General Foods Corporation

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

IN THE MATTER OF GENERAL FOODS CORPORATION ORDER, OPINIONS, ETC. , IN REGARD TO THE, ALLEGED VIOLATION OF SEC. 7 OF THE CLAYTON ACT Docket 8600. Complaint, Septernbe?' 30 , 1.963-Decision, March, 1966 Order requiring General Foods Corporation, one of the Nation s largest manufacturers of packaged grocery products with hcadqual'ters in White Plains, N. , to divest itself within one year of all assets and properties of the . S. S. Company of Chicago, Ill., the dominant manufacturer and distributor of household steel wool, to a purchaser not connected in anyway with the respondent or any of its affliates or subsidiaries. GENERAL FOODS CORPORA Tlon 381 380 Complaint COMPLAINT The Federal Trade Commission has reason to believe that the above-named respondent has acquired the assets of another corporation in violation of Section 7 of the amended Clayton Act (15 C. Section 18); and, therefore, pursuant to Section 11 of said Act, the Commission issues this complaint, stating its charges in that respect as follows:

PARAGRAPH 1. (a) Respondent, General Foods Corporation, is a corporation organized and existing under the laws of the State of Delaware, with its principal offces located at 250 North Street White Plains, New York.

(b) Respondent, directly and through its various completely owned subsidiaries, is now and had been for many years prior to December 31, 1957, engaged principally in the manufacture or processing, sale and distribution of packaged grocery products which are sold by respondent under numerous advertised brand names to retail and wholesale grocery and food outlets, particularly supermarkets.

(c) In the course and conduct of its business, respondent is now and was prior to December 31 , 1957, engaged in commerce (as commerce is defined in the Clayton Act, as amended), selling, delivering and shipping its numerous products from its plants and other facilities located in various States of the United States to food stores, supermarkets, restaurants, institutions, and other purchasers located in States other than the State in which such sales and shipments originated.

PAR. 2. (a) Prior to December 31 , 1957, The S. S. Company (S. ) was a corporation organized on November 9, 1927, doing business under and by virtue of the laws of the State of Delaware, with its offce and principal place of business located at 7125 West 65th Street, Chicago, Ilinois.

(b) S. S. was engaged in the manufacture, distribution and sale of household steel wool (the line of commerce involved herein). Said product was sold nationaUy under the name " for use primarily as a household scouring and cleansing aid. " household steel wool is a high volume, rapid turnover packaged grocery product. S. S. also manufactured and sold household steel wool for resale by other companies under their own private label. In addition, S. S. produced and sold a small amount of steel wool for commercial use. (c) In the course and conduct, of its business, S. S. was en- Complaint 69 F.

gaged on or about December 31 , 1957, and for many years prior thereto, in commerce (as commerce is defined in the Clayton Act as amended), having sold and delivered or shipped household steel wool from its plants and facilties located in the State of Illinois to food stores, supermarkets, and other purchasers located in States other than the State of Ilinois. (d) On or about December 31 , 1957, in exchange for 349,410 shares of its common stock, valued at approximately $17 500,000 respondent acquired all of the assets of The S. S. Company, including its wholly owned subsidiary, Tuffy of Canada, Limited. As of July 31 , 1957, the book value of the assets of S. amounted to approximately $6 000 000.

Pursuant to the acquisition agreement, respondent acquired the exclusive right to the trademark " " Following the acquisition, The S. S. Company was dissolved and the production and distribution of " " household steel wool has been continued through a newly formed division of respondent. PAR. 3. Respondent is one of the leading packaged grocery products manufacturers in the United States. Directly and through its completely owned subsidiaries, respondent maintains and operates more than 30 plants for the manufacture, processing and distribution of its products in the United States. In addition, respondent engages in foreign manufacturing and marketing of packaged grocery products similar to those manufactured and marketed in the United States.

PAR. 4. During the fiscal year ending March 31 , 1957, the last complete fiscal year prior to the acquisition challenged in this complaint, respondent' s net sales were $985 953,000. As of said date, respondent had total assets of $410 000 000. By the year ending March 31 , 1962, respondent' s net sales had increased to approximately $1, 189 000 000 and its total assets to approximately $602 000 000.

In the ten year period from 1953 to 1962, respondent increased its net sales, net earnings and net assets approximately as follows:

1962 1953 189,483,000Net Sales $701,055,000 $1 244 000Net Earnings 24,807000 72 000Net Assets 200,031000 418,755 PAR. 5. A large number of respondent's present products were acquired through the acquisition by respondent of the assets or stock of existing producers of such products. Between the date of GENERAL FOODS CORPORATION 383 380 Complaint its incorporation and March 31, 1962, respondent made about 69 such acquisitions including that of the S. S. Company. PAR. 6. Respondent manufactures and sells a broad line of packaged grocery products. Based on the 1954 Census of Manufacturers, respondent accounted for the following percentages of total United States value of shipments in the following product classifications:

A. Over Fifty (50) Percent:

Baking Power (consumer) Powdered beverage bases, desserts (ready-to-mix) Concentrated coffee (powdered with added carbohydrates) Coconut Pectin Edible Gelatins, (excluding ready-to-mix desserts) Bluing B. Twenty-five-Fifty (25-50) Percent:

Frozen beans Frozen broccoli Frozen cauliflower Frozen peas Other frozen vegetables Wheat breakfast foods Desserts (ready-to-mix, cornstarch base) Other ready-to-mix desserts Sweetening syrups and molasses Concentrated coffee (powdered, pure coffee extract) Other frozen vegetables and prepared foods C. Ten-twenty-five (10-25) percent of fourteen additional products.

PAR. 7. At the time of its acquisition, and for many years prior thereto, S. S. was the largest producer and marketer of household steel wool in the United States, and " " household steel wool was a well-known and accepted item in the American home. S.'s sales of household steel wool were $14 571 758 in 1957 which represented approximately 51 % of all household steel wool sold in the United States.

As of December 31, 1957, in addition to S. S. there were only four other producers of household steel wool in the United States. In 1957, the number two producer had sales of $13 628 606 amounting to approximately 47. 6ro of the market, the number three producer had sales of $343 800 amounting to approximately 1.2 ro of the market, the number four producer had sales of $63 Complaint 69 F.

850 amounting to approximately 0.2% of the market, and the fifth producer had sales of $160 which amounted to less than 05:10 of the market.

For the year ending December 31 , 1957 , S. S. spent approximately $2 100 000 in advertising household steel wool. The number two producer of household steel wool was the only other producer that advertised its product to any significant degree. Also prior to the acquisition of S. , consumer promotions were not used to any significant degree by any producer in the household steel wool industry.

Since the acquisition, respondent has increased materially the amount of advertising devoted to " " household steel wool. Additionally, respondent has re-oriented the methods and media used in advertising " " household steel wool; particularly through substantially greater use of television, and the commencement of the use of consumer promotions on a large scale. PAR. 8. By virtue of the acquisition of S. , respondent has entered a market in which it was not a customer, supplier or competitor. In so doing, respondent replaced the dominant factor in the household steel wool industry and immediately became the largest producer and marketer of household steel wool in the United States. Also, respondent, with annual net sales of over one bilion dollars, has entered into an industry which at the time of the acquisition, was comprised of five relatively small companies none of whom had annual sales of over seventeen milion dollars. Additionally, " " household steel wool now has the backing of respondent's substantial financial resources, economk power and demonstrated merchandising expertise and ability to advertise, promote and seu high volume, rapid turnover packaged grocery products. Said acquisition has upset and realigned adversely, and threatens to upset and realign further, the competitive structure of the household steel wool industry. Through its economic power, merchandising prowess and extensive advertising and promotion respondent has increased the " " share of the household steel wool market substantially, from approximately 51 % at the date of the acquisition to approximately 57:10 as of December , 1961. Thus, to the detriment of competition, respondent has further substantiaUy enhanced the dominant position it acquired as the largest manufacturer and marketer of household steel wool in the United States.

PAR. 9. Respondent is a recognized leader in the merchandising of high volume, rapid turnover, packaged grocery products. The vast majority of respondent's products and " " household , GENERAL FOODS CORPORATION 385 380 Complaint steel wool are sold in grocery stores and supermarkets. Consumer acceptance of said products, which is vital in order to obtain critically short and valuable shelf space in retail grocery stores and supermarkets, is obtained largely through extensive advertising and promotion. In 1956, respondent was the sixth largest advertiser of a1l products in the United States. In 1957, the year prior to said acquisition, respondent spent approximately $69 000 000 for advertising, including various consumer promotions which respondent utilized successful1ly in promoting the sale of its packaged grocery products. Subsequent to the acquisition, respondent has employed consumer promotions extensively in promoting the sale of S. S. household steel wool.

By 1962, respondent had become the third largest advertiser the United States, spending approximately $105 000 000 and utilizing a1l media to advertise and promote its products. By virtue of these vast expenditures, respondent receives sustantial discounts in the placement of its advertising. As a result of the acquisition " household steel wool now has the beneflt of respondent' s abilty to acquire valuable and diffcult to obtain grocery store shelf space which is to the disadvantage of other household steel wool producers, none of whom possesses the expansive line of packaged grocery products that are so widely advertised, promoted and sold by respondent. PAR. 10. In the fonowing ways, among others, the effect of respondent' s acquisition of S. S. has been, or may be, substantially to lessen competition or to tend to create a monopoly in the manufacture, distribution and sale of household steel wool, the relevant line of commerce involved herein, throughout the United States the relevant geographical market involved herein: 1. Actual and potential competition generaUy in the production and sale of household steel wool has been or may be substantially lessened.

2. Potential competition in the production and sale of household steel wool has been eliminated by reason of respondent' s acquisition of the dominant producer, with whom it would have had to compete had it entered the household steel wool business through internal development rather than through acquisition. 3. The S. S. Company has been permanently ellmmated as an independent competitive factor in the household steel wool industry.

4. The dominant producer and marketer of household steel wool has been absorbed into and combined with one of the na- Complaint 69 F.

tion s largest producers and marketers of packaged grocery products which is also one of the largest advertisers and merchandisers in the United States.

5. Other household steel wool producers, as well as potential producers, have been, or may be precluded from competing with respondent due to anyone, or more, or all of the fonowing factors:

(a) Respondent's dominant market position; (b) Respondent's financial resources and economic power; (c) Respondent's advertising ability and experience; (d) Respondent's merchandising and promotional abilty and experience;

(e) Respolldent's comprehensive line of packaged grocery store products;

(f) Respondent's abilty to command consumer acceptance of its products and of valuable grocery store shelf space; (g) Respondent's abilty to concentrate on one of its products or on one selected section of the country, the full impact of its advertising, promotional and merchandising experience and ability. 6. Concentration in the production and sale of household steel wool, which was already high, has been, or may be further increased.

7. Respondent has acquired the manufacturing facilties and the dominant market position, which, when combined with its own overwhelming economic power, give it the capacity and ability to monopolize or tend to monopolize the household steel wool market.

8. Competition between and among brokers, wholesalers and retailers of household steel wool has been, or may be, substantially lessened or eliminated.

9. Entry into the household steel wool industry has been or may be discouraged and inhibited.

PAR. 11. The foregoing acquisition, acts and practices of respondent, as hereinbefore alleged and set forth constitute a violation of Section 7 of the Clayton Act (U. , Title 15, Sec. 18) as amended and approved December 29, 1950.

. David J. McKea. , Mr. James A. Morg(J supporting the complaint.

Covington Burling, by Mr. Gerhard A. Gesell, Mr. Roberts B. Owen, Mr. Thaddeus Holt, Mr. Franklin J. Okin Washington Mr. Albert L. Cuff and Mr. KenMll Cole White Plains Y. for respondent.

. . .

GENERAL FOODS CORPORATION 387 380 Initial Decision INITIAL DECISION BY ANDREW C. GOODHOPE, HEARING EXAMINER DECEMBER I8, I964 Statement of Proceedings On September 30, 1963, the Commission issued its complaint against the respondent charging it with violation of Section 7 of the Clayton Act, as amended.' A copy of the complaint and notice of hearing was served upon respondent, and respondent thereafter appeared by its counsel and flied an answer admitting certain of the allegations of the complaint but denying that it had violated Section 7 of the Clayton Act, as amended.

Hearings were thereafter held at which time testimony and documentary evidence were offered in support of and in opposition to the allegations of the complaint. At the close of all the evidence and pursuant to leave granted by the examiner, proposed findings of fact, conclusions of law, briefs and proposed orders were filed by counsel supporting the complaint and counsel for the respondent.

Proposed findings not herein adopted either in the form or substance proposed are rejected as not supported by the evidence or as involving immaterial matters. Having reviewed the entire record in this proceeding, including the proposed findings, conclusions and briefs submitted by both parties, the examiner, based upon the entire record, makes the following: FINDINGS OF FACT 1. The respondent General Foods Corporation (hereafter called General Foods) is a Delaware corporation with its principal offce and place of business located at 250 North Street, White Plains New York. (Paras. One and Two of Complaint and Answer. 2. General Foods manufactures and sells its products to wholesale and retail grocery food outlets throughout the United States and is and has been for many years engaged in commerce as that term is employed in the Clayton Act. General Foods is the largest packaged food products manufacturer in the United 1 The Act, 85 amended, provides in pertinent part as follows: Sec. 7. That no corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or Bssets of another corporation engaged also in com. merce, 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. (38 Stat. 731; 15 V. , Sec. 18) . , , pp. Initial Decision 69 F.

States, with net sales in the year 1957 (flscal) , of 3985 953,000 and in 1963 of $1 054 650 737. (Respondent's Proposed Finding 1.1; Counsel for Commission s Proposed Finding 2. ) 3 3. On December 31 , 1957, General Foods acquired all of the assets of The S. S. Company, a Delaware corporation with its principal offce in Chicago, Ilinois. The S. S. Company was enggaged primarily in the manufacture and sale throughout the United States of two scouring devices for household use soap pads and "Tuffy." The acquisition was accomplished by an exchange of General Foods shares for assets of The S. S. Company, followed by liquidation of The S. S. Company and distribution of the General Foods shares to the former S. S. stockholders. By vii-ue of this arrangement, the owners of S. S. received 349 410 shares of General Foods common stock, which then had an approximate market value of 817,500 000. (RPF 1.2) The S. S. Company manufactured and sold its products to wholesale and retail grocery food outlets throughout the United States, and at the time of the merger and for many years prior thereto had been engaged in commerce as that term is employed in the Clayton Act. (Answer, Para. Two.

GEOGRAPHIC MARKET INVOLVED 4. Counsel supporting the complaint and counsel for respondent are in agreement that the entire United States is the proper geographic market in which to measure the effects of this acquisition. The examiner agrees and so finds. (CPF 46; RPF p. 173. THE ORGANIZATION OF GENERAL FOODS 5. In the United States, General Foods consists of five operating divisions. These are:

1. Birds Eye Division 2. J ell-O Division 3. Kool-Aid Division (of which S. S. became a part) 4. Maxwell House Division 5. Post Division In addition, these operating divisions are supported by an Institutional Food Service Division, a Distribution- Sales Service Division, and the General Foods Technical Center. (CX 149 2 Respondent' s fisea.! year for 1957 and subsequent years runs from April 1 to the following JiIarch :n. Most of the statistical infonrJation concerning respondent is on this fiscal basis, and such figures will be used hereafter unless otherwise noted. 'Hereafter " RPF" refers to Respondent's Proposed Finding, and "GI'F" refers to Counsel for Commission s Proposed Findin CRB" refers to Counsel for Commission s Reply Brief.

GENERAL FOODS CORPORATION 389 380 Initial Decision 30-31) Each of these divisions is managed by a general manager who is responsible to the corporation for the manufacturing, marketing, and promotion of the products made or sold within his division. Each operating division general manager has his own marketing, research, advertising staff, and controller, and reports to an operating executive vice president who is a member of the corporate staff. (Tr. 471) 6. The respondent is basically a manufacturer of packaged grocery food products numbering some 250 items and sold under at least 30 well-known brand names. (CX 40, p. 5; CX 41 , back cover; CX 149, p. 32) Over the years, the respondent has made some 69 acquisitions (including foreign companies) as a result of which it has obtained the majority of its products. (Answer Para. Five) These products are sold to the grocery trade consisting of approximately 300 000 retail grocers throughout the United States. (TO'. 557) Approximately 35 000 of these 300 000 retail grocery stores account for 70 per cent of all retail food store sales. (Tr. 557, 750) 7. The operating divisions of General Foods, with the exception of the Kool-Aid Division, sell their divisional products means of their own separate division sales force. The Kool-Aid Division sells its products to the grocery trade throughout the United States by means of food brokers located in seventy marketing areas of the United States. (TO'. 707) In supervising the sales of the Kool-Aid Division products, the division manager is assisted by a staff consisting of regional and district sales managers. These managers have no direct sellng responsibilty but function to supervise and assist the efforts of the brokers through whom the products are actually sold. (TO'. 707-711) 8. At the time of the acquisition, The S. S. Company sold S. soap pads nation-wide through grocery stores, and steel wool soap pads' sales to these accounts amounted to approximately 97 per cent of the total sales of S. S. (CX 7, p. 22) The grocery stores to whom S. S. sold its soap pads accounted for 95 per cent of aU grocery sales in the United States. (RPF III. l) Its products were distributed through selected brokers from public warehouses located throughout the United States, and its products were intensively advertised in various media, including network television, with an annual advertising budget of nearly 000 000. The company was competently managed, had shown a steady growth, and was operating at a profit. (RPF III.l; CPF 43, 43) Initial Decision 69 F. T. 9. As a result of the acquisition of The S. S. Company, General Foods entered a market in which it was not an actual or potential customer, supplier, or competitor. General Foods had not considered the possibilty of expanding on its own to the household cleaning product market. Its only non-food product of any kind other than those acquired from The S. S. Company was an ironing aid which it purchased from an outside firm and resold. (RPF II. 2) General Foods, while it had never been a manufacturer or seller of any household cleaning products such as soap, detergents, bleaches or other products, was a substantial and well-entrenched manufacturer of low-cost, rapid turnover food items sold through the grocery trade throughout the United States to the consuming public consisting almost entirely of housewives. (RPF II.2) The soap pad business into which General Foods entered was a similar type of business, since soap pads are a comparatively low-cost item sellng in the most popular sizes of 10 (S. ) and 12 (Bri1o) pads to a box at 27 to 29 cents, with a rapid turnover and sold through brokers to the grocery trade. 10. Shortly after the acquisition, The S. S. Company was Incorporated into the Kool-Aid Division (formerly Perkins Division). (Tr. 483, 502-504) All of the products of the Kool-Aid Division were sold through brokers to the grocery trade rather than direct by respondent' s own sales forces as the other General Food products are sold. (Tr. 503) The products of the Kool-Aid Division are as follows:

1. Kool-Aid 2. Twist 3. S.

4. S. ettes 5. Tuffy 6. LaFrance 7. Satina 8. Open Pit Barbecue Sauce 9. Good Seasons Sauce and gravy mixes (Tr. 484) LINE OF COMMERCE 11. Both counsel in support of the complaint and for the respondent agree that industrial steel wool should not be considered as a part of the relevant product line in this matter. (CPF 50; RPF p. 174) The examiner agrees and so flnds. The reasons for this are that industrial steel wool consists of an entirely separate market having different uses, is sold in a different market at dif- . . .

GENERAL FOODS CORPORATION 391 380 Initial Decision fercnt prices, and is not, except to an insignificant degree, competitive with household steel wool.

