The United States charged that the acquisition in 1960 by Von's
Grocery Company of Shopping Bag Food Stores, a competitor in the
retail grocery market in the Los Angeles area, violated § 7 of the
Clayton Act. After a hearing, the District Court concluded that
there was "not a reasonable probability" that the merger would tend
"substantially to lessen competition" or "create a monopoly" in
violation of § 7, and entered judgment for the appellees.
Held. The merger of two of the largest and most
successful retail grocery companies in a market area characterized
by a steady decline, before and after the merger, in the number of
small grocery companies, combined with significant absorption of
small firms by larger ones, is a violation of § 7 of the Clayton
Act. Pp.
384 U. S.
274-279.
(a) By the enactment of the Celler-Kefauver amendment to § 7 in
1950, Congress sought to preserve competition among small
businesses by halting a trend toward concentration in its
incipiency, and, thus, the courts must be alert to protect
competition against increasing concentration through mergers
especially where concentration is gaining momentum in the market.
Pp.
384 U. S.
276-277.
(b) This case presents the precise situation which Congress
intended to proscribe, where two powerful companies merge to become
more powerful in a market exhibiting a marked trend toward
concentration. Pp.
384 U. S.
277-278.
(c) Section 7 requires not only an appraisal of the immediate
impact of the merger on competition, but a prediction of the
merger's effect on competitive conditions in the future, to prevent
the destruction of competition.
United States v. Philadelphia
Nat. Bank, 374 U. S. 321,
374 U. S. 362.
P.
384 U. S.
278.
(d) Since the appellees were on notice of the antitrust charge,
the judgment is reversed, and the District Court is directed to
order divestiture without delay. P.
384 U. S.
279.
233 F.
Supp. 976, reversed.
Page 384 U. S. 271
MR. JUSTICE BLACK delivered the opinion of the Court.
On March 25, 1960, the United States brought this action
charging that the acquisition by Von's Grocery Company of its
direct competitor Shopping Bag Food Stores, both large retail
grocery companies in Los Angeles, California, violated § 7 of the
Clayton Act which, as amended in 1950 by the Celler-Kefauver
Anti-Merger Act, provides in relevant part:
"That no corporation engaged in commerce . . . shall acquire the
whole or any part of the assets of another corporation engaged also
in commerce, where in any line of commerce in any section of the
country, the effect of such acquisition may be substantially to
lessen competition, or to tend to create a monopoly. [
Footnote 1]"
On March 28, 1960, three days later, the District Court refused
to grant the Government's motion for a temporary restraining order,
and immediately Von's took over all of Shopping Bag's capital stock
and assets, including 36 grocery stores in the Los Angeles area.
After
Page 384 U. S. 272
hearing evidence on both sides, the District Court made findings
of fact and concluded as a matter of law that there was "not a
reasonable probability" that the merger would tend "substantially
to lessen competition" or "create a monopoly" in violation of § 7.
For this reason, the District Court entered judgment for the
defendants.
233 F.
Supp. 976, 985. The Government appealed directly to this Court
as authorized by § 2 of the Expediting Act. [
Footnote 2] The sole question here is whether the
District Court properly concluded on the facts before it that the
Government had failed to prove a violation of § 7.
The record shows the following facts relevant to our decision.
The market involved here is the retail grocery market in the Los
Angeles area. In 1958, Von's retail sales ranked third in the area,
and Shopping Bag's ranked sixth. In 1960, their sales together were
7.5% of the total two and one-half billion dollars of retail
groceries sold in the Los Angeles market each year. For many years
before the merger, both companies had enjoyed great success as
rapidly growing companies. From 1948 to 1958, the number of Von's
stores in the Los Angeles area practically doubled from 14 to 27,
while at the same time, the number of Shopping Bag's stores jumped
from 15 to 34. During that same decade, Von's sales increased
four-fold and its share of the market almost doubled, while
Shopping Bag's sales multiplied seven times and its share of the
market tripled. The merger of these two highly successful,
expanding and aggressive competitors created the second largest
grocery chain in Los Angeles, with sales of almost $172,488,000
annually. In addition, the findings of the District Court show
that
Page 384 U. S. 273
the number of owners operating single stores in the Los Angeles
retail grocery market decreased from 5,365 in 1950 to 3,818 in
1961. By 1963, three years after the merger, the number of single
store owners had dropped still further to 3,590. [
Footnote 3] During roughly the same period,
from 1953 to 1962, the number of chains with two or more grocery
stores increased from 96 to 150. While the grocery business was
being concentrated into the hands of fewer and fewer owners, the
small companies were continually being absorbed by the larger firms
through mergers. According to an exhibit prepared by one of the
Government's expert witnesses, in the period from 1949 to 1958,
nine of the top 20 chains acquired 126 stores from their smaller
competitors. [
Footnote 4]
Figures of a principal defense witness, set out below, illustrate
the many acquisitions and mergers in the Los Angeles grocery
industry from 1954 through 1961 including acquisitions made by Food
Giant, Alpha Beta, Fox, and
Page 384 U. S. 274
Mayfair, all among the 10 leading chains in the area. [
Footnote 5] Moreover, a table prepared
by the Federal Trade Commission appearing in the Government's reply
brief, but not a part of the record here, shows that acquisitions
and mergers in the Los Angeles retail grocery market have continued
at a rapid rate since the merger. [
Footnote 6] These facts alone are enough to cause us to
conclude contrary to the District Court that the Von's-Shopping Bag
merger did violate § 7. Accordingly, we reverse.
From this country's beginning, there has been an abiding and
widespread fear of the evils which flow from monopoly -- that is,
the concentration of economic power in the hands of a few. On the
basis of this fear, Congress, in 1890, when many of the Nation's
industries were already concentrated into what it deemed too few
hands, passed the Sherman Act in an attempt to prevent further
concentration and to preserve competition among a large number of
sellers. Several years later, in 1897, this Court emphasized this
policy of the Sherman Act by calling attention to the tendency of
powerful business combinations to restrain competition
"by driving out of business the small dealers and worthy men
whose lives have been spent therein, and who might be unable to
readjust themselves to their altered surroundings."
United States v. Trans-Missouri Freight Assn.,
166 U. S. 290,
166 U. S. 323.
[
Footnote 7] The Sherman Act
failed to protect the smaller businessmen
Page 384 U. S. 275
from elimination through the monopolistic pressures of large
combinations which used mergers to grow ever more powerful. As a
result, in 1914, Congress, viewing mergers as a continuous,
pervasive threat to small business, passed § 7 of the Clayton Act,
which prohibited corporations under most circumstances from merging
by purchasing the stock of their competitors. Ingenious
businessmen, however, soon found a way to avoid § 7, and
corporations began to merge simply by purchasing their rivals'
assets. This Court, in 1926, over the dissent of Justice Brandeis,
joined by Chief Justice Taft and Justices Holmes and Stone,
approved this device for avoiding § 7, [
Footnote 8] and mergers continued to concentrate economic
power into fewer and fewer hands until 1950, when Congress passed
the Celler-Kefauver Anti-Merger Act now before us.
Like the Sherman Act in 1890 and the Clayton Act in 1914, the
basic purpose of the 1950 Celler-Kefauver Act was to prevent
economic concentration in the American economy by keeping a large
number of small competitors in business. [
Footnote 9] In stating the purposes of their bill, both
of its sponsors, Representative Celler and Senator Kefauver,
emphasized their fear, widely shared by other members of Congress,
that this concentration was rapidly driving the small businessman
out of the market. [
Footnote
10] The period from 1940 to 1947, which was at
Page 384 U. S. 276
the center of attention throughout the hearings and debates on
the Celler-Kefauver bill, had been characterized by a series of
mergers between large corporations and their smaller competitors
resulting in the steady erosion of the small independent business
in our economy. [
Footnote
11] As we said in
Brown Shoe Co. v. United States,
370 U. S. 294,
370 U. S.
315,
"The dominant theme pervading congressional consideration of the
1950 amendments was a fear of what was considered to be a rising
tide of economic concentration in the American economy."
To arrest this "rising tide" toward concentration into too few
hands and to halt the gradual demise of the small businessman,
Congress decided to clamp down with vigor on mergers. It both
revitalized § 7 of the Clayton Act by "plugging its loophole" and
broadened its scope so
Page 384 U. S. 277
as not only to prohibit mergers between competitors the effect
of which "may be substantially to lessen competition, or to tend to
create a monopoly," but to prohibit all mergers having that effect.
