Boise Cascade Corporation

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In THE MATTER OF BOISE CASCADE CORPORATION, ET AL.

ORDER, OPINION, ETC., IN REGARD TO ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT Docket 8958. Complaint, April 18, 1974 — Final Order, Jan. 11, 1978 This order, among other things, requires a Boise, Idaho manufacturer and seller of softwood plywood, and four of its competitors, to cease, in connection with sales and transportation of their products, employing weight estimates to determine freight charges; and using any rate of freight other than that applicable to particular business transactions. The order further requires that respondents, when offering delivered prices, provide purchasers of their products the option of obtaining point of origin prices and furnishing their own transportation. Additionally, respondents must advise persons responsible for sales and policy of the terms of the order, and publish such terms, as prescribed. Appearances For the Commission: James C. Egan, Jr., Amy R. Richter, Roger J. Leifer and Robert J. Enders.

For the respondents: Hammond E. Chaffetz, James H. Schink, Steven D. McCormack and Stephen C. Neal, Kirkland & Ellis, Chicago, Illinois for Champion International Corporation, Georgia-Pacific Corporation, Weyerhaeuser Company and Willamette Industries, Inc. John T. Loughlin, Robert T. Johnson, Jr. and Robert W. Sheppy, Bell, Boyd, Lloyd, Haddad & Burns, Chicago, Mlinois for Boise Cascade Corporation.

COMPLAINT The Federal Trade Commission, having reason to believe that the above-named respondents have violated and are now violating Section 5 of the Federal Trade Commission Act (15 U.S.C. 45), and believing that a proceeding by it in respect thereof is in the public interest, hereby issues its complaint charging as follows: PARAGRAPH 1. Respondent Boise Cascade Corporation is a corporation organized, existing and doing business under the laws of the State of Delaware with its principal office and place of business at Boise, Idaho. In 1971, Boise Cascade Corporation had sales of $1,785,870,000. Par. 2. Respondent Champion International Corporation is a corporation organized, existing and doing business under the laws of 2 _ FEDERAL TRADE COMMISSION DECISIONS Complaint 91 F.T.C.

the State of New York with its principal office and place of business at 777 8rd Ave., New York, New York. In 1971, Champion International Corporation had sales of $1,599,829,000. [2] Par. 3. Respondent Georgia-Pacific Corporation (hereinafter “Georgia-Pacific”) is a corporation organized, existing and doing business under the laws of the State of Georgia with its principal office and place of business at 900 S.W. 5th Ave., Portland, Oregon. In 1971, Georgia-Pacific had sales of $1,447,300 000. Par. 4. Respondent Weyerhaeuser Company is a corporation organized, existing and doing business under the laws of the State of Washington with its principal office and place of business at Tacoma, Washington. In 1971, Weyerhaeuser Company had annual sales of $1,299,533,000.

Par. 5. Respondent Willamette Industries, Inc., is a corporation organized, existing and doing business under the laws of the State of Oregon with its principal office and place of business at 3800 Ist National Bank Building, Portland, Oregon. In 1971, Willamette Industries, Inc., had sales of $194,173,636. Par. 6. Each of the respondents is substantially engaged in the manufacture, sale and distribution of softwood plywood. In the course and conduct of their business, each of the respondents is and has been for a substantial period of time engaged in selling such products to purchasers located in various States of the United States, and has caused such products to be transported from their facilities in various States of the United States to purchasers located in various other States of the United States. Each of the respondents is therefore engaged in “commerce,” as “commerce” is defined in the Federal Trade Commission Act, and has been continuously so engaged for several years.

Definitions Par. 7. For the purpose of this complaint, the following definitions shall apply:

(a) “Softwood” — woods from coniferous trees such as pine, fir, spruce, and hemlock, which are generally light in texture, nonresistant and easily worked. [3] (b) “Softwood plywood” (sometimes referred to as “plywood” in this complaint) — material consisting of sheets of softwood glued or cemented together with the grains of adjacent layers arranged at right angles or at a wide angle usually being made of uniformly thin veneer sheets on either side of a thicker central layer. | (c) “Phantom freight” — the 4:¢¢---- BOISE CASCADE CORPORATION, ET AL. 3 1 Complaint actual freight costs incurred in shipping a product and higher freight charges used as the basis for billing the customer. Nature of Trade and Commerce Par. 8 The manufacture and sale of softwood plywood is a substantial and expanding industry in the United States. In 1971, domestic shipments were $1,246,911,000. Softwood plywood is a’ material which enters heavily into the cost of construction of residential and commercial buildings. There has been a trend toward factory-built housing in which 29 percent - 39 percent more plywood is used than in conventional housing. Large markets for softwood plywood include the major urban areas and suburban centers in the northeast and northcentral regions of the nation and certain urban areas in the South and the West.