12. While the parties are agreed, and the examiner finds, that the relevant geographic market in this matter is the national market, they disagree as to the scope of products which must be considered as constituting the relevant functional market or "line of commerce." Commission counsel content that the line should be limited solely to household steel wool. This market, it is urged consists of steel wool pads which are impregnated with soap in the manufacturing process and commonly called soap pads, and plain household steel wool pads with or without a separate piece of soap. (CPF 47) Counsel for respondent, on the other hand contend that the relevant product market consists of all household scouring devices which, it is urged, compete as close substitutes for soap pads in the principal function of soap pads; namely, scouring dirty pots, pans and cooking utensils. (RPF 11) While there are a number of other products such as soap and detergents which can conceivably be used to clean dirty pots pans and cooking utensils, respondent does not contend that they should be included as a part of the relevant product line, but that such line should include all products which have an abrasive surface consisting of a ball or pad of a size to fit a housewife s hand and which can be used for scouring either along or in conjunction with soap, detergent, or some abrasive material. (RPF 11) 13. The examiner finds that the relevant product line of commerce in which to measure the effects of the acquisition here involved consists of household steel wool. In making this finding, the examiner is relying upon the evidence of record and the decision of the Supreme Court in Brown Shoe Company v. S. 370 S. 294 (1964) in which the Court stated at page 315: The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross elasticity of demand between the product itself and substitutes for it. However, within this broad market, well defined submarkets may exist which, in themselves, constitute product markets for antitrust purposes. United States v. E. T. dupont de Nemours Co. 353 U. S. 586, 593-595 The boundaries of such a submarket may be determined by examining such practical indicia as industry or public recognition of the submarket as a separate economic entity, the product's peculiar characteristics and uses, unique production facilties, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors. Because Section 7 of the Clayton Act prohibits any merger which may substantially lessen competition " in any line of commerce" (emphasis supplied), it is neces- Initial Decision 69 F.

sary to examine the effects of the merger in each such economically significant S'ubmarket to determine if there is a reasonable probability that the merger wil substantially lessen competition. If such a probability is found to exist the merger is proscribed.

This explicit statement makes it clear that while the "outer boundaries" of a product market are determined by the reasonable interchangeabilty of use or the cross-elasticity of demand between the product itself and its substitutes, wen-defined submarkets may exist within this broad market, which, in themselves constitute product markets for antitrust purposes. This and other decisions involving Section 7 recognize that, though a broad product market could conceivably be broken down into many submarkets, only those submarkets which are economically significant in terms of effective competition are relevant "lines of commerce within the meaning of Section 7.

14. In the largest sense, the market here involved could include all household cleaning aids. Products such as detergents, liquid cleansers, certain types of dish cloths and certain types of brushes are all used in various ways to clean pots and pans and to do other scouring chores in the kitchen. These products are in the same broad market in that they can be used alone or in combi. nation for the same general purposes. While such products might be included to define the outer limits of the market, such a market would be far too broad for purposes of measuring the probable competitive consequences of the acquisition under consideration. Consequently, these products must be disregarded. 15. The problem becomes more diffcult when the types of products which respondent contends must properly be considered within the "line of commerce" are reached. The respondent asserts that they compete directly with steel wool pads in their principal function, scouring dirty pots, pans and cooking utensils. In support of its contention, counsel for respondent has offered and the record contains physical examples of such products. (RX 1-6; RX 1A-6A) , These products can be described as follows:

(a) 14 are steel wool pads which counsel in support of the complaint agree are properly includable in the "line of commerce " whether soap impregnated or not. (b) 13 items are plastic mesh balls or pads, some of which have a sponge inside the ball or mesh, but none of which are soap impregnated. Respondent's product "Tuffy" is in this group. i RX 1-6 are aix large display boards affxed to which are 50 samples of scouring aid products. RX lA-6A are photographs of these boards in the exhibit binder. GENERAL FOODS CORPORATION 393 380 Initial Decision (c) 14 items are basically plastic or cellulose sponges with an abrasive surface joined to one side of the sponge. Minnesota Mining and Manufacturing Company s "Rescue" is in this group and is soap impregnated.

(d) 7 items are pads of metal mesh made of metal other than steel wool, but none of which are soap impregnated. (e) 2 items are flber dish cloths coated with an abrasive substance, neither of which is soap impregnated. 16. A study of the physical characteristics of these products and the testimony concerning them in the light of the Brown Shoe Company case cempels the examiner to conclude that these products must likewise be excluded from the relevant "line of commerce" in this matter, except for the 14 steel wool products described above.

17. Household steel wool pads are produced by a shaving process in which a special1ly manufactured steel wool wire is drawn through a machine containing a series of cutting knives. As the wire is drawn against the knives, strands of steel wool with triangular cross-sections are shaved off and collected in ribbons. Thereafter, these ribbons are formed into balls or pads, the majority of which are impregnated with soap, dried, and packaged for sale. (Tr. 826-827) The steel wool cutting machines are comparatively large, complicated machines, not generally available on the open market, but are custom-made to the manufacturer specifications. (Tr. 847, 888-890, 908-909) A German manufactured machine is available but cannot produce steel wool as effciently as American-made machines. (Tr. 847-848) The technology of steel wool production is complex and requires considerable "know-how" not readily available. (CX 7, pp. 11 , 23 , 75) These steel wool cutting machines can be used for no other function than the production of steel wool. Wool manufactured from materials other than steel are impractical because of the high cost of the raw materials. (Tr. 828-829) 18. Steel wool pads make a particularly effective abrasive. The three exposed cutting edges perform much in the same manner as a knife abrasing by cutting or shaving the surface to which the steel wool is applied. (Tr. 432, 628-629, 839, 939, 978-979) As a result, the metal surfaces are polished, particulary the surfaces of aluminum pots and pans. With the addition of soap to facilitate its abrasive action, steel wool makes a highly effective scouring and cleaning agent. (Tr. 839, 978-979) The steel wool pad is soft and pliable, lends itself well to almost any surface, and is Initial Decision 69 F.

able to reach into dirty corners and crevasses with ease. (Tr. 844, 939) The primary use for steel wool soap pads is for cleaning dirty pots, pans and other cooking utensils. The record contains an estimate that at least 80 percent of the total volume of soap pads are used for this purpose. (Tr. 759) Other uses described as periphery uses are for cleaning dishes and tableware, white wan tires, golf clubs, aluminum doors and windows, and barbecue grils. (Tr. 424, 759) 19. The manufacturers of the majority, if not aU, of the products appearing on RX 1-6 make claims in advertising and on packaging that the products are scouring aids whose principal function is to scour dirty pots, pans and cooking utensils. Reliable testimony of record does not support these claims. The president of The S. S. Company prior to its acquisition by General Foods testified that the housewives complained during W orJd War II when the manufacture of steel wool was curtailed and at least some of these products were available. He further testified that during this period of time The S. S. Company tested a variety of but that at-other materials including plastics and other metals, tempts to flnd a substitute for steel wool convinced his company that nothing could perform as wen as steel wool soap pads. (Tr. 428-431) a former general manager of the S. S. Division of General Foods subsequent to the acquisition, testified that tests on these types of products were made and compared with the performance of steel wool. The results of such tests showed that S. steel none of the other products performed as well as the S. wool pads. (Tr. 626) This witness likewise testified that the respondent' s product "Tuffy" which respondent argues is within the line of commerce" was not intended for the same use as steel wool soap pads, but that it was intended primarily for cleaning dishes and light-duty uses comparable to a dish rag. (Tr. 626; See also, Tr. 761) 20. Only two of the products which respondent contends are properly within the "line of commerce" contain any soap, Minneand sota Mining and Manufacturing Company s product "Rescue" Glit Whopper Scrubber." These two products, particularly "Rescue " appear to be the closest comparable items to steel wool soap pads. However, none of these plastic or mesh pads or bans, abrasive surface sponges, metal mesh pads, or abrasive coated cloths are able to perform the wide range of household cleaning jobs as , 839-841 , 937-939 well as household steel wool. (Tr. 430-431 1276-1277) While manufacturers of these products have been GENERAL FOODS CORPORATION 395 380 Initial Decision making claims of their superiority over household steel wool, the sales of these products have not reflected such superiority. (Tr. 428-431) This is best evidenced by the constantly rising sale of household steel wool to be discussed hereafter. 21. The most popular size of steel wool packages (10 pads for ; 12 pads for Brilo until Jan., 1961, and thereafter 10 (Tr. 630, 780, 1091)) retail at approximately 27 to 29 cents per package in the grocery store or supermarket. An examination of the retail pricing of the other non-steel wool products makes it apparent that the manufacturers of such products have priced their products in such a manner that they wil sell in the grocery store at fairly closely competitive prices to steel wool soap pads, taking into consideration the claims of life expectancy and effciency of such scouring aids. (RPF, p. 24) However, this does not detract from the fact that steel wool soap pads are the basic competitive factor in the scouring device field. Steel wool soap pads were the first such product on the market and undoubtedly established the approximate price at which other scouring devices must sell if they are to remain in the retail stores. (See CPF 66, RPF V. 22. Offcials of the five manufacturers of household steel wool including respondent's former division manager, testified that they paid little or no attention to the pricing of products other than steel wool products, and that in arriving at the prices to be charged for their steel wool products, they relied upon the going market price of competitive household steel wool soap pads. None of these manufacturers considered the non-steel wool scouring devices to be serious competition. (Tr. 624-626, 841, 897-898 937-938, 973-974) The four manufacturers competitive with respondent each testified that as far as he was concerned his competition was with those companies in the industry who manufactured household steel wool and not products of materials other than steel wool. (Tr. 897-898, 933-935, 974) Respondent itself has recognized that the competition offered by the non-steel wool products is at best "indirect. " Prior to acquiring S. , respondent made a detailed study of the soap pad business and its competition. In part this study stated:

The normal business hazards exist. Direct or indirect competition may cut prices or embark on costly promotion. We can make no predictions here. However, Erila, the only significant direct competition, has been in the field for years without retarding S. S. We are unaware of any new inventions or products which would jeopardize the S. S. market. S. , through Tuffy, is setting up its own indirect competition. Other indirect competition includes Initial Decision 69 F.

abrasive sponges and bronze or stainless steel scouring pads, S. S. has an opportunity to introduce such items as new products under its own label. (CX , p. 10) The majority of the products which respondent now urge are close substitutes" were in existence and on the market at the time of this study. (Tr. 843-844) moreover, the present general manager of respondent' s Kool-Aid Division never saw and was apparently unaware of the existence of many of the products on RX 1-6 until they were sent to him by respondent's brokers shortly before he testified. (Tr. 794, 816) 23. To bolster its claim that these non-steel wool products must properly be considered part of the "line of commerce " respondent relied primarily upon advertising claims made on behalf of such products, some consumer atttude surveys made by or for the respondent, and the apparent success of Minnesota Mining and Manufacturing Company in test marketing its "Rescue" scouring aid in three markets and anticipated success in additional markets The advertising claims of these so-caUed competitors can be given little or no weight by the examiner in view of the testimony and exhibits in the record already discussed, nor can any great weight be attributed to respondent' s consumer attitude surveys since they are at best inconclusive and contradictory of other evidence in the record, particularly the evidence demonstrating steel wool soap pads have increased their sales at least as fast as population growth to be discussed hereafter. The introduction of "Rescue within the last year and the claimed success in obtaining distribution in test market areas (one of which, Eugene, Oregon, was a failure) provides little basis for including all of the products which respondent urges must be included within the "line of commerce." The examiner is not impressed that the introduction of this product wil in any way effect either respondent' , or its principal competitor Brillo, sale of steel wool soap pads. EFFECT ON COMPETITION AND TENDENCY TOWARD MONOPOLY 24. Since the effective date of the merger of S. S. into General Foods was December 31, 1957, the record contains a substantial amount of evidence as to what the post acquisition effects of the merger have been. The following table gives the total sales and market share of the five manufacturers engaged in the household steel wool industry for the years 1955 through 1962, covering a span of years commencing three years before the acquisition and five years subsequent to the acquisition: TutaJ Sales (000) 15527,237637848687547304208 the20A- wellas ex company $24 represent 1018, not each Alloy (Tr. by 215 1I7 I75 43 does sold Sales (000) It 119. pads ex of consumers. SALES" 1.31.31.21.1 to customers. number American UTI 358344327 253 211 208 265 resold camera,inWOOL Sales (000)$311 theirare based to STEEL are Brilo 1.3 question 1963 and S. dollars) in for Durawuo! of 122 134 205425 sales manufacturers of Sales (000) 52 49 64 85 S. S. products HOUSEHOLD the S. shares thousands bythe (in 45.45.47.48.48.44.41.341.8 169). marketBrilo. , saleswhen Brillo 157 theaGd totallevel 043486629387948983 305 150, S. Sales (000) 13,75I , showing $11 store S.ofMANUFACTURER'S chart represent 137A retail shares la6,TOTAL 52.52.51.050.449.454.57.56. the, further market figuresat 130 are sales, Ctheof 118B &B 749343600044159 96(;170 realized, Sales (000) 18,102 A $12 above 20C showing *Theamount, graphic 20B- a, "Appendices Year 195519561957195819591960196I1962 total as , p.

Initial Decision 69 F.

25. As the above tabulation demonstrates, there are five manufacturers of household steel wool with S. S. and Brilo occupying dominant positions in the industry accounting for approximately 98 percent of the total shares of household steel wool. The smaH manufacturers Durawool, Incorporated, AHoy Metal Wool Products Corporation, and American Steel Wool Manufacturing Co., Inc., while selling their own label of steel wool soap pads, are principaHy engaged in manufacturing private label soap pads for other companies (Tr. 832-834, 924, 933) ; whereas, the bulk of S. and Brilo sales are under the S. S. and Brilo labels. (Tr. 720 722; CX 124) These three companies must seh their products at prices lower than S. S. and Brilo, or else seUlarger package sizes, in order to even attempt to compete with S. S. and Brilo. (Tr. 972) These companies are so smaH as to be almost insignificant in comparison with S. S. and Brilo. 26. Both S. S. and BriHo have had national distribution of their brand of soap pads for a number of years. The S. S. Company, prior to the acquisition, operated two plants, both located in Chicago, for manufacturing steel wool. Brilo, likewise, operated two plants, located in Brooklyn, New York, and London, Ohio. (RX 27, p. 6) 27. The prices at which S. S. and Brilo sold their soap pads were nearly identical. The fonowing table gives the prices at which S. S. and Brilo sold their soap pads: Brillo 24/4' $2.40 24/6' $2. 24/12'24/10', 4. I2/20'12/18',(CX I5 , I30 , 139, 15IA,3.I66A) 28. There have been no signiflcant changes in the manufacturers of household steel wool. The AHoy Metal Wool Products Corporation entered the steel wool business in 1956 (Tr. 891), and sold its business in 1963 , and the name of the business was changed to Demcorp. (Tr. 890-901) Consequently, Demcorp cannot be considered a new entrant but rather a successor to the business of AHoy.

29. Subsequent to the acquisition of The S. S. Company by General Foods, significant changes took place which resulted in ft s. s. sold its soap impregnate steel wool pads in three different package sizes: 4-pad to-pad, and 18-pad packages. Until January, 1961 , Erila Bold its BDSP pads in packages containing 5, 12, and 20 pads, which were priced with and designed to sell against the S. 4-pad, to-pad, and IS-pad packages, respectively. After January, Erica packages contained the SBme number of pads as S. S. (CX 7 24; 166A) , GENERAL FOODS CORPORATION 399 380 Initial Decision S. substantially improving its market position. As can be seen from Appendix A , S. , when compared to Brilo, had lost some of its market share in the year 1957, and that this loss continued in the years 1958 and 1959 but was reversed in 1960 and subsequent years. The changes which occurred consisted of changing the color of the soap used in the S. S. soap pads from red to blue; the introduction of a new and improved box in which to display and sell the S. S. soap pads, and a change in the type and emphasis of advertising and promotion of the S. S. soap pads. 30. The General- Foods management of S. , working in conjunction with the new advertising agency, devised a new marketing campaign for the S. S. product. Mr. Arthur Schultz, of Foote, Cone & Belding, stated that the agency recommended to the General Foods management that a number of steps be taken to improve the S. S. situation It seemed to us the whole marketing and advertising unit had to be rejuvenated. That involved new advertising, new media selection, hopefully a visible product improvement, new packaging, and in each of those areas we strongly urged that action be taken. " (Tr. 1077) The new agency recommended that General Foods concentrate its advertising on the distinctive differences and advantages of S. S. rather than on the uses for soap pads which the old S. S. company had done. (Tr. 1078) 31. The most important change made by General Foods subsequent to the acquisition was the change in media for advertising S. soap pads. Prior to the acquisition, The S. S. Company had spent substantial amounts of money in magazine advertising and this was continued for two years after the acquisition. Thereafter, the emphasis was all on television advertising of S. products. General Foods is one of the nation s largest television advertisers, and as such has purchased time on some of the most attractive television programs. (CX 8, 49, 177B-C) During the last several years General Foods has contracted with the television networks, among others, for the fonowing television shows: The Danny Thomas Show The Andy Griffth Show The Gertrude Berg Show Gunsmoke/' "The Zane Grey Theater The Lucy-Desi Hour I've Got a Secret Twilight Zone " and The Ann Southern Show " and S. S. has been advertised along with other General Foods products on these nighttime network television programs. (CX 11 , 64, 123B; Tr. 631-633) Prior to 1958 , S. S. network television advertising was limited to partial sponsorship of daytime shows such as "The Price is Right Initial Decision 69 F.

Queen for A Day, Tic Tac Dough " and "Comedy Time." (CX 12; 19, p. 30; 81-88) The following table gives the amount spent by S. S. and General Foods for newspaper, magazine and television advertising for the years indicated: ADVERTISING EXPENDITURES OF THE S. S. COMPANY (1954-1957) AND OF GENERAL FOODS-S.

(1958-1963) (in thousands of dollars) Year Newspapers M agazinee (000) (000) (000) 1954 $470 300 1955 570 310 1956 650 150 1957 710 390 Acquisition on 12/31/57 1958 580 600 550 1959 790 410 690 1960 950 196I 360 1962 520 1963 220 (CX 9 , 10 , 58) 32. The evening hours are considered to be prime time for television advertising (TR. 1129), and advertisers are required to pay a higher price to advertise during this time on the high cost programs. (Tr. 439-440) General Foods had an advantage over the old S. S. Company since General Foods could spread the cost of this more expensive television time over several products rather than just one. (Tr. 439) Immediately after the acquisition the general manager of the division of General Foods of which S. was a part, failed to get on the corporate television shows because they were late getting their times in, and the available time was already allotted to other divisions. This lack of television advertising is reflected in a drop in S. S. sales. However these sales promptly increased as soon as S. S. was advertised substantially on the General Foods evening shows. (See Appendix 33. An additional advantage which General Foods enjoyed over the old S. S. Company was its abilty to take advantage of cheaper rates for longer periods of advertising time spread over several products two half-hour shows costs more than one one-hour show. Consequently, General Foods with its many prod- GENERAL FOODS CORPORATION 401 380 Initial Decision ucts was able to purchase longer shows and spread the cost over several products.

34. Respondent argues that there has been a definite increase in competition since the time of the merger and that, therefore, it cannot be said that the merger has resulted in any probabilty of substantially lessening competition. It is true that the competitive tempo has increased, but respondent' s argument is really one inconvenienti since respondent has been the principal protagonist in this activity. This is amply ilustrated by the discussion above of respondent's increased advertising activity subsequent to the acquisition. Respondent also was most successful in the New York City area with an intensive advertising campaign. In August and September of 1959 , S. S. had 15. 1 per cent of the combined S. Brilo sales in New York. (CX 124) Immediately thereafter, Mol1y Goldberg, a well-known actress, was hired by respondent' s advertising agency and began to appear on television commercials for S. S. This advertising campaign was an immediate success, particularly in view of her appeal to the important , 1163-64)Jewish population in New York City. (Tr. 1083- S. sales in New York City improved immediately, and as of August-September, 1963 , S. S. (and S. ettes) had 31.8 per cent of the combined New York sales of S. S. and Brilo. (CX 124) 35. As part of its effort to make New York competitive, General Foods also introduced vigorous promotional activity. In addition to promotions which were in effect in Kew York as weU as elsewhere, special New York promotions included a 61i-off-label promotion in fiscal 1959 , a combination trade and consumer cents-off promotion in March, 1959, another such promotion in May and June, 1960 , a trade buying allowance in September 1961, a retaij promotional payment offer in September-October, 1962, and a coupon good for 7 cents off on a box of S. S. mailed to consumers in September, 1962. (CX 13, 51 , 89 , 90; Tr. 803-804) General Foods has continued these trade and consumer 1963, spent promotions, principally in New York City, and in nearly $145 000 for such promotions. (CX 59, 60) 36. The cumulative effect of all of these product and package improvements, heavy expenditures on television advertising and trade or consumer promotions has been to enhance the market share of S. S. until, in 1963, it accounted for 61 per cent of total household steel wool soap pad sales with Bril0 accounting for 37 per cent. (See Appendix A) 37. Brillo, when faced with the increased advertising and pro- Initial Decision 69 F.

motional activity of General Foods, also increased its activities. Brilo had its package redesigned and increased its advertising and promotional budgets (Tr. 1446-47; CX 159, 160, 164), bu1 nevertheless fen further and further behind (See Appendix A), until in December, 1963, Brilo merged with the Purex Corporation Limited, a manufacturer of household cleaning products with total sales of $126 923 000 for its fiscal year ended June 30 1963. (RX 27) The household steel wool industry, therefore, now consists of one giant, General Foods, one substantial competitor Purex, and three insigniflcant competing manufacturers. In the light of the Commission decision In the Matter of Proctor Gamble Co. FTC Docket 6901 , Decided Nov. 26 , 1963 (63 F. 1465J, which, of course, is binding upon the examiner, it must be concluded that this merger falls within the proscription of Section 7.

