Seagram test-marketed wine coolers in cans. The results were “disastrous” with marketing acceptance somewhere5 1 5 2 5 6 1609 1896 163 35 96.318802 between5 1 5 2 5 7 1792 1896 82 35 96.773689 slim4 1 5 2 6 0 539 1949 525 37 -1 5 1 5 2 6 1 539 1949 69 34 96.774506 ands 1 5 2 6 2 622 1950 126 34 91.801132 none. /d. at 1932-33.

Plastic containers are not a significant alternative to glass for single-serve wine coolers because of image and shelf-life problems. See CX 23Z93, deposition testimony of Robert S. Coakley, President of Brockway's Glass Container Division (conceding that he had never seen plastic containers for wine coolers in 12-ounce serving sizes). Seagram tested a two-liter plastic container and found shelf-life inadequate. Smith, Tr. 1934. For sizes smaller than two liters the threat to shelf-life posed by permeation problems is exacerbated because the ratio of surface area to volume increases as volume decreases. Id.

Documentary evidence confirms that plastic is not a likely substitute for glass in packaging single-serve wine coolers. A February 1987 presentation by respondents’ consultant, Mr. Joseph Cavanagh, stated:

Opinion 115 F.T.C.

There is little chance that plastic will invade the wine market, or even the wine cooler market, except for bottles supplied to the airlines. Plastics never presented a serious threat to the varietal segment, and failed trying to invade the low cost jug wine segment because of poor product retention on storage. It is unlikely therefore, that plastics will succeed in invading the single service wine cooler market. CX 90R. An October 1986 Owens presentation on the wine cooler market observes:

Some companies, primarily Sun Country, are marketing a larger 2-liter PET, but this really defeats the single-service/convenience purpose of the package. And the 12-ounce aluminum can has minimal use. Cans just are not consistent with the product image and cannot approach the consumer preference for glass. For now, it appears that any other packaging material, PET, aluminum, or even aseptics, offers little or no threat to the position glass has assumed, but we don't want to take that commanding lead for granted.

CX 1022279.

Nonetheless, in sizes larger than single-serve, particularly in the two liter size, PET packaging has made inroads. Owens attributed as much as 15% of total 1986 wine cooler gallonage to the two-liter PET bottle and projected a 20% share for 1988. CX 63A. Cf CX 49H (1986 Owens document attributing 7% market share to PET). The two-liter sizes may serve a niche market.” In any case, as shown above, plastic is unlikely to be a viable alternative to glass in single-serve sizes in the foreseeable future. See CX 328H (April 15, 1987 Owens document stating, Glass5 1 7 1 9 6 1465 2067 74 36 96.250923 will5 1 7 1 9 7 1562 2068 135 36 96.353149 remains 1 7 1 9 8 1721 2069 58 35 96.328430 thes 1 7 1 9 9 1803 2069 185 36 96.039787 dominant4 1 7 1 10 0 652 2126 655 47 -1 5 1 7 1 10 1 652 2127 161 46 96.682304 packages 1 7 1 10 2 828 2126 85 36 96.507881 with5 1 7 1 10 3 929 2137 102 25 96.507881 some5 1 7 1 10 4 1035 2122 19 56 96.998711 25 1 7 1 10 5 1083 2126 78 35 96.564178 liter5 1 7 1 10 6 1174 2127 133 42 95.883286 PET). We conclude that competition from alternative packaging materials would be unlikely to preclude a hypothetical monopolist from imposing a small but significant and nontransitory price increase on glass containers for single-serve wine coolers. Because buyers of glass containers in this primary portion of the wine-cooler 23 One Owens document explains that the two-liter wine coolers packaged in PET are popular5 1 10 1 1 4 952 2634 46 29 96.578674 for5 1 10 1 1 5 1012 2635 126 29 96.655319 outdoors 1 10 1 1 6 1150 2635 129 29 83.996780 events. CX 335D. Another refers to a customer's determination that glass5 1 10 1 2 4 1064 2683 24 30 96.385315 is5 1 10 1 2 5 1102 2692 16 20 96.385315 a5 1 10 1 2 6 1129 2692 127 21 96.613518 concerns 1 10 1 2 7 1270 2688 27 24 96.863441 at5 1 10 1 2 8 1309 2683 93 30 95.994492 beach5 1 10 1 2 9 1415 2683 156 34 95.994492 locations,5 1 10 1 2 10 1584 2683 70 39 97.012177 pools 1 10 1 2 11 1668 2683 155 34 93.296722 locations,5 1 10 1 2 12 1837 2689 66 28 91.362823 etc.,5 1 10 1 2 13 1918 2684 66 34 96.963982 and,4 1 10 1 3 0 649 2731 1333 39 -1 5 1 10 1 3 1 649 2731 154 34 96.095718 therefore,5 1 10 1 3 2 816 2732 67 38 96.682266 they5 1 10 1 3 3 897 2731 74 30 96.894188 needs 1 10 1 3 4 983 2740 16 21 96.002167 a5 1 10 1 3 5 1011 2731 188 39 96.337158 competitive5 1 10 1 3 6 1212 2731 129 30 87.093071 materials 1 10 1 3 7 1354 2737 29 24 96.884659 to5 1 10 1 3 8 1395 2732 85 29 96.957336 reach5 1 10 1 3 9 1493 2732 83 29 97.014893 those5 1 10 1 3 10 1587 2732 155 38 96.267349 particulars 1 10 1 3 11 1753 2733 111 28 96.909630 markets 1 10 1 3 12 1876 2733 106 29 96.265083 areas. CX 932Z106.

OWENS-ILLINOIS, INC., ET AL. 317 179 Opinion market lack adequate substitutes to avoid anticompetitive harm, we conclude that the supply of glass containers for single-serve wine coolers is a relevant market.

8. Wine The initial decision's findings of fact concerning wine are generally well-supported by the record and we adopt IDF 198-205 and 207-09. With only one exception,” respondents have not challenged the adopted findings. Unchallenged findings include: IDF 199: “There are no commercially viable substitutes for glass for premium wines."”° IDF 200: “Metal cans are not acceptable substitutes for wine. If the price of glass wine bottles were to increase by 10%, it is unlikely that wineries would switch to cans."

IDF 202: Plastics 1 6 3 1 4 928 1491 25 30 96.952354 is5 1 6 3 1 5 966 1497 51 24 96.860886 not5 1 6 3 1 6 1030 1500 36 21 96.921295 an5 1 6 3 1 7 1079 1492 171 38 96.572815 acceptable5 1 6 3 1 8 1263 1492 155 29 96.572815 substitutes 1 6 3 1 9 1430 1492 48 29 96.591042 for5 1 6 3 1 10 1489 1493 79 37 96.346397 glass5 1 6 3 1 11 1582 1492 46 29 96.195847 for5 1 6 3 1 12 1639 1493 148 38 96.344894 premiums 1 6 3 1 13 1800 1493 77 29 96.945732 wine4 1 6 3 2 0 542 1539 1208 40 -1 5 1 6 3 2 1 542 1539 129 30 96.825928 because5 1 6 3 2 2 683 1540 80 38 96.994888 glass5 1 6 3 2 3 775 1540 53 29 96.721428 has5 1 6 3 2 4 841 1548 16 21 96.721428 a5 1 6 3 2 5 871 1539 159 39 28.548920 ‘premium’5 1 6 3 2 6 1044 1539 97 39 96.708389 images 1 6 3 2 7 1153 1540 57 30 96.853889 ands 1 6 3 2 8 1222 1540 129 30 96.705383 because5 1 6 3 2 9 1363 1540 35 30 96.435081 of5 1 6 3 2 10 1408 1540 152 31 96.816544 oxidation5 1 6 3 2 11 1572 1542 178 37 73.034843 problems. IDF 204: It5 1 6 4 1 4 847 1587 25 30 96.606544 is5 1 6 4 1 5 886 1587 132 38 96.978012 unlikely5 1 6 4 1 6 1032 1588 60 29 96.941086 that5 1 6 4 1 7 1105 1588 136 29 96.588005 wineries5 1 6 4 1 8 1256 1589 101 28 96.460197 would5 1 6 4 1 9 1371 1589 104 28 96.616203 switch5 1 6 4 1 10 1488 1593 30 24 96.975494 to5 1 6 4 1 11 1531 1589 106 37 96.736000 plastics 1 6 4 1 12 1651 1589 26 29 96.608765 if5 1 6 4 1 13 1688 1590 49 28 96.870018 thes 1 6 4 1 14 1750 1590 81 37 96.885948 prices 1 6 4 1 15 1844 1590 36 28 96.923668 of4 1 6 4 2 0 542 1635 521 38 -1 5 1 6 4 2 1 542 1635 79 37 96.555054 glass5 1 6 4 2 2 635 1644 78 20 96.778603 were5 1 6 4 2 3 725 1640 30 25 96.323318 to5 1 6 4 2 4 768 1635 132 30 96.018631 increases 1 6 4 2 5 913 1635 39 38 96.018631 by5 1 6 4 2 6 968 1635 95 30 92.101906 10%. IDF 207: Bag-in-the-box containers “are not an acceptable substitute for premium wines because of quality considerations." IDF 208: Respondents5 1 6 6 1 4 1015 1779 38 29 96.535866 do5 1 6 6 1 5 1064 1785 51 23 96.529350 not5 1 6 6 1 6 1126 1779 75 29 96.967880 views 1 6 6 1 7 1213 1780 82 29 97.006645 others 1 6 6 1 8 1306 1780 163 29 96.991852 containers5 1 6 6 1 9 1481 1789 32 20 96.877892 as5 1 6 6 1 10 1525 1789 16 20 95.507790 a5 1 6 6 1 11 1552 1781 91 28 95.507790 threats 1 6 6 1 12 1653 1786 30 24 96.646210 to5 1 6 6 1 13 1695 1782 79 36 96.615570 glass5 1 6 6 1 14 1786 1781 30 28 96.883423 in5 1 6 6 1 15 1827 1782 48 28 96.996391 thea 1 6 6 2 0 541 1824 1052 43 -1 5 1 6 6 2 1 541 1827 77 29 96.382011 wines 1 6 6 2 2 631 1827 113 30 96.382011 markets 1 6 6 2 3 756 1827 57 30 96.844978 dues 1 6 6 2 4 825 1833 30 24 96.827881 to5 1 6 6 2 5 868 1827 107 39 96.938835 image,5 1 6 6 2 6 990 1824 154 38 96.832207 shelf-life,5 1 6 6 2 7 1158 1828 56 29 96.921974 ands 1 6 6 2 8 1226 1837 159 21 96.366158 consumers 1 6 6 2 9 1396 1828 197 39 96.327103 preference. Respondents argue that the initial decision excludes wines sold by airlines and jug wines and add the unquantified claim that glass is being displaced by plastic and bag-in-the-box containers. These are largely two statements of the same points because such intermaterial competition as does exist is concentrated in the airline and jug wine sectors. The airline container sales are a niche use by definition. The 4 IDF 209, challenged by respondents, relates only to the relative profitability of wine to Owens and to Owens' pricing strategy for jug wines in very large bottles. These issues are not essential to our analysis. °5 The initial decision defines a premium wine as one obtaining 75-100% of its juice from a specific high-end varietal grape, as distinguished from a jug wine, which is produced by blending various grape varietals such as green grapes found in grocery stores. IDF 20] n.10.