Par. 9. Historically, plywood was made from Douglas-fir trees and manufactured almost entirely in the coastal areas of the Pacific Northwest. In more recent years, the industry expanded to inland areas as types of softwood other than Douglas-fir began to be used in the manufacture of plywood. As a result of the development of new laminating techniques permitting utilization of the woods of southern pine, Georgia-Pacific established the first plywood mill in the South in Fordyce, Arkansas in 1963. Most of the large western plywood manufacturers thereafter established plants in the South. All of the respondents now have softwood plywood plants in the South. Par. 10. By the end of 1971, there were 51 softwood plywood plants located in the South. Since 1963, there has been a significant increase in the production of softwood plywood nationally, with most of the increase occurring in the South. By the end of 1971, production of plywood in the South reached approximately one quarter of total U.S. output. [4] Par. 11. In 1969, the top eight softwood plywood producers accounted for approximately 64 percent of domestic plant shipments and the top four producers accounted for approximately 48 percent of shipments. The concentration level has increased since that time. The 1969 concentration level increased from 1963 when the top four and top eight softwood plywood producers had approximately 36 percent and 50 percent of domestic plant shipments, respectively. Par. 12. In 1971, the top eight softwood plywood producers accounted for approximately 74 percent of southern production and the top four producers accounted for approximately 61 percent of that production. A number of plants have recently been built in the South by the leading producers and this has resulted in an increase in Complaint 91 F.T.C.

concentration in the South. The respondents are among the leading producers in either the nation or in the South. Pacific Northwest Single Basing Point _ Par. 18. Before Georgia-Pacific opened its first softwood plywood plant in the South, respondents were charging softwood plywood delivered prices based upon rail freight rates computed from Portland, Oregon. Georgia-Pacific and each of the respondents which subse- ‘quently opened plants in the South have continued to charge delivered prices for softwood plywood computed on the basis of rail freight from the Pacific Northwest, despite substantial shipments of softwood plywood from respondent’s plants located in the South and other places. geographically distant from the Pacific Northwest. As part of this basing point system, respondents have refused to permit customers the option of purchasing softwood plywood at the plant at f.o.b. prices which did not include freight from the Pacific Northwest or to allow their customers to arrange for the mode of transportation cheapest to the customer.

Par. 14. The parallel conduct of respondents and others in adhering to delivered prices based upon rail rates from the Pacific Northwest for shipments from mills located in other areas of the country has resulted in substantial margins of phantom freight accruing to respondents, particularly for shipments from plants in the South made to customers located in the southern, eastern, and northcentral areas of the [5] country. This conduct enables those respondents which have plants in the West to ship plywood from their western plants to customers in the East without being undercut in price by southern mills which have a substantial geographic cost advantage. An example of the extent of phantom freight involved in the basing point system is as follows:

In September 1972, a retail dealer in New Orleans, Louisiana, purchased softwood plywood produced at a plant located 60 miles away in Holden, Louisiana. The dealer paid a delivered price of $4,289, which was computed on the basis of rail freight from Portland, Oregon. Portland is 2500 miles away and the freight was $764. The supplying plant in fact shipped the plywood to the purchaser by truck at a freight charge of $80. Approximately 16% or $684 of the purchaser’s total delivered price consisted of phantom freight.

Par. 15. The American Plywood Association, 1119 A St., Tacoma, Washington, to which most of the respondents belong, has disseminated to the industry freight books specifying appropriate rail rates from the Pacific Northwest. This has facilitated the workings of the above- Annawhad haninn naint avataw BOISE CASCADE CORPORATION, ET AL. 5 1 Complaint estimated weights to quote delivered prices to customers. Inaccuracies in a number of these weights further inflate the amount of phantom freight.