CONCLUSION The acquisition of The S. S. Company by General Foods Corporation has resulted in a substaniallessening of competition and a tendency toward monopoly in the household steel wool industry in violation of Section 7 of the amended Clayton Act. ORDER It is ordered That the respondent, General Foods Corporation a corporation, through its offcers, directors, agents, representatives and employees, within one year from the date of service of this Order shall divest itself absolutely, in good faith, as a unit by sale to a purchaser approved by the Federal Trade Commission of an right, title and interest in an assets, properties, rights, and privileges, tangible and intangible, including but not limited to an manufacturing plants, equipment and operating facilties lands, leases, warehousing facilities, machinery, inventories trade names, trademarks and good wil, acquired by respondent as a result of its acquisition of the stock or assets of The S. Company, together with the additions of whatever description that are presently utilized by respondent in its operation of the acquired facilities and with such additional assets as may represent any expansion of the steel wool manufacturing and distribution facilities of the acquired company, during the time of their operation by respondent.

GENERAL FOODS CORPORATION 403 380 Initial Decision It is further ordered That the aforesaid property required to be divested shall not be sold or transferred, directly or indirectly, to anyone who at the time of the divestiture is a stockholder offcer, director, employee or agent of, or otherwise directly or indirectly connected with, or under the control or influence of, respondent or any of respondent's subsidiaries or affliated companies, or who owns or controls, directly or indirectly, more than one (1) per cent of the outstanding stock of General Foods Corporation.

It is further ordered That if respondent divests the assets properties, rights and privileges, described in Paragraph I of this Order, to a new corporation the stock of which is wholly owned by respondent, and if respondent then distributes all of the stock in said corporation to the stockholders of respondent in proportion to their holdings of respondent' s stock, then Paragraph II of this Order shall be inapplicable and the following Paragraph IV shall take force and effect in its stead.

It is further ordered That no person who is an offcer, director or executive employee of respondent, or who owns or controls, directly or indirectly, more than one (1) per cent of the stock of respondent, shall be an offcer, director or executive employee of any new corporation described in Paragraph III, or shall own or control, directly or indirectly, more than one (1) per cent of the stock of any new corporation described in Paragraph III. It is further ordered That any person who must sell or dispose of a stock interest in respondent or the new corporation described in Paragraph III in order to comply with Paragraph IV of this Order may do so within six (6) months after the date on which distribution of the stock of the said corporation is made to stockholders of respondent.

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

Initial Decision 69 F.

VII It is further ordered That respondent shall periodically, within sixty (60) days from the date this Order becomes final and every ninety (90) days thereafter until divestiture is fully effected, submit to the Commission a detailed written report of its actions, plans, and progress in complying with the provisions of this Order and fulfilling its objectives. : . . \; /. . . :, . ;; . , ,:;\: ,.p::#\;, ,.; ,,,, ,.. \ ,;\;;, , j .. ., ; (,.,, ,. , ),, / , GENERAL FOODS CORPORATION 405 380 Appendix 1,1 IJ, 12- 111 n;' . a'. it " !H " Ii"!;

C;!5 1. ! ,i! 0,,, II " 1 ' 'i i ,. V . I- '1 " j!!!jm;" I, -I d , ,rl"

ID -. 111 i\ /7 ; . m f E 2 ' ;i :3 ;.I i .oi, 64: :. , i; Mm Z , z ai, I ,I!" I i, b I: J. d'"i; 'f' W .;

"I if '\' 31 /1, l? '" i . a \i! I i ;3. I,. i;; it\ 1 H s , .l . a i ;, 1 t m"" "''Ijl 0 .

Appendix 69 F. T.

APPENDIX B NIELSEN NATIONAL RETAIL MARKET SHARE STATISTICS (STEEL WOOL SOAP PADS) Consumer Dollar Basis* (in thousands of dollars) Total S. % Erila % Year Sales Total Sules Erila Total Sales (000) (000) (000) F1958 $30 800 $16 900 54. $13,900 45. F1959 32,300 400 54. 14,800 45. F1960 400 18,000 53. 400 46. F1961 36,400 500 59. 900 41.0 FI962 400 400 59. 000 40. F1963 300 600 60. 700 39.4 *The above sales figures represent sales of steel wool soap pads through grocery stores and supermarkets taken from ex 48. APPENDIX NIELSEN NATIONAL RET.4L MARKET SHARE STATISTICS (STEEL WOOL SOAP PADS) Pad Basis (Thousands of 96-Pad Equivalent Units) * Total S. % BrjJo% Year Pads Total Pads Erila Total Pads (000) (000) (000) FI958 423 644 49. 779 50. F1959 13,715 684 48. 031 51.3 FI960 987 790 48. 197 51.5 F1961 017 060 53. 957 46. F1962 011 509 56. 502 43. FI963 812 642 58. 170 41.7 *The above sales figures represent sales of steel wool soap pads through grocery stores and supermarkets taken from ex 48. GENERAL FOODS CORPORATION 407 380 Opinion OPINION OF THE COMMISSION MARCH 11, 1966 By JONES Commissioner:

On September 30, 1963, complaint issued against respondent General Foods Corporation (General Foods) charging it with violation of Section 7 of the Clayton Act by reason of its acquisition on December 31, 1957, of the assets of The S. S. Company, Inc. (S. ). The complaint alleged that the effect of the acquisition has been, or may be, substantially to lessen competition or tend to create a monopoly in the manufacture, distribution and sale of household steel wool * * * throughout the United States * * * On December 18, 1964, the hearing examiner filed his initial decision. The hearing examiner concluded that General Foods' acquisition of S. S. had the tendency substantially to lessen competition and consequently violated Section 7 of the Clayton Act. Respondent has appealed and urges, first, that the examiner erred in defining the relevant product market as consisting solely of household steel wool products and excluding from this definition some 40 other cleaning devices; second, respondent contends that this product extension merger was totally dissimilar in type and effect on competition to Proctor & Gamble s acquisition of The Clorox Company, held ilegal by this Commission in 1963 (The Proctor Gamble Co. Docket 6901) (63 F. C. 1465), and indeed that respondent's acquisition of S. , rather than diminishing competition, has brought much-needed competition in an industry which had been characterized by peaceful competitive co-existence. Accordingly, respondent contends that the complaint against it should be dismissed. We will consider these arguments seriatim.

The Relevant Product Market' The examiner found that the appropriate line of commerce or product market for measuring the effect of the acquisition is household steel wool. This product market consists primarily of soap-impregnated steel wool pads, but also includes plain household steel wool pads with or without separate pieces of soap. Respondent, condemning this market as "artificial " contends that, in addition to steel wool pads, approximately 40 other kitchen clean- 1 The hearing examiner found, and both parties agree, that the relevant geographic market is the entire United States.

, , , Opinion 69 F.

ing devices, composed of such materials as plastic, cellulose and metals other than steel, should be included in the market. Two of these devices are impregnated with soap and the remainder are not.' A. The Criteria for Determining the Appropriate P,'oduct Market The standards to be applied in delineating a line of commerce do not depend upon the form of the merger but on the realities of the market in which the merged companies operate. The relevant market is the "area of effective competition within which the respondent operates StcLnda,'d Oil Company Cnlifornin v. United Stutes 337 U. S. 293, 300, n. 5 (1949). " (T)he problem of defining a market turns on discovering patterns of trade which are followed in practice. United Stutes v. United Shoe Muchinery Co. 110 F. Supp. 295, 303 (D. Mass. , 1953) ; aff'd per curiam 347 U.S. 521 (1954). The boundaries of the market must be drawn with suffcient breadth to * * . recognize competition where, in fact, competition exists. Brown Shoe Co. United Stutes 370 U. S. 294, 326 (1962). The product line must be suffciently inclusive to be meaningful in terms of trade realities Crown Zellerbach v. F.TC. 296 F. 2d 800, 811 (9th Cir. 1961). United Stutes v. Philadelphia Nation"l Bunk 374 U. 321, 357 (1963).

The fact that different products may in some sense be competi. The examiner elassified the devices which are claimed by the respondent to be part of the relevant market as follows; " (a) 14 nre steel ,\ 001 pads '\which counsel in support of the complaint agree are properly inclUlbhle in the 'line of commerce,' whether sOllp-irnpreg.nated or not. (b) 13 items al' plastic mesh balls or pads, some of which have a sponge inside the bau or mesh, but none of which are soap-imJ1legnated. Respondent' s product 'TuITy' is in this group. (c) 14 items are basically plastic or cellulose sponges with an abrasive surface joined to one side of the spongc. Minnesota Mining and Mnnufacturing; Company s 'Rescue' is in this group nnd is soap-impregnated. (d) 7 items are pads of meal mesh made of metal other than steel wool, but none of which are soap-impregnated. (e) 2 items are fiber dish cloths coated with an abrasive substance, neither of which is soap impregnated" (I.D., pnr. 15). 3 Cases to date involving "conglomerate" mergers have used the same tests for defining the relevant market and measuring the effects of such mergers as those appUed to test the effects of horizontal and vertical mergers; see Consolidated Foods Corp. (Dkt. 7000, 19(2); rev. 329 F. 2d 623 (7th Cir. 1964); rev. 380 U.S. 592 (1965); Re")1101ds Meta/I! Co. '1. 309 F. 2d 223 (D. C. Gir. 19(2); Union CrJb1de Corp., 59 F. C. 614 , 642- , 658 (Dkt. (i826 1961) ; and the Procter Gamble Co. (Clorox) (Dkt. 6901, 1963), (63 F. C. H65J. Legal commentators and economists who have discussed "conglomerate" mergers have similarly not suggested the application of any diflet.ent tests to define the relevant product market in such merg-crs. See for . example, Turner, " Conglomerate J,let' gel. S and Section 7 of the Clayton Act, " 78 Harvard Law Review 1313 (1965); Clark Conglomerate Mergers and Section 7 of the Clayton Act," 36 otre Dame Lawyo. 255 (1961) ; Edwards, "Conglomerate Bigness us a Source of Power, Business Concentration and Price Policy 331 (1955); Stocking. " Conglomerate Bigness-Comment,'. Business Concentration and Price Policy 352 (1955); Blair The Conglomerate Merger in Economics and Law," 46 Georgetown Law Journal 672 (1958); Adelman Antitrust Problems; The Anti-.:.1merger Act 1950-60,'. American Economic A6S0ciation at 236; Day, "Conglomerate Mergers and ' The Curse of Bigness, '.' 42 N. Carolina Lnw Review 511 (1964); Comment Conglomerate Mergers UlIder Section 7 of the Clayton Act," 72 Yale Law Journal 1265, 1270 (1963). GENERAL FOODS CORPORATION 409 380 Opinion tive with each other is not suffcient to place them in the same market if by themselves they constitute distinct product Jines. In United States v. Aluminum Co. of Ameriw. (Alcou-Rome Cable), 377 U. S. 271, 275 (1964), insulated aluminum conductor was considered a separate market although the Court conceded that there was suffcient competition between this product and its copper counterpart to justify grouping these two products in a single product market. In Union Carbide Corp. 59 F. C. 614, 655 (Dkt. 6826, 1961), the Commission noted that "there is and wi1 con. tinue to be competition between polyethylene film and other flexi. bJe packaging materials" but nonetheless place them in separate Jines of commerce. Competing products have also been placed in separate product markets in a number of other cases, including United States v. Lever Bros. Co. 216 F. Supp. 887, 891 (S. 1963) (where low sudsing detergents and high sudsing detergents were placed in separate markets despite the "direct competition between them), and United Stutes v. Aluminum Co. of AmeTicn et al. 233 F. Supp. 718 (E. D. Mo. 1964) (where a market was found for aluminum curtain wall despite the competition between it and other types of building materials). See also United States v. Philadelphia Nutionul Bunk 374 U.S. 321 , 356 (1963) ; United Stutes v. Bethlehem Steel COTp. 168 F. Supp. 576, 593 (1958); CTown Zellerbach Corp. v. 296 F. 2d 800, 814, 815 (1961): Reynolds Metals Co. v. 309 F. 2d 223 , 229 (D.C. Cir. 1962) and United Stutes v. Pennzoil Co. 1966 Trade Cases Par. 659 (W.D. Pa. 1966).

Similarly, the fact that "substitute" products are available does not compel the conclusion that they be placed in the relevant market. In United States v. E. I. du Pont de Nemours Co. 353 U. 586 (1957) the market was restricted to "automotive fabrics and finishes" even though the same or similar products were utilzed in other industries. In Union Curbide Co,-omtion, supTn the Commission acknowledged that there were "adequate substitutes for polyethylene film as a flexible packaging material but nevertheless excluded such substitutes from the relevant market. See also Consoliduted Foods Corp., supru (where dehydrated onion and garlic were held to comprise a separate market, even though a broader market could presumably have been considered including fresh onion and garlic, as respondent therein contended); Reynolds Metals Co. v. 309 F. 2d 223 (D.C. Cir. 1962) (where the market was narrowly defined to be decorative alumi. num foil sold to the florist trade, as distinct from aluminum deco- Opinion 69 F.

rative foil, aluminum household foil and perhaps even wrapping paper); and Clorox, supm (where household dried bleach was shown to be available as a substitute product for certain purposes but was nevertheless excluded from the market, which was confined to household liquid bleach).

The applicable legal test for defining a product market for the purposes of determining the effect upon competition of a merger or acquisition was most recently reaffrmed in the Brown Shoe opinion supra at page 325:

The outer boundaries of a product market ate determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it. However, within this broad market wed-defined submarkets may exist, which, in themselves, constitute product markets for antitrust purposes. United States v. E. I. du Pont de Nemours & Co., 353 U. S. 586, 593-595. The boundaries of such a submarket may be determined by examining such practical indic a as industry or public recognition of the submarket as a separate economic entity, the product's peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors. Because 7 of the Clayton Act prohibits any merger which may substantially lessen competition "in any line of commerce" (emphasis supplied), it is necessary to examine the effects of a merger in each such economically significant submarket to determine if there is a reasonable probabilty that the merger wil substantially lessen competition. If such a probability is found to exist, the merger is proscribed, While conceding the validity of the tests enumerated in the BTown Shoe case, respondent nevertheless argues that the relevant market must be defined to include all products which could in any sense be regarded as competitive. In support of this view respondent relies heavily on the Supreme Court decision in United States v. Continentul Can 378 U.S. 441 (1964), decided three weeks after Alcoa-Rome Cube, SUpTU. In Alcon the merger challenged was between two aluminum conductor producers and defendant argued that its acquisition did not have the prohibited impact on competition because of the existence of substitute prod- . The criteria enumerated in Brown Shoe did not Bpring full-blown from the Supreme Court but had been developed in the preceeding cases decided under Section '1 subsequent to its amendment in 1950. For example, (1) industry and public recognition of the market was regarded as a significant bctar in defining the market in United States v. Bethlehem Steel COTp., 168 F. Supp. 576 (S. Y, 1958) and A. G. Spalding Bros., Inc., 56 F. 1125, 1160 (Dkt. 6478, 1960), atf' d. 301 F. 2d 585 (ard eir. 1962); (2) the "peculiar characteristics and uses" of automotive fabrics and finishes was the sole basis' for the finding of the market in United States E. I, du Pont de Nemours Co. (General Motors), 353 U. 586. 593-95 (1957); (3) the distinct prices of two prodl1ct Jines was one of the factors cited by the Commission in the Spalding and Union Carbide cases in placing sllch prodl1cts in separate markets: (4) price sensitivity was one of the tests applied in American Crystal Sugar Co. v. Cuban-American Sugar CQ. 259 F. 2d 524, 530 (2nd Cir. 1958) and; Union Carbide, 59 F, C. 614 (Dkt. 6826 , 1961). GENERAL FOODS CORPORATION 411 380 Opinion ucts (i. insulated copper conductors) which therefore required a broader market definition comprising all competitive products The Court rejected this argument, finding that whatever the broader market might be, a meaningful product also existed consisting of aluminum conductors alone.

In Gontinentul Cun the Court was confronted with just the reverse of the situation in Alcon. In Continentul Gun the acquiring company, Continental, produced metal containers and the acquired company produced glass containers. Thus, the issue before the Court was whether a broader market encompassing both products was meaningful; the Court was not concerned with the question as to whether a more limited product market also existed. The Court 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 "separate industries" and to comprise distinct "product 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 finding with respect to this broader market did not preclude the finding of narrower submarkets within the more comprehensive market:

* * * 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 within this broad market, well-defined submarkets may exist which, in themselves, constitute product markets for antitrust purposes. Brown Shoe Co. United States 370 U.S., at 325 (378 U.S. 457-58). In short, the test of the relevant market is whether a given line of products constitutes an economically significant market and whether that market is "suffciently inclusive to be meaningful in v. 296 F. terms of trade realities. Crown Zellerbuch Co. 2d supm at 811. In defining the market it is immaterial that there may be other broader or narrower markets in which the companies are also operating.

Respondent argues that "whatever the technical definition of the product market no rational evaluation of present or future competitive conditions can be filidc without taking non-steel scouring devices into account" (Respondent' s Brief on AppeaJ, page 26). It is clear, however, under Section 7 of the Clayton Act, that once the appropriate product market for determining the effect of the merger has been defined, the only consideration which is relevant is whether or not there is a reasonable probability that competition in that market may be substantially lessened. "If such a probabilty is found to exist the merger is proscribed. Brown Shoe Co, v. United Sta.tes, 37G U. S, 294, 325 (1962). Consequently, we reject respondent's contention that whatever the definition of the market may be we must I1evertheless stil consider the broader cleaning device market in our assessment of the competitive impact of respondent's merger, Opinion 69 F.

B. Appliwtion of the B1'own Shoe Crite1'iu To Define the Relevunt Product Ma1'ket Although seven separate criteria are suggested in Brown Shoe for use in defining the market, the opinion did not indicate that all of them must necessarily be considered in each case. We find the following factors are particularly significant in this case: 1. Industry 01' public 1'ecognition of the subma1'lcet us separute economic entity' The producers of household steel wool recognized that the product, which they frequently referred to as a "soap pad " constituted a distinct market and looked only to the steel wool products manufactured by each other in setting prices and making marketing decisions. Thus respondent, in its pre-acquisition report, considered only the steel wool products of S. S. and Brilo in making its determination that S. S. had " 60 per cent of the national dollar volume" (CX 5(b)).

Furthermore, in separate studies prepared for respondent by Market Facts, Inc., in 1959 (RX 12), by National Family Opinion, Inc. in 1962 (RX 14) and by Foote, Cone and Belding in 1963 (RX 15), the market was again referred to as the "soap pad market " which included steel wool products and excluded other cleaning devices. Other non-steel wool cleaning devices were considered in the 1963 Foote, Cone & Belding report, but they were consistently referred to as constituting a different market separate and distinct from steel wool pads. Even for the purpose of this litigation counsel for respondent was unable to produce any study of a market including both steel wool and non-steel wool devices.