Opinion 115 F.T.C.

jug wine business accounts for only 3.2% of glass wine container units. CX 31624.

Nothing cited by respondents suggests that enough producers of premium wine would shift to non-glass alternatives to defeat a small but significant price increase on glass containers. Indeed, the record is replete with respondents own documents indicating that premium wine producers have no viable alternatives to glass. See IDF 199, 205, 208. Consequently, we conclude that the supply of glass containers for premium wine is a relevant product market. 9. Baby Food and Baby Juice The initial decision determines that the supply of glass containers for baby food and baby juice is a relevant market. After reviewing the record in detail, we have concluded that non-glass alternatives present substantial competition for packaging baby juice but not baby foods, and we define the supply of glass containers for processed baby food as a relevant market.”’ Fifty percent of processed baby food is retorted, i.e., cooked at high temperature in its container. IDF 110. Clarity is important for consumer acceptance. IDF 107. Metal cans are not clear, and plastic that is resistant to distortion at high temperatures is not clear, lacks screw-top resealability, and is not economically viable competition for glass. IDF 117; Zoon, Tr. 55; Rottman, Tr. 933; Blecharz, Tr. 4877. The record supports the initial decision's finding that there is no clear plastic container commercially available today that could be used for retorted baby foods. IDF 117.

Witnesses from both Beech-Nut and Gerber testified that their companies package processed baby food only in glass (Jones, Tr. 505; Rottman, Tr. 907) and would have no interest in converting to plastic just the 50% of processed baby food which could be hot-filled as opposed to being retorted. They feared adverse consumer reaction 26 Bag-in-the-box containers are used primarily for institutional sales and are declining in importance. CX 316Z4; CX 922Q; CX 928B; CX 1022Z89. 27 The reference to processed foods is meant to exclude dry products such as cereals.

OWENS-ILLINOIS, INC., ET AL. 319 179 Opinion to the appearance of mixed glass and plastic packaging within their processed baby-food line (Jones, Tr. 526; Rottman, Tr. 989) and noted that such a mixture would cause production difficulties. Jones, Tr. 526-27. Both witnesses stated that their companies would not shift to alternative packaging materials for processed baby food in response to a 5-10% increase in the price of glass containers. Jones, Tr. 521, 523, 529; Rottman, Tr. 934.

We find that the record amply supports treating the supply of glass containers for packaging processed baby food as a relevant product market.

In contrast, product market status for glass baby juice bottles appears unwarranted. Baby juice is hot-filled, so there is no need for retorting. Jones, Tr. 530. This leaves no technological barrier to using plastic, and plastic baby juice bottles have made major and rapid inroads. Heinz, one of three principal baby juice producers, introduced a 25.3-ounce plastic baby juice container in 1988. Within six months the plastic bottle accounted for 50% of Heinz’s baby juice gallonage. Blecharz, Tr. 4857, 4939. Gerber offers a competing 750 ml. plastic bottle. Rottman, Tr. 908. In addition, Gerber sells juice in a 4-ounce plastic bottle. This product was introduced approximately two years before the administrative trial (Rottman, Tr. 912; Jones, Tr. 531); it has not been particularly successful (Zoon, Tr. 53; Rottman, Tr. 927), but nonetheless may account for 5% of Gerber's baby juice sales.” Jd. at 960. The present competition between glass and plastic is significant and growing and makes it unlikely that a small but significant increase in the price of glass baby juice containers could be sustained.

C. Geographic Market The initial decision defines a geographic market consisting of the continental United States. IDF 277. We agree. The initial decision's findings that glass imports are small in percentage terms, primarily involve small or specialty items such as cosmetic jars (as opposed to *8 Gerber holds approximately a 70% share of the total baby juice market. Rottman, Tr. 961.

Opinion 115 F.T.C.