By using these terms in § 7 which look not merely to the actual
present effect of a merger, but instead to its effect upon future
competition, Congress sought to preserve competition among many
small businesses by arresting a trend toward concentration in its
incipiency, before that trend developed to the point that a market
was left in the grip of a few big companies. Thus, where
concentration is gaining momentum in a market, we must be alert to
carry out Congress' intent to protect competition against
ever-increasing concentration through mergers. [
Footnote 12]
The facts of this case present exactly the threatening trend
toward concentration which Congress wanted to halt. The number of
small grocery companies in the Los Angeles retail grocery market
had been declining rapidly before the merger, and continued to
decline rapidly afterwards. This rapid decline in the number of
grocery store owners moved hand in hand with a large number of
significant absorptions of the small companies by the larger ones.
In the midst of this steadfast trend toward concentration, Von's
and Shopping Bag, two of the most successful and largest companies
in the area, jointly owning 66 grocery stores merged to become the
second largest chain in Los Angeles. This merger cannot be defended
on the ground that one of the companies was about to fail, or that
the two had to merge to save themselves from destruction by some
larger and more powerful competitor. [
Footnote 13] What we have, on the contrary,
Page 384 U. S. 278
is simply the case of two already powerful companies merging in
a way which makes them even more powerful than they were before. If
ever such a merger would not violate § 7, certainly it does when it
takes place in a market characterized by a long and continuous
trend toward fewer and fewer owner-competitors, which is exactly
the sort of trend which Congress, with power to do so, declared
must be arrested.
Appellees' primary argument is that the merger between Von's and
Shopping Bag is not prohibited by § 7 because the Los Angeles
grocery market was competitive before the merger, has been since,
and may continue to be in the future. Even so, § 7
"requires not merely an appraisal of the immediate impact of the
merger upon competition, but a prediction of its impact upon
competitive conditions in the future; this is what is meant when it
is said that the amended § 7 was intended to arrest anticompetitive
tendencies in their 'incipiency.'
United States v. Philadelphia
Nat. Bank, 374 U. S. 321,
374 U. S.
362. It is enough for us that Congress feared that a
market marked at the same time by both a continuous decline in the
number of small businesses and a large number of mergers would
slowly but inevitably gravitate from a market of many small
competitors to one dominated by one or a few giants, and
competition would thereby be destroyed. Congress passed the
Celler-Kefauver Act to prevent such a destruction of competition.
Our cases since the passage of that Act have faithfully endeavored
to enforce this congressional command. [
Footnote 14] We adhere to them now. "
Page 384 U. S. 279
Here again, as in
United States v. El Paso Gas Co.,
376 U. S. 651,
376 U. S. 662,
since appellees
"have been on notice of the antitrust charge from almost the
beginning . . . , we not only reverse the judgment below, but
direct the District Court to order divestiture without delay."
See also United States v. E. I. du Pont De Nemours &
Co., 366 U. S. 316;
United States v. Alcoa, 377 U. S. 271,
377 U. S.
281.
Reversed and remanded.
MR. JUSTICE FORTAS took no part in the consideration or decision
of this case.
[
Footnote 1]
38 Stat. 731, as amended by 64 Stat. 1125, 15 U.S.C. § 18 (1964
ed.).
[
Footnote 2]
32 Stat. 823, as amended by 62 Stat. 989, 15 U.S.C. § 29 (1964
ed.).
[
Footnote 3]
Despite this steadfast concentration of the Los Angeles grocery
business into fewer and fewer hands, the District Court, in Finding
of Fact No. 80, concluded as follows:
"There has been no increase in concentration in the retail
grocery business in the Los Angeles Metropolitan Area either in the
last decade or since the merger. On the contrary, economic
concentration has decreased. . . ."
This conclusion is completely contradicted by Finding No. 23,
which makes plain the steady decline in the number of individual
grocery store owners referred to above. It is thus apparent that
the District Court, in finding No. 80, used the term
"concentration" in some sense other than a total decrease in the
number of separate competitors, which is the crucial point
here.
[
Footnote 4]
Appellees, in their brief, claim that 120, and not 126, stores
changed hands in these acquisitions:
"It should also be noted here that the exhibit is in error in
showing an acquisition by Food Giant from itself of six stores
doing an annual volume of $31,700,000. Actually this was simply a
change of name by Food Giant. . . ."
[
Footnote 5]
These figures as they appear in a table in the Brief for the
United States show acquisitions of retail grocery stores in the Los
Angeles area from 1954 to 1961.
See 384
U.S. 270tab1|>Appendix, Table 1, substantially reproducing
the above-mentioned table.
[
Footnote 6]
See 384
U.S. 270tab2|>Appendix, Table 2.
[
Footnote 7]
Later, in 1945, Judge Learned Hand, reviewing the policy of the
antitrust laws and other laws designed to foster small business,
said,
"Throughout the history of these statutes, it has been
constantly assumed that one of their purposes was to perpetuate and
preserve, for its own sake and in spite of possible cost, an
organization of industry in small units which can effectively
compete with each other."
United States v. Aluminum Co. of America, 148 F.2d 416,
429.
[
Footnote 8]
Thatcher Manufacturing Co. v. Federal Trade Commission,
272 U. S. 554,
272 U. S.
560.
[
Footnote 9]
See, e.g., United States v. Philadelphia Nat. Bank,
374 U. S. 321,
374 U. S.
362-363;
United States v. Alcoa, 377 U.
S. 271,
377 U. S.
280.
[
Footnote 10]
Representative Celler, in introducing the bill on the House
floor, remarked:
"Small, independent, decentralized business of the kind that
built up our country, of the kind that made our country great,
first, is fast disappearing, and second, is being made dependent
upon monster concentration."
95 Cong.Rec. 11486. Senator Kefauver expressed the same fear on
the Senate floor:
"I think that we are approaching a point where a fundamental
decision must be made in regard to this problem of economic
concentration. Shall we permit the economy of the country to
gravitate into the hands of a few corporations . . .? Or, on the
other hand, are we going to preserve small business, local
operations, and free enterprise?"
96 Cong.Rec. 16450.
References to a number of other similar remarks by other
Congressmen are collected in
Brown Shoe Co. v. United
States, 370 U. S. 294,
370 U. S. 316,
n. 28.
[
Footnote 11]
H.R.Rep.No.1191, 81st Cong., 1st Sess., p. 3, U.S.Code
Congressional Service, p. 4293, described this characteristic of
the merger movement as follows:
". . . the outstanding characteristic of the merger movement has
been that of large corporations buying out small companies, rather
than smaller companies combining together in order to compete more
effectively with their larger rivals. More than 70 percent of the
total number of firms acquired during 1940-47 have been absorbed by
larger corporations with assets of over $5,000,000. In contrast,
fully 93 percent of all the firms bought out held assets of less
than $1,000,000. Some 33 of the Nation's 200 largest industrial
corporations have bought out an average of 5 companies each, and 13
have purchased more than 10 concerns each."
[
Footnote 12]
See, e.g., Brown Shoe Co. v. United States, 370 U.S. at
370 U. S. 346;
United States v. Philadelphia Nat. Bank, 374 U.S. at
374 U. S. 362.
See also United States v. E. I. du Pont De Nemours &
Co., 353 U. S. 586,
353 U. S. 597,
interpreting § 7 before the Celler-Kefauver Anti-Merger
amendment.
[
Footnote 13]
See Brown Shoe Co. v. United States, 370 U.S. at
370 U. S.
319.
[
Footnote 14]
See, e.g., Brown Shoe Co. v. United States,
370 U. S. 294;
United States v. Philadelphia Nat. Bank, 374 U.
S. 321;
United States v. El Paso Gas Co.,
376 U. S. 651;
United States v. Alcoa, 377 U. S. 271;
United States v. Continental Can Co., 378 U.
S. 441;
FTC v. Consolidated Foods, 380 U.
S. 592.
|
384
U.S. 270tab1|
APPENDIX TO OPINION OF THE COURT.