It is clear that the only competition which respondent seriously considered in the advertising, packaging and production of its product was that offered by Brilo household soap-impregnated steel wool pads. Thus, in its pre-acquisition study of S. , respondent made a distinction between the "direct competition" between S. S. and Brilo and the "indirect competition" between S. and such articles as "abrasive sponges and bronze or stainless steel scouring pads" (CX 7 , p. 10). After its acquisition of , respondent continued its preoccupation with the sales of S. as compared with those of Bril0 and did not concern itself with the market roles of the cleaning devices which it now claims a Respondent misstates this test as " 'industry and pubhc recol/nition ' of the presence 01' absence of competition between the products under consideration " (Respondent's Brief OD Appeal, page 17).

GENERAL FOODS CORPORATION 413 380 Opinion are part of the market. Thus after the acquisition respondent revamped the advertising and packaging of S. S. pads in an attempt to demonstrate or convey the impression that the S. pad rusted Jess and "actually carried more soap than the average Bril0 pad" (Tr. 1079). A change in the color of the soap pad from red to blue was prompted by studies which "had indicated that the reddish soap used by both Brilo and S. S. reminded the housewife of rust" (Respondent's Brief on Appeal, page 11). Moreover, when respondent launched an onsJaught on the New York market in 1959, the only other product which it took into consideration was the Bril0 soap pad (RX' s 12, 17, 42; Tr. 1089). One of the products now claimed by respondent' s counsel to be directly "competitive" and to have been artificially excluded from the relevant product market is respondent's own plastic device Tuffy." This must come as a surprise to respondent's own offcials, who, as shown by the record, had apparently never considered "Tuffy" to be directly competitive with the S. S. soap pads. In a report prepared for the board of directors prior to the acquisition it was stated that "Tuffy and S. S. are complementary rather than competitive." (CX 5 (b)). In General Foods' acquisition study of S. , Tuffy was stated to be part of the "indirect competition" with S. S. At the hearing, a former general manager and the present general manager of the Kool-Aid Divi- , testified sion of General Foods which now includes S. S. pads that Tuffy did not compete with " " (Tr. 626, 761-762). Respondent' s own general manager up to the time of this litigation had been totaHy unaware of even the existence of many of the cleaning devices now aHeged by respondent to be part of the relevant product market and directly competitive with steel wool pads (Tr. 791-795, 816-817).

FinaHy, it should be noted that the other steel wool pad manufacturers regard themselves as constituting a separate and distinct industry. Thus, the president of Durawool Company testifying at the hearing drew a careful distinction between what he characterized as "the new products" (meaning non-steel wool products) and those "in the industry" (consisting of steel wool producers) (Tr. 875). The president of Demcorp testified that the com- non-steel wool devices did not offer his product any "direct petition" and that he did not "take the prices of the other products into consideration when he set his price" (Tr. 974). The president of AHoy Metal Wool Products declared that his only competitors were Brilo, S. , Durawool and American Steel Opinion 69 F.

Wool Company, and that he had not considered the non-steel wool devices to be "competitive items" (Tr. 897-898). It is obvious that if respondent and the other steel wool soap pad manufacturers regard themselves as a separate market, then it is this market in which the impact of respondent' s acquisition must be judged. It cannot be said that the existence and conduct of other manufacturers outside this market must be considered where the soap pad manufacturers themselves do not take these substitute product manufacturers into account in their own pricing and marketing decisions.

2. The product's peculiar chumcte1'istics and uses The steel wool pad is composed of triangular-shaped steel strands with three cutting edges. When used, a number of the edges are pressed down, and the pad cleans the surface in a manner similar to a knife or a razor blade. The soap with which a soap pad is impregnated lubricates, inhibits scratching, faciltates polishing, and removes grease and grime (Tr. 432, 629, 893, 939 978-979). The steel wool pad is a soft and pliable product which is able to reach crevices and corners (Tr. 844). The primary use of steel wool pads is the scouring of pots and pans; the general manager of respondent' s Kool-Aid Division estimated on the pad usage basis that this use constitutes "at least 80 percent of the total volume" (Tr. 759). Other uses, described as peripheral, are cleaning white-wall tires, floors, walls, stoves aluminum doors and windows and barbecue griJs. Physically, the non-steel wool cleaning devices which respondent' s counsel argues should be included in the relevant market are unquestionably distinct. They are composed of a variety substances such as plastic, copper and abrasive surface sponges none of which closely resembles steel wool. Furthermore, only two of the non-steel wool devices, unlike the overwhelming number of steel wool pads produced, contain soap. The examiner found that steel wool pads "made a particularly effective abrasive" (J.D. par. 18) and that none of the other devices "are able to perform the wide range of household cleaning jobs as well as household steel wool" (J.D. par. 20). Respondent' counsel accuse the examiner of " substituting his own personal judgment for that of the market place with respect to the quality of the different scouring devices involved" and further disparages the examiner s finding by declaring that his "personal quality judgment is without evidentiary support" (Respondent' s Brief on Appeal, page 19).

, GENERAL FOODS CORPORATION 415 380 Opinion We find, however, that the examiner s finding, which coincides with the conclusions of S. S.' and respondent' s own offcials who testified at the hearing, is amply supported by the record, and we note that the only evidence which respondent offered to contradict this evidence consisted of advertising claims made for some of the purportedly competitive products. A former general manager of the respondent's Kool-Aid Division testified flatly that "For the uses that S. S. was advertised for and pictured on the box, it was better than other products" (Tr. 624). He further testified that respondent had tested a number of other cleaning devices and found that none of them could "perform as well as the S. steel wool soap pad * * * for the purposes that we advertise on the box" (Tr. 626). The president of S. S. prior to the acquisition testified that his company had "found there was nothing in (its) opinion that was as good as steel wool abrasive" (Tr. 429-30) and that in his opinion "soap pads are the best cleanser I know of" (Tr. 431). Moreover, respondent's own plastic device Tuffy, " which, according to a study prepared for respondent in 1962 (RX 14 (m) ), is by far the largest of all of the non-steel wool cleaning devices which respondent seeks to include in the relevant market, was not devised or used for scouring pots and pans, according to respondent' s own offcials who testified at the hearing (Tr. 626, 761) as well as respondent's preacquisition report, in which it had stated:

S. in the kitchen is used primarily for scouring pots, pans, stoves, etc, while Tuf1y is used much as a dish rag is used (CX 5 (b)). Also, at least four other plastic devices Dobie Handy Mandy, Polly Puff " and "Reddy, " which respondent's counsel claim should be included in the market, do not even claim in their advertisements that their products can be used for scouring pots and pans. (See respondent's proposed findings, pp. 148, 152, 155 and 156).

Accordingly, we find that household steel wool has unique physical characteristics; that many of the allegedly competitive devices are not even claimed to perform all of the household chores performed by steel wool, including its principal task scouring pots and pans; and that those as to which such claims are made are substantially inferior in the performance of such tasks.

3. Distinct prices The unit sales prices of steel wool soap pads and the other cleaning devices claimed by respondents to be part of the same Opinion 69 F.

market differ markedly from each other. (See Appendix B, Table IV.) Steel wool soap pads sell at a range of 1.4 cents to 2.8 cents (the latter representing the price at which S. S. and Brilo pads normally sell,' while the prices per item of the non- steel wool devices range from 6 cents to 29 cents. Respondent emphasizes the fact that the prices per package of certain of the non-steel wool devices (13 of which sell for 29 cents and one of which sells for 27 cents) are comparable to those of Brilo and S. S. pads (28 cents per package). However, the number of units per package varies so widely as to render the package price meaningless in any comparison of prices between steel wool and non-steel wool devices. For example, one " Scotch Brite" pad separately packaged ofsells for 29 cents, while the ..Hegedly comparable "package" Brilo or S. S. soap pads which sells for 28 cents per package contains ten pads. Similar examples could be multiplied. Moreover, in considering respondent's argument it should be noted that in the case of many of the scouring devices which respondent claims should be included in the relevant market (8 of which sell for less than 20 cents) even the package prices bear no relationship of any kind to the prices of the dominant steel wool brands. It is clear that while the prices of steel wool pads are substantiaBy identical, they bear little or no relationship to the prices of non-steel wool cleaning devices. The only way in which prices could be compared would be to make estimates of the useful life of the 29-cent single pad, for example, as compared with the 10 S. pads sellng for 28 cents. Surely, the need to make such a computation in order to compare prices almost by itself demonstrates the distinctiveness of the steel wool products as compared with the other cleaning devices which respondent urges be included in the relevant market.

4. Sensitivity to p1'ice changes Although there is no direct evidence as to consumer sensitivity to price changes, the record does make it clear that respondent and the other steel wool manufacturers paid Jitle or no attention to the prices of the non-steel wool devices. The former manager of respondent's Kool-Aid Division testified that respondent didn t pay much attention to the pricing structure of these small products" in setting its prices (Tr. 626). The present general manager of this division was almost totaBy ignorant of the prices of the non-steel wool devices (Tr. 790-795), thus clearly indicating that the prices of such goods were of slight concern to respon- 1 Brma OJ80 has a. specjp.j purpose Erma Whitewall Tire pad which sells for 7.3 cents. GENERAL FOODS CORPORATION 417 380 Opinion dent. The smaller steel wool manufacturers who appeared at the hearing also testified unanimously that the only prices which they took into consideration were the prices of other steel wool products and that they did not consider the prices of the non-steel wool devices in setting their prices (Tr. 841 , 973-938 and 897-898) .

5. Unique production fucilities The facilties required for the production of steel wool are dis. tinct from those required for the other cleaning devices cited by respondent. The lJroduction of steel wool requires large, complicated cutting machines and other accessory equipment is required such as "take-offs " and "balling machines" (Tr. 828), for the automatic shaping, soap-impregnation and drying of the product. The machines are not generally available on the open market, but are custom-made to the manufacturer s specification (J.D. 17). The machines used in the production of steel wool can be used for no other function than the production of steel wool (J.D. 17). C. Conclusion In conclusion we find of particular significance the facts that: (1) household steel wool is recognized by the industry as a separate and distinct market and that in making marketing decisions and in setting their prices the manufacturers of this product do not take into account the plastic and other types of cleaning devices referred to by respondent; (2) the substitute products advanced by respondent are significantly inferior in performance of the household cleaning chores performed by household steel wool and therefore they can at best offer only indirect competition to the household steel wool manufacturers; (3) there is a substantial difference between the price of steel wool and that of the plastic and other type cleaning devices; (4) and the machines used for the production of steel wool are distinct from those used for the production of the allegedly competitive cleaning devices. Accordingly, we are of the opinion that it would be economically unrealistic to include said other products in the relevant market. Since the household steel wool industry is economically significant and suffciently inclusive to be meaningful in terms of trade realities it seems clear that the hearing examiner was correct in determining that this is the appropriate market for adjudging the effects of the merger.

We note that the same conclusion was reached by the Commission in B1'illo Mfg. Co. , Inc. (Dkt. 6557, 1963) (64 F. C. 245; Opinion 69 F.

253, 254) in which we considered the precise issue now before us. As we stated in that case:

* '" * Steel wool is generally recognized as an essentially unique product possessing peculiar characteristics and uses. It can be used either wet or dry on either a wet Or dry surface. It wil both clean and polish soiled and oxidized surfaces. It is fine and flexible so that it can be used on rough and irregular surfaces. '" '" '"

'" '" '" Enjoy competing product is capable of the variety of applications possible with steel wool. Any householder who has ever utilzed steel wool to clean cooking utensils, white-wall tires, golf clubs, rusty tools, linoleum or tile floors, and to remove peeling paint or rust recognizes that this is a uniquely versatie product. '" '" '"

'" '" '" Moreover, both the industry members and the public recognize steel wool as an essentially unique product sold and distributed in its own separate markets. There is - little or no cross-elasticity of demand between steel wool and other products. The machinery upon which it is produced cannot be utilized to produce products other than metal wool. * * '" '" '" '" The single most peculiar " characteristic and use" of steel wool and steel wool products is that no other product wil perform al1 of the multiple function of steel wool in either the household or in the industrial market. The housewife can buy steel wool for dozens of household uses rather than buying separate products for each use. The same fact applies equally in the industrial field. Although other products may compete with steel wool for some uses, such demand exists at the outer boundaries of the steel wool market and need not be considered in evaluating the competitive impact of this merger between two steel wool producers. The Competitive Effects of the Merger The acquisition of S. S. by General Foods demonstrates the same anticompetitive effects as the acquisition by Procter & Gamble of The Clorox Chemical Company, which the Commission recently held to be violative of Section 7 of the Clayton Act. The P1'oct01' Gamble Company (Dkt. 6901, 1963) (63 F. C. 1465) (herein called the Clorox case). There is a substantial identity both in the structure of the household steel wool market involved in this case and the structure of the liquid bleach market involved in the CI01'OX case and in the significant operative facts respecting the impact of those mergers in their respective markets. A detailed comparative analysis of the relevant facts in the two cases is attached hereto as Appendix While we will not detail in our opinion all of the factual similarities which are set forth in 8 The facts recited in Appendix A, together with those referred to in this opinion and those found by the hearing examiner to the extent the latter are not inconsistent constitute our Findings of Fact in this case.

GENERAL FOODS CORPORATION 419 380 Opinion Appendix A, a few of the major conclusions respecting the competitive significance of these facts wil serve to ilustrate the basic identity of the two acquisitions and the reasons why our factual and legal analysis and conclusions in the Claro x case are applicable with even greater force to demonstrate the anticompetitive and ilegal nature of General Foods' acquisition of S. A brief summary of the operative facts respecting respondent' acquisition of S. S. is necessary before analyzing the competitive impact of this acquisition in the relevant household steel wool market.

A. The Household Steel Wool MU1'ket S. at the time of its acquisition by General Foods in December 1957 was basically a single-product company engaged principally in the production of household steel wool pads (App. A pars. 1 3). Its sales of this product amounted to $14.6 milion in 1957, representing 51 % of the household steel wool market CAppo A, par. 6). It also manufactured industrial steel wool which both parties agree is not included in this market definition as well as one plastic scouring device (App. A, par. 3). Its principal competitor, Brilo Manufacturing Company, Inc., also primarily a single-product company, accounted for 47.6 % of the household steel wool market and the remaining 1.4 % of the market was accounted for by three small companies with net assets valued at less than $500,000 each (App. A, pars. 5-7). Household steel wool products on the market are virtually indistinguishable from each other (App. A, par. 16). They are low-price, high-turnover household consumer commodities sold to consumers through grocery and supermarket outlets (App. A, par. 17). Advertising is an essential factor in the marketing of steel wool pads, both as a means of building brand loyalty and of securing adequate shelf space (App. A, pars. 18-20). S. S. and Brilo had advertising budgets in 1957 of $2.2 and $1.8 milion respectively, expended primarily for daytime TV and magazines (App. A, par. 19). Their three small competitors lacked the financial resources for advertising to auy appreciable extent and accordingly were forced to market their products principally under private labels and through discount houses (App. A, pars. 20 24).

Respondent General Foods Corporation is the largest producer of packaged food in the United States, with net sales of $1 billon (App. A, pars. 25, 27). General Foods also produces some nonfood items such as bluing (App. A, par. 26). Al1 of its products are Opinion 69 F.

low-price, high-turnover household consumer commodities sold to consumers through the same grocery and supermarket outlets as are S. S. steel wool soap pads (App. A, par. 25). Mass advertising and promotions are essential factors in the marketing of General Foods, product lines (App. A, par. 28). General Foods had an advertising budget of $105 milion and expended a substantial portion of this on nighttme TV. Its budget for consumer and trade promotions, which neither S. S. nor Brilo engaged in amounted in 1957 to $19 milion, exceeding S. S.' total sales in that year (App. A, par. 28).

After its acquisition by General Foods, S. S. was organized first as a separate division of General Foods and later, in 1960 was merged with General Foods Kool-Aid Division, the products of which were, like S. S. pads, also sold through food brokers (App. A, par. 33 (g) ). In 1962 General Foods incorporated the distribution of its Kool-Aid Division products into its overall distribution-sales service warehousing and distributive system, thus effecting estimated economies in transportation, warehousing and sales costs of $647,000, of which $388 000 was attributed to savings effected respecting the products of the Kool-Aid Division (App. A, par. 33 (f)). This incorporation of S. S. directly into General Foods' overall distributional organization provided an incentive for General Foods' customers to include S. S. products in their orders of other General Foods products. Furthermore S. could and did induce purchases by offering discounts based on combined purchases of the products of various divisions of General Foods. Presumably, General Foods warehousing and distributive system also improved S. S.' national availability (App. , par. 33 (f) ). General Foods improved the appearance of the S. pad as well as its advertising. The costs of advertising S. products were substantially reduced by reason of the discounts which were available as a result of the overall General Foods advertising budget, estimated to amount to a net saving of 23% or a net increase in TV time of 28% in the case of network TV advertising, a 155'0 decrease in the cost of spot-TV advertising, a 55'0 decrease in radio advertising and a range of 155'0 discount in magazine advertising. General Foods also engaged in substantial consumer and trade promotions respecting S. S. pads which S. S. had not itself engaged in prior to the acquisition (App. A, pars. 33(a)- (d), (1)).

After the acquisition, S. S.' share of the market increased from 515'0 in 1957 to 565'0 in 1962. The market share of Bri1o, GENERAL FOODS CORPORATION 421 380 Opinion its nearest competitor, declined during this same period from 47.6% to 41.8%. The combined share of the three remaining absolute basiscompanies increased slightly by 0.8%. On an S.' sales of soap pads grew from 14. 6 milion in 1957 to $19. 1 millon in 1962, an increase of 31 % while Bri1o s sales rose from $13.6 millon to $14.3 milion for the same period, or an increase of only 5% (App. A, par. 34). In December 1963 Bri10 merged with Purex Corporation Limited, a manufacturer of household cleansing products, with total sales for its fiscal year ended June 30 1963 of $127 milion (App. A, par. 37). B. Competitive Impact of Respondent's Acquisition General Foods' acquisition of S. S. and consequent entry into the household steel wool market is a product extension merger identical in all respects to the extension of Procter & Gamble product line to liquid bleach, a product which it had not theretofore produced or sold. As we noted in our CI01'OX decision, product extension mergers involve functionally closely related products by which we stated we "meant to '" * * suggest the kind of merger , distri-that may enable significant integration in the production bution or marketing activities of the merging firms (Clorox 15) (63 F. , at 1543). Integration at the marketing level defined as encompassing integration of advertising and sales promotion activities and as resulting where the products of the merging firms were "sold to the same customers or are actually , at 1543). In Clorox complementary (CI01'OX p. 15) (63 F. we pointed out that Procter was engaged in the sale of a broad range of low-cost, high-turnover household consumer goods sold to the consumer in grocery and department store outlets primarily through mass advertising and sales promotions. The liquid bleach market was held by us to be "virtually indistinguishable from the markets previously utiized by Procter for its product lines insofar as "the problems and techniques of marketing the concerned" (Clorox p. 17) product to the ultimate consumer are (63 F. , at 1545J. We pointed out that liquid bleach was functionally identical to Procter s product line "even if we look beyond household cleansing agents to the food, paper and toilet "The record contains no market data after 1963. Accordingly, the discussion in this opinion of the competitive impact of General Foods ' acquisition of S. S. concerns the steel wool soap pad market as it existed prior to this mere,el' between Erila and Pun' x. While the record does :not permit a definitive appraisal as to the impact of this merger on the household steel wool market, it 5should be observed that one of the nnticompctitive facton considered by the Courts in determining the validity of mergers is their liketihood of thr:!'ering other mergers in the same market thus IJyraroiding their own impact on the market. See Brown Shoe Co. v. United States, 370 U. S. 294 , 343-44 (1962). Opinion 69 F.

products which round out the Procter line (Clorox p. 17) (63 , at 1544).