the larger sizes generally at issue in the product markets identified above), and suffer severe disadvantages in terms of freight costs, reliability of supply, and, at least in some instances, quality of production, are well founded in the record. IDF 265-69, 271-72, 275.” Consequently, we find that not enough customers would switch to foreign producers to defeat a small but significant and nontransitory price increase for the glass containers supplied to the product markets delineated above.” See Merger Guidelines { 2.31. Ill. CONCENTRATION LEVELS As5 1 5 1 1 2 829 1245 60 36 96.277405 thes 1 5 1 1 3 908 1247 151 36 96.334053 numbers 1 5 1 1 4 1077 1248 43 36 96.995430 of5 1 5 1 1 5 1135 1249 101 37 96.920898 firms5 1 5 1 1 6 1256 1250 36 37 96.434502 in5 1 5 1 1 7 1312 1262 43 25 95.088188 an5 1 5 1 1 8 1375 1252 160 49 95.088188 industry5 1 5 1 1 9 1555 1256 171 43 96.829689 declines,5 1 5 1 1 10 1747 1259 70 36 96.970490 ands 1 5 1 1 11 1836 1256 161 56 96.031563 industry4 1 5 1 2 0 660 1304 1337 52 -1 5 1 5 1 2 1 660 1304 266 35 96.550507 concentrations 1 5 1 2 2 941 1304 192 43 96.928360 increases,5 1 5 1 2 3 1149 1310 129 34 96.967674 ceteris5 1 5 1 2 4 1288 1310 165 44 96.728859 paribus,5 1 5 1 2 5 1468 1312 27 35 96.728859 it5 1 5 1 2 6 1508 1313 171 38 96.627678 becomes5 1 5 1 2 7 1694 1317 115 36 96.497566 easier5 1 5 1 2 8 1823 1317 57 36 96.903717 for5 1 5 1 2 9 1894 1319 103 37 97.018433 those4 1 5 1 3 0 659 1359 1335 64 -1 5 1 5 1 3 1 659 1359 101 37 97.006142 firms5 1 5 1 3 2 780 1366 36 30 96.999138 to5 1 5 1 3 3 835 1362 207 37 96.768044 coordinates 1 5 1 3 4 1060 1365 91 36 96.851715 theirs 1 5 1 3 5 1166 1366 149 47 96.777924 pricing,5 1 5 1 3 6 1336 1368 68 36 96.958122 ands 1 5 1 3 7 1423 1370 58 36 96.979752 thes 1 5 1 3 8 1498 1371 199 38 96.753326 likelihood5 1 5 1 3 9 1716 1374 43 36 96.659966 of5 1 5 1 3 10 1773 1376 221 47 90.423737 anticompe-4 1 5 1 4 0 658 1417 1332 59 -1 5 1 5 1 4 1 658 1417 99 37 92.690277 titive5 1 5 1 4 2 770 1419 128 37 96.302544 effects5 1 5 1 4 3 912 1420 94 37 95.890198 from5 1 5 1 4 4 1019 1433 43 25 95.890198 an5 1 5 1 4 5 1076 1423 212 47 96.956795 acquisitions 1 5 1 4 6 1301 1429 255 47 96.730103 consequently5 1 5 1 4 7 1570 1429 178 39 96.298683 increases5 1 5 1 4 8 1762 1444 37 25 96.298683 as5 1 5 1 4 9 1814 1434 114 36 81.252106 well.”5 1 5 1 4 10 1952 1436 38 35 87.771072 B.4 1 5 1 5 0 656 1477 1336 61 -1 5 1 5 1 5 1 656 1477 36 35 45.944271 F.5 1 5 1 5 2 712 1477 183 38 93.288399 Goodrich5 1 5 1 5 3 911 1480 75 41 93.244812 Co.,5 1 5 1 5 4 1006 1481 66 36 96.391678 1105 1 5 1 5 5 1085 1482 87 36 95.266388 FTC5 1 5 1 5 6 1186 1483 82 41 95.266388 207,5 1 5 1 5 7 1283 1484 68 37 94.652412 3035 1 5 1 5 8 1379 1486 136 44 94.652412 (1988),5 1 5 1 5 9 1531 1488 172 37 96.959297 modified5 1 5 1 5 10 1717 1491 46 45 96.984184 by5 1 5 1 5 11 1779 1491 213 47 96.679237 stipulation,4 1 5 1 6 0 655 1535 1336 61 -1 5 1 5 1 6 1 655 1535 37 35 89.770271 B.5 1 5 1 6 2 712 1536 37 34 89.139374 F.5 1 5 1 6 3 770 1536 187 37 96.632355 Goodrich5 1 5 1 6 4 975 1539 62 36 93.252655 Co.5 1 5 1 6 5 1060 1540 32 35 92.879799 V.5 1 5 1 6 6 1111 1541 100 42 96.811287 FTC,5 1 5 1 6 7 1228 1542 68 36 95.818176 No.5 1 5 1 6 8 1315 1543 159 38 96.782890 88-40655 1 5 1 6 9 1492 1546 63 43 93.292564 (2d5 1 5 1 6 10 1570 1547 85 43 92.055511 Cir.,5 1 5 1 6 11 1672 1549 101 47 96.249825 April5 1 5 1 6 12 1790 1551 58 42 96.086609 25,5 1 5 1 6 13 1870 1551 121 45 96.675148 1989),4 1 5 1 7 0 655 1593 1335 55 -1 5 1 5 1 7 1 655 1593 175 38 96.955299 modified5 1 5 1 7 2 844 1595 87 37 96.956451 final5 1 5 1 7 3 946 1597 103 37 96.431557 orders 1 5 1 7 4 1062 1598 131 44 95.678314 issued,5 1 5 1 7 5 1213 1601 66 36 95.951889 1125 1 5 1 7 6 1294 1602 87 36 95.920914 FTC5 1 5 1 7 7 1397 1603 43 36 96.730888 835 1 5 1 7 8 1458 1604 137 44 96.528809 (1989).5 1 5 1 7 9 1611 1606 74 37 96.969345 Thes 1 5 1 7 10 1699 1607 112 38 96.832375 initials 1 5 1 7 11 1827 1610 163 37 96.555382 decision4 1 5 1 8 0 653 1653 1337 54 -1 5 1 5 1 8 1 653 1653 171 45 97.009521 provides5 1 5 1 8 2 844 1657 137 35 96.137169 several5 1 5 1 8 3 1001 1658 208 37 96.942970 alternatives 1 5 1 8 4 1228 1662 262 45 96.793655 computations5 1 5 1 8 5 1511 1665 42 35 96.898163 of5 1 5 1 8 6 1569 1668 267 36 96.235527 concentrations 1 5 1 8 7 1856 1669 57 35 96.956146 for5 1 5 1 8 8 1932 1671 58 35 96.960037 thea 1 5 1 9 0 653 1711 1335 54 -1 5 1 5 1 9 1 653 1711 94 44 94.143517 glass5 1 5 1 9 2 761 1713 181 36 95.634514 containers 1 5 1 9 3 954 1713 158 48 95.634514 industry5 1 5 1 9 4 1125 1726 37 25 96.920677 as5 1 5 1 9 5 1177 1727 19 25 96.799599 a5 1 5 1 9 6 1210 1718 116 36 96.799599 whole5 1 5 1 9 7 1340 1719 102 46 96.776451 using5 1 5 1 9 8 1456 1721 57 35 93.303040 thes 1 5 1 9 9 1526 1722 462 41 91.226990 Herfindahl-Hirschmann4 1 5 1 10 0 652 1769 1336 60 -1 5 1 5 1 10 1 652 1769 109 35 96.834442 Index5 1 5 1 10 2 776 1770 172 43 80.364052 (“HHI”),5 1 5 1 10 3 963 1772 117 36 97.010353 which5 1 5 1 10 4 1093 1774 58 35 96.690094 thes 1 5 1 10 5 1165 1774 243 38 96.655075 Commissions 1 5 1 10 6 1423 1778 62 35 96.499435 has5 1 5 1 10 7 1500 1780 142 45 96.499435 applied5 1 5 1 10 8 1655 1781 36 35 95.551651 in5 1 5 1 10 9 1704 1790 119 28 95.551651 recent5 1 5 1 10 10 1836 1795 101 34 96.274261 years5 1 5 1 10 11 1951 1791 37 30 96.363754 to4 1 5 1 11 0 651 1828 1336 50 -1 5 1 5 1 11 1 651 1836 162 26 96.480438 measures 1 5 1 11 2 826 1828 58 35 96.862740 thes 1 5 1 11 3 897 1830 182 35 96.374237 structural5 1 5 1 11 4 1093 1831 178 36 96.805847 characters 1 5 1 11 5 1283 1833 42 35 96.909470 of5 1 5 1 11 6 1333 1835 157 36 96.805473 relevant5 1 5 1 11 7 1501 1838 165 35 96.774590 markets.5 1 5 1 11 8 1689 1840 49 35 90.638855 Jd.5 1 5 1 11 9 1767 1847 33 29 95.530884 at5 1 5 1 11 10 1813 1841 82 36 95.530884 304.5 1 5 1 11 11 1920 1843 67 35 95.903656 See4 1 5 1 12 0 650 1884 1340 57 -1 5 1 5 1 12 1 650 1884 147 45 96.936668 Mergers 1 5 1 12 2 811 1885 212 38 96.964378 Guidelines5 1 5 1 12 3 1037 1889 24 42 66.933990 J5 1 5 1 12 4 1075 1888 69 36 91.574562 3.1.5 1 5 1 12 5 1174 1890 65 36 96.778229 We5 1 5 1 12 6 1255 1892 107 46 96.974754 adopts 1 5 1 12 7 1377 1893 58 36 96.949280 thes 1 5 1 12 8 1450 1893 158 48 96.667343 findings5 1 5 1 12 9 1624 1896 37 36 97.015358 in5 1 5 1 12 10 1677 1897 146 37 93.298073 Sections 1 5 1 12 11 1838 1900 92 36 91.902023 V.A.5 1 5 1 12 12 1948 1902 42 34 97.018768 of4 1 5 1 13 0 649 1942 1335 62 -1 5 1 5 1 13 1 649 1942 58 35 96.999184 thes 1 5 1 13 2 720 1942 110 37 96.975014 initials 1 5 1 13 3 844 1944 160 37 96.640640 decisions 1 5 1 13 4 1017 1947 116 35 96.419182 which5 1 5 1 13 5 1147 1948 100 36 96.981056 shows 1 5 1 13 6 1260 1950 71 35 96.959358 that5 1 5 1 13 7 1345 1951 52 42 96.952484 (1)5 1 5 1 13 8 1411 1954 184 35 96.465134 measured5 1 5 1 13 9 1607 1954 47 46 96.924561 by5 1 5 1 13 10 1667 1955 144 37 96.865234 furnaces 1 5 1 13 11 1825 1959 159 45 96.555069 capacity4 1 5 1 14 0 649 2001 1333 58 -1 5 1 5 1 14 1 649 2001 57 34 93.265984 thes 1 5 1 14 2 721 2001 349 49 92.559441 Owens/Brockway5 1 5 1 14 3 1084 2006 211 46 96.850746 acquisitions 1 5 1 14 4 1309 2008 110 37 96.446945 raises5 1 5 1 14 5 1434 2010 84 36 96.446945 HHI5 1 5 1 14 6 1533 2012 46 45 96.906509 by5 1 5 1 14 7 1594 2011 71 37 96.991959 6565 1 5 1 14 8 1678 2014 118 45 96.609650 points5 1 5 1 14 9 1811 2021 36 30 94.478271 to5 1 5 1 14 10 1862 2016 120 43 83.543510 2,237:4 1 5 1 15 0 649 2058 1333 61 -1 5 1 5 1 15 1 649 2058 52 43 96.920250 (2)5 1 5 1 15 2 715 2061 187 35 96.966537 measured5 1 5 1 15 3 914 2061 47 46 96.915421 by5 1 5 1 15 4 973 2062 115 36 96.964317 dollars 1 5 1 15 5 1099 2064 92 35 96.534584 sales5 1 5 1 15 6 1205 2065 57 36 96.534584 thes 1 5 1 15 7 1276 2067 211 46 96.785980 acquisitions 1 5 1 15 8 1499 2070 109 35 96.602104 raises5 1 5 1 15 9 1622 2071 85 36 96.560623 HHI5 1 5 1 15 10 1720 2073 47 45 96.920944 by5 1 5 1 15 11 1780 2073 70 36 96.987038 6635 1 5 1 15 12 1864 2074 118 45 96.769341 points4 1 5 1 16 0 646 2117 1336 61 -1 5 1 5 1 16 1 646 2123 36 29 95.781540 to5 1 5 1 16 2 694 2117 120 42 95.781540 2,170;5 1 5 1 16 3 829 2119 52 43 96.693893 (3)5 1 5 1 16 4 895 2121 184 36 96.693893 measured5 1 5 1 16 5 1091 2122 47 45 96.967010 by5 1 5 1 16 6 1150 2123 74 35 96.486641 units 1 5 1 16 7 1237 2124 90 36 96.896820 sales5 1 5 1 16 8 1340 2125 57 36 96.945763 thes 1 5 1 16 9 1411 2127 209 46 96.859337 acquisitions 1 5 1 16 10 1632 2130 108 36 96.704483 raises5 1 5 1 16 11 1753 2132 85 35 96.732224 HHI5 1 5 1 16 12 1851 2133 47 45 96.562439 by5 1 5 1 16 13 1911 2133 71 37 94.755142 7904 1 5 1 17 0 645 2174 1335 66 -1 5 1 5 1 17 1 645 2174 116 46 96.266991 points5 1 5 1 17 2 778 2181 36 31 96.266991 to5 1 5 1 17 3 829 2176 118 43 96.817886 2,304;5 1 5 1 17 4 966 2178 53 43 96.935272 (4)5 1 5 1 17 5 1033 2181 185 35 96.994759 measured5 1 5 1 17 6 1233 2181 47 46 96.797791 by5 1 5 1 17 7 1296 2188 154 42 97.001495 tonnage5 1 5 1 17 8 1463 2186 213 44 96.097466 productions 1 5 1 17 9 1691 2188 59 36 96.947014 thes 1 5 1 17 10 1765 2186 215 54 96.786255 acquisition4 1 5 1 18 0 644 2233 1335 61 -1 5 1 5 1 18 1 644 2233 111 35 96.648560 raises5 1 5 1 18 2 776 2235 87 34 96.558052 HHI5 1 5 1 18 3 881 2236 46 45 96.987801 by5 1 5 1 18 4 947 2235 69 37 96.915825 6635 1 5 1 18 5 1037 2237 118 45 96.824196 points5 1 5 1 18 6 1175 2244 36 30 97.002541 to5 1 5 1 18 7 1230 2240 121 41 96.719872 2,181;5 1 5 1 18 8 1371 2243 69 34 96.994453 ands 1 5 1 18 9 1459 2243 53 43 96.154076 (5)5 1 5 1 18 10 1533 2247 187 34 96.572876 measured5 1 5 1 18 11 1739 2247 47 46 96.927872 by5 1 5 1 18 12 1805 2248 75 35 93.305550 units 1 5 1 18 13 1898 2260 81 34 91.783325 pro-4 1 5 1 19 0 643 2290 1337 57 -1 5 1 5 1 19 1 643 2290 147 37 96.893883 duction5 1 5 1 19 2 809 2292 59 36 96.753021 thes 1 5 1 19 3 887 2294 215 45 96.753021 acquisitions 1 5 1 19 4 1120 2296 109 36 96.711861 raises5 1 5 1 19 5 1249 2298 85 35 96.161392 HHI5 1 5 1 19 6 1351 2298 47 46 96.694183 by5 1 5 1 19 7 1420 2300 69 36 96.990891 8525 1 5 1 19 8 1507 2301 119 46 96.821480 points5 1 5 1 19 9 1645 2309 36 30 96.821480 to5 1 5 1 19 10 1700 2304 120 41 89.741364 2,478.5 1 5 1 19 11 1856 2306 124 37 89.741364 Under2 1 6 0 0 0 640 2397 595 22 -1 3 1 6 1 0 0 640 2397 595 22 -1 4 1 6 1 1 0 640 2397 595 22 -1 5 1 6 1 1 1 640 2397 595 22 95.000000 2 1 7 0 0 0 640 2445 1336 148 -1 3 1 7 1 0 0 640 2445 1336 148 -1 4 1 7 1 1 0 715 2445 1261 58 -1 5 1 7 1 1 1 715 2445 28 21 16.696899 ®5 1 7 1 1 2 787 2458 66 30 75.467705 IDF5 1 7 1 1 3 865 2459 59 30 96.316147 2655 1 7 1 1 4 940 2460 108 31 96.316147 should5 1 7 1 1 5 1061 2461 76 30 95.158066 refers 1 7 1 1 6 1150 2467 30 25 95.158066 to5 1 7 1 1 7 1193 2463 55 30 92.979195 CX5 1 7 1 1 8 1266 2464 150 36 90.987289 1451F-G,5 1 7 1 1 9 1431 2467 95 30 95.879738 rather5 1 7 1 1 10 1537 2468 69 30 95.641998 than5 1 7 1 1 11 1619 2474 31 25 95.641998 to5 1 7 1 1 12 1663 2470 55 30 92.371002 CX5 1 7 1 1 13 1736 2471 151 31 90.379845 1514F-G.5 1 7 1 1 14 1915 2473 61 30 96.559990 Thea 1 7 1 2 0 640 2508 1335 53 -1 5 1 7 1 2 1 640 2508 112 37 96.513580 precise5 1 7 1 2 2 765 2508 95 39 96.513580 figures 1 7 1 2 3 872 2509 47 30 96.765869 for5 1 7 1 2 4 929 2510 48 29 96.765869 thes 1 7 1 2 5 990 2511 83 30 96.371056 shares 1 7 1 2 6 1085 2512 35 29 96.831772 of5 1 7 1 2 7 1129 2513 69 29 96.975838 totals 1 7 1 2 8 1210 2513 69 31 96.179184 U.S.5 1 7 1 2 9 1293 2515 77 37 94.631310 glass5 1 7 1 2 10 1384 2517 149 29 96.987869 containers 1 7 1 2 11 1544 2518 94 30 96.969292 dollars 1 7 1 2 12 1650 2520 75 30 96.914421 sales5 1 7 1 2 13 1738 2523 186 36 96.624176 represented5 1 7 1 2 14 1936 2524 39 37 96.624176 by4 1 7 1 3 0 640 2555 490 38 -1 5 1 7 1 3 1 640 2555 122 38 96.555733 imports5 1 7 1 3 2 776 2556 24 30 96.555733 is5 1 7 1 3 3 814 2557 112 30 95.467125 2.97%.5 1 7 1 3 4 952 2558 54 30 93.220688 CX5 1 7 1 3 5 1023 2560 107 30 89.597015 1451F.2 1 8 0 0 0 712 2617 1261 62 -1 3 1 8 1 0 0 712 2617 1261 62 -1 4 1 8 1 1 0 712 2617 1261 62 -1 5 1 8 1 1 1 712 2617 29 21 95.627731 305 1 8 1 1 2 784 2631 153 39 96.629776 Although5 1 8 1 1 3 952 2632 68 39 96.854477 they5 1 8 1 1 4 1036 2641 88 30 96.900780 argues 1 8 1 1 5 1138 2635 59 30 97.002121 that5 1 8 1 1 6 1211 2636 193 38 96.767700 competitions 1 8 1 1 7 1419 2638 77 30 96.961395 from5 1 8 1 1 8 1510 2638 115 40 96.698944 foreign5 1 8 1 1 9 1640 2642 160 37 96.972702 producers5 1 8 1 1 10 1816 2644 107 30 96.574043 should5 1 8 1 1 11 1937 2645 36 29 96.574043 be2 1 9 0 0 0 636 2680 1336 137 -1 3 1 9 1 0 0 636 2680 1336 137 -1 4 1 9 1 1 0 637 2680 1335 51 -1 5 1 9 1 1 1 637 2680 175 30 96.688835 considered5 1 9 1 1 2 825 2680 28 30 96.939651 in5 1 9 1 1 3 865 2682 167 39 96.911819 evaluating5 1 9 1 1 4 1045 2684 48 29 96.951340 thes 1 9 1 1 5 1105 2684 164 31 96.687820 likelihood5 1 9 1 1 6 1282 2686 60 30 96.773132 that5 1 9 1 1 7 1354 2688 47 29 96.996872 thes 1 9 1 1 8 1414 2688 292 42 91.941879 Owens/Brockway5 1 9 1 1 9 1720 2693 178 38 96.810310 acquisitions 1 9 1 1 10 1912 2695 60 30 96.664070 will4 1 9 1 2 0 636 2728 1336 49 -1 5 1 9 1 2 1 636 2728 77 29 96.686218 have5 1 9 1 2 2 736 2728 254 40 96.754410 anticompetitive5 1 9 1 2 3 1012 2731 117 36 96.768059 effects,5 1 9 1 2 4 1151 2735 194 37 96.450981 respondents5 1 9 1 2 5 1367 2737 39 28 96.453041 do5 1 9 1 2 6 1429 2743 49 24 96.554390 not5 1 9 1 2 7 1501 2739 104 38 95.337891 appeals 1 9 1 2 8 1627 2740 48 30 96.954041 thes 1 9 1 2 9 1698 2740 92 31 93.247238 initials 1 9 1 2 10 1813 2742 159 31 86.504517 decision's4 1 9 1 3 0 636 2776 529 41 -1 5 1 9 1 3 1 636 2776 158 30 96.613892 definitions 1 9 1 3 2 807 2777 35 29 96.947556 of5 1 9 1 3 3 851 2779 180 38 96.336006 geographic5 1 9 1 3 4 1045 2781 120 30 95.913589 market. OWENS-ILLINOIS, INC., ET AL. 321 179 Opinion each of these calculations, the increase in and level of concentration are well in excess of benchmarks which typically raise significant competitive concern. See Merger Guidelines J 3.11(c). Respondents do not contest the accuracy of the HHI calculations but do challenge their relevance. Respondents argue that it is inappropriate to measure concentration for selected end-use segments by using HHI figures based on market shares for the glass container industry as a whole. However, industry-wide concentration data are relevant because they reflect the number and relative size of the producers whose supply responses are likely to affect price in the inelastic end-use segments. Because of the ease of supply-side substitution, the facilities of each of these producers should be considered part of each of the end-use-segment markets, see supra Section IJ.A.3.c., making concentration within each end-use segment the same as concentration for the glass container industry as a whole.”