TABLE 1
Food store acquisitions in the Los Angeles
metropolitan area 1954-61
bwm:
--------------------------------------------------------------------
Number
Year Acquiring firm Acquired firm of stores
acquired
--------------------------------------------------------------------
1957 Piper Mart Bi-Right & Big Bear 3
1958 Mayfair Bob's Supermarket 7
1961 Better Foods Border's Markets 3
1954 Kory's Markets Carty Brothers 8
1958 Food Giant Clark Markets 10
1956 Fox Desert Fair 4
1959 Lucky Hiram's 6
1958 Fox Iowa Pork Shops 11
1961 Food Giant (and others) McDaniels's Markets 16
1957 Food Giant Panorama Markets 3
1958 Pix Patton's Mkts 3
1958 Alpha Beta Raisin Markets 13
1960 Piggly Wiggly Rankins Markets 4
1959 Pix S & K Markets 2
1960 Vons's Shopping Bag 37
1959 Pix Shop Right Markets 3
1958 Yor-Way C. S. Smith 5
1957 Food Giant Toluca Marts 2
1957 Mayfair U-Tell-Em Markets 10
Total 150
--------------------------------------------------------------------
ewm:
Page 384 U. S. 280
|
384
U.S. 270tab2|
TABLE 2
Food store acquisitions in the Los Angeles
metropolitan area 1961-64[1]
bwm:
------------------------------------------------------------------------------------
Acquired company (or stores) Type of
acquisition
Year Acquiring company
---------------------------------------------------------
Num Sales Hor-
Name ber of (thou- izon- Other
stores sands)[2] tal
------------------------------------------------------------------------------------
1961 Acme Markets Alpha Beta Food Markets 45 $79.042 X
Boys Markets Korys Markets 5 10,000 X
Food Giant Markets McDaniels Markets 9 21,500 X*
Mayfair Markets Yorway Markets 1 1,500 X
Alpha Beta Food Markets 1 1,700 X
1962 Mayfair Markets Schaubs Market 1 1,800 X
Fox Markets 1 2,200 X
Ralph's Grocery Co. Imperial Supreme Markets 1 916 X
1963 Food Fair Stores Fox Markets 22 44,419 X
Kroger Market Basket 53 110,860 X
Mayfair Markets Bi Rite Markets 1 2,569 X
Dales Food Market 1 2,200 X
Food Giant Markets 1 1,700 X
1964 Albertson's, Inc. Greater All American 14 30,308 X
Mayfair Markets Gateway Market 4 8,000 X
Pattons Markets 4 10,400 X
Ralph's Grocery Co. Cracker Barrel Supermarket. 1 1,000 X
Food Giant Markets McDaniels Markets 7 18,350 X
Total horizontal
mergers. 38 83,835
Total market
extension mergers. 134 264,629
------------------------------------------------------------------------------------
ewm:
1 Consists of Los Angeles and Orange Counties. (1963 census
defined the Los Angeles metropolitan area as Los Angeles County
only.)
2 In most cases, sales are for the 12-month period prior to
acquisition.
* According to a statement made by Von's counsel at oral
argument, this acquisition did not take place in 1961, but,
instead, Food Giant bought seven of McDaniel's stores in 1964. The
acquisition in 1964 is listed in this table.
MR. JUSTICE WHITE, concurring.
As I read the Court's opinion, which I join, it does not hold
that in any industry exhibiting a decided trend towards
concentration, any merger between competing firms violates § 7
unless saved by the failing company doctrine; nor does it declare
illegal each and every merger in such an industry where the
resulting firm has as much
Page 384 U. S. 281
as a 7.5% share of the relevant market. But here, in 1958,
before the merger, the largest firm had 8% of the sales, Von's was
third with 4.7%, and Shopping Bag was sixth, with 4.2%. The four
largest firms had 24.4% of the market, the top eight had 40.9%, and
the top 12 had 48.8%, as compared with 25.9%, 33.7% and 38.8% in
1948. All but two of the top 10 firms in 1958 were very probably
also among the top 10 in 1948 or had acquired a firm that was among
the top 10. Further, all but three of the top 10 had increased
their market share between 1948 and 1958, and those which gained
gained more than the three lost. Also, although three companies
declined in market share, their total sales increased in
substantial amounts.
Given a trend towards fewer and fewer sellers which promises to
continue, it is clear to me that, where the eight leading firms
have over 40% of the market, any merger between the leaders or
between one of them and a lesser company is vulnerable under § 7,
absent some special proof to the contrary. Here, Von's acquired
Shopping Bag. Both were among the eight largest companies, both had
grown substantially since 1948, and they were substantial
competitors. After the merger, the four largest firms had 28.8%,
the eight largest had 44%, and the 12 largest had 50%. The merger
not only disposed of a substantial competitor, but increased the
concentration in the leading firms. In my view, the Government
sufficiently proved that the effect of this merger may be
substantially to lessen competition or to tend to create a
monopoly.
MR. JUSTICE STEWART, with whom MR. JUSTICE HARLAN joins,
dissenting.
We first gave consideration to the 1950 amendment of § 7 of the
Clayton Act in
Brown Shoe Co. v. United States,
370 U. S. 294. The
thorough opinion The Chief Justice wrote for the Court in that case
made two
Page 384 U. S. 282
things plain: first, the standards of § 7 require that every
corporate acquisition be judged in the light of the contemporary
economic context of its industry. [
Footnote 2/1] Second, the purpose of § 7 is to protect
competition, not to protect competitors, and every § 7 case must be
decided in the light of that clear statutory purpose. [
Footnote 2/2] Today the Court turns its
back on these two basis principles, and on all the decisions that
have followed them.
The Court makes no effort to appraise the competitive effects of
this acquisition in terms of the contemporary economy of the retail
food industry in the Los Angeles area. [
Footnote 2/3] Instead, through a simple exercise in
sums, it finds that the number of individual competitors in the
market has decreased over the years, and, apparently on the theory
that the degree of competition is invariably proportional to the
number of competitors, it holds that
Page 384 U. S. 283
this historic reduction in the number of competing units is
enough under § 7 to invalidate a merger within the market, with no
need to examine the economic concentration of the market, the level
of competition in the market, or the potential adverse effect of
the merger on that competition. This startling
per se rule
is contrary not only to our previous decisions, but contrary to the
language of § 7, contrary to the legislative history of the 1950
amendment, and contrary to economic reality.
Under § 7, as amended, a merger can be invalidated if, and only
if, "the effect of such acquisition may be substantially to lessen
competition, or to tend to create a monopoly." No question is
raised here as to the tendency of the present merger to create a
monopoly. Our sole concern is with the question whether the effect
of the merger may be substantially to lessen competition.
The principal danger against which the 1950 amendment was
addressed was the erosion of competition through the cumulative
centripetal effect of acquisitions by large corporations, none of
which, by itself, might be sufficient to constitute a violation of
the Sherman Act. Congress' immediate fear was that of large
corporations buying out small companies. [
Footnote 2/4] A major aspect of that fear was the
perceived trend toward absentee ownership of local business.
[
Footnote 2/5] Another, more
generalized, congressional
Page 384 U. S. 284
purpose revealed by the legislative history was to protect small
businessmen and to stem the rising tide of concentration in the
economy. [
Footnote 2/6] These
goals, Congress thought, could be achieved by "arresting mergers at
a time when the trend to a lessening of competition in a line of
commerce was still in its incipiency."
Brown Shoe Co. v. United
States, supra, at
370 U. S.
317.
The concept of arresting restraints of trade in their
"incipiency" was not an innovation of the 1950 amendment. The
notion of incipiency was part of the report on the original Clayton
Act by the Senate Committee in the Judiciary in 1914, and it was
reiterated in the Senate report in 1950. [
Footnote 2/7] That notion was not left undefined.