The functional relationship between S. S.' steel wool soap pads and General Foods' product line is identical as respects the problems and techniques of marketing involved in both groups of products. Household steel wool, like liquid bleach, is marketed by the same techniques (principally advertising and promotions) and through the same distributional outlets (principally supermarkets) as General Foods' other products and is purchased by the housewife at the same time and along with the other products sold by General Foods. Thus we hold that General Foods' acquisition of S. S. involves functionally related products and constitutes a product extension merger cognizable under Section 7 of the Clayton Act (See App. A, pars. 17, 18 33. The next question to be determined is whether this merger had the requisite anti competitive effects to render it illegal under Section 7.

We find that General Foods' acquisition of S. S. had the same anticompetitive effects as those which we found to exist in Procter s acquisition of Clorox and on which we based our conclusion that that acquisition had the effect of substantially lessening competition in the household liquid bleach industry. Here, as there the market of the acquired company was highly concentrated and oligopolistic (App. A, par. 6). Indeed, the steel wool soap pad industry appears even more concentrated, since it does not have the large number of small fringe companies which characterized the liquid bleach industry.

In Clorox the acquired company was the dominant factor in the industry, the only national seller in an industry consisting primarily of regional sellers and able to command a premium price for its product. Its nearest competitor of significance was Purex with 15% of the market, which confronted Clorox directly in only 50 % of the national market. In the steel wool soap pad industry, the acquired company, S. , prior to its acquisition was also a dominant industry factor able to command a premium price, but, unlike Clorox, S. S. shared its dominant market position with Brilo (App. A, par. 6). Thus, the impact of General Foods' acquisition of S. S. was of greater anti competitive significance than Procter s acquisition of Clorox, since whatever competition existed between Brilo and S.O .S. was far more distorted by the entry of General Foods into that market than was the competitive structure of the liquid bleach market by Procter s entry GENERAL FOODS CORPORATION 423 380 Opinion into that market. General Foods' entry into the household steel wool market eliminated the competitive balance between S. and Briio and weighted it irrevocably in favor of S. Thus, whereas in CI01'OX the acquisition of Clorox operated primarily quantitatively to render even more dominant the single dominant industry member, in the instant case the acquisition of S. by General Foods operated qualitatively as well to eliminate the market balance which had prevailed between the two dominant members of the industry and created a situation in which S. S. as -a result of its acquisition by General Foods acquired decisive competitive advantages over Briio. As we noted in our CI01'OX decision, it is the disproportionate strength of the companies in a market which is of major significance in judging its competitive viability or lack thereof (Cl01"x pp. 23-27) (63 , at 1548-1551).

Not only did General Foods' acquisition of S. S. contribute to and increase concentration in the steel wool industry, but it also operated to render almost insurmountable the barriers to entry surrounding this market. In this case, as in CI01'OX the barriers to entry were high prior to the acquisition. " In each case, the product of the acquired company was functionally identical to that produced by smaller companies but was differentiated through extensive advertising and a long history of dominance in the field to such an extent that the smaller companies in the industry producing Jess well-known brands and potential producers of new brands could not penetrate the market to any significant degree, absent huge investments in advertising and promotions (App. A, pars. 16-23). The entry of General Foods into the household steel wool market substantially heightened the factual and psychological barriers to entry to that market, just as the entry of Procter in the liquid bleach market raised the barriers surrounding that market (App. A , par. 33). As we held in Clorox such substantial heightening of the barriers to entry constitutes an important element in the finding that a merger is in violation of Section 7 (Clorox p. 50) (63 F. , at 1568). General Foods, like Procter, is a powerful company, strongly entrenched in the marketing of low-cost consumer products to grocery stores with huge financial resources and advertising 10 The high barrier!! to entry into the household steel wool market prior to the acquisition were attested to by General Foods in its pre-acquisition study, in which it concluded that the fact that S. S. and Erila have well-established product franchises is undoubtedly restraining factor which does not invite widespread competition even though profit margins are very attractive" (CX 7, p. 23).

, Opinion 69 F.

budget (App. A, pars. 25-28). Its presence in the soap pad market where the existing competitors were relatively small, like Procter s presence in the liquid bleach market, operated as a formidable barrier to new market entrants who, in order to gain a significant foothold in the market, would have to withstand the powerful competitive weapons available to General Foods which would immediately confront them upon their first entry (App. A par. 33). Furthermore, General Foods' merger had exactly the same consequence which we noted in our Clo1"X decision is an important anti competitive result of mergers of this type, namely, that of motivating the remaining firms in the market to seek protection by affliating by merger with companies larger than themselves (Clo?"x p. 55) (63 F. , at 1573). This was what we predicted would happen in Clo,' ox and what actually did occur after General Foods' acquisition when Bri1o merged with Purex (App. A, par. 38).

Genera) Foods' entry into the household steel wool market conferred on S. S. a series of advantages which its competitors could not match (App. A, par. 33). As we noted in our Clorox decision the merger of a relatively small, single-product firm with a very large multi-product firm enables substantial cost savings and other advantages in advertising and sales promotion especially in television advertising. " All of the discount rate and other cost-saving advantages in television " radio and magazine advertising and in promotions as well as in marketing and distribution which accrued to Clorox as a result of its acquisition by Procter were demonstrated in this case to have accrued in Jarge part to S. S. after its acquisition by General Foods (App. A par 33(a)- (d)).

Due to the functional identity of the various household steel 11 Respondent seeks to belittle the imp ad of the television discounts available to S. after the acquisition by contending that as a matter of fact Erila was mol' effcient in its television advertising and that its television advertising costs ,were lower than those of S. (Responrlent' s Brief on Appeal, pp. 49-51). We rdect this argument on its facts and on its logic. Respondent' s calculations of relative costs and effciency are based on Neilsen s esti. mates of actual viewers after the program has been contracted, paid for and shown. Thus if the program attracted more viewers than originally estimated respondent would equate the res\l;ting lower pel' viewer cost with greater effciency. What respondent is in fact equating with effciency is the popularity of a program not originally anticipated and there fore not paid for. We do not believe that this is a proper basis for determining costs and effciency of advertising. If the figures relied upon by respondent show anything, they demonstrate that for the program selected by respondent fat" its cost/effciency calculation S, spent far more on advertising after the mcr er than Brillo and its eornmercials reached many more viewers than Brilo s. S. S. was able to reach 700,120 viewers by spending 999 300 on the programs cnumeJ'atcd, whereas Erillo ,vas able to reach only 336,159 persons as the result of its expendituJ'e of $934 385 on the programs listed on which its commercials appeared ,CX 170).

GENERAL FOODS CORPORATION 425 380 Opinion wool products (like the identity of the various liquid bleaches in their market), and the high degree of product differentiation, or preference by the consumers for the established, well-known brands, extensive advertising is crucial (App. A, pars. 16-22). Without widespread advertising a potential competitor cannot enter the market and an existing competitor wil disappear (App. , par. 18). Thus, just as Procter s abilty to advertise and promote less expensively gave it a substantial competitive advantage over Clorox s competitors and inhibited the entry of new competitors so the ability of General Foods to secure lower advertising and promotion costs gave it a substantial advantage over S. S.' competitors and raised the barriers to entry into the market (App. A, par. 33).

After its acquisition by General Foods, S. S. could and did induce potential customers to purchase its steel wool pads by offering them discounts based on pooled purchases from various divisions of General Foods and by enabling customers to coordinate their steel wool soap pad orders with their orders of other General Foods' products. These were marketing advantages which accrued to S. S. solely as a result of the merger and which were not enjoyed by its single-product competitors (App. A, par 33(f) ). " Again, as was also true with Procter, General Foods position as a well-established producer of "must" items made it likely that it would be able to obtain from retailers various advantages in the display or marketing of its products which were not available to S. S. prior to the merger or to any of its competitors, al1 of whom were small single-product finns (App. A, par. 33(h)).

To the extent that unlawful exercise of its marketing power by Procter was taken into account in assessing the competitive impact of its acquisition of Clorox, so must this same factor also be considered in appraising the competitive significance of General Foods' acquisition of S. S. (Clorox pp. 48-49) (63 F. , at 1566-1568 J. In this connection we find the same potential anticompetitive possibilities to be present in the General Foods' acquisition. The significance of this factor did not depend in the CI01' 12 Respondent in its brief denied that it- incorporatio of S. S. into its Keel.Aid Divis. ion, with the resulting consolidation of the warehousing and distribution facilities of the two companies, achieved any cost savings or increased effciency (Respondent's Reply Brief pp. 8-10), Complaint counsel, on the other hand, argued the reverse (Complaint Counsel' Brief, pp. 44-45). To the extent the point is relevant we find that cost savings did result (App. A, pars. 33 (f) and (g) ). We note, however, in this connection that whatever cost savings were achieved were not reflected in any reduction in the list price of S. S. pads and in fact after the merg-er one price increase was announced (App, A, par. 36). Opinion 69 F.

case on the few instances in the record where Procter had in fact exercised its power unfairly in the past, but rather on the fact that it possessed such market power to compete unfairly (CI01'OX pp. 48-49) (63 F. C., at 1566-1568). There is no doubt that the degree of market power enjoyed by General Foods is substantially identical to Procter s and that its possession of this power must be regarded as engendering the same potentially anticompetitive effects in the steel wool pad market as we found Procter power potentially engendered in the liquid bleach market. The so-caned acceleration of competition which respondent alleges followed upon General Foods' acquisition of S. S. appears to us to have been somewhat ephemeral and in any event is not of such a quality as in our opinion changes or mitigates the deep underlying structural changes which General Foods' acquisition accomplished in this market and which, in our judgment, constitute the same type of competitive destruction which we foresaw in the liquid bleach market after Procter s entry and which led us to conclude that that merger was ilegal. In our appraisal of respondent' s claims respecting the competitive "awakening" which allegedly followed its acquisition of S. , we find particularly significant the facts that during the six-year period which followed the acquisition the only price change made by S. S. and Brilo was a price increuse that by 1962 General Foods (S. had increased its market differential over that of Brilo to 14.270 in contrast with the modest lead of only 370 which it had had in 1957, and that there were no new entries into the market during the period in question (App. A, par. 34). The record indicates that another major multiproduct company Colgate-Palmolive Company-was engaged in the sale of household steel wool in Canada (Tr. 947-948), and thus could be regarded as a potential competitor of S. S. Presumably there were other companies engaged in the sale of low-cost, high-turnover commodities in supermarkets, which could also be considered to have been potential entrants. Therefore, the entry of General Foods into the market did not eliminate an potential competition. Nevertheless, its entry did have the effect of substantially lessening potential competition, since it raised to virtually insurmountable heights the barriers to entry which had already existed to some extent; thus, the acquisition severely limited the role which potential competition could otherwise have played as a critical check on the ability of S. S. to stifle competition in the steel . . . ,g., pp., GENERAL FOODS CORPORATION 427 380 Opinion wool industry. (See Clorox 61-62 (63 C., 1577-1578) .

In sum, we conclude that the same discrepancies in size between the acquired and acquiring company, the same threat posed by the acquisition to transform a basically single-product small firm industry into an industry in which the incentive wil be to merge and ape the dominant company, the same probability that the acquisition would dampen or even eliminate whatever modest competition actually or potentially may have existed in the preacquisition market-all of these factors relied on in our CI01'OX decision apply with even greater force, and on the same legal and factual reasoning, to the steel wool soap pad industry. As we emphasized in Clorox advantages of scale can be an important factor heightening the barriers to entry and impairing competitive conditions in an industry. (See Clorox opinion at pp. 28- , 31 , 33, 46- , 54, and 64-65 (63 F. , at 1552, 1554 1555, 1565-1566, 1571-1572, 1580-1581). ) Whether a merger has or has not conferred benefits on either the customers of the acquired company or on the acquired company itself is not the primary inquiry which Congress and the Courts have commanded us to make in determining whether a merger violates the law or not. That a merger may Hon some ultimate reckoning of social or economic debits and credits * * * be deemed beneficial" is a "value choice" from which we have been foreclosed from considering. United States v. Philadelphia Nutional Bank 374 U. S. 321 , 371 (1963). The central inquiry is whether the merger wil probably substantially lessen competition. '" As we pointed out in our Clorox opinion:

In stressing as we have the importance of advantages of scale as a factor heightening the barriers to new entry into the Jiquid bleach industry, and so impairing competitive conditions in that industry, we reject, as specious in law and unfounded in fact, the argument that the Commission ought not, for the sake of protecting the " ineffcient" small firms in the industry, proscribe a merger so productive of "effciencies." The short answer to this argument is that, in a proceeding under Section 7, economic effciency or any other social 13 E. 95 Congo Rec. 11486. For discussion of the Congressional objectives in enacting the Clayton Act and of the case law see Comment Substantially to Lessen Competition : Current Problems of Horizontal Mergers, " 68 L. J. 1627 , 1660 (1959): Blake and Jones, "In Defense of Antitrust, " 65 Col. L. R. 377 , 382 (1965) and Bok, "Section 7 of the Clayton Act and the Merging of Law and Economics, " 74 Ha:rv. L. R. 226, 235-37, 318-21 (1911): some of the leading cases in whicb mergers were invalidated despite claimed effciencies, g., United States v. First National Bank and Trust .. 376 U. S. 665 (1964); United States v. El Paso Natural Gas Co" 376 U. S. 651 (1964); United States Philadelphia National Bank 374 U. S. 321 , 370-71 (1963): United States v. Bethlehem Steel Corp., 168 F. Supp. 576, 615-18 (S. Y. 1958). Opinion 69 F.

benefit resulting from a merger is pertinent in only so far as it may tend to promote or retard the vigor of competition. * * * Congress did not mean the adjudicators of Section 7 cases to attempt to weigh the ultimate social and economic merits and demerits of a merger, but only to determine its effect on competition and monopoly (Op., p. 64) (63 F. , at 1580). In the instant case we have concluded that General Foods' acquisition of S. S. wil in fact substantially lessen competition in the steel wool pad market. We have based this conclusion on our finding that respondent' s acquisition of S. S. has raised to virtually insurmountable heights entry barriers which were already high, that the presence of General Foods in the market has changed the steel wool pad market which prior to the merger consisted of two substantially equal-sized companies and several smaller firms to one in which S. S. is now dominant, and finally that the substitution of General Foods for S. S. wil depress rather than enhance the competitive vitality of the market and wil paralyze any incentive to compete which might otherwise have existed. The fact that these high entry barriers to potential entrants and the impairment of the competitive vitality of the market arises in part because of the impact which General Foods advertising, promotional and distributional resources -had on potential and actual competitors in this market did not make its acquisition any less anti competitive. Evaluation of competitive impact must take account of business reality and of the reaction of businessmen to a state of facts. The state of facts in the instant case is the effect on competition which General Foods' presence in this market wil have. We have concluded that its presence in the market wil be to lessen competition substantially. Because it chose to achieve this market position by merger it runs afoul of Section 7.

Relief The order entered by the hearing examiner requires respondent to divest itself of the S. S. assets which were found to have been acquired in violation of Section 7. As we held in Clorox this is the appropriate relief in a case involving a product extension merger of the type herein considered. We pointed out in Clorox that:

It is settled * * * that divestiture is normally the appropriate remedy in a Section 7 proceeding. United States v. E. I. du Pont de Nem01l.rs 366 U. 316. This case would be a particularly inappropriate one in which to make an exception. The anti-competitive effects of this acquisition are non enjoinable. GENERAL FOODS CORPORATION 429 380 Appendix They inhere in the very presence of Procter, standing in the place of Clorox in the liquid bleach industry (here the very presence of General Foods standing in the place of S. S. in the household steel wool industry J, and can be corrected only by restoration of the market structure, so far as possible, as it existed at the time of acquisition (Clorox Opinion, p. 70) (63 , at 1584J, In conclusion, therefore, the initial decision, as supplemented and modified to conform to this opinion and to Appendix A attached hereto, and the order entered by the examiner, are adopted as the decision and order of the Commission. The Commission s decision of this case is without the concurrence of Commissioner MacIntyre.

Commissioner Elman dissented and has fied a dissenting opinion.

APPENDIX A Comparison of Operative Facts in the General Foods and Procter Gamble Cases Facts in the General Foods Corpora- Facts' in the Procter Gamble C01. tion Case, Docket No. 8600 pany (Clorox) case, Docket No. 6901 A. The S. S. Company, Inc. and (November 26, 1963) (63 F. C. 1465) the Household Steel W 001 Indus A. The Clorox Chemical Company try Prior to the Acquisition and the Household Liquid Bleach Industry Prior to the Acquisition 1. On December 31, 1957 General 1. On September 30, 1957 Procter & Foods Corporation (herein called GF) Gamble Company (herein called P&G) acquired The S. S. Company, Inc. acquired the Clorox Chemical Com- (herein called S. ) which was the pany (herein called Clorox) which nation leading manufacturer of was the nation s leading manufacturer household steel wool (App. B., Table of household liquid bleach. Clorox had I). As of July 31 1957 S. S. had net annual sales of slightly under $40, assets of almost $6 milion and a net 000 000 (Clorox Opinion, pp. 1 , 5) (63 worth of $4 400 000, which was al- C., at 1534, 1536).' most three times its total liabilties (CX 5 (h)). Its net sales in 1956 amounted to $14,468 000, and its profits before taxes in that year ($3 214 000) amounted to a 22.2% return on net sales and over 72 % of net worth as of July 31, 1957 (CX 5(h);

CX 5(i)).

2. In GF' s pre-acquisition report of 2. P&G prepared a report prior to its S. it was stated that its sales of acquisition of Clorox in which it prehousehold steel wool would grow as dicted the ascendency of liquid bleach 1 The citations are to the pages of the Commission Opinion on which the operative facts relied on were recited.

, p.

Appendix 69 F.

the number of uses' multiplied, the over powdered bleach (Clorox Opinion, items within each were category ex- p. 13) (63 F. C., at 1541). panded and the population increased with an improving standard of living (CX 7, pp. 21, 22). The real growth of S. had been accomplished within the 10 years preceding .the acquisition (CX 7 , p. 21). Sales of S. S. soap pads increased from $3.9 milion in 1948 to $14.6 milion in 1957 (CX 5(g), CX 118(b)). According to the pre-acquisition study prepared by General Foods, this growth was due to the fact that the soap-pad products were "very effcient as a cleaner of aluminum and, as the use of aluminum has multiplied, sales of pads have increased. This growth has been abetted by the increased distribu tion of modern kitchen ranges and the need to clean burner plates, ovens and broiling pans" (CX 7 , p. 21).

3. In addition to household steel wool 3. Clorox was engaged almost exclu- S. also produced small quantities sively in the manufacture of houseof plastic scouring devices and indus- hold liquid bleach (Clorox Opinion trial steel wool. In 1956 S. ' sales 6) (63 F. C., at 1537J. of the former totaled $1.4 milion (CX 5(g)), and its sales of industrial steel wool amounted to $229,000 (Brillo Mfg. Co., D 6557, 1963).

4. Prior to the entry of GF into the 4. Prior to the advent of P&G, househous"ehold steel wool industry, the in- hold liquid bleach was basically a dustry had been basically a small- small-firm industry (Clorox Opinion firm industry. Its total sales were less p. 55) (63 F. , at 1573). than $29 milion annually (App. E Table I).

5. S. S.' principal competitor in the 5. Clorox s principal competitor in the household steel wool soap pad busi liquid bleach field was the Purex Corness was Erilo Manufacturing Com- poration, with total sales in 1957 of pany, Inc. (herein called Erilo) with approximately $50 milion. Unlike total sales in 1958 of 21.7 millon dol- Clorox, Purex manufactures, in addilars (CX 161). Like S. S. Erilo en- tion to liquid bleach, a number of gaged almost exclusively in the manu- other products, including detergents facture of steel wool products, but an abrasive cleanser and a toilet soap also produced a relatively small (Clorox Opinion, p. 6) (63 F. C., at amount of industrial steel wool and a 1537). plastic scouring device (Brillo Mfg. Co. D. 6557, 1963; RX 4(b) (2)).