IV. ENTRY CONSIDERATIONS A primary consideration in evaluating the likely competitive effects of a merger or acquisition is the ease or difficulty with which new competitors might enter the market in response to supracompetitive pricing. Thes 1 5 1 4 4 1104 1895 153 35 96.881004 absence5 1 5 1 4 5 1279 1895 42 35 96.899117 of5 1 5 1 4 6 1337 1896 149 35 96.757591 barriers5 1 5 1 4 7 1507 1907 41 24 96.766396 or5 1 5 1 4 8 1567 1896 253 46 96.821167 impediments5 1 5 1 4 9 1842 1903 36 29 97.000999 to4 1 5 1 5 0 544 1951 1334 48 -1 5 1 5 1 5 1 544 1957 99 39 95.964134 entry5 1 5 1 5 2 657 1951 122 36 95.964134 makes5 1 5 1 5 3 795 1951 25 36 96.644653 it5 1 5 1 5 4 833 1951 123 47 96.644653 highly5 1 5 1 5 5 971 1952 158 46 96.692345 unlikely5 1 5 1 5 6 1144 1953 71 35 96.775383 that5 1 5 1 5 7 1230 1964 19 24 96.775383 a5 1 5 1 5 8 1263 1964 137 35 96.878181 mergers 1 5 1 5 9 1414 1964 39 24 96.325783 or5 1 5 1 5 10 1467 1953 215 46 96.269119 acquisitions 1 5 1 5 11 1697 1954 74 35 96.087395 will5 1 5 1 5 12 1787 1955 91 35 96.888290 have4 1 5 1 6 0 544 2009 1333 49 -1 5 1 5 1 6 1 544 2009 306 45 96.223892 anticompetitive5 1 5 1 6 2 888 2010 140 40 96.751297 effects,5 1 5 1 6 3 1066 2011 155 34 96.350693 because5 1 5 1 6 4 1259 2022 69 34 96.350693 any5 1 5 1 6 5 1366 2011 108 35 96.580986 efforts 1 5 1 6 6 1510 2018 37 28 96.009155 to5 1 5 1 6 7 1585 2019 133 28 92.344879 extracts 1 5 1 6 8 1756 2023 121 35 92.344879 supra-4 1 5 1 7 0 542 2066 1334 49 -1 5 1 5 1 7 1 542 2066 234 45 81.483444 competitive5 1 5 1 7 2 797 2067 116 45 96.713409 prices5 1 5 1 7 3 936 2067 69 35 96.429405 ands 1 5 1 7 4 1026 2067 127 46 96.429405 profits5 1 5 1 7 5 1177 2067 73 36 96.866089 will5 1 5 1 7 6 1273 2068 129 36 96.549080 induces 1 5 1 7 7 1425 2079 79 25 96.549080 news 1 5 1 7 8 1526 2075 111 40 96.277756 entry,5 1 5 1 7 9 1660 2070 119 34 96.595947 which5 1 5 1 7 10 1802 2070 74 34 96.483749 will4 1 5 1 8 0 541 2124 1336 46 -1 5 1 5 1 8 1 541 2124 133 35 96.402008 reduces 1 5 1 8 2 693 2124 116 46 96.774368 prices5 1 5 1 8 3 830 2130 36 30 96.910294 to5 1 5 1 8 4 886 2125 231 45 96.687859 competitive5 1 5 1 8 5 1138 2126 142 35 14.927834 levels. B.F. Goodrich, 110 FTC at 295-96. In contrast, if prompt, effective entry is unlikely, customers may be exposed to sustained periods of anticompetitive harm. The initial decision concludes that “[e]ntry into the glass container market is difficult." ID at 81. Respondents do not appeal from that conclusion, and it is amply supported by uncontested factual findings:

3 Respondents also suggest that the HHI calculations carry different implications for the likelihood of anticompetitive effects than are normally present. We regard this as affecting the interpretation rather than the relevance of the HHI calculations. See infra Section V.

Opinion 115 F.T.C.