Page 384 U. S. 285
The legislative history leaves no doubt that the applicable
standard for measuring the substantiality of the effect of a merger
on competition was that of a "reasonable probability" of lessening
competition. [
Footnote 2/8] The
standard was thus more stringent than that of a "mere possibility,"
on the one hand, and more lenient than that of a "certainty," on
the other. [
Footnote 2/9] I cannot
agree that the retail grocery
Page 384 U. S. 286
business in Los Angeles is in an incipient or any other stage of
a trend toward a lessening of competition, or that the effective
level of concentration in the industry has increased. Moreover,
there is no indication that the present merger, or the trend in
this industry as a whole, augurs any danger whatsoever for the
small businessman. The Court has substituted bare conjecture for
the statutory standard of a reasonable probability that competition
may be lessened. [
Footnote
2/10]
The Court rests its conclusion on the "crucial point" that, in
the 11-year period between 1950 and 1961, the number of single
store grocery firms in Los Angeles decreased 29% from 5,365 to
3,818. [
Footnote 2/11] Such a
decline
Page 384 U. S. 287
should, of course, be no more than a fact calling for further
investigation of the competitive trend in the industry. For the
Court, however, that decline is made the end, not the beginning, of
the analysis. In the "counting of heads game" played today by the
Court, the reduction in the number of single store operators
becomes a yardstick for automatic disposition of cases under §
7.
I believe that even the most superficial analysis of the record
makes plain the fallacy of the Court's syllogism that competition
is necessarily reduced when the bare number of competitors has
declined. [
Footnote 2/12] In any
meaningful sense, the structure of the Los Angeles grocery market
remains unthreatened by concentration. Local competition is
vigorous to a fault, not only among chain stores
Page 384 U. S. 288
themselves, but also between chain stores and single store
operators. The continuing population explosion of the Los Angeles
area, which has outrun the expansion plans of even the largest
chains, offers a surfeit of business opportunity for stores of all
sizes. [
Footnote 2/13] Affiliated
with cooperatives that give the smallest store the buying strength
of its largest competitor, new stores have taken full advantage of
the remarkable ease of entry into the market. And, most important
of all, the record simply cries out that the numerical decline in
the number of single store owners is the result of transcending
social and technological changes that positively preclude the
inference that competition has suffered because of the attrition of
competitors.
Section 7 was never intended by Congress for use by the Court as
a charter to roll back the supermarket revolution. Yet the Court's
opinion is hardly more than a requiem for the so-called "Mom and
Pop" grocery stores -- the bakery and butcher shops, the vegetable
and fish markets -- that are now economically and technologically
obsolete in many parts of the country. No action by this Court can
resurrect the old single-line Los Angeles food stores that have
been run over by the automobile or obliterated by the freeway. The
transformation of American society since the Second World War has
not completely shelved these specialty stores, but it has relegated
them to a much less central role in our food economy. Today's
dominant enterprise in food retailing is the supermarket.
Accessible to the housewife's automobile from a wide radius, it
houses under a single roof
Page 384 U. S. 289
the entire food requirements of the family. Only through the
sort of reactionary philosophy that this Court long ago rejected in
the Due Process Clause area can the Court read into the legislative
history of § 7 its attempt to make the automobile stand still, to
mold the food economy of today into the market pattern of another
era. [
Footnote 2/14]
Page 384 U. S. 290
This is not a case in which the record is equivocal with regard
to the status of competition in the industry in question. To the
contrary, the record offers abundant evidence of the dramatic
history of growth and prosperity of the retail food business in Los
Angeles.
The District Court's finding of fact that there was no increase
in market concentration before or after the merger is amply
supported by the evidence if concentration is gauged by any measure
other than that of a census of the number of competing units.
Between 1948 and 1958, the market share of Safeway, the leading
grocery chain in Los Angeles, declined from 14% to 8%. The combined
market shares of the top two chains declined from 21% to 14% over
the same period; for the period 1952-1958, the combined shares of
the three, four, and five largest firms also declined. It is true
that, between 1948 and 1958, the combined shares of the top 20
firms in the market increased from 44% to 57%. The crucial fact
here, however, is that seven of these top 20 firms in 1958 were not
even in existence as chains in 1948. Because of the substantial
turnover in the membership of the top 20 firms, the increase in
market share of the top 20 as a group is hardly a reliable
indicator of any tendency toward market concentration. [
Footnote 2/15]
Page 384 U. S. 291
In addition, statistics in the record for the period 1953-1962
strongly suggest that the retail grocery industry in Los Angeles is
less concentrated today than it was a decade ago. During this
period, the number of chain store firms in the area rose from 96 to
150, or 56%. That increase occurred overwhelmingly among chains of
the very smallest size, those composed of two or three grocery
stores. Between 1953 and 1962, the number of such "chains"
increased from 56 to 104, or 86%. Although chains of 10 or more
stores increased from 10 to 24 during the period, seven of these 24
chains were not even in existence as chains in Los Angeles in 1953.
[
Footnote 2/16]
Yet even these dramatic statistics do not fully reveal the
dynamism and vitality of competition in the retail grocery business
in Los Angeles during the period. The record shows that, at various
times during the period 1953-1962, no less than 269 separate chains
were doing business in Los Angeles, of which 208 were two- or
three-store chains. During that period, therefore, 173 new chains
made their appearance in the market area, and 119 chains went out
of existence as chain stores. [
Footnote 2/17] The vast majority of this market
turbulence represented turnover in chains of two or three stores;
143 of the 173 new chains born during the period were chains of
this
Page 384 U. S. 292
size. Testimony in the record shows that, almost without
exception, these new chains were the outgrowth of successful
one-store operations. [
Footnote
2/18] There is no indication that comparable turmoil did not
equally permeate single store operations in the area. [
Footnote 2/19] In fashioning its
per
se rule, based on the net arithmetical decline in the number
of single store operators, the Court completely disregards the
obvious procreative vigor of competition in the market as reflected
in the turbulent history of entry and exit of competing small
chains.
To support its conclusion the Court invokes three sets of data
regarding absorption of smaller firms by merger with larger firms.
In each of the acquisitions detailed
Page 384 U. S. 293
in the Appendix, Tables
384
U.S. 270tab1|>1 and
384
U.S. 270tab2|>2 of the Court's opinion, the acquired units
were grocery chains. Not one of these acquisitions was of a firm
operating only a single store. [
Footnote 2/20] The Court cannot have it both ways. It
is only among single store operators that the decline in the unit
number of competitors, so heavily relied upon by the Court, has
taken place. Yet the tables reproduced in the Appendix show not a
trace of merger activity involving the acquisition of single store
operators. And the number of chains in the area has in fact shown a
substantial net increase during the period, in spite of the fact
that some of the chains have been absorbed by larger firms. How
then can the Court rely on these acquisitions as evidence of a
tendency toward market concentration in the area?
The Court's use of market acquisition data for the period
1954-1961, [
Footnote 2/21]
prepared by the Government from the worksheets of a defense
witness, is also questionable for another reason. During that
period, Food Giant, Alpha Beta, Fox, and Mayfair were ranked 7th,
8th, 9th, and 10th, respectively, on the basis of the percentage of
their sales in Los Angeles in 1958, so that the impact of their
acquisitions, made in the face of competition by the top six
chains, is considerably blunted. The remarkable feature disclosed
by these data is that none of the top six firms in the area
expanded by acquisition during the period. [
Footnote 2/22]
Page 384 U. S. 294
The Court's reliance on the fact that nine of the top 20 chains
acquired 120 stores in the Los Angeles area between 1949 and 1958
does not withstand analysis in light of the complete record. Forty
percent of these acquisitions, representing 48 stores with gross
sales of more than $71,000,000, were made by Fox, Yor-Way, and
McDaniels, which ranked 9th, 11th, and 20th, respectively,
according to 1958 sales in the market. Each of these firms
subsequently went into bankruptcy as a result of overexpansion,
undercapitalization, or inadequate managerial experience. This
substantial post-acquisition demise of relatively large chains
hardly comports with the Court's tacit portrayal of the inexorable
march of the market toward oligopoly.
Further, the table relied on by the Court to sustain its view
that acquisitions have continued in the Los Angeles area at a rapid
rate in the three-year period following this merger
indiscriminately lumps together horizontal and market extension
mergers. [
Footnote 2/23] Only 29
stores, representing 13 acquisitions, were acquired in horizontal
mergers, and the record reveals than nine of these 29 stores were
acquired in the course of dispositions in bankruptcy. Such
acquisitions of failing companies, of course, are immune from the
Clayton Act.
International Shoe Co. v. Federal Trade
Commission, 280 U. S. 291,
280 U. S.
301-303. Thus, at a time when the number of single store
concerns was well over 3,500, horizontal mergers over a three-year
period between going concerns achieved, at most, only the
de
minimis level of 10 acquisitions involving 20 stores. It
cannot seriously be maintained that
Page 384 U. S. 295
the effect of the negligible market share foreclosed by these
horizontal mergers may be substantially to lessen competition
within the meaning of § 7.