6. During the year 1957 , S. , with 6. In 1957, Clorox (with sales slightsales of household steel wool in the ly under 40 milion and 48. , ,pp.p.

GENERAL FOODS CORPORATION 431 380 Appendix amount of $14,600,000, was the leader the market) and Purex (with 15.7%) in the industry, with 51 % of the na- between them accounted for almost tional sales of household steel wool 65 % of the nation s' household bleach products. Brillo was a close second sales; four other manufacturers acwith sales of $13 629 000, or 47. counted for 15 %; and the remaining of the market. Thus, the two together 20% of the market was divided among accounted for 98.6% of the market. approximately 223 small producers Three smaner producers, Durawool plus a "large number of extremely Incorporated, American Steel Wool small" producers (Clorox Opinion Manufacturing Company, Inc. and Al- 6) (63 F. , at 1536, 1537). loy Metal Products Corporation, shared the remaining portion of the market, amounting to 1.4% (App. B Table I). So insignificant were the market positions of the smaller companies that S. S. and Erila could, and did, ignore them in their competitive activities' (CX 7 , pp. 21-25;

ex 124). Durawool began producing household steel wool in or about 1952 or 1953 (Tr. 825-826). American first entered the business in 1898 (Tr. 921).

Alloy began producing steel wool soap pads in Jate 1956 (Tr. 889-891). Alloy was dissolved in 1963 and its plant and equipment sold to Demcorp which subsequently entered the steel wool industry (Tr. 890, 901). Two other small producers of household steel wool had been eliminated from the market through acquisition by S.

and Brmo respectively in 1954 and 1956 (CX 7, p. 19; eX 53: CX 118(h);

Tr. 936).

7. S. S. and Brilo had net assets of 7. Only eight of the liquid bleach $6,000 000 and $8 000 000 respectively, manufacturers had assets in excess of while the net assets of each of the $1 milion. Very few had assets of smaller manufacturers were valued at more than $75 OOO(Clorox Opinion less than $500 000 (Answer Par. 6) (63 F. , at 1537). 2(d); CX 158 (a); ex 156(b); ex 144; Tr. 871 , 966).

8. Both Brillo and S. S. had na- 8. Clorox, which had 13 plants distional distribution and sold their prod- tributed throughout the country, was ucts in every state in the country (CX the only producer sellng on a na- , p. 24; ex 124). S. S. had two tional scale. Purex had as many plants plants' in Chicago (CX 7, p. 26) and as Clorox, but did not distribute its Erilo had two plants, one located in bleach in the northeast or middle-At- Ohio and the other in Brooklyn, New lantic states and sold in less than 50% York (RX 27, p. 6). Each of the three of the national market. Most of the smaller soap pad companies had only other liquid bleach manufacturers had Appendix 69 F.

regional distribution. Durawool and only a single plant and were limited American were limited to the north- to a regional market (Clorox Opinion eastern area of the United States (Tr. p. 7) (63 F. , at 1537, 1538). 834-835 , 923 , 957), and Alloy, which indeed made no sales at all until 1958 (App. E, Table I) was limited primarily to Detroit, Michigan (Tr. 910).

9. While S. S. had 51 % of the na- 9. 'While Clorox had 48.8 % of the national market in terms of total doUar tional market, it had 56 % of the sales of household steel wool in 1957 market in New England, 64% of the (App. B, Table I), it had almost 55% market in the metropolitan New York of the combined S. BriDa sales in area, and 72 of the market in the the nation of soap-impregnated steel middle-Atlantic states (Clorox Opinwool pads in terms of retail sales ion, p. 7) (63 F. , at 1538). (App. B, Tabie II. Its share of combined S. Brilo sales in terms of packages sold was proportionately higher in certain regions of the country, namely: 60% of New England 75% in Chicago, 68% in the West Central Region, 66% in the Southwest Region and 77 % in the Pacific Region (CX 7 , p. 84).

10. Except for metropolitan New 10. Even in areas where the principal York, S. ' share of the combined competitors of Clorox were active sales of Brilo and S. S. soap-im- Clorox s total share of the liquid pregnated steel wool soap pads in bleach market was high. Except in terms of packages sold was at least metropolitan Chicago and the west- 47.8% in each region. The only area Central states, Clorox accounted for sales (Clorox in which Erilo had a greater domi- at least 39% of the , at 1538). nance than S. S. was in metropolitan Opinion, p. 7) (63 F. New York, where Eril0 had 76.

and S. S. had 23.3% of sales in terms' of packages sold in April- May 1957 (CX 7, p. 84).

11. Between the founding of S. S. in 11. Neither the liquid bleach product 1919 and the mid-1930' s its soap pads nor its process is the subject of a patent or trade secret (Clorox Opin- were protected by patent. After the expiration of this patent, no patent on ion, p. 6) (63 F. , at 1537). the steel wool soap pad product or process has been in effect (eX 7, p.

21). While S. S. claims to have a rust arrester" (CX 68) and Eril0 advertises that its product contains a " rust resistor" (CX 167(k)L there is no indication in the record that either is the result of a secret process.

12. The American-made machines us- 12. The manufacturing process is reed for the manufacture of household latively simple (Clorox Opinion, p. 8) steel wool are custom-made to the (63 F. , at 1638). GENERAL FOODS CORPORA non 433 380 Appendix manufacturer s specifications (Tr. 847 888-890, 908-909). A German-manufactured machine is" available but can not produce steel wool as effciently as American-made machines (Tr. 847- 848). Technical know-how is vital and constitutes a barrier to entry by pot ential competitors (CX 7 , pp. 11, 23, 75).

13. S. S.' costs' of producing its pro- 13. The equipment, raw materials and ducts and of the equipment required labor required in the manufacture of to manufacture these products were liquid bleach are relatively inexpen low, compared with its sales and pro- sive (Clorox Opinion, p. 6) (63 F. C., fits. In 1956 gross sales (less allow- at 1537). ances and cash dig'counts) amounted to $15 728 000 and profits before taxes were $3 214 000 (CX 5(i)). The cost of goods sold was $7 144 000 , or 450/0 of gross sales (less allowances and discounts) (CX 5(i)). Although there are no precise figures as to the costs of the raw materials (primarily steel and soap), it does appear that labor costs are low (CX 7, pp. 31 if.). The cost of the equipment on the corporate books was $2,293,000 (CX 5 (h)), which was $900 000 less than the profits for the year 1956. No accurate figures are obtainable as to the minimum costs of the equipment required to enter the business, but the evidence indicates that the approximate cost is between $200 000 and $300 000 (CX 156(b); Tr. 871, 966).

14. Steel wool soap pads are sold on 14. Household liquid bleach is expena delivered price basis, with the manu sive to ship. Freight, which the manufacturer paying the freight. Shipping facturer pays for, commonly avercosts amounted to 11% of S. ' pro- ages more than 10% of unit cost. duction and distribution costs in 1956 Liquid bleach was not profitably dis- (CX 5(i)). The President of Ameri- tributed outside of a 300-mile radius can Steel wool Manufacturing Com- from the manufacturing plant (Clorox pany testified that freight His' a very Opinion, p. 7) (63 F. , at 1537). large part of our costs" (Tr. 942).

The President of Alloy testified that freight was "very definitely" a factor which prevented his company from sellng in other parts of the country (Tr. 913). Demrack, of Demcorp, testified that " (fJreight rates are very high on steel wool. It carries a good , p.

Appendix 69 F.

class of freight. It carries a top class of freight. Percentage-wise it is very high" (Tr. 979). Transportation and warehousing together comprised 15 of S. ' costs of production and distribution in 1956 (CX 5(i)).

15. The record contains no pr I Cif, 15. The liquid bleach industry is not steel wool soap pad capacity data but plagued by inadequate productive capindicates that the household steel 'wool acity or shortages and industry memsoap pad industry has adequate capa- bers are not producing at full capacity city with an abilty to expand, at least (Clorox Opinion, p. 8) (63 F. , at for short-range intervals (Tr. 428; 1538). RX 28(a)).

16. Although the household steel wool 16. All household liquid bleaches are soap pads produced by the various chemically identical, and none is supmanufacturers can be distinguished erior to any other (Clorox Opinion from each other by such superficial 8) (63 F. , at 1538). characteristics as color and shape there are no significant differences in their essential ingredients, and they are substantially equivalent in quality and performance (Tr. 481 , 566 , 954).

17. Household steel wool is a low- 17. Household liquid bleach is a lowprice, high turnover consumer pro- price, high turnover consumer product duct sold to housewives mainly sold mainly to housewives in grocery through grocery stores and self- stores (Clorox Opinion, p. 8) (63 service supermarkets (Tr. 492). Ap- C., at 1538). proximately 97% of S. S.' soap pads were sold through grocery channels (CX 7 , p. 22).

18. The allocation of suffcient shelf 18. Successful sales of liquid bleach space and the housewife s precondit- depend on the extent to which a manuioning to select a given brand are facturer can presell it, and thus adindispensable elements in the success- vertising and promotion are vital to ful sale of the product. Advertising is create familiarity and brand loyalty vital in the sale of steel wool soap for the product and insure, that adepads-so important, in fact, that quate shelf-space wil be allocated to as respondent's Chairman testified the product by the grocer (Clorox the cessation of advertising by S. Opinion, pp. 8-10) (63 F. , at would reslllt in the loss of consumer 1538-1540). brand loyalty, in the discontinuance of sales of the product by supermarkets and in the ultimate disappearance of the product from the market (Tr.

493, 494- , 511 , 524-25. 565- , 557;

CX 36, p. 7; CX 39, p. 9).

19. S, 19. Prior to the acquisition, Clorox S. expended a total of 265 000 or 15.7% of net sales, for had advertised extensively. In 1957 advertising in 1956 (CX 5 (i)). In it ,had spent $1 750,000 for newspaper 1957 , S. S. spent $711 000 for maga- advertising, $560,000 for magazine zine and newspaper advertising, advertising, $258 000 for radio and , p.

GENERAL FOODS CORPORATION 435 380 Appendix $22 000 for radio advertising, and bilboard advertising, and $1 150,000 390,000 for TV advertising, or a for TV advertising (a total of total of $2 124 000 (CX 10). Brilo 718 000). Advertising expenditures advertising expenses amounted to were thus equal to almost 10% of 837 762 in 1957 (CX 159). total sales (Clorox Opinion, pp. 8- (63 F. , at 1538-1539).

20. The smaller competitors lacked 20. Most manufacturers of liquid the financial resources to engage in bleach lacked the financial resources any substantial advertising (Tr. 836 to advertise extensively (p. 9). Purex 894, 972). Moreover, being regional was a large advertiser but very posdistributors, they could not derive the sibly less effective than Clorox because same benefits from advertising which of Purex s territorially limited dis' were available to -the national distri- tribution (Clorox Opinion, p. 9) (63 butors, S. S. and Erilla. Due to the, at 1539). almost complete lack of advertising the smaller producers were virtually unable to obtain shelf-space in grocery stores and sllpermarkets (Tr. 836, 894 942-954, 972-992).

21. Neither S. S. nor Erma engaged 21. Prior to its acquisition by P&G in trade or consumer promotions to Clorox had not been active in sales any significant extent prior to the promotions (Clorox Opinion, p. 8) (63 acquisition. S. S. had a policy of not C. at 1538). engaging in consumer or trade promotion (CX 5(b); CX 7, p. 36) and in 1957 Erma spent nothing on consumer promotions of its soap pads and only $26,858 on trade promotions (CX 160).

22. Before a new brand of household 22. There is evidence in this case that steel wool may be successfully laun- before a new brand of liquid bleach ched, extensive test marketing, accom- can be safely launched, it must be testpanied by substantial outlays for marketed locally (Clorox Opinion advertising and/or promotions are 43) (63 F. , at 1562). necessary (Tr. 833, 967, 977).

23. Due to the nearly universal ac- 23. Clorox is a premium brand that ceptance of their brands, S. S. and commonly sells for several cents per Brillo were able to command higher quart higher than regional or private prices for their products than their brands (Clorox Opinion, p. 8) (63 lesser-known competitors. For ex- , at 1538). ample, as of December 1958 , S.

was able to charge $4. 80 for twentyfour boxes of soap pads, containing ten pads' each, whereas its competitors charged the following prices for twenty-four boxes, containing twelve pads each:Brilo $4.

American 4.

AlloyDurawool4.4.(CX 15 130 , 139 , I51(a), 166(a)). Appendix 69 F.

24. As another result of the inabilty 24. Most manufacturers of household of the smaller companies to compete liquid bleach sell at least part of with the two dominant brands, the their production to grocery stores and smaller manufacturers were relegated sl1permarkets for resale to the conto the marketing of much of their sumer under the stores' own brand steel wool soap pads under private names. These private or house brands labels and through discount houses however, appear to account for only a and other outlets specializing in low- small proportion of the total sales price merchandise (Tr. 832 834 , 891, of liquid bleach. Clorox sells no pri- 922-923, 970-972). By way of con- vate-brand liquid bleach- all of Clotrast the two majors did little or no rox s bleach is sold under "Clorox private label soap pad business. S. brand name-and Purex very little prior to the acquisition did a very (Clorox Opinion, p. 6) (63 F. , at small amount of private label business 1537). through its Cleanser Products Division (CX 7, p. 19), but the overwhelming bulk of the production of these two companies was marketed under their two brand names, " " and Erila" respectively (Tr. 720-722 j ex 124).

B. Position of General B. Position of The Procter & Foods Corporation Gamble Company 25. Respondent General Foods Cor 25. At the time of the acquisition poration is engaged in the sale of a Procter & Gamble was engaged in the wide variety of low-price, high-turn- sale of a wide range of low price over household consumer items sold high-turnover household consumer to the consumer through grocery items which it markets through grostores and supermarkets (CX 149). cery, drug and department stores. GF has 50% of the food sales markets P&G was one of the nation s 50 larg in certain food products and is the est manufacturers, with total net sales largest packaged food manufacturer in 1957 of $1.156 bilion (Clorox Opinin the United States with net sales ion, p. 10) (63 F. , at 1540). in the fiscal year ended March 31, 1957 of almost one billon dollars (CX 36). A substantial number of General Foods' present products were acquired through the acquisition by General Foods of the assets or stock of existing producers of such products. As of March 31, 1962 respondent had made about 69 of such acquisitions, including that of S. S. (Answer, par. 6).

26. GF's product range consists prin- 26. P&G's main locus of activity was cipally of packaged food products and in the general area of soaps, deterincludes other non-food items such as gents and cleansers, and it also manubJuing (eX 149). factures a wide variety of various food items such as baking mixes and shortenings and other household products such as shampoos and dentifri- , GENERAL FOODS CORPORATION 437 380 Appendix ces (Clorox Opinion, pp. 10-11) (63 , at 1640).

27. In the fiscal year ended March 27. In 1957 P&G's sales of packaged , 1957 GF's net sales were approxi- detergents alone were 10 times the mately one bilion dollars (CX 36) or total sales of Clorox and 8 times' the more than 68 times the total sales of total sales of all of Purex s products S. in 1956 (CX 5 (i)) and more combined. P&G's total sales were more than 36 times the industry-wide sales than 20 times the total sales of Purex of household steel wool in 1957 and more than 25 times the total sales ($29,000 000) (App. B, Table I). of Clorox. P&G's total sales were more than ten times the industry-wide sales of household liquid bleach (Clorox Opinion, pp. 53, 55) (63 , at 1571 , 1573).

28. In 1961 General Foods ranked 28. P&G is one of the nation s leading third among all manufacturing cor- advertisers (Clorox Opinion, p. 12) (63 porations and first among food pro- , at 1541). In 1957, P&G spent cessors in total advertising expendi- upwards of $80 milion on advertising tures (CX 117(b)). Its advertising and $47 millon for domestic sales proexpenditures in that year amounted to motion. Domestic sales were approxi- $105,000 000 (CX 117(b), or 50 times mately $900 milion in that year ' advertising expenditures in (Clorox Opinion, p. 12) (63 F. C., at 1957, the year preceding the acquisi- 1541). tion (App. B, Table III). Respondent' consumer and trade promotions alone in 1957 amounted to $19,000 000 (CX 63), which was in excess of S.

estimated total sales in that year (CX 5(g)) .

The Acquisition by General c. The Acquisition by P&G Foods of S. S. and the of Clorox and the Advantages to S. S. Which Advantages to Clorox Accrued Which Accrued 29. According to General Foods' pre- 29. According to P&G' s pre-acquisiacquisition report, the acquisition tion report Taking over the Clorox could give GF "a dominant position busines' s . . . could be a way of achiin a tight little specialty market eving a dominant position in the liquid similar to Postum in the non-coffee bleach market quickly which would beverage field" (CX 7, p. 75). payout reasonably well" (Clorox Opinion, p. 13) (63 F. C., at 1541, 1542).

30. General Foods pre-acquisition 30. P&G' s pre-acquisition report pre report predicted that the acquisition dieted that P&G' s sales, distributing would give GF "an opportunity to and manufacturing setup could in effect economies in physical distribu. crease Clorox s share of the market tion " of S. S. products (CX 7, p. 75). in certain areas where it was low and The president of S. S. stated that effect a number of savings that would Large savings on advertising, ware- increase the profits of the business housing and transportation (of soap considerably (Clorox Opinion, p. 13) padsJ could be made with S. S. in the (63 F. , at 1542). , p.

Appendix 69 F.

hands of one of the great national organizations" (CX 7, p. 70).

31. There is no indication in the re- 31. P&G had actually pondered the cord that General Foods had ever possibility of entry into the liquid considered entering the household bleach market on its own. Prior to steel wool business by developing its the merger Procter was not only a own capacity or by acquiring one of likely prospect for new entry into the the smaller competitors. bleach market, it was virtually the only such prospect (Clorox Opinion 61) (63 F. C., at 1577).

32. The assets of S. S. which were 32. The assets of Clorox, which were acquired by General Foods had a acquired by P&G had a value of value of approximately $6 milion approximately $12.6 milion and the and the stock of General Foods for stock of P&G for which the assets which the ass' ets were exchanged had were exchanged had a market value a market value of $17 500 000 (Ans- of approximately $30. 3 milion (Clorox wer, Par. 2 (d)). Opinion, pp. 13, 14) (63 F. , at 1542).

33. The following substantial cost 33. The following cost savings and savings and other competitive advant- other competitive advantages' accrued ages accrued to S. S. as a result of to Clorox as a result of its acquisition its acquisition by GF: by P&G: a. Discounts for Network a. Discounts for Network TV Advertising TV Advertising S. was able to obtain gross.time The maximum annual volume disdiscounts (by earning the hourly rate counts available to the largest advertirather than the half-hourly rate) and sers amount to 25 %-30 % for netan increase in its weekly discounts work TV advertising. In 1957, Clorox (CX 86F). The discount on gross- spent $1 150,000 on TV advertising. time amounted to 16-2/3% (CX 81C, While complete discount rates' are not 81D, 82B , 82C, 83C, 83D , 84B , 84C included in the record, it is virtually 85C, 85D, 86B , 86C, 86D , 87C , 87D certain that an expenditure of this 87E, 88B, 88C, 88D). The weekly dis- size would not entitle Clorox to discount was increased from 6% (CX counts of any substance. With Clorox 81B , 83B , 85- , 87F) to 15% (CX now part of the Procter line, for the 82G, 84G, 86F, 88L). The result of the same amount of money Clorox spent two discounts was to give S. S. a on TV network advertising prior to net saving of approximately 23% on the merger, at least 33- 1/3o/c more its pre-acquisition advertising costs. TV network advertising can now be By reason of the discount, S. S. was obtained (Clorox Opinion, pp. 44-45) thus able to obtain at least 28% more (63 F. C. at 1563, 1564). television time for the same expenditure. The existence of TV discounts for large advertisers was referred to by the Chairman of the Board of General Foods (Tr. 529, 531).

b. Discounts for Spot TV b. Discounts for Spot TV Advertising Advertising In December of 1957, S. S. contract- Discount rates available for local ed for 13 20-second announcements to spot" television advertising favor , pp.