1. There has been no successful entry into glass container production since before 1980. IDF 305.

2. Entry cannot be accomplished quickly. Brockway acknowledged that it would take 24 to 30 months for entry into glass container production, and it took four years for Owens to bring its most recent plant on stream. IDF 306. The magnitude of barriers or impediments to entry may be assessed in5 1 3 2 4 12 1787 875 89 25 96.791611 terms5 1 3 2 4 13 1891 869 37 31 96.977898 of5 1 3 2 4 14 1939 870 49 30 96.929420 thea 1 3 2 5 0 650 916 1335 41 -1 5 1 3 2 5 1 650 922 120 25 96.629211 amounts 1 3 2 5 2 781 916 36 30 96.831963 of5 1 3 2 5 3 826 916 70 30 96.457138 times 1 3 2 5 4 908 916 135 39 97.018349 required5 1 3 2 5 5 1054 916 49 30 96.798744 for5 1 3 2 5 6 1114 926 16 20 96.798744 a5 1 3 2 5 7 1142 917 162 30 96.913361 motivated5 1 3 2 5 8 1317 917 131 30 96.929123 outsiders 1 3 2 5 9 1459 923 31 24 96.330566 to5 1 3 2 5 10 1501 917 93 31 96.464149 effects 1 3 2 5 11 1606 917 107 40 95.984505 entry, Olin Corp., No.

9196, slip op. at 23 (FTC, June 13, 1990), appeal filed, No. 90-70452 (9th Cir., filed Sept. 5, 1990), and the Merger Guidelines use a two-year time frame for determining whether entry will adequately constrain supracompetitive pricing. Jd. at 7 3.3. Entry here would not meet that test. 3. Environmental restrictions have become increasingly stringent in recent years but grandfather existing glass furnaces. IDF 315. These restrictions expose entrants to higher costs than existing firms face (IDF 316-18) and constitute an entry barrier. See B.F. Goodrich, 110 FTC at 299. 4, IDF 322 determines that customers5 1 3 4 1 7 1364 1351 111 29 96.598381 chooses 1 3 4 1 8 1487 1351 143 38 96.691406 suppliers5 1 3 4 1 9 1642 1351 70 29 96.720886 with5 1 3 4 1 10 1724 1360 16 20 96.458267 a5 1 3 4 1 11 1750 1360 112 29 96.166252 proven5 1 3 4 1 12 1873 1351 112 38 96.166252 quality4 1 3 4 2 0 647 1399 1020 38 -1 5 1 3 4 2 1 647 1400 114 34 96.631248 record,5 1 3 4 2 2 775 1399 98 30 96.814720 which5 1 3 4 2 3 886 1399 148 30 96.793243 increases5 1 3 4 2 4 1046 1399 49 29 96.273994 thes 1 3 4 2 5 1108 1399 151 38 96.264595 difficulty5 1 3 4 2 6 1272 1399 86 30 96.744362 faced5 1 3 4 2 7 1371 1399 39 38 96.912476 by5 1 3 4 2 8 1423 1408 16 21 96.320099 a5 1 3 4 2 9 1451 1408 66 21 96.255363 news 1 3 4 2 10 1530 1400 137 29 88.717041 entrant. 5. Thes 1 3 5 1 3 880 1449 201 38 96.567184 replacements 1 3 5 1 4 1097 1453 81 25 96.864388 costs5 1 3 5 1 5 1196 1448 36 30 92.838539 of5 1 3 5 1 6 1246 1448 77 30 83.859116 O-I's5 1 3 5 1 7 1342 1449 79 37 97.014938 glass5 1 3 5 1 8 1439 1448 152 30 96.160950 containers 1 3 5 1 9 1607 1449 96 37 96.449173 plants5 1 3 5 1 10 1721 1457 91 29 96.962036 ranges 1 3 5 1 11 1830 1448 77 29 96.289238 from5 1 3 5 1 12 1925 1446 60 34 96.985046 $404 1 3 5 2 0 648 1495 1337 40 -1 5 1 3 5 2 1 648 1497 114 30 96.841850 millions 1 3 5 2 2 775 1502 30 25 96.923340 to5 1 3 5 2 3 817 1495 79 34 96.923340 $1105 1 3 5 2 4 908 1496 123 30 96.542473 million.5 1 3 5 2 5 1055 1496 111 31 96.306061 Owens5 1 3 5 2 6 1179 1497 227 38 96.278236 acknowledges5 1 3 5 2 7 1419 1497 60 29 96.394615 that5 1 3 5 2 8 1491 1497 48 29 96.392410 thes 1 3 5 2 9 1552 1496 76 30 96.392410 sunk5 1 3 5 2 10 1639 1502 81 24 95.979958 costs5 1 3 5 2 11 1733 1496 168 30 96.561668 associated5 1 3 5 2 12 1913 1496 72 29 96.937019 with4 1 3 5 3 0 651 1545 1330 39 -1 5 1 3 5 3 1 651 1545 80 39 96.744095 ‘high5 1 3 5 3 2 742 1545 106 39 96.975754 capital5 1 3 5 3 3 860 1545 177 30 96.729172 investments 1 3 5 3 4 1047 1545 189 39 93.254051 discourages5 1 3 5 3 5 1248 1545 110 39 72.631393 entry’ IDF 309 (citations omitted). See B.F.

Goodrich, 110 FTC at 300-303; Merger Guidelines { 3.3 n.21. From just the uncontested portions of the record, we conclude that entry into the production of glass containers is difficult and unlikely to prevent existing competitors from raising price.” V. LIKELIHOOD OF ANTICOMPETIVE EFFECTS The ultimate goal of analysis under Section 7 of the Clayton Act is to determine whether the effect of an acquisition “may be substantially to lessen competition, or to tend to create a monopoly.” 15 U.S.C. 18. Having defined the relevant markets, determined the 32 Although respondents do not appeal the initial decision's conclusions on the entry issue, they do argue that in the event of supracompetitive prices customers would increase reliance on foreign producers. RAB 48. Important factors which convince us to confine the geographic market to the continental United States disadvantages of imports with regard to freight costs, reliability, and quality are unlikely to be affected by the longer time frame in which entry issues are evaluated. Merger Guidelines J 3.3. Those same factors lead us to reject any suggestion that foreign entry would be a significant constraint on the ability of existing competitors to raise prices.

OWENS-ILLINOIS, INC., ET AL. 323 179 Opinion concentration levels, and evaluated the conditions of entry, our remaining task is to assess the likelihood, based on these and other factors, that Owens’ acquisition of Brockway will give rise to anticompetitive effects.

It is not claimed that the acquisition will create a dominant firm. Complaint counsel's expert economist expressly disavowed any theory based on the unilateral exercise of market power. Nelson, Tr. 2974. Complaint counsel do claim, however, that the acquisition will facilitate the exercise of market power through express or tacit collusion among glass container suppliers. Our task is to determine whether such collusion is probable. See Brown Shoe, 370 U.S. at 323 (finding that Congress had proscribed mergers with a probable anticompetitive effect" as opposed to either “certainties” or “ephemeral possibilities”); Hospital Corp. of America v. FTC, 807 F.2d 1381, 1389 (7th Cir. 1986), cert. denied, 481 U.S. 1038 (1987) (Section 7 analysis requires a “predictive judgment, necessarily probabilistic and judgmental rather than demonstrable” as to whether the transaction creates “an appreciable danger” of future anticompetitive effects), affirming Hospital Corp. of America, 106 FTC 361, 499 (1985) (an acquisition is unlawful if anticompetitive effects are “reasonably probable”); B.F. Goodrich, 110 FTC at 288. This case requires evaluation of the probability of collusive or interdependent behavior focused on six inelastic end-use segments within a much larger glass container industry. Certainly, anticompetitive behavior directed at selected groupings of customers is possible and raises legitimate antitrust concerns. We have so noted in the past. See Hospital Corp of America, 106 FTC at 499. The real issue, however, is whether such anticompetitive behavior is likely. Based on the totality of circumstances at hand, we conclude that it is not.

Our analysis is colored at the start by the small size of the inelastic segments relative to the aggregate supply of glass containers and by the extraordinary speed with which suppliers of glass containers for elastic end-uses could convert their facilities to produce containers for the inelastic markets. Even rough calculations quickly demonstrate that the six inelastic end-uses constitute less than Opinion 115 F.T.C.

15% of the overall glass container industry.** The more than 85% of the industry outside the collusive scheme could be shifted into production for the inelastic markets in as little as five to eight hours. IDF 263.

These factors pose a serious impediment to collusion.* Any collusive scheme focused on the inelastic end-uses would be threatened not just by the normal incentives to cheat which might in some circumstances undermine even across-the-board collusion; it would face in addition the disruptive force of a pool of readily fungible productive capacity far greater in magnitude than any contemplated output reductions, yet presently devoted to elastic 33 From CX 36D, the Brockway data relied upon by complaint counsel's economic expert in estimating 1986 dollar sales volumes in various end-use segments (Nelson, Tr. 3027-31), we find the following industry-wide sales of glass containers:

baby food and juice 15,278,000 gross mayonnaise/spoonable dressings 6,424,000 gross pickles/relish 4,340,000 gross jams, jellies and preserves 3,368,000 gross Deletion from these figures of glass containers used for baby juice and relish, items outside our product markets, in proportion to Brockway's sales (CX 37A) leaves the units for baby food alone (11,557,000 gross) and for pickles alone (4,062,000 gross). 1986 industry-wide sales of glass containers for wine and wine coolers are derived from Owens document CX 41G showing 16,891,000 gross under the aggregated heading wine. Compare CX 328L (Owens document dated 4/15/87 splitting a closely comparable 1986 total for the wines 1 8 1 7 10 1593 2141 147 38 95.571739 industry approximately evenly between traditional wine and wine coolers). Aggregating these data yields a total of 42,302,000 gross for the six inelastic end-use product markets combined. This represents 14.9% of the 283,057,000 gross total 1986 glass container shipments. CX 41G.

The 14.9% estimated share overstates the size of our six product markets to the extent that it fails to deduct for the large sizes of mayonnaise and pickle jars sold to institutional buyers, very large sizes of wine coolers, and jug wines, which we have excluded from our markets because of competition from alternatives to glass packaging.

4 Although urging that collusion is likely, complaint counsel concede that as a theoretical matter, collusion is more difficult in the context of price discrimination than in the context of across-the-board price increases. OA Tr. 29-30.