Cf. Brown Shoe Co. v. United
States, 370 U. S. 294,
370 U. S.
329.
The great majority of the post-merger acquisitions detailed in
384
U.S. 270tab2|>Table 2 in the Appendix of the Court's
opinion,
ante, were of the market extension type,
involving neither the elimination of direct competitors in the Los
Angeles market nor increased concentration of the market. There are
substantial economic distinctions between such market extension
mergers and classical horizontal mergers. [
Footnote 2/24] Whatever the wisdom or logic of the
Court's assumed arithmetic proportion between the number of single
store concerns and the level of competition within the meaning of §
7 as applied to horizontal mergers, it is simply not possible to
make the further assumption that the mere occurrence of market
extension mergers is adequate to prove a tendency of the local
market toward decreased competition.
Moreover, contrary to the assumption on which the Court
proceeds, the record establishes that the present merger itself has
substantial, even predominant, market extension overtones. The
District Court found that the Von's stores were located in the
southern and western portions of the Los Angeles metropolitan area,
and that the Shopping Bag stores were located in the northern and
eastern portions. In each of the areas in which Von's and Shopping
Bag stores competed directly, there were also at least six other
chain stores, and several
Page 384 U. S. 296
smaller stores competing for the patronage of customers. On the
basis of a "housewife's 10-minute driving time" test conducted for
the Justice Department by a government witness, it was shown that
slightly more than half of the Von's and Shopping Bag stores were
not in a position to compete at all with one another in the market.
[
Footnote 2/25] Even among those
stores which competed at least partially with one another, the
overlap in sales represented only approximately 25% of the combined
sales of the two chains in the overall Los Angeles area. The
present merger was thus three parts market extension and only one
part horizontal, but the Court nowhere recognizes this market
extension aspect that exists within the local market itself. The
actual market share foreclosed by the elimination of Shopping Bag
as an independent competitor was thus slightly less than 1% of the
total grocery store sales in the area. The share of the market
preempted by the present merger was therefore practically identical
with the 0.77% market foreclosure accepted as "quite insubstantial"
by the Court in
Tampa Electric Co. v. Nashville Coal Co.,
365 U. S. 320,
365 U. S.
331-333.
The irony of this case is that the Court invokes its sweeping
new construction of § 7 to the detriment of a merger between two
relatively successful, local, largely family-owned concerns, each
of which had less than 5% of the local market and neither of which
had any prior history of growth by acquisition. [
Footnote 2/26] In a sense, the defendants
Page 384 U. S. 297
are being punished for the sin of aggressive competition.
[
Footnote 2/27] The Court is
inaccurate in its suggestions,
ante, pp.
384 U. S.
277-278, that the merger makes these firms more
"powerful" than they were before, and that Shopping Bag was itself
a "powerful" competitor at the time of the merger. There is simply
no evidence in the record, and the Court makes no attempt to
demonstrate, that the increment in market share obtained by the
combined stores can be equated with an increase in the market power
of the combined firm. And, although Shopping Bag was not a "failing
company" within the meaning of our decision in
International
Shoe Co. v. Federal Trade Commission, 280 U.
S. 291,
280 U. S.
301-303, the record at
Page 384 U. S. 298
least casts strong doubt on the contention that it was a
powerful competitor. [
Footnote
2/28] The District Court found that Shopping Bag suffered from
a lack of qualified executive personnel [
Footnote 2/29] and that, although overall sales of the
chain had been increasing, its earnings and profits were declining.
[
Footnote 2/30] Further, the
merger clearly comported with "the desirability of retaining "local
control" over industry" that the Court noted in
Brown Shoe Co.
v. United States, 370 U. S. 294,
370 U. S.
315-316.
With regard to the "plight" of the small businessman, the record
is unequivocal that his competitive position is strong and secure
in the Los Angeles retail grocery industry. The most aggressive
competitors against the larger retail chains are frequently the
operators of single stores. [
Footnote
2/31] The vitality of these independents is directly
Page 384 U. S. 299
attributable to the recent and spectacular growth in California
of three large cooperative buying organizations. Membership in
these groups is unrestricted; through them, single store operators
are able to purchase their goods at prices competitive with those
offered by suppliers even to the largest chains. [
Footnote 2/32] The rise of these cooperative
organizations has introduced a significant new source of
countervailing power against the market power of the chain stores
without in any way sacrificing the advantages of independent
operation. In the face of
Page 384 U. S. 300
the substantial assistance available to independents through
membership in such cooperatives, the Court's implicit equation
between the market power and the market share resulting from the
present merger seems completely invalid.
Moreover, it is clear that there are no substantial barriers to
market entry. The record contains references to numerous highly
successful instances of entry with modest initial investments. Many
of the stores opened by new entrants were obtained through the
disposition of unwanted outlets by chains; frequently the new
competitors were themselves chain store executives who had resigned
to enter the market on their own. Enhancing free access to the
market is the absence of any such restrictive factors as patented
technology, trade secrets, or substantial product
differentiation.
Numerous other factors attest to the pugnacious level of grocery
competition in Los Angeles, all of them silently ignored by the
Court in its emphasis solely on the declining number of single
store competitors in the market. Three thousand five hundred and
ninety single store firms is a lot of grocery stores. The large
number of separate competitors and the frequent price battles
between them belie any suggestion that price competition in the
area is even remotely threatened by a descent to the sort of
consciously interdependent pricing that is characteristic of a
market turning the corner toward oligopoly. The birth of dynamic
new competitive forces -- discount food houses and food departments
in department stores, bantams and superettes, deli-liquor stores
and drive-in dairies -- promises unremitting competition in the
future. In the more than four years following the merger, the
District Court found not a shred of evidence that competition had
been in any way impaired by the merger. Industry witnesses
testified overwhelmingly
Page 384 U. S. 301
to the same effect. By any realistic criterion, retail food
competition in Los Angeles is today more intense than ever.
The harsh standard now applied by the Court to horizontal
mergers may prejudice irrevocably the already difficult choice
faced by numerous successful small and medium-sized businessmen in
the myriad smaller markets where the effect of today's decision
will be felt, whether to expand by buying or by building additional
facilities. [
Footnote 2/33] And
by foreclosing future sale as one attractive avenue of eventual
market exit, the Court's decision may, over the long run, deter new
market entry, and tend to stifle the very competition it seeks to
foster.
In a single sentence and an omnibus footnote at the close of its
opinion, the Court pronounces its work consistent with the line of
our decisions under § 7 since the passage of the 1950 amendment.
The sole consistency that I can find is that, in litigation under §
7, the Government always wins. The only precedent that is even
within sight of today's holding is
United States v.
Philadelphia Nat. Bank, 374 U. S. 321. In
that case, in the interest of practical judicial administration,
the Court proposed a simplified test of merger illegality:
"[W]e think that a merger which produces a firm controlling an
undue percentage share of the relevant market, and results in a
significant increase in the concentration of firms in that market
is so inherently likely to lessen competition substantially that it
must be enjoined in the absence of evidence clearly showing that
the merger is not likely to have such anticompetitive effects."
United States v. Philadelphia Nat. Bank, supra, at
374 U. S. 363.
[
Footnote 2/34] The merger
Page 384 U. S. 302
between Von's and Shopping Bag produced a firm with 1.4% of the
grocery stores and 7.5% of grocery sales in Los Angeles, and
resulted in an increase of 1.1% in the market share enjoyed by the
two largest firms in the market and 3.3% in the market share of the
six largest firms. The former two figures are hardly the "undue
percentage" of the market, nor are the latter two figures the
"significant increase" in concentration, that would make this
merger inherently suspect under the standard of Philadelphia Nat.
Bank. Instead, the circumstances of the present merger fall far
outside the simplified test established by that case for precisely
the sort of merger here involved. [
Footnote 2/35]
Page 384 U. S. 303
The tests of illegality under § 7 were "intended to be similar
to those which the courts have applied in interpreting the same
language as used in other sections of the Clayton Act." H.R.Rep.
No. 1191, 81st Cong., 1st Sess., p. 8. In
Philadelphia Nat.