GENERAL FOODS CORPORATION 439 380 Appendix be televised over WCIA- , Champ- the large advertiser (Clorox Opinion aign, Ilinois, between January 2nd pp. 44-46) (63 F. , at 1563-1564). and April 1st, 1958. The rate to be Moreover, the large national adverticharged S. S. for these announce- ser can furnish its divisions with ments was $180.50 each (CX 77A). coverage in a particular local area After its acquisition by GF, the rate which it desires while spotting anfor each announcement was lowered other commercial in another section of to $152. , a reduction of approxi- the country (Clorox Opinion mately 15% (CX 78B). Moreover, 45-46) (63 F. , at 1565). ' advertising costs were subject to further reduction through the ability of General Foods to package a certain number of spots in one locality desired by one division with a certain number of spots in another locality desired by another division (Tr. 529).

c. Discounts for Radio c. Discounts for Radio Advertising Advertising As a result of the acquisition, S. Substantial dis.counts are available to was able to have the rates for parti- the largest advertisers for radio adcipation in a program on the Yankee vertising (Clorox Opinion, p. 44) (63 Radio Network reduced by 5. (CX F. T. , at 1563). 79A , 80D).

d. Discounts for Magazine d. Discounts for Magazine Advertising Advertising The maximum discount appears to The record discloses that maximum have been approximately 15% for vol ume discounts of between 12 % and Better Homes and Gardens (CX 75B 17% are available to advertisers in 76B, 76F). Other discounts were 5% the leading women s or family magafor Good Housekeeping (CX 75B, 76B, zines. An annual expenditure of $1 76D), 8 % for Ladies' Home Journal milion or more may be necessary to (CX 75B, 76G) and 7. 5% for EVe?' earn the maximum in a particular woman (CX 76B and 76K). magazine. Prior to the acquisition Clorox received no discounts for magazine advertising (Clorox Opinion p. 45) (63 F. , at 1564).

e. Ability to Purchase e. Ability to Purchase Television Television Prog1"amSPrior to the acquisitionProg1'ams, S. S. could A commercial announcement during not afford nighttime network televi- a television program is substantially sion advertising, which is the most more effective in promoting a product desirable time to reach consumers (Tr. than one during the between-program 439-440). Of five network shows pro- station break. Unless Clorox had been duced by General Foods subsequent to wiling to put a disproportionate the acquisition, the cost of each of share of its advertising budget into three (the Danny Thomas Show, the a single venture, it could not, prior to Andy Griffth Show, and Gunsmoke) the acquisition, have afforded to buy was greater than the entire S. S. an entire network television program. budget for advertising, and the cost Procter, however, can and does buy of two shows (Zane Grey Theater the sponsorship of such programs in Appendix 69 F.

and Lucy.Desi Hour) was approxi- behalf of several of its products, enmately equal to the entire advertising abling Clorox to purchase network budget of S. S. (CX 46). After the program advertising at a fraction of acquisition, S. S. was able to parti- the previous cost. Moreover, even if cipate in these nighttime programs Clorox could have purchased one because the amount of the cost allocat- show, it has the advantage now of beed to S. S. was a fraction of the total ing able to spread its sponsorship over cost of the shows. GF increased the more shows (Clorox Opinion, p. 45) amount spent on television adverti- (63 F. , at 1664 , 1565). sing from $1 390 000 in 1957 to $2,520,000 in 1962 (App. B, Table II).

Advantages Achieved Through f. (No comparable advantages Changes in Warehousing referred to. and Distribution Prior to the acquisition 8. S.' products were shipped to some 32 independent warehouses scattered through out the country from which they wen then shipped to customers pursuant to specific order (CX 7, p. 35). In 1962 General Foods incorporated the distribution of the products of its Kool-Aid Division into its over-aU distribution-sales service warehousing and distributing system, utilized by it for products of the Post, Jell-0 and Institutional Products Divisions, for the purpose of achieving savings to respondent in transportation, warehousing and sales costs, through economies resulting from the integration of the operations of their divisions (CX 120, 121). At the time the plan was adopted it was estimated that it would save the corporation $647 1100, of which $388,000 was attributed to savings to the Kool-Aid Division. This latter figure included a saving of $317 000, resulting from the reduction in transportation costs from $2 044 000 to $1 727 000, and a saving of 8102 000 resulting from reduction of warehousing costs from $632 000 to $530,000 (CX 121, Schedule A). As a result of the integration of S. S. into General Foods, S. S. was able to induce purchases of its products by (1) granting customers discounts based on pooled purchases of the products g. g. GENERAL FOODS CORPORATION 441 380 Appendix of General Foods ' various divisions;

(2) giving customers the convenience of including orders of S. S.' products in their orders of other General Foods products; and (3) improving national availability (Tr. 512-515; CX 16(c)).

Savings in Dealing Savings in Dealing With Brokers With Brokers Prior to the acquisition S. ' pro- (No comparable savings ducts were sold nationally through referred to. a network of independent brokers located in the major marketing areas of tbe United States (CX 128(d), (e), and (f)). Supervision of these brokers was maintained by S.

through four regional sales managers (CX 7, p. 35). At tbe time of tbe merger S. S. was set up as a separate division of General Foods. In 1960 this division was merged into the Kool-Aid (Perkins) Division for the reason that the latter also sold its products through national networks of brokers. Dual brokerage which existed in many areas with respect to the products of the two divisions, was gradually eliminated and by 1964 all of the products of the divisions were sold in particular marketing areas or territories by the same brokers (Tr. 786-789). Subsequent to the acquisition the commission paid to brokers on S. S. soap pads declined from 711 % of gross sales to 5% (CX 7 , pp. 35 , 76; Tr.

1278, 1317). On 1962 sales of S.

soap pads of $19 170,396.27, this would amount to a savings of $479 259.91 to respondent. The record does not indicate the reason for this decline. Nevertheless, even without considering this specific saving it would appear that the effciency gained through the avoidance of dual brokerage resulted in substantial savings to General Foods.

h. Bargaining Position h. Bargaining Position With Retailers With Retailers That General Foods is the leading That P&G is the leading producer producer of a number of products of a number of products marketed Appendix 69 F.

marketed through grocery stores may through grocery stores may enable enable it to induce retailers to give it to induce retailers to give favored favored treatment to S. S. It seems treatment to Clorox. It seems likely likely that General Foods can obtain that P&G can obtain from retailers from retailers as a matter of con- as a matter of convenience or expedivenience or expediency certain ad- ency certain advantages in the disvantages in the display or marketing play or marketing of its products of its products which are not avail- which are not available to a singleable to a single product producer such product producer such as the pre as the preacquisition S. merger Clorox (Clarax Opinion, p. 47) (63 F. , at 1566).

i. Ability to Engage i. Ability to Engage In Sales Promotions In Sales Promotions Prior to the acquisition, neither S. There is testimony in the record that nor Brilc engaged in promotions to sales promotions are considered in the any substantial exterit. General Foods, main too expensive for a single-proa firm that in 1957 incurred sales. duct firm in the relatively small liquid promotional expenses in an amount bleach industry; thus, at the time of greater than S. S.' total sales was the merger, Clorox was engaged in in an obvious position to utilize the virtually no sales promotion activisales-promotion technique on a wide ties. P&G, a firm that in 1957 inscale on behalf of S. S. more effci- curred sales-promotion expenses in ently and effectively than S. S. would an amount greater than Clorox have been able to do had it attempted total sales, is in an obvious position to to engage in promotions on thc same utilize the sales-promotion technique scale. Respondent's chairman testified on a wide scale in behalf of Clorox that it was able to save money in cou- (Clorox Opinion, p. 47) (63 F. pon promotions by having one center at 1566). for the redemption of coupons (Tr.

534). Respondent may have also saved money through its ability to obtain lower prices by combining the various divisions' purchases of " bonus items such as frying pans, kitchen tool sets, skilets, etc. General Foods has since the acquisition engaged in extensive promotions of the S. S. products.

Trade promotions have included case allowances and free goods and have been utiized in selected areas as well as nationally (CX 7, p. 36; CX's 13 , 59, 66, 160). Consumer promotions including price reducing coupons, free goods, contests, cents-off labels and reduced price premiums have also been used locally and nationally and cost $211 000 in 1963 (CX's 13 , 51, 60, 66). El'ilo also sharply increased its promotions after the acquisition (CX 163). Due to the lower prices j. j. GENERAL FOODS CORPORA non 443 380 Appendix which they could command and to the relatively higher costs of produc:ng the product and of conducting a promotional campaign the smaller companies could not and did not engage in promotions (Tr. 836-837).

Ability to Offer Merchants Ability to Offer Merchants Special Prices Special Prices Although respondent did not engage To be able to offer lower prices to rein local price-cutting as' such, it did tailers requires the kind of pricing demonstrate its abilty and wiling- flexibility available only to a firm with ness to concentrate its consumer and ample reserves. Local price-cutting is trade promotions in certain locations. prevalent but cannot long be main- In 1963, of the $137,736 spent on tained by a firm short on reserves. In trade promotions, $35 409 were spent a fight to the finish, P&G, whose in Metropolitan New York, and of scale of operations' and fiscal resources the $211 083 which it spent for con dwarf the entire industry, can hardly sumer promotions in that year, $109 be bested (Clorox Opinion, p. 48) 352 were for the Metropolitan New (63 F. , at 1566 , 1667J. Yark market. Smaller firms, which cannot afford promotions, are driven from the sllpermarket shelves in the face of such intensive localized promotions (Tr. 837; ex's 59, 60).

k. A bility to Engage in Syste- k. Ability to Engage in Systematic Underpricing matic Underpricing This danger is present in this case There is a danger that P&G may ento the same extent as it was' in the gage in systematic underpricing be- Clorox case. However, the indication low cost (Clorox Opinion, pp. 48-49) here is that the under. pricing may (63 F. , at 1567). take the form of disproportionately high expenditures on promotions.

1. Psychological advantages 1. Psychological advantages Although there is no evidence that The record discloses that Procter is GF is a more feared competitor than regarded by the firms in the industry was S. , it seems reasonable to as a well managed and aggressive infer this from GF' s history of suc- competitor, more to be feared than cess, its size, and its prowess. Howe Clorox. Market behavior is' determined ever unwilling a potential entrant by the state of mind of the firms in would be to challenge the established the market. P&G' s history of success, position of two brands as' well en- size and prowess must be considered trenched as are S. S. and Brilo significant competitive factors. Bewhen backed up by comparatively cause a large multiproduct firm ensmall companies, he would be un. joys competitive advantages, the prosdoubtedly far more reluctant to chal- pects become remote that small or lenge these brands when one of them medium-sized firms wil be minded to is backed up by a colussus of Ameri- enter the industry. Only very large can industry, namely, GF. Thus the firms can reasonably be expected to be same psychological barriers which able to compete on roughly equal were found in Clorox to prevent en- terms, A small or medium-sized firm Appendix 69 F.

try of new competitors' and limit ex- contemplating entry cannot ignore the pansion of existing competitors are fact that P&G is a bilion dollar corpresent in this case, and in approxi- poration whose marketing experience mately the same degree. stems far beyond the limited horizons of the industry. Even a large firm would be loath to challenge a brand as well established as Clorox when that brand is backed up by powerful marketing capacities of a firm such as P&G (Clorox Opinion, pp. 49-51) (63 F. , at 1567-1568 , 1569J, D. Market Subsequent to Acqui- D. Market Subsequent to Acquisition sition 34. S. S.' share of the market in- 34, Clorox s share of the market increased from 51 % in 1957, the year creased from 48.8% in 1957, the year preceding the acquisition, to 56 % in of the acquisition, to 51.5 % in 1961 1962, while Brina s market share de- (Clorox Opinion, p. 68) (63 F. C., clined from 47.6% in 1957 to 41.8% at 1583J. in 1962 (App. B, Table I). Hence the differences in the percentages of market shares between the two companies rose from only 3.4% in 1957 to 14.2 % in 1962. The share of the independents had only increased to 2.2 % by 1962. Moreover, S. ' share of the combined S. Erilo sales of steel wool soap pads in grocery stores and supermarkets on a consumer dollar basis advanced from 54.9 % in 1958 to 60.9 % in 1963 (App. B , Table II). During the years 1958-1959, the disparity between S. S. and Bril- 10 narrowed to .7% (App. B, Table I), but this appears to have been due principally to the fact that in those years S. S. failed to get on the General Foods night television programs' and expended a relatively small proportion of its advertising funds on television advertising (App. B , Table III). On an absolute basis S. S.' sales of soap pads grew from $14 600 000 in 1957 to $19 170 000 in 1962, an increase of 31 %, while Erilo S' sales only rose from $13 629,000 in 1957 to $14 305 000 in 1962, an increase of only 5% in five years (App. E, Table I).

35. There were no new entries in the 35. (No discussion of new entries subindustry in the 6112 years which sequent to the acquisition. GENERAL FOODS CORPORATION 445 380 Appendix elapsed between the acquisition and the hearing except that Demcorp took over the defunct Andy Metal Wool Products Corporation in 1963 (Tr.

890-901) .

36. The single price change which took 36. (No price changes indtcated. place was an increase in the price of S. soap pads in July, 1958 (CX 2(c)), which was apparently followed by Brilo.

37. In December, 1963, Erma merged 37. The remaining firms in the indus'with Purex Corporation Limited, a try may now be motivated to seek manufacturer of household cleaning affliation by merger with giant comproducts, which in the fiscal year end- panies (Clorox Opinion, p. 55) (63. ed June 30, 1963 had total sales of, at 1573). $127 000 000 (RX 27).

. :g: . . . . . . ...g. ,,. Appendix 69 F.

lrt:t-oot-t- lrCQc\ ,;t. octqlO o ," t-OO OMC'-. -c-cqC\IN " 00 0," o '"

" t.

1 to o . 0-'" " '" 0- ." I j 1 ui .s '0 '"oo t: M rl 00 lr "8 :5 r-M'= ..M MIN C'lr... C. IN C" o . 13''' NC\C\M"1 " 0 . "C IN m ""11 C.'oIfU: :5 w 00 o "" . .. Q.- . 0 0t- 00 IN r: t: M 00 lc I. r: 00 00 ., ,. tI '( "' -. -. '0 -. -. "d .8 rl M 0: 0- t: 00 M '" If 0";" 0- OONOO OOl.O o:r:- M .8 " o rl C\ -. "' -. CQ '' -..'"rlrlr-""rlr- Il:;w ' o .s0,. 0 00 t: 0 o: "" 0 0 0 r: C\"" 0 cl."; LQ If If '0 It l. u: " " 00 "C '"

rJ Q)...

1- o r:M c. 0.- r- m rl '". '"0 Co0 g C\ :""'Ir rl '" MM rl rlr- rl Q) .. .. 5 lQ 1: r: 00 C) 0 rl cl. l. If lQ lQ c.c. 0: t" c;

c;....cr C)riMm crrlrl..O" cr ,.m -: c GENERAL FOODS CORPORATION 447 380 Appendix TABLE II NIELSEN NATIONAL RETAIL MARKET SHARE STATISTICS (STEEL WOOL SOAP PADS) Consumer Dollar Basis (in thousands of dollars) Total S. % RriIo % Year Sales Tota! Sales Erilo Total Sales (000) (000) (000) F1958 3e,800 $16,900 54. $13 900 45. F1959 300 400 54. 14,800 45. F1960 400 000 63. 400 46. FI961 36,400 500 59. 900 41.0 F1962 37,400 22,400 59. 000 I 40. F1963 300 22,600 60. 700 39. *The above soales figures represent sales of steel wool soap pads through grocery stores and supermarkets taken from ex 48. TABLE III ADVERTISING EXPENDITURES OF THE S. S. COMPANY (1954-1957) AND OF GENERAL FOODS- (1958-196S) (in thousands of dollars) Year Newspapers Magazines (000) (000) (000) 1954 $470 300 1956 570 310 1956 650 150 1957 710 390 Acquisition on 12/31/57 1958 580 600 650 1959 790 410 690 1960 950 1961 360 1962 620 1963 220 (CX 9, 10 , 58) pp. $$ ..

Appendix 69 F. T.

TABLE IV Retail Price of Household Steel Wool Products VB. N on-Steel Wool Products As Shown on Respondent' s Exhibits Steel Wool Products Retail Price Items Per Price Per Product Per Package Package Item Brilo Soap Pads 28' S. Soap Pads - American Soap Pads 1.9 Dura Soap Pads - - - .45 1.5 Brilo Whitewall Tire Pads - - Grand Soap Pads - Staff Soap Pads O. Ettes 1.91 Paddy Soap Pads - 1.5 Spring Soap Pads 1.4 Non-Steel Wool Products Retail Price Items Per Price Per Product Per Package Package Item Golden Fleece (king size) 14M Hand-eez Cleaning Pads Rubber Scrubber - - - 13. Glit Scour n Wipe Pads - Kurly Kate Pot Cleaners Tuffy -- 23 23. Glit Whopper Scrubbers - - - 14. Scrubbee Scouring Sponge 29. Scotch Brite Scouring Pad 29 a 29. Handy Mandy Pot Cleaner 10. Rescue Soap Pads - - - 29 Terry Tex Scouring Pads Sudsy Scrubber - 29M Glit Scouring Sponge Magla Plastic Wool 14M Kitchen Pal 145 14. Gottschalk Stainless Steel Sponge.

Nylonet Scouring Pad - 29. 1 Many of the items included by respondent on RXs 1 6 do not have retail prices printed or stamped thereon, and the record does not contain any other evidence of their price. These products have 110t been included here. They are: Brillo Cleanser, FYl1e-Tex Soap Pads Shop-Rite Soap Pads. Shop-Well Soap Pads, Poly Puff, Chore Girl Pot Cleaner, MeJTy Maid Kitchen Queen rot Cleaners, Scotch Brite Scrubbing Sponge, Ken-Mal' , Scrubbee Pot Clean- , Scrub-Stlk Pot Cleaner.

2 Price not shown on RXs 1 , 3 but obtllinabJe from Record at Tr. 780; ex 7 , p. 24; RX 17, 3 Price not shown on RX 1 but obtainable from Record at TR. 1518-1519. 4 Price not shown On RX 1 but obtainable from Record at TR. 1479. $ .