OWENS-ILLINOIS, INC., ET AL. 325 179 Opinion end-uses and therefore not benefiting from the collusive scheme. Producers of glass containers intended for the 85% of the market outside the collusive scheme could increase profits by diverting a portion of their output to the markets charging supracompetitive prices. This incentive to divert output would apply to all producers of containers for elastic uses but would be especially powerful for those producers who do not currently sell to the small portion of the industry that would be covered by the hypothesized collusion. Such producers would gain nothing from supracompetitive prices in the inelastic markets and would have profitable diversion opportunities.» The smaller the relative size of the inelastic product markets, the more difficult the collusion becomes. As admitted by complaint counsel's economic expert:

We're talking about relative magnitudes here, and it depends on the magnitude of the inelastic end uses. Obviously, the larger the amount of inelastic end uses the more the diversion would have to be to cause it to break down. Nelson, Tr. 3171.

Our finding that less than 15% of the glass container industry is potentially subject to collusion coupled with the extreme rapidity with which production facilities could be shifted into the inelastic product markets suggests considerable difficulty in making collusion effective. For example, a price increase of 5%, the level generally hypothesized in defining product markets, Merger Guidelines { 2.11, could be defeated by a shift in output of less than 9/10 of one percent > Of course, to the extent any further conversions to plastic or other alternative packaging materials free capacity within the elastic group, that capacity could be devoted to the inelastic markets without diversion from elastic uses. Further conversions are in fact contemplated. See, e.g., Erwin, Tr. 5051, 5127, 5173-74 (Kraft will convert 16-ounce salad dressing from glass to plastic); Lankester, Tr. 3990-91, 3994-96 (Procter & Gamble's Folger's instant coffee in plastic is “currently in the process of being rolled out,” and Procter & Gamble initiated industry trend toward conversion of peanut butter from glass to plastic during course of this proceeding); Willers, Tr. 1736 (Borden intends to convert a portion of its peanut butter from glass to plastic). Complaint counsel's economic expert has conceded that cost-effective capacity freed up by conversions to plastic is the functional equivalent of new entry. Nelson, Tr. 3188-90. Opinion 115 F.T.C.

of the production in the elastic uses.*%° Given the small amount of diversion necessary to upset the collusion and the ease with which facilities can be shifted between uses, a collusive scheme would have to be very effective in enlisting the unwavering support of the entire industry in order to succeed.

The record reveals ample additional reasons for questioning whether anticompetitive effects are likely.*’ With respect to baby food, we find the market dominated by just three buyers: Gerber holds approximately 70% of the market, with the remaining 30% divided between Beech-Nut (17%) and Heinz (13%). Jones, Tr. 509; Rottman, Tr. 906. As buyer concentration within a product market increases, the benefits from cheating to capture a customer's business increase relative to the magnitude of gains from collusion. See Hospital Corporation of America, 807 F.2d at 1391; B.F.Goodrich, 110 FTC at 323-24; FTC Statement at 20,903; Merger Guidelines at [3.42. Moreover, witnesses from the baby food producers testified to possessing substantial leverage over their glass container suppliers. Thus the witness from Gerber stated that Gerber had induced Owens to move baby food production to a Charlotte, Michigan plant near a Gerber facility; that the Charlotte plant had facilities dedicated to the production of containers for Gerber; and that without Gerber, a substantial part of the Charlotte plant would be without business. Rottman, Tr. 982. (An Owens witness testified that 65% of the Charlotte plant’s production goes to 36 Elasticity is defined as the ratio of the percentage change in output to the corresponding percentage change in price. In an inelastic market, that ratio by definition is less than one. For example, in an inelastic market a 5% price increase would be generated by less than a 5% output reduction, or, to state matters in reverse, a 5% price increase would be defeated by something less than a 5% output increase. Thus, a 5% price increase focused on the 15% of glass containers with inelastic demand would be defeated by an output increase of less than 5% of 15%, or .75% of all glass containers. This represents a little under .9% of the 85% share of glass containers produced for elastic uses. See Nelson, Tr. 2734; Peltzman, Tr. 5975.

7 Th assessing the likely competitive effects of an acquisition, the Commission, as in this case, bases its decision upon the totality of the evidence. We do not reach the issue of whether all these reasons were necessary for drawing our conclusion.

OWENS-ILLINOIS, INC., ET AL. 327 179 Opinion Gerber and that if Owens lost Gerber it would have to close the Charlotte factory. Bachey, Tr. 3388, 3393.) The witness from Heinz testified that its massive purchases of elastic items created sufficient leverage to prevent supracompetitive pricing in baby food. Blecharz, Tr. 4881. The Heinz witness also pointed to protections afforded it by a long-term supply contract with Owens, including clauses which specifically tie price increases to cost changes and give Heinz the right to audit Owens’ costs. Jd. at 4871, 4880. Gerber and Heinz, representing 83% of the baby food market both believe that they could defeat a 5-10% price increase, and neither objects to the Owens/Brockway acquisition. Rottman, Tr. 980, 983; Blecharz, 4880-81. The combination of these factors and the difficulty of establishing a selective collusive scheme directed at less than 15% of total glass container purchases leads to the conclusion that anticompetitive behavior in the supply of baby food jars would not be likely.*8 With mayonnaise we find some of the same factors identified in the discussion of baby food. The buyers’ market is dominated by two principal mayonnaise producers, CPC International, Inc. (producers of Best Foods and Hellmann's mayonnaise) and Kraft, which together account for 70% of mayonnaise production. Mitchell, Tr. 724. These buyers have sophisticated methods for monitoring glass container production costs, thus increasing the likelihood that they would detect any anticompetitive price increases. See Erwin, Tr. 5017 (“We [Kraft] feel we have nearly as good an understanding of our suppliers’ costs as they do.”). Perhaps more fundamentally, selective price discrimination with regard to the supply of glass containers for mayonnaise may be impossible. The major mayonnaise producers use stock containers, suitable for use in a variety of end-use segments. Nelson, Tr. 2996-97; Bachey, Tr. 3399 (CPC), 3399 and 3542-43 (Kraft converting to a stock container); Willers, Tr. 1812-13 38 With this determination, aggregate shipments in the five remaining inelastic product markets are 30,745,000 gross, 10.9% of total glass container shipments. See supra note 33. A 5% price increase in these five markets would be defeated by a diversion equivalent to .55% of total glass sales. Thus, the analysis is iterative. Each time it is determined that collusion is unlikely in a market, selective collusion focused on the remaining markets becomes even more difficult. Opinion 115 F.T.C.

(Borden). Unless price were raised on all wide-mouth stock containers of the type used in bottling mayonnaise, the mayonnaise producers could defeat supracompetitive prices by buying additional stock containers from fringe suppliers (Rampley, Tr. 1041; Lusby, Tr. 2472; Leone, Tr. 2695-96) or from independent distributors (Silvani, Tr. 3730-31) or by shifting usage of stock containers purchased from cartel members ostensibly for elastic end-uses. See Clements, Tr. 773 (same stock glass container used to package Clements mayonnaise, mustard, salad dressing, and sandwich spread); Bachey, Tr. 3543 (same Kraft stock container will be used for mayonnaise and horse radish). Yet, a price increase on the stock containers in general would affect purchasers in elastic as well as inelastic segments, thereby offsetting the cartel's gains in mayonnaise with losses in other end-uses. These considerations illustrate the principle that price discrimination can only be effective if the sellers can identify the targets for the selective price increases and ensure that the targeted buyers cannot acquire the product through untargeted channels. Only two witnesses from pickle producers appeared. The witness from Heinz stated that his company had no objections to the transaction (Blecharz, Tr. 4880), and the witness from Cates supported the acquisition (Faulkner, Tr. 1303). The Heinz witness testified that his company was protected from supracompetitive pricing by a long-term requirements contract which tied price increases to cost increases and permitted Heinz to audit Owens' costs (Blecharz, Tr. 4870-71, 4880) and that even without the protections of the contract, Heinz's leverage derived from purchases of glass containers for other items would enable Heinz to defeat a 5-10% collusive price increase on pickle jars. Jd. at 4881. The witness for Cates acknowledged that his company used stock glass containers in half-gallon and gallon sizes, and, as observed in the discussion concerning mayonnaise, this introduces additional opportunities to defeat supracompetitive pricing.

Wine cooler containers are another market characterized by large buyers. Seagram holds a 36% share, and Gallo, through its Bartles and James brand, accounts for 31-32% of total wine cooler sales. Smith, Tr. 1930, 2031-32. The witness from Seagram testified that its total glass container purchases (over $90 million) placed it in a relatively5 1 3 3 6 2 845 2794 119 39 96.389793 strong5 1 3 3 6 3 977 2787 205 46 96.450714 bargaining5 1 3 3 6 4 1195 2787 171 46 94.279648 position in dealing with glass container OWENS-ILLINOIS, INC., ET AL. 329 179 Opinion suppliers. Jd. at 2018. Moreover, several of the wine cooler producers have self-manufacturing capabilities. Gallo makes its own wine cooler bottles. Lemieux, Tr. 5549; Mc Mackin, Tr. at 5795.°° Seagram has acquired a glass factory from Tropicana and uses its self-manufacturing capability as a bargaining tool with glass container manufacturers and as a direct source of information as to their costs. Smith, Tr. 1959-61, 2021, 2024. Matilda Bay is produced by the Miller Brewing Company, which owns a glass container factory with the capability and capacity to produce wine cooler bottles. Bachey, Tr. 3536-37; McMackin, Tr. 5829-30. With premium wines we again find substantial reliance on selfmanufacturing. Gallo, the largest U.S. wine company, with about 40% of the market, produces its own glass containers. Bachey, Tr. 3375; Silvani, Tr. 3715; Lemieux, Tr. 5550; Lanigan, Tr. 6203. Heublein, whose Almaden and Inglenook brands make it the second largest California wine producer (with over 10% of that market (CX 328K)), also produces its own bottles, using Madera Glass, which it Owns in joint venture with Ball-Incon. Wilson, Tr. 2265-66; Bachey, Tr. 3374; Lemieux, Tr. 5550. Substantial Almaden business was recently lost by Owens to Heublein's in-house production. Lanigan, Tr. 6203. Thus, approximately half the premium wine market is directly sheltered from cartel activities. Moreover, wine is typically sold in stock bottles (Smith, Tr. 1938; Wilson, Tr. 2283; Silvani, Tr. 3716-17), rendering it easier for those wineries who lack self-manufacturing capacity to seek protection through resort to fringe producers and independent distributors and brokers. A witness from a distributor/broker testified that his company sold approximately $40 million of wine bottles annually and stated the belief that competitive forces are sufficient to defeat a 10% collusive price increase on wine bottles. Jd. at 3698-99, 3717-18. Complaint counsel's only witness from a significant wine producer (Wine 39 An Owens Majors 1 5 1 1 5 1021 2638 137 28 96.254158 Accounts 1 5 1 1 6 1175 2637 157 37 93.726463 Analysis for another major wine cooler producer, California Cooler, indicates Owens' concern that container costs be held down so as to help maintain California Cooler's competitive position vis-a-vis Gallo. CX 932Z107.