Bank, the Court was at pains to demonstrate that its
conclusion was consistent with cases under § 3 of the Clayton Act.
See United States v. Philadelphia Nat. Bank, 374 U.
S. 321,
374 U. S.
365-366. The Court disdains any such effort today.
Untroubled by the language of § 7, its legislative history, and the
cases construing either that section or any other provision of the
antitrust laws, the Court grounds its conclusion solely on the
impressionistic assertion that the Los Angeles retail food industry
is becoming "concentrated" because the number of single store
concerns has declined.
Page 384 U. S. 304
The emotional impact of a merger between the third and sixth
largest competitors in a given market, however fragmented, is
understandable, but that impact cannot substitute for the analysis
of the effect of the merger on competition that Congress required
by the 1950 amendment. Nothing in the present record indicates that
there is more than an ephemeral possibility that the effect of this
merger may be substantially to lessen competition. Section 7
clearly takes "reasonable probability" as its standard. That
standard has not been met here, and I would therefore affirm the
judgment of the District Court.
[
Footnote 2/1]
"[A] merger had to be functionally viewed, in the context of its
particular industry."
Brown Shoe Co. v. United States, 370
U.S. at
370 U. S.
321-322.
"[B]oth the Federal Trade Commission and the courts have, in the
light of Congress' expressed intent, recognized the relevance and
importance of economic data that places any given merger under
consideration within an industry framework almost inevitably unique
in every case."
Id. at
370 U. S. 322,
n. 38.
[
Footnote 2/2]
"Taken as a whole, the legislative history illuminates
congressional concern with protection of competition, not
competitors, and its desire to restrain mergers only to the extent
that such combinations may tend to lessen competition."
Brown Shoe Co. v. United States, supra, at
370 U. S.
320.
[
Footnote 2/3]
This is the first case to reach the Court under the 1950
amendment to § 7 that involves a merger between firms engaged
solely in retail food distribution. Kaysen & Turner, Antitrust
Policy 40 (1959), have discussed this industry in the following
terms:
"As a guess, we can say that the most important distributive
trades, especially the food trades, are structurally unconcentrated
in the metropolitan areas. . . . [T]he significance of structural
oligopoly in terms of policy is far different in [these trades]
than in manufacturing and mining. . . . [T]he traditional view that
the local market industries are essentially competitive in
character is probably correct. . . ."
[
Footnote 2/4]
See, e.g., H.R.Rep. No. 1191, 81st Cong., 1st Sess., p.
3, quoted in
footnote 11 of the
Court's opinion Mention of the retail food industry is notably
absent in the legislative history. Although it is clear that, in
addition to the already highly oligopolized industries, Congress
who also concerned with trends toward concentration in industries
that were still highly fragmented, this case involves not even a
remote approach to the "monster concentration" of which
Representative Celler spoke in introducing the 1950 amendment in
the House of Representatives. 95 Cong.Rec. 11486.
[
Footnote 2/5]
See, e.g., Hearing before Subcommittee No. 3 of the
House Committee on the Judiciary on H.R. 2734, 81st Cong., 1st
Sess., p. 12 (remarks of Senator Kefauver).
[
Footnote 2/6]
Much of the fuel for the congressional debates on concentration
in the American economy was derived from a contemporary study by
the Federal Trade Commission on corporate acquisitions between 1940
and 1947.
See Report of the Federal Trade Commission on
the Merger Movement: A Summary Report (1948). A critical study of
the FTC report, published while the 1950 amendment was pending in
Congress, concluded that the effect of the recent merger movement
on concentration had been slight. Lintner & Butters, Effect of
Mergers on Industrial Concentration, 1940-1947, 32 Rev. of Econ.
& Statistics 30 (1950). Two economists for the Federal Trade
Commission later acquiesced in that conclusion. Blair &
Houghton, The Lintner-Butters Analysis of the Effect of Mergers on
Industrial Concentration, 1940-1947, 33 Rev. of Econ. &
Statistics 63, 67, n. 12 (1951).
[
Footnote 2/7]
See S.Rep. No. 698, 63d Cong., 2d Sess., p. 1:
"Broadly stated, the bill, in its treatment of unlawful
restraints and monopolies seeks to prohibit and make unlawful
certain trade practices which, as a rule, singly and in themselves,
are not covered by the act of July 2, 1890 [the Sherman Act], or
other existing antitrust acts, and thus, by making these practices
illegal, to arrest the creation of trusts, conspiracies, and
monopolies in their incipiency and before consummation."
See also S.Rep. No. 1775, 81st Cong., 2d Sess., pp.
4-5:
"The intent here, as in other parts of the Clayton Act, is to
cope with monopolistic tendencies in their incipiency, and well
before they have attained such effects as would justify a Sherman
Act proceeding;"
id., p. 6:
"The concept of reasonable probability conveyed by these words
['may be'] is a necessary element in any statute which seeks to
arrest restraints of trade in their incipiency and before they
develop into full-fledged restraints violative of the Sherman
Act."
Thus, the Senate Reports on both the original Clayton Act and
the 1950 amendment carefully delineate the "incipiency" with which
the provisions are concerned as that of monopolization or classical
restraints of trade under the Sherman Act. The notion that
"incipiency" might be expanded to refer also to a lessening of
competition first appeared in
Brown Shoe Co. v. United
States, 370 U. S. 294,
370 U. S.
317.
[
Footnote 2/8]
The Senate Report is clear on this point:
"The use of these words ['may be substantially to lessen
competition'] means that the bill, if enacted, would not apply to
the mere possibility, but only to the reasonable probability of the
prescribed [
sic] effect. . . . The words 'may be' have
been in section 7 of the Clayton Act since 1914. The concept of
reasonable probability conveyed by these words is a necessary
element in any statute which seeks to arrest restraints of trade in
their incipiency, and before they develop into full-fledged
restraints violative of the Sherman Act."
S.Rep. No. 1775, 81st Cong., 2d Sess., p. 6.
See also
96 Cong.Rec. 16453 (remarks of Senator Kefauver).
Cf. 51
Cong.Rec. 14463-14464 (amendment of Senator Reed).
[
Footnote 2/9]
Although Congress eschewed exclusively mathematical tests for
assessing the impact of a merger, it offered several
generalizations indicative of the sort of merger that might be
proscribed,
e.g.: whether the merger eliminated an
enterprise that had been a substantial factor in competition;
whether the increased size of the acquiring corporation threatened
to give it a decisive advantage over competitors; whether an undue
number of competing enterprises had been eliminated. H.R.Rep. No.
1191, 81st Cong., 1st Sess., p. 8.
See Brown Shoe Co. v. United
States, 370 U. S. 294,
370 U. S. 321,
n. 36. Only the first of these generalizations is arguably
applicable to the present merger; the market extension aspects of
the merger, as well as the evidence of Shopping Bag's declining
profit margin and weak price competition, suggest that any
conclusion under this test would be equivocal.
See pp.
295-
384 U. S. 296,
384 U. S. 298,
384
U.S. 270fn2/30|>n. 30,
infra. Senator Kefauver
stated explicitly on the Senate floor that the mere elimination of
competition between the merged firms would not make the acquisition
illegal; rather, "the merger would have to have the effect of
lessening competition generally." 96 Cong.Rec. 16456.
[
Footnote 2/10]
Eighteen years ago, a dictum in
Federal Trade Commission v.
Morton Salt Co., 334 U. S. 37,
334 U. S. 46,
adverted to a "reasonable possibility" as the appropriate standard
for the corresponding language ("may be to substantially lessen
competition") under § 3 of the Clayton Act, 15 U.S.C. § 14. The
dictum provoked a sharp dissent in that case,
id. at
334 U. S. 55,
334 U. S. 57-58,
and the Court subsequently withdrew it,
Standard Oil Co. v.
United States, 337 U. S. 293,
only to reinstate it again today. This issue, which appeared
settled at the time of the 1950 amendment, provoked an acrimonious
exchange during the Senate hearings. Hearings before a Subcommittee
of the Senate Committee on the Judiciary on H.R. 2734, 81st Cong.,
1st & 2d Sess., pp. 160-168.