GENERAL FOODS CORPORATION 449 380 Dissenting Opinion Non-Steel Wool Products-Continued Retail Price Items Per Price Per Product Per Package Package Item Reddy 10. Nif-Te€ ION Gottschalk Cleaning Pads Combo 29. Dobie 25. Kopper Kate Pot Cleaners Scour Puss 10. Squeeze Ease Scrubber 29. Tally Scouring Pad 25. Wund-R Spunge 29. DISSE"TING OPINION MARCH II , 1966 BY ELMAN Commissione1':

Unlike the majority, I do not regard this case as a mere replica of Procter Gumble (Clorox). I do not agree that all of the factors relied on in Clorox apply with even greater force, and on the same legal and factual reasoning, " to this case. A conclusion that the merger in this case is ilegal requires one, in my view, to move beyond the existing boundaries of the merger law. This does not mean, of course, that the Commission s decision is wrong. But it does mean that the process of decision should consist of more echo of Clorox and than treating this case as if it were simply an as if ilegality here were an u fortiO?i conclusion. Without a doubt, this case and Clorox bear striking similarities. In both cases the acquired firm was a manufacturer of a high-turnover, low-cost, heavily-advertised consumer product. In this case, as in that, the acquired firm had a position of great strength in a highly concentrated market where a very few sellers accounted for an overwhelming proportion of the business; and in both cases the acquiring firms were very much larger than the acquired firms. But-and this seems to me to be the basic flaw in the Commission s approach to this case-we cannot stop with the similarities and ignore the differences between the two cases. At the outset, it is necessary to put CI01'OX and the Commis- Clorox involved sion s opinion in that case, in proper perspective. the kind of conglomerate acquisition that has come to be labeled a product-extension merger. The Commission approached the decision of that case with a candid recognition that it was largely Dissenting Opinion 69 F.

writing on a clean slate. Eschewing reliance on specific prior decisions, the Commission stated that the lawfulness of the kind of merger involved in Clorox is a question largely of first impression " which "has received little attention under the antitrust Jaws " and that the "absence of authoritative, specific precedents in this area compels us to look to basic principles in the interpretation and application of Section 7. (CI01'OX pp. 18-19 (63 C., at 1545-1546). ) Reviewing "in the context of first principles (id. p. 23 (63 F. , at 1549)) the legal and economic problems posed by a product-extension merger, the Commission concluded that the legality of such a merger could not be determined by applying relatively simple or quantitative tests, as in the case of a conventional horizontal merger, but required more extensive analysis. In dealing with a conglomerate merger of this sort, the Commission found, it was necessary t.o focus inquiry on the merger s impact on the structure of the market or markets affected, particularly to determine whether the merger resulted in excessive concentration, unduly raised barriers to entry into a relevant market, or substantially eliminated potential competition. I shall not attempt here to restate, or even to summarize, the full scope of the Commission s 71-page economic and legal analysis of Procter s acquisition of Clorox. The elaborateness of the opinion in that case, as has been noted, reflected the Commission awareness that it was entering relatively uncharted territory. Accordingly, the inquiry in CI01' ox extended over a broad range of factors the relative disparity in size and strength as between Procter and the largest firms of the household bleach industry; the excessive concentration in the industry at the time of the merger, and Clorox s dominant position in the industry; the fact that Clorox s dominance was attributable to its advertising and promotional activities, there being no physical difference between competing brands of liquid bleach; the absence of any effective rivals of Clorox; the dominant position of Procter in functionally close markets, and its position as a probable entrant into the liquid bleach business; and the elimination, brought about by the merger, of Procter as a potential direct competitor of Clorox (and of course, the corresponding elimination of Clorox as a potential direct competitor of Procter, had the latter entered the bleach industry through internal expansion).

The Clorox opinion made emphatically clear that the Commission based its decision not on any single factor but on a totality of circumstances "which, taken together (we need not, and do not , GENERAL FOODS CORPORATION 451 380 Dissenting Opinion consider whether one or more of these factors, taken separately, would be dispositive of the case), persuade us that the instant merger violates Section 7. (Clorox p. 53 (63 F. , at 1571). What makes this a diffcult case, and not a carbon copy of Clorox is that there are lacking here some important elements of the combination of factors upon which, in their entirety, the Commission relied in deciding CI01'OX. The majority opinion characterizes General Foods' acquisition of S. S. as "a product extension merger identical in all respects to the extension of Procter & Gamble s product line to liquid bleach. " (P. 421.) Labels are convenient and can be helpful in promoting analysis, but not when the same label is attached to things that are not the same. There are product-extension mergers and there are product-extension mergers; and they are not all exactly alike. I agree that, for purposes of general descriptive classification, the acquisitions in both this case and in Claro," could be called product-extension mergers. But the label cannot resolve the question of legality. It no more follows that every product-extension merger is illegal than that every such merger is legal. Perhaps the time may come in the evolution of Section 7 as it is now written or as it may be amended by Congress, when the legality of a merger will be determined simply by attaching the proper label. But that time has not yet arrived, and I doubt very much that it ever will.

Unlike the product-extension merger in this case, the ow, be, fore us in Clo,' as the Commission s detailed analysis abundantly demonstrated, had many of the same effects on competition as a conventional horizontal merger. Procter was the leadiTIg 1hm in the household cleansing agents industry of the United States. By its acquisition of Clorox, the Commission found, "Procccl' has not diversified its interests in the sense of expanding into a sub,. stantially different, unfamiliar market or industry. Rather, ii; he, entered a market which adjoins, as it were, those markets in which it is already established * * " (CI01'OX p. 17 (63 F. C., at 1545). ) To borrow an expression from a not too dissimilal COIitext, it was Procter s "manifest destiny" to enter the household liquid bleach market. The whole logic of its corporate development; its size and direct proximity to the liquid bleach market; and the clear line and direction of its business growth, all pointed unerringly toward Procter s expanding into the household liquid bleach business. "At the time of the merger " the Comw;3sion found Procter was a progressive and experienced manufaci urpr Dissenting Opinion 69 F.

of many products in the same product line as liquid bleach; it had in the past frequently extended its product line by introducing a new brand in an industry in which it had not theretofore been active; it was one of the very few manufacturers of household products in the same general line as liquid bleach that was powerful enough to challenge, with some hope of success, Clorox s entrenched position in the bleach market; and it had actually pondered the possibility of entry into the liquid bleach market on its own. (Clorox p. 61 (63 F. , at 1577). ) Moreover, Procter was not only a likely prospect for new entry into the bleach market, it was virtually the only such prospect. (Ibid. These findings in CI01'OX were supported by specific documentation in the record. The evidence in CI01'OX disclosed that, after careful study of the various choices open to it, Procter decided to enter the household Jiquid bleach business through acquisition of Clorox, the dominant firm in that industry. After two years' study of the Jiquid bleach industry, a report of Procter s promotion department concluded: "Taking over the Clorox business. . . could be a way of achieving a dominant position in the Jiquid bleach market quickly, which would payout reasonably well." (Clorox p. 13 (63 F. , at 1541, 1542).

The Commission thus had before it in C101'OX extremely persuasive evidence that the merger lessened potential competition in a most significant way. Potential competition was lessened not only by the elimination of Procter as a potential competitor of Clorox but also by the elimination of Clorox as a potential competitor of Procter. Had Procter chosen to enter the bleach market through internal expansion, it would have encountered the formidable rivalry of Clorox, the dominant firm in the industry. That potential rivalry disappeared with Procter s acquisition of Clorox. In a fundamnetal sense, the merger in ClOTOX eliminated direct (one might even call it horizontal) competition between Procter and Clorox-competition no less substantial and significant because it was potential rather than present.

In contrast, in this record there is no evidence that General Foods contemplated entry into the household steel wool market by internal expansion, or that such entry was its manifest destiny. Nor is there evidence that General Foods was regarded in that industry as a potential competitor. It cannot be found here that, by acquiring S. , General Foods eliminated itself as a restraining force on the behavior of the dominant firms in the steel wool industry; or that it eliminated S. S. as a direct potential GENERAL FOODS CORPORATION 453 380 Dissenting Opinion competitor which it would encounter upon its inevitable (or, at least, highly probable) entry into the steel wool market. The absence of this factor alone, which loomed so large in Clorox makes this a different case.

There is some evidence in this record, similar to that in Clorox that General Foods- S. wil have some advertising and marketing advantages over its competitors. But it strains credulity to find that these advantages wil be "decisive" or wil lead to increased conc ntration in the steel wool industry. In the context of the household liquid bleach industry, the advertising and marketing advantages resulting from the Procter-Clorox merger affected important elements of market structure. Clorox, the only national marketer in the industry, held almost 50% of the market, while its nearest competitor, Purex, had a comparatively tiny 15% share. Almost any enhancement of Clorox s already considerable marketing advantage could bring it close to a virtually unchallenged market position. Put another way, a reduction in PUl' market share of only a few percentage points could render it completely helpless as a competitor. In this case, whatever advantages may accrue from the merger, they wil have little consequence, for General Foods- S. must meet the strong competition 40;10 of the house-of Brilo, a national marketer enjoying almost hold steel wool market, as well as the giant marketers of "substitute" scouring products.

The Commission finds-and I agree-that the product market in which the competitive effects of the acquisition here should be measured is household steel wool. But the crucial question in this case is not one of defining the " relevant market. " It is, rather whether, as the Commission holds, the merger violates Section 7 because of "the deep underlying structural changes which General Foods ' acquisition accomplished in this market." (P. 426. Conceding that "the entry of General Foods into the (steel woolJ market did not eliminate all potential competition, " the majority opinion asserts that "its entry did have the effect of substantially lessening potential competition, since it raised to virtually insurmountable heights the barriers to entry which had already existed to some extent; thus, the acquisition severely limited the role which potential competition could otherwise have played as a critical check on the ability of S. S. to stifie competition in the steel wool industry. " (Pp. 426-427.

I cannot agree that the substitution of General Foods for S. in the household steel wool industry worked such "deep underly- , Dissenting Opinion 69 F. T, ing structural changes" and had "the effect of substantially lessening potential competition. " Whatever potential competition was eliminated is of paltry significance compared to what remains; and there is every indication that potential competition wi1 increase, rather than decrease, in the future. To the extent that the possibility of new entry acts as a restraining influence on sellers in an oligopolistic or concentrated market, inclining them to maintain prices at a level low enough to discourage entry (see Clorox pp. 27- , 61-62) (63 F. , at 1551-1552, 1577-1578), the acquisition here cannot be regarded as affecting potential competition in any way that could reasonably be expected to influence the behavior of S. , Bri1o, and the other firms in the steel wool business. In determining the impact of this merger on competition in that market, I do not think that it is irrelevant, as the Commission does, that a wide variety of rival products-nonsteel wool scouring devices made of plastic, nylon, silica, and metals other than steel-are being marketed with increasing vigor and success. It is evident from the advertising claims made for these products, which attempt to capitalize on the deficiencies of steel wool, that they are aimed directly at the consumer who now purchases steel wool soap pads. These scouring devices are sold side by side with steel wool soap pads on supermarket shelves and arrive there through the same channels of distribution. And, as the hearing examiner found ' the manufacturers of the non-steel wool devices price these products to be competitive with steel wool soap pads, taking into account the claims of greater durability and effciency made for the former products. N on-steel ",vaal scouring devices are new to the market, many of them only two or three years old, and their further development and improvement is inevitable. The jnherent deflciencies of steel wool soap pads offer the tempting prospect of a large market waiting to be captured by any firm that can devise a better product. Since the end of World War II we have seen the development of many new products that at first appeared only at the fringes of a market and then later competed directly with older products, in some cases replacing them. An example is clear plastic wrap, such as Saran. When first introduced, this product could not be said to compete directly with household wax paper. Yet today there can be no doubt about the competition Saran presents to wax paper. 1 The claims made for various non-steel wool scouring devices incinrlc never frays 01' shreds long lasting, safe no splinters kind to hands " anrl "onc does the work of foul' rust and splinter soap pads.

2 Finding of Fact 21 (I. , p. 395).

GENERAL FOODS CORPORATION 455 380 Dissenting Opinion Another example is the so-called miracle fibers which did not, immediately after their development, compete directly with cotton silk, and wool; today, the producers of traditional, natural fibers are locked in direct, substantial competition with the producers of man-mad" fibers.

In its decision today, the Commission ignores the nen-steel wool products and the competition which they represent to firms in the steel wool market. The Commission justifies this on the ground that the "relevant market" does not include these other products. But, as I have pointed out, the critical question in this case is that of determining whether, and to what extent, this merger bring about " deep underlying structural changes " substantially lessening competition in the steel wool market. If, as the Commission holds, the legality of this merger must be judged by me3suring its effects on potential competition, how can we close our eyes to anything that, as a matter of marketing reality, constitutes potential competition to firms in that market? If this were a conventional horizontal merger, it might well be unnecessary to consider its effect on potential competition. But where, as in this case, a conglomerate merger is being held megal on the gj'found that it adversely affects market structure by lessening potential competition, we should view potential competition realistically and not on the basis of an abstract definition of "relevant market". In this case, it seems to me, no evaluation of potential competition is realistic if it ignores the emerging competition of the non-steel wool scouring devices. The manufacturers of these products include giants like Du Pont, Colgate-Palmolive Co. , General Mms, Minnesota Mining & Manufacturing Co. and General Cable Corp. These companies, with their vast resources and marketing power, are not likely to take a back seat to General Foods, or be afraid to compete with it. So far as these companies are concerned, any promotional or advertising advantages enjoyed by General Foods would impose no competitive handicap on them. The difference between the Commission s approach and mine is mustrated by a simple example, Suppose Brmo, rather than General Foods, were to acquire S. S. In such a case there would be a palpable, immediate, substantial lessening of competition. Elimination of S. , its leading competitor, would give Brmo a monopoly position in the household steel wool industry. That industry of course constitutes a "line of commerce" within Section 7 and I would agree that in the case of a Brmo- S. merger it would be unnecessary and unjustifiable to pursue inquiry into the ) .

Dissenting Opinion 69 F.

existence or extent of potential competition from rival products outside the steel wool industry. The reason would be that a Brillo- S. merger would effect so great and so manifest a lessening of competition within the steel wool market that we would be justified in stopping inquiry right there, dispensing with any further reckoning of possible debits and credits. In the case of a horizontal merger of competing companies, a significant change in market structure occurs when concentration in the market is substantially increased or when the merger substantially adds to the size of an already dominant firm; and such a merger cannot be saved by a showing that potential competition has not thereby been lessened. EkeD Products Co. C. Docket No. 8122 (decided June 30 1964), p. 7 (65 F. C. 1163 , 1207), uff' 347 F. 2d 745 (7th Cir.

However, a conglomerate merger, as in this case, has no immediate effect on the level of concentration or on the shares of particular competitors in any market. General Foods' acquisition of S. does not pose the same kind of clear and present lessening of competition as would a Brilo- S. merger. Hence, as the Commission recognized in Clorox and apparently here also, it is necessary to go further and determine whether the merger wil affect market structure in a way important to the existence of competition. In appraising the competitive impact of this kind of merger, it is especially necessary that we "recognize competition where, in fact, competition exists. B1'own Shoe Co. v. United Stutes 370 U.S. 294, 326. Where the illegality of a conglomerate merger depends on an analysis of its effects on market structure we should also recognize potential competition where, in fact, potential competition exists-and not disregard the rivalry of products which, though outside the defined "relevant market " nonetheless constitute potential competition to firms in that market. In my view, the competition between household cleaning devices, steel wool and non-steel wool, is so visible and real that-in making any predictive judgment of the effect of this merger on potential competition in the steel wool market-it must be taken into account. By ignoring such competition, the Commission undermines the soundness of its prediction that this merger wil significantly lessen potential competition and substantially raise barriers to entry into the steel wool market. On no realistic appraisal of the market would it appear that Du Pont, Colgate, and these other giants are likely to be discouraged from taking on S. S. as a competitor because it has been acquired by General Foods. In GENERAL FOODS CORPORATION 457 380 Dissenting Opinion relation to these firms, the substitution of General Foods for S. has surely raised no barriers to entry or eliminated the potential competition that now exists.

The existence of these emerging competitors is critically important for another reason. One cannot ignore this competition and make predictions about the possible impact of this merger on possible new entry by hypothetical steel wool manufacturers. For, on the one hand, to the extent that we are concerned about the restraining effects of potential competition on S. S.'s market behavior, is it not likely that the restraining influence of other scouring devices marketed by giant rivals, who already have made large investments in production and marketing facilities, wil be great-indeed, greater even than any restraining influence exercised by the possibility that a hypothetical manufacturer, who has not yet made any commitment, might enter the market to do batte with Brilo and S. ? On the other hand, to the extent that we consider the merger s effects upon the likelihood that such hypothetical steel wool manufacturers will enter the market and deconcentrate it, is it not more realistic to suppose that any such firms wil more likely be deterred by the declining acceptability of steel wool soap pads ' as well as by the increasing efforts of giant marketers of rival products to capitalize on the deficiencies of steel wool soap pads? Predicting that a merger wil have a substantial impact upon potential new entrants is diffcult enough in any case (CI01'OX 52) (63 F. , at 1570). And, as I have already pointed out, it is stil an open question whether we would strike down a conglomerate merger where only one factor-such as a probable impact upon potential new entrants-was present. My point here is however, that because of the emerging competition of other porducts and the declining acceptabilty of steel wool, as well as the other factors previously discussed which differentiate this case from CI01'OX the net "lessening " of potential competition resulting from this merger is too tenuous and too speculative to furnish adequate basis for striking it down.

The Commission also includes, as a ground for holding this merger unlawful, purported cost savings accruing to S. through effciencies in warehousing and distribution (p. 420; App. , par. 33 (f) ). In the first place, the cost savings referred to by 3 In the last few years, the public has become increasingly attracted to pots and pans with non-stick coatings, sllch as "Teflon." These utensils, which have the advantage of allowing one to cook without fats, cannot be cleaned with steel wool soap pads. Such utensils will undoubtedly expand the use of non-steel wool scouring devices. Dissenting Opinion 69 F.

the Commission represent lower costs to the entire Kool-Aid Division of General Foods, of which S. S. is merely a part. There is no evidence in the record to indicate how much, if any, of the savings is properly al10cable to S. S. In fact, then, there is no evidence that its acquistion by General Foods gave S. S. an advantage over competitors by lowering its costs. More serious, however, is the erroneous legal significance which the Commission seems to attach to these alleged savings. Economic effciencies should not be a ground for the invalidation of a merger. Indeed, the promotion of competition has for one of its goals the achievement of greater effciency. See Turner Conglomemte Mergers und Section of the Cilyton Act, 78 Harv. L. Rev. 1313, 1323-28. In Claro x the Commission found involved in this casethat "the large-scale advertising 'economies' represent price concessions available only to giant firms, and bear litte relationship to ordinary notions of economic 'effciency (Clorox p. 65 (63 F. C., at 1581)) When a large diversified firm like General Foods acquires the leading producer in a concentrated industry, it is a cause for concern. It is possible that the substitution of General Foods for S. wi1 have long-term anticompetitive effects. The merger may also be objectionable on broader social grounds, as contributing to an unhealthy concentration of the nation s productive resources in the hands of a few large firms. But the statute does not leave us free to strike down mergers on the basis of sheer specuat 1390. lation or a general fear of bigness. See Turner supm The statute requires proof of a reasonable probabilty that competition wil be lessened substantially. As we pointed out in Clorox, the language of Section 7 refutes any notion that every merger whose probable effect on competition is adverse is, for that reason, unlawful.... The impact must be significant and real. . . . " (P. 52 (63 F. , at 1570). Section 7 does not incorporate into law the view that any acquisiton made by a large firm which results in economies of scale thereby automatically lessens competition. Indeed, the Commission itself expressly rej ected such a bald proposition not too long ago. Union Curbide Corp. 59 F. C. 614, 658-59. In the present state of our knowledge of and experience with conglomerate mergers, we should move cautiously and tentatively. In this case for the second time in recent weeks (see National Tw Co. Docket No. 7453, decided March 4, 1966) (p. 226 herein), the Commission, to my regret, takes a long step toward ruling that a GENERAL FOODS CORPORATION 459 380 Final Order big" firm may grow only by internal expansion, and that any acquisition which makes it bigger tbereby increases "concentration and is therefore ilegal.

Every merger of two firms, by eliminating one of them, to that extent increases "concentration" (in the sense of aggregate or national concentration). If increase in "concentration" is the standard to be applied under Section 7, every merger would be unlawful. But Congress did not prohibit all mergers but only those which are found to be anti competitive in their probable effects. Under the statute we must draw a clear line between (1) those mergers whict -increase "concentration and are anti competitive and (2) those mergers which increase "concentration " but are not anticompetitive. The decisions in this case and in Nutionul Teu blur, and may tend to erase, that line.

FINAL ORDER This matter having been heard by the Commission on an appeal by respondent from the initial decision of the hearing examiner and upon briefs and argument in support thereof and in opposition thereto; and The Commission having rendered its decision determining that the appeal should be denied, that the initial decision, as supplemented and modified to conform to the views expressed in the accompanying opinion, should be adopted as the decision of the Commission, and. that the order issued by the hearing examiner should be adopted as the order of the Commission: It is ordered That the initial decision, as modified and supplemented by the accompanying opinion be, and it hereby is, adopted as the decision of the Commission.

It is fU1'ther ordered That the order issued by the hearing examiner be, and it hereby is, adopted as the order of the Commission.

It is fU1'thel' ordered That the respondent herein shan, within sixty (60) days after service upon it of this order, file with the Commission a report in writing setting forth in detail the manner and form in which it has complied with this order. By the Commission, without the concurrence of Commissioner MacIntyre. Commissioner Elman dissented and has filed a dissenting opinion.

Complaint 69 F.