Opinion 115 F.T.C.

World) stated that he was neutral regarding the Owens/Brockway transaction.” Wilson, Tr. 2283.

Finally, with regard to jams and jellies we again find the buyers’ side of the market largely in the hands of only a few customers. Three producers -- Smucker, Kraft, and Welch -- predominate nationally (Lemieux, Tr. 5549), with Borden's Bama brand holding a 32% regional share in the southeast and southwest. Willers, Tr. 1703-04. Smucker, the largest jam and jelly producer, received price protection under a 3-year contract. Bachey, Tr. 3471-72. Kraft, with total glass container purchases of approximately $100 million spread among both elastic and inelastic end-uses (Erwin, Tr. 4999), is able to identify and take defensive measures against unwarranted price increases on glass containers. Erwin, Tr. 5016-18. Borden purchases glass containers for a variety of elastic and inelastic needs (Jardis, Tr. 1319; Willers, Tr. 1690-91) and has reduced any exposure to selective price increases by bundling its diverse purchases, informing its glass container suppliers that we5 1 3 2 15 7 1360 1553 93 35 96.755096 views 1 3 2 15 8 1467 1553 140 35 96.627411 Borden5 1 3 2 15 9 1621 1553 94 46 96.902931 glass5 1 3 2 15 10 1729 1553 251 46 96.378609 requirements4 1 3 2 16 0 646 1610 1335 46 -1 5 1 3 2 16 1 646 1622 37 25 96.757393 as5 1 3 2 16 2 697 1622 20 24 96.634697 a5 1 3 2 16 3 731 1610 114 46 96.634697 singles 1 3 2 16 4 857 1610 102 46 96.739685 pieces 1 3 2 16 5 972 1610 42 36 96.691681 of5 1 3 2 16 6 1024 1610 179 36 96.202003 business and that [bJusiness5 1 3 2 16 10 1612 1611 72 36 96.674416 will5 1 3 2 16 11 1699 1611 44 36 96.692329 be5 1 3 2 16 12 1758 1611 162 36 96.629112 awarded5 1 3 2 16 13 1935 1622 46 25 96.358109 on4 1 3 2 17 0 645 1669 1334 46 -1 5 1 3 2 17 1 645 1670 58 35 96.497948 thes 1 3 2 17 2 716 1670 96 35 96.935013 basis5 1 3 2 17 3 828 1669 42 36 96.704010 of5 1 3 2 17 4 881 1670 57 35 96.643951 thes 1 3 2 17 5 952 1670 85 35 96.329124 totals 1 3 2 17 6 1051 1670 170 45 96.275742 package,5 1 3 2 17 7 1237 1680 37 25 96.939133 as5 1 3 2 17 8 1290 1670 25 35 96.432747 it5 1 3 2 17 9 1330 1670 126 35 96.119919 affects5 1 3 2 17 10 1471 1671 154 40 96.751450 Borden,5 1 3 2 17 11 1641 1671 91 34 92.656158 Inc. CX 1471F.

Although these considerations alone might not convince us that anticompetitive effects are unlikely, they are sufficient when viewed in conjunction with the difficulty of highly selective collusion. Jams and jellies account for less than 1.2% of total glass container shipments. See supra note 33. A 5% price increase focused on jams and jellies could be defeated by diversion of less than .06% of total glass container production. /d. The slightest shift from even fringe producers would more than offset collusive efforts. On the basis of this record as a whole, we find no reasonable probability of collusion in any of the six product markets.*’ The 40 The only other witness from a wine producer was Mr. Smith from Seagram, which retains a small wine business after selling most of its wine assets. He testified generally that Seagram's large overall purchases place it in a relatively4 1 6 1 3 0 643 2562 1329 39 -1 5 1 6 1 3 1 643 2569 100 32 96.209923 strong5 1 6 1 3 2 755 2563 174 38 96.315140 bargaining5 1 6 1 3 3 942 2563 146 38 96.085480 position vis-a-vis glass container producers. Smith, Tr. 2018. a Although evidence of existing, successful price discrimination against inelastic end-uses might caution us to reassess our conclusion, the record discloses none. Complaint counsel's economic expert testified that he was not aware of any significant evidence of present price discrimination with respect to the supply of OWENS-ILLINOIS, INC., ET AL. 331 179 Opinion extreme selectivity of the anticompetitive activity posited would burden the collusive structure with incremental strains beyond those normally associated with across-the-board collusion. When we add the weight of the various supplemental factors described above, the structure collapses. We conclude that in each of the relevant product markets the evidence suggests that anticompetitive effects are unlikely.”

glass containers. Nelson, Tr. 3037. (He cited one reservation, pricing with regard to soft drink bottles (not a relevant product market), but added that even there I4 1 5 1 3 0 541 2122 1335 46 -1 5 1 5 1 3 1 541 2122 76 30 96.872604 have5 1 5 1 3 2 638 2132 40 20 96.960609 no5 1 5 1 3 3 699 2124 80 29 96.973122 clears 1 5 1 3 4 799 2124 145 30 97.015663 evidences 1 5 1 3 5 964 2125 61 30 96.995010 that5 1 5 1 3 6 1045 2126 101 29 96.616356 would5 1 5 1 3 7 1167 2127 66 29 96.236702 leads 1 5 1 3 8 1254 2136 48 21 96.236702 me5 1 5 1 3 9 1322 2133 30 24 96.936920 to5 1 5 1 3 10 1373 2128 147 30 96.616615 concludes 1 5 1 3 11 1540 2129 60 29 97.003159 that5 1 5 1 3 12 1621 2130 80 29 96.697662 there5 1 5 1 3 13 1724 2130 48 36 96.872002 [is]5 1 5 1 3 14 1795 2130 81 38 96.994759 price4 1 5 1 4 0 540 2169 1334 46 -1 5 1 5 1 4 1 540 2169 237 31 96.842979 discriminations 1 5 1 4 2 793 2172 182 38 85.336731 occurring. Jd. at 3038.) Of course the absence of price discrimination before the Owens/Brockway acquisition (or during antitrust review) is not determinative of what is likely to occur in the future. Its presence, however, might have conveyed a warning of appreciable danger from further concentration. 2 Complaint counsel close their brief with a supplemental contention that anticompetitive effects could follow from a collusive failure to pass through projected cost savings even if collusion to raise price were unlikely. CAB 87-89. Complaint counsel argue that customers are unlikely to resist prices that remain constant and that harm from such a failure to pass through cost savings could extend to elastic as well as inelastic end-uses. (Complaint counsel's economic expert identified only beer and soft-drink end-uses, neither of which is inelastic, as using the new technology cited as the primary source of cost savings. Nelson, Tr. 2928, 2930.) Opinion 115 F.T.C.

VI. CONCLUSION We conclude’ that the record does not show that Owens' acquisition of Brockway is likely substantially to lessen competition or to tend to create a monopoly in any line of commerce and, therefore, to violate Section 7 of the Clayton Act. Nor does the acquisition constitute a violation of Section 5 of the Federal Trade Commission Act. Accordingly, the complaint filed in this matter is dismissed.