[
Footnote 2/11]
The decline continued at approximately the same rate to 1963,
the last year for which data are available, when there were 3,590
single store grocery firms in the area. The record contains no
breakdown of the figures on single store concerns. In an extensive
study of the retail grocery industry on a national scale, the
Federal Trade Commission found that, between 1939 and 1954, the
total number of grocery stores in the United States declined by
109,000, or 28%. The entire decrease was suffered by stores with
annual gross sales of less than $50,000. During the same period,
the number of stores in all higher sales brackets increased. The
Commission noted that the census figures, from which its data were
taken, included an undetermined number of grocery firms liquidating
after 1948 that merely closed their grocery operations and
continued their remaining lines of business, such as nongrocery
retailing, food wholesaling, food manufacturing, etc. Staff Report
to the Federal Trade Commission, Economic Inquiry Into Food
Marketing, Part I, Concentration and Integration in Retaining 48,
54 (1960).
[
Footnote 2/12]
The generalized case against the Court's numerical approach is
stated in Bok, Section 7 of the Clayton Act and the Merging of Law
and Economics, 74 Harv.L.Rev. 226, 312, n. 261:
"[T]here are serious problems connected with the use of this
yardstick. First, not every firm contributes equally to
competition. In particular, there may be a fringe of firms too
small to be able to affect price and production policies in the
market as a whole. Alternatively, certain firms may be marginal in
the sense that their costs and financial situations preclude them
from having much, if any, impact on market conditions; indeed, they
may be able to remain in operation only because excessive profits
are being earned by the stronger firms. An [exit] of companies of
this sort would have much less significance than a counting of
corporate heads would imply."
[
Footnote 2/13]
Between 1953 and 1961, the population of the Los Angeles
metropolitan area increased from 4,300,000 to 6,800,000 and the
average population per grocery store increased from 695 to 1,439.
Additional opportunity for new stores in the area results from the
geographical division of the city into numerous suburbs, as well as
from the lack of specific store loyalty among new residents.
[
Footnote 2/14]
Cf. Ferguson v. Skrupa, 372 U.
S. 726. In criticizing a recent decision of the Federal
Trade Commission, one commentator has stated, in terms applicable
mutatis mutandis to the Court's decision in the present
case:
". . . Any child alive in the 1950's could see that a
restructuring of food retailing was then going on. The business was
adjusting itself, through market mechanisms that included merger,
to vast and profound changes in the American way of life. There is
not a word in the FTC majority opinion that relates changes in the
number of stores and chains to the proliferation of suburbs, the
construction of shopping centers, and the final triumph of the
supermarket -- an innovation in retailing that has since spread
across the Western world. The most important single cause of these
changes was the automobile revolution . . . which not even the FTC
can stop."
"
* * * *"
". . . Plenty of living American men and women remember an era
when virtually all groceries were sold through very small stores,
none of which had 'any significant market share.' Was this era the
high point of competition in food retailing? Many little towns had,
in fact, only one place where a given kind of food could be bought.
In a typical city neighborhood, defined by the range of a
housewife's willingness to lug groceries home on foot, there might
be three or four relaxed 'competitors.' If she did not like the
price or quality offered by them, she could take her black-string
market bag, board a trolley car, and try her luck among the relaxed
'competitors' of some other neighborhood."
Ways, A New "Worst" in Antitrust, Fortune, April, 1966, pp.
111-112.
In the present case, the District Court found that, in the era
preceding the rise of the supermarkets,
"the area from which the typical store drew most of its
customers was limited to a block or two in any direction, and, if a
particular grocery store happened to be the only one in its
immediate neighborhood, it had a virtual monopoly of local
trade."
Thus, the Court's aphorism in
United States v. Philadelphia
Nat. Bank, 374 U. S. 321,
374 U. S. 363
-- that "[c]ompetition is likely to be greatest when there are many
sellers, none of which has any significant market share" -- is
peculiarly maladroit in the historic context of the retail food
industry.
See also Hampe & Wittenberg, The Lifeline of
America: Development of the Food Industry 313-372 (1964); Lebhar,
Chain Stores in America 1859-1962, pp. 348-390 (1963).
[
Footnote 2/15]
See Joskow, Structural Indicia: Rank-Shift Analysis as
a Supplement to Concentration Ratios, VI Antitrust Bulletin 9
(1961). In addition, the overall market share of the top 20 firms
in fact showed a slight decline between 1958 and 1960. The
statement in the concurring opinion in the present case, that
"All but two of the top 10 firms in 1958 were very probably also
among the top 10 in 1948 or had acquired a firm that was among the
top 10,"
is based on conjecture. The record demonstrates only that the
top four firms in 1948 were among the top 10 firms in 1958; the
record neither identifies the remaining six of the top 10 firms in
1948 nor charts their subsequent history.
[
Footnote 2/16]
For a similar study of the retail food industry at the national
level,
see Lebhar, Small Chain Virility a Bar to Monopoly,
Chain Store Age, Jan. 1962, p. E20.
See also Gould, The
Relation of Sales Growth to the Size of Multi-Store Food Retailers
6 (1966) (inverse correlation found between sales growth and size
of chains with four or more stores).
[
Footnote 2/17]
Of these latter 119 chains, 66 went out of business altogether,
28 reduced their operations to a single store, and 25 were
eliminated as separate competitors as a result of acquisitions by
other chains.
[
Footnote 2/18]
On the basis of these facts, one witness concluded:
"The apparent willingness and ability of grocers to expand and
create new chain entities at the staggering rate of more than 17 a
year and the growth potential of new chains, precludes, in my
opinion, the possibility that the retail grocery business in Los
Angeles will become either monopolistic or oligopolistic in the
foreseeable future. It must be remembered that, in 1953, only 10
chains with as many as 10 stores each were operating in the area.
These chains are recognized as being among the best managed, most
successful and most aggressive supermarket operators in the
country. They themselves have engaged in expansion programs of
significant proportions since 1953. Yet, 10 years later, instead of
having swept aside all competition and being left alone to compete
among themselves, these same 10 chains are now faced with the
necessity of competing against no less than 14 new chains of 10 or
more stores each, a significantly greater number of smaller chains
and a host of successful single store operators, of whom many are
affiliated with powerful voluntary chains or other cooperative
groups. . . . The growth of independents into chains and of small
chains into larger ones . . . demonstrates convincingly that small
concerns don't have to remain small in Los Angeles."
[
Footnote 2/19]
Data for 1960, the only year for which such figures are
available in the record, reveal a comparable agitation of entry and
exit among operators of single stores. Although there was a net
loss of 132 single outlet stores in 1960, 128 new single-outlet
stores opened during the year.
[
Footnote 2/20]
As to
384
U.S. 270tab1|>Table 1 in the Appendix of the Court's
opinion, this fact is obvious on the face of the table. As to
384
U.S. 270tab2|>Table 2 in the Appendix, examination of the
record discloses that each of the nine acquisitions listed as
involving a single store represented purchases of single stores
from chains ranging in size from two to 49 stores.
[
Footnote 2/21]
See 384
U.S. 270tab1|>Table 1 in the Appendix of the Court's
opinion.
[
Footnote 2/22]
384
U.S. 270tab1|>Table 1 in the Appendix of the Court's opinion
is somewhat misleading in that it weights the data from which it is
drawn in favor of the acquisition by grocery chains of other chains
consisting of relatively larger numbers of store units. The
complete data of the witness included several acquisitions of one-
and two-store concerns, together with the disposition of one
ten-store chain to various individuals.
[
Footnote 2/23]
See 384
U.S. 270tab2|>Table 2 in the Appendix of the Court's
opinion. This table, not a part of the record, was submitted by the
Government in its reply brief, filed on the eve of oral
argument.
[
Footnote 2/24]
See Foremost Dairies, Inc., 60 F.T.C. 944;
Beatrice
Foods Co., F.T.C.Docket No. 6653 (April 26, 1965);
National Tea Co., F.T.C.Docket No. 7453 (March 4, 1966).
Cf. United States v. Penn-Olin Chemical Co., 378 U.
S. 158;
Proctor & Gamble Co., F.T.C. Docket
No. 6901 (Nov. 26, 1963),
rev'd 358 F.2d 74 (C.A.6th
Cir.); Turner, Conglomerate Mergers and Section 7 of the Clayton
Act, 78 Harv.L.Rev. 1313.
[
Footnote 2/25]
Evidence introduced by the defendants indicated that the overlap
between the Von's and Shopping Bag stores was significantly smaller
than that proposed by the government witness.