We find complaint counsel's secondary theory too speculative on this record, It is premised on unproven future productivity improvements that would permit lower prices. Although complaint counsel seek support from past performance by arguing that declining costs have been coupled with increasing or roughly5 1 6 1 5 2 798 2292 109 30 96.529900 stable prices in the recent past, complaint counsel's expert economist actually testified only to very,5 1 6 1 6 6 1151 2349 69 29 96.956627 very5 1 6 1 6 7 1233 2339 70 38 96.992630 high5 1 6 1 6 8 1316 2340 91 28 96.614128 levels5 1 6 1 6 9 1420 2339 34 29 97.010277 of5 1 6 1 6 10 1463 2339 196 38 96.779488 productivity5 1 6 1 6 11 1672 2339 229 38 96.024994 improvements5 1 6 1 6 12 1915 2339 60 29 96.963997 that4 1 6 1 7 0 637 2387 1336 41 -1 5 1 6 1 7 1 637 2389 76 30 96.652084 have5 1 6 1 7 2 724 2398 77 30 96.853546 gone5 1 6 1 7 3 804 2383 17 49 96.853546 a5 1 6 1 7 4 840 2389 71 38 96.850166 long5 1 6 1 7 5 922 2397 66 30 96.875900 ways 1 6 1 7 6 1000 2394 38 28 96.875900 to,5 1 6 1 7 7 1051 2388 25 30 96.990860 if5 1 6 1 7 8 1085 2393 50 25 96.811897 not5 1 6 1 7 9 1146 2388 110 38 96.811897 totally,5 1 6 1 7 10 1269 2393 29 24 96.945625 to5 1 6 1 7 11 1309 2388 91 29 96.665184 offset5 1 6 1 7 12 1411 2397 56 28 96.665184 any5 1 6 1 7 13 1479 2392 64 25 96.861298 costs 1 6 1 7 14 1554 2387 146 29 96.821518 increases5 1 6 1 7 15 1712 2387 57 29 97.008858 dues 1 6 1 7 16 1780 2392 30 24 96.794945 to5 1 6 1 7 17 1822 2387 151 29 96.612251 increased4 1 6 1 8 0 637 2436 1337 40 -1 5 1 6 1 8 1 637 2439 83 29 97.015160 labor5 1 6 1 8 2 730 2443 84 29 96.426384 rates,5 1 6 1 8 3 825 2437 47 30 91.743599 for5 1 6 1 8 4 881 2437 161 39 84.962830 example.”5 1 6 1 8 5 1063 2437 122 34 96.794960 Nelson,5 1 6 1 8 6 1197 2437 44 29 95.991188 Tr.5 1 6 1 8 7 1255 2436 87 31 95.991188 2932.5 1 6 1 8 8 1363 2436 70 30 96.951073 This5 1 6 1 8 9 1444 2436 67 30 96.972862 fails5 1 6 1 8 10 1522 2442 30 24 96.978729 to5 1 6 1 8 11 1564 2436 82 30 96.949677 shows 1 6 1 8 12 1657 2436 60 29 96.891396 that5 1 6 1 8 13 1727 2436 69 29 96.708893 totals 1 6 1 8 14 1808 2441 79 24 96.912376 costs5 1 6 1 8 15 1899 2436 75 29 96.399536 have4 1 6 1 9 0 637 2484 1337 40 -1 5 1 6 1 9 1 637 2487 136 29 96.446754 declined5 1 6 1 9 2 785 2486 30 29 96.731743 in5 1 6 1 9 3 826 2486 49 29 96.984772 thes 1 6 1 9 4 886 2492 73 32 96.479324 past,5 1 6 1 9 5 973 2486 87 29 96.853699 much5 1 6 1 9 6 1072 2486 58 29 96.959328 less5 1 6 1 9 7 1143 2486 59 29 96.988251 that5 1 6 1 9 8 1213 2485 67 38 96.919746 they5 1 6 1 9 9 1294 2485 59 29 96.194321 will5 1 6 1 9 10 1366 2485 51 29 96.721428 falls 1 6 1 9 11 1430 2485 28 29 96.810898 in5 1 6 1 9 12 1471 2485 47 29 96.682312 thes 1 6 1 9 13 1530 2485 103 29 93.423897 future.5 1 6 1 9 14 1657 2485 82 29 96.258614 Even5 1 6 1 9 15 1751 2484 152 38 96.656342 assuming5 1 6 1 9 16 1915 2484 59 29 96.986992 that4 1 6 1 10 0 637 2533 1336 40 -1 5 1 6 1 10 1 637 2536 81 37 96.899704 glass5 1 6 1 10 2 735 2535 152 29 96.166557 containers 1 6 1 10 3 901 2540 81 24 96.610992 costs5 1 6 1 10 4 997 2535 40 28 96.947670 do5 1 6 1 10 5 1051 2534 127 34 96.138550 decline,5 1 6 1 10 6 1194 2534 162 38 96.776978 complaints 1 6 1 10 7 1371 2533 122 30 96.480026 counsels 1 6 1 10 8 1510 2539 78 23 96.340294 must5 1 6 1 10 9 1603 2542 88 29 96.757416 argues 1 6 1 10 10 1707 2533 59 29 96.997932 that5 1 6 1 10 11 1781 2533 97 29 96.393044 futures 1 6 1 10 12 1893 2533 80 38 96.660164 price4 1 6 1 11 0 637 2581 1336 40 -1 5 1 6 1 11 1 637 2584 193 37 96.907646 competitions 1 6 1 11 2 840 2583 78 30 96.370346 from5 1 6 1 11 3 928 2583 169 29 96.103645 alternatives 1 6 1 11 4 1108 2582 164 38 96.909523 packaging5 1 6 1 11 5 1283 2582 144 29 96.775475 materials5 1 6 1 11 6 1440 2581 59 30 88.194534 will5 1 6 1 11 7 1511 2581 36 30 97.018463 be5 1 6 1 11 8 1559 2581 173 38 96.358391 inadequate5 1 6 1 11 9 1743 2587 30 23 96.935326 to5 1 6 1 11 10 1783 2581 85 37 96.935326 brings 1 6 1 11 11 1878 2581 95 37 96.627754 prices4 1 6 1 12 0 637 2629 1340 37 -1 5 1 6 1 12 1 637 2632 99 30 96.507774 down.5 1 6 1 12 2 764 2632 159 33 96.487846 However,5 1 6 1 12 3 938 2632 80 29 96.964264 there5 1 6 1 12 4 1033 2631 24 29 96.371300 is5 1 6 1 12 5 1071 2640 40 20 96.371300 no5 1 6 1 12 6 1124 2639 105 21 96.748077 reasons 1 6 1 12 7 1243 2635 31 24 96.256424 to5 1 6 1 12 8 1288 2639 118 20 96.733459 assumes 1 6 1 12 9 1420 2630 60 29 96.906883 that5 1 6 1 12 10 1494 2630 47 29 96.315338 thes 1 6 1 12 11 1555 2635 80 24 96.183861 costs5 1 6 1 12 12 1650 2630 57 29 96.745857 ands 1 6 1 12 13 1720 2629 207 37 96.740814 technologies5 1 6 1 12 14 1942 2629 35 29 96.960342 of4 1 6 1 13 0 637 2677 1337 40 -1 5 1 6 1 13 1 637 2680 172 30 96.752357 alternatives 1 6 1 13 2 823 2679 167 38 96.502373 packaging5 1 6 1 13 3 1003 2679 61 28 94.510071 will5 1 6 1 13 4 1078 2683 51 24 97.005043 not5 1 6 1 13 5 1141 2679 64 28 97.005043 also5 1 6 1 13 6 1217 2678 37 29 96.792091 be5 1 6 1 13 7 1267 2678 157 38 96.696342 changing,5 1 6 1 13 8 1438 2678 58 29 96.463989 ands 1 6 1 13 9 1509 2677 124 30 96.239853 without5 1 6 1 13 10 1645 2686 16 21 96.991898 a5 1 6 1 13 11 1673 2677 45 30 96.018356 far5 1 6 1 13 12 1730 2686 82 21 96.957085 more5 1 6 1 13 13 1825 2677 149 37 96.809853 complete4 1 6 1 14 0 637 2725 1337 40 -1 5 1 6 1 14 1 637 2728 104 30 96.629982 records 1 6 1 14 2 757 2728 182 37 96.629982 concerning5 1 6 1 14 3 954 2728 49 28 96.635399 thes 1 6 1 14 4 1017 2727 97 29 96.670021 futures 1 6 1 14 5 1129 2726 191 38 96.702927 competitive5 1 6 1 14 6 1335 2731 119 33 96.806091 posture5 1 6 1 14 7 1468 2725 36 30 97.015678 of5 1 6 1 14 8 1516 2726 73 29 96.991882 each5 1 6 1 14 9 1604 2725 35 30 96.909698 of5 1 6 1 14 10 1651 2726 48 29 96.857018 thes 1 6 1 14 11 1714 2725 198 33 96.617798 alternatives,5 1 6 1 14 12 1928 2734 46 20 96.683662 we4 1 6 1 15 0 637 2774 1030 39 -1 5 1 6 1 15 1 637 2777 76 29 96.985504 have5 1 6 1 15 2 726 2785 38 21 96.607849 no5 1 6 1 15 3 777 2776 110 30 96.348755 factual5 1 6 1 15 4 899 2776 81 29 96.721970 basis5 1 6 1 15 5 993 2775 47 30 96.921837 for5 1 6 1 15 6 1052 2775 155 38 96.519661 accepting5 1 6 1 15 7 1219 2774 162 38 96.322502 complaints 1 6 1 15 8 1393 2774 147 29 93.730728 counsel's5 1 6 1 15 9 1553 2774 114 29 96.323418 claims. OWENS-ILLINOIS, INC., ET AL.

179 Opinion APPENDIX Table B SHARE OF 1987 DOLLAR SALES Owens-Illinois 1,152,864 Brockway 686,874 Combined Owens/Brockway 1,839,738 Anchor/Diamond-Bathurst 1,135,421 Ball-Incon 524,992 Triangle (Foster-Forbes) 386,900 Kerr Glass 145,592 Central N.Y. (Miller) 101,677 Latchford Glass 101,088 Wheaton Industries 87,540 Gallo 86,145 Coors 72,140 Industrial (Seagram/Tropicana) 69,693 Liberty Glass 60,060 Glenshaw Glass 44,890 Anchor-Hocking (Carr-Lowrey) 29,543 Hillsboro (Hiram Walker) 26,182 Leone Industries 15,200 Arkansas Glass 14,438 Imports - Canada 42,232 Imports - Mexico 25,492 Imports - Other 77,537 Total Imports 145,261 Total 4,886,500 Concurring Statement 115 F.T.C.

Pre-Merger HHI: 1,507 Change: 663 Post-Merger HHI: 2,170 Pre-Merger _Post-Merger Two-firm Concentration: 46.8 60.9 Four-firm Concentration: 71.6 79.6 Source: CX 1451F FINAL ORDER This matter having been heard on the appeal of respondents Owens-Illinois, Inc., BI Acquisition Corporation, and Brockway, Inc., from the initial decision and on briefs and oral argument in support of and in opposition to the appeal, for the reasons stated in the accompanying opinion, the Commission has determined to grant the appeal. Accordingly, It is ordered, That the complaint is dismissed. Commissioner Starek and Commissioner Yao not participating. CONCURRING STATEMENT OF COMMISSIONER MARY L. AZCUENAGA I concur in the decision to dismiss the complaint in this matter, principally because of the degree of supply side flexibility in the glass container industry. I write separately to sound a few cautionary notes.

The question under Section 7 of the Clayton Act is whether the ability to exercise market power may be created or enhanced. Evidence of actual collusion or higher prices is not required to show a violation of the Act. Instead, “‘[a] predictive judgment, necessarily probabilistic and judgmental rather than demonstrable . . . , is called for.” Hospital Corporation of America v. FTC, 807 F.2d 1381, 1389 (7th Cir. 1986) (Posner, J.), cert. denied, 481 U.S. 1038 (1987). Imposing a heavier burden of proof when collusion may take a OWENS-ILLINOIS, INC., ET AL. 335 179 Concurring Statement different form -- such as selective price increases or stable prices in the face of declining costs,’ See slip op. at 36 nn. 41 & 42 -- may result in serious errors of judgement, to the detriment of consumers. The asserted sophistication of customers as a defense should be viewed with some skepticism. The record shows that glass container purchasers negotiate prices with rather than dictate prices to their suppliers. And their negotiating power appears considerably less when observed in the context of the glass container industry rather than with reference to the markets in which they sell.’ See also Hovenkamp, “Mergers and Buyers,” 77 Va. L. Rev. 1369, 1370 (1991).

' See Detroit Auto Dealers Association, Inc., 111 FTC 417, 499 n.24 (1989), rev'd in part & remanded, Nos. 89-3388 -- 89-3392 (6th Cir., filed Jan. 31, 1992). > The annual glass container purchases of Gerber, for example, amount to less then 3% of the annual glass container sales of Owens/Brockway and only 1% of total industry sales, although Gerber has approximately 70% of the baby food market. See slip op. at 32-33.

Complaint 115 F.T.C.