[
Footnote 2/26]
At the time of the merger in 1960, Von's operated 28 retail
grocery stores in the Los Angeles area. It commenced operation as a
partnership of the Von der Ahe family in 1932, during the
depression, with a food concession in a small grocery store.
Shopping Bag operated 36 stores in Los Angeles at the time of the
merger; it commenced operation as a partnership in a small grocery
store in 1930. So far as the record reveals, the competitive
behavior of these firms was impeccable throughout their expansion,
which took place solely by internal growth. In discussing the
success of comparable firms
vis-a-vis the Sherman Act,
Judge Learned Hand stated,
"[T]he Act does not mean to condemn the resultant of those very
forces which it is its prime object to foster:
finis opus
coronat. The successful competitor, having been urged to
compete, must not be turned upon when he wins."
United States v. Aluminum Co. of America, 148 F.2d 416,
430.
[
Footnote 2/27]
Nor is it altogether easy to escape the feeling that it is not
so much this merger, but Los Angeles itself, that is being
invalidated here.
Cf. Adelman, Antitrust Problems: The
Antimerger Act, 1950-60, 51 Am.Econ.Rev. 236, 243 (May 1961):
"In the antitrust dictionary, 'powerful' has no necessary
connection with monopoly power or market control or even market
share. It means . . . one four-letter word: size."
Los Angeles is, to be sure, a big place. Although Shopping Bag's
share of the Los Angeles market was only 4.2%, its sales in 1958
totaled $84,000,000.
Compare the Court's statement in
Tampa Electric Co. v. Nashville Coal Co., 365 U.
S. 320,
365 U. S.
333-334:
"It is urged that the present contract preempts competition to
the extent of purchases worth perhaps $128,000,000, and that this
'is, of course, not insignificant or insubstantial.' While
$128,000,000 is a considerable sum of money, even in these days,
the dollar volume, by itself, is not the test. . . ."
[
Footnote 2/28]
This is not a
"merger between two small companies to enable the combination to
compete more effectively with larger corporations dominating the
relevant market,"
Brown Shoe Co. v. United States, 370 U.
S. 294,
370 U. S. 319;
cf. House Hearing,
supra, 384
U.S. 270fn2/5|>n. 5, pp. 40-41; Senate Hearings,
supra, 384
U.S. 270fn2/10|>n. 10, pp. 6, 51; 95 Cong.Rec. 11486, 11488,
11506; 96 Cong.Rec. 16436; H.R.Rep.No.1191, 81st Cong., 1st Sess.,
pp. 6-8; S.Rep.No.1775, 81st Cong., 2d Sess., p. 4. However, the
Court today in a gratuitous dictum,
ante, p.
384 U. S. 277,
undercuts even that principle by confining it to cases in which
competitors are obliged to merge to save themselves from
destruction by a larger and more powerful competitor.
[
Footnote 2/29]
Mr. Hayden, the president and principal stockholder of Shopping
Bag, was advanced in years and was concerned over the absence of a
strong management staff that could take over his
responsibilities.
[
Footnote 2/30]
Von's was a considerably more successful competitor than
Shopping Bag. Shopping Bag's net income as a percentage of total
sales declined from 1.6% in 1957 to 0.9% in 1959, and its net
profit as a percentage of total assets declined from 6.6% to 3.2%.
During the same period, the net income of Von's increased from 2.1%
to 2.3%, and its net profits declined from 12.7% to 10.8%.
[
Footnote 2/31]
One single store operator, located adjacent to one supermarket
and within a mile of two others, testified,
"I have often been asked if I could compete successfully against
this sort of competition. My answer is and always has been that the
question is not whether I can compete against them, but whether
they can compete against me."
Another single store operator testified,
"Competition in the grocery business is on a store-by-store
basis, and any aggressive and able operator like myself can
out-compete the store of any of the chains because of personalized
service, better labor relations, and being in personal charge of
the store and seeing that it is run properly."
A third single store operator testified,
"The chains in this area are good operators, but when they grow
too large, they are actually easier to compete with from an
independent's viewpoint. If I had a choice, I would rather operate
a store near a chain unit than near another independent."
[
Footnote 2/32]
See generally Staff Report to the Federal Trade
Commission, Economic Inquiry Into Food Marketing, Part I,
Concentration and Integration in Retailing, c. VI, "Retailer-owned
Cooperative Food Wholesalers"; c. VII, "Wholesaler-sponsored
Voluntary Retail Groups" (1960). The annual sales of Certified
Grocers of California, Ltd., a retailer-owned cooperative whose
members do business principally in the Los Angeles area, rose
fourfold from $87,000,000 in 1948 to $345,000,000 in 1962, and the
volume of its purchases exceeded that of all but the largest
national chains doing business in Los Angeles. Most of the leading
chains in the area began development in association with Certified
Grocers, called the "mother" of the industry. In some cases, the
cooperatives were able to offer even lower prices to their members
than competing chains could obtain. The District Court found that
the cooperatives also provided their members with assistance in
merchandising, advertising, promotions, inventory control, and even
the financing of new entry.
[
Footnote 2/33]
See Bok, Section 7 of the Clayton Act and the Merging
of Law and Economics, 74 Harv.L.Rev. 226, 302-303 (1960).
[
Footnote 2/34]
In a footnote, the Court emphasized the corollary principle
that,
"if concentration is already great, the importance of preventing
even slight increases in concentration and so preserving the
possibility of eventual deconcentration is correspondingly
great."
United States v. Philadelphia Nat. Bank, 374 U.
S. 321,
374 U. S. 365,
n. 42. That corollary, of course, has no application here, since
the Los Angeles retail grocery market can in no sense be
characterized as one in which "concentration is already great."
Compare United States v. Aluminum Co. of America,
377 U. S. 271;
United States v. Continental Can Co., 378 U.
S. 441. The importance of a trend toward concentration
in the particular industry in question was recognized in
Brown
Shoe Co. v. United States, 370 U. S. 294,
370 U. S. 332.
See also Pillsbury Mills, Inc., 50 F.T.C. 555, 572-573;
United States v. Bethlehem Steel Corp., 168 F.
Supp. 576, 604-607 (D.C.S.D.N.Y.); U.S. Atty. Gen. Nat. Comm.
to Study the Antitrust Laws, Report 124 (1955).
[
Footnote 2/35]
As a result of the merger, the market share of the two largest
firms increased from 14.4% to 15.5%, and the share of the six
largest firms increased from 32.1% to 35.4%. The merger involved in
Philadelphia Nat. Bank produced a single firm controlling
30% of the market, and resulted in an increase of from 44% to 59%
in the market share of the two largest firms in the market. The
Court's opinion is remarkable for its failure to support its
conclusion by reference to even a single piece of economic theory.
I shall not dwell here on the barometers of competition that have
been suggested by the commentators. But it seems important to note
that the present merger falls either outside, or at the very
fringe, of the various mechanical tests that have been proposed.
See, e.g., Kaysen & Turner, Antitrust Policy 133-136
(1959) (horizontal merger with direct competitor is
prima
facie unlawful where acquiring company accounts for 20% or
more of the market, or where merging companies together constitute
20% or more of the market; acquisitions producing less than 20%
market control unlawful only where special circumstances are
present, such as serious barriers to entry or substantial influence
on prices by the acquired company); Stigler, Mergers and Preventive
Antitrust Policy, 104 U.Pa.L.Rev. 176, 179-182 (1955) (acquisition
unlawful if it produces a combined market share of 20% or more;
acquisition permitted if the combined share is less than 5-10%);
Bok, Section 7 of the Clayton Act and the Merging of Law and
Economics, 74 Harv.L.Rev. 226, 308-329 (1960) (no merger by the
dominant firm in an industry if its market share is increased by
more than 2-3%; no merger by other large firms in the industry
where the combined market shares of the two-to-eight largest firms
after the merger are increased by 7-8% or more over the shares that
existed at any time during the preceding 5-10 years; no merger
where acquired firm has 5% market share or more).
See also
Markham, Merger Policy Under the New Section 7: A Six-Year
Appraisal, 43 Va.L.Rev. 489, 521-522 (1957). The 40% rule promoted
by the concurring opinion in the present case seems no more than an
ad hoc endeavor to rationalize the holding of the
Court.