Nature of the Offense Par. 17. In the conduct of the aforesaid business, the respondents individually, and in combination with other companies, are now using and for a number of years have used and pursued parallel courses of business behavior constituting unfair methods of competition and unfair and deceptive acts in commerce. Among the unfair methods of competition and the unfair and deceptive acts and practices which respondents individually, and in combination, have been and are now engaged are the following: [6] (a) establishing and maintaining a system of delivered prices based on computation of rail freight from the Pacific Northwest for shipments made from mills located outside of that region; (b) establishing and maintaining a system of delivered prices based on computation of rail freight and applying it to shipments made by other and cheaper modes of transportation;

(c) refusing to permit customers who purchase from southern plants the option of picking up purchases at the plant at true f.o.b. mill prices; and (d) using identical and inaccurate estimated weights as basis for quoting delivered prices.

Effects Par. 18. The capacity, tendency and effects of the conduct of respondents hereinbefore alleged are, among others, to: (a) stabilize prices and provide certainty in the pricing of softwood plywood among competitors;

(b) reduce and hinder actual and potential competition among respondents in the sale and distribution of softwood plywood; (c) create disincentives to the most efficient location of producing points;

(d) create disincentives to customers to locate close to producing points;

(e) discourage use of the cheapest and most efficient mode of transportation in given cases;

(f) discriminate in prices between customers; and [7] (g) mislead and deceive customers with respect to freight. Par. 19. The conduct of respondents hereinbefore alleged were and are unfair methods of competition, and unfair or deceptive acts in Initial Decision 91 F.T.C.

commerce in violation of Section 5 of the Federal Trade Commission Act (15 U.S.C. 45), as amended.

Initial DECISION BY Morton NEEDELMAN, ADMINISTRATIVE LAW JUDGE ’ NOVEMBER 29, 1976 {2] I STATEMENT OF THE CASE The complaint in this proceeding issued on April 18, 1974. It charges that respondents, manufacturers of softwood plywood, have, individually, and in combination, pursued parallel courses of business behavior constituting unfair methods of competition, and unfair and deceptive acts and practices in violation of Section 5 of the Federal Trade Commission Act (15 U.S.C. 45).

Specifically the complaint alleges that respondents, individually and in combination, have: (a) established and maintained a system of delivered prices for plywood! which is based on computation of the freight charge from the Pacific Northwest for shipments made from mills located in the South; (b) established and maintained a system of delivered prices based on computation of rail freight and applied these computations to shipments made by other and cheaper modes of transportation; (c) refused to permit customers the option of purchasing at respondents’ southern plywood plants at a true F.O.B. price; and (d) used identical and inaccurate estimated weights as the basis for delivered price quotes. (Complaint {’s 17(a)}{d)). The complaint further alleges that the effects of these practices have been to: stabilize prices and provide certainty in the pricing of plywood among competitors; reduce and hinder actual and potential competition among respondents in the sale and distribution of plywood; create disincentives to the most efficient location of plywood producing points; create [3] disincentives for customers to locate close to plywood producing points; discourage use of the cheapest and most efficient mode of transporting plywood; discriminate in prices between customers; and to mislead and deceive customers with respect to freight. (Complaint {’s 18(a}{b)). , Respondents’ answers, filed by Boise Cascade on May 22, 1974 and by the others on June 7, 1974, admit certain corporate and jurisdictional facts, but deny all substantive allegations in the complaint. 1 TJnless otherwise snecified. the term “nlvwand” as used in this initial decision means softwood nivwood onlv. The BOISE CASCADE CORPORATION, ET AL. 7 1 Initial Decision In the prehearing stage, complaint counsel had extensive discovery of respondents’ records. Upon completion of the discovery phase, the case-in-chief began on December 2, 1975, and was concluded on ~ December 22, 1975. The defense case was presented between January 19, 1976, and April 1, 1976. The rebuttal and surrebuttal cases were heard between April 19 and June 8, 1976. During these hearings, all counsel were afforded full opportunity to be heard, and to examine and cross-examine witnesses.

The record was closed on June 30, 1976, for the receipt of evidence. Proposed findings of fact and conclusions of law, together with briefs were filed by the parties on July 30, 1976. Answering briefs were filed on August 30, 1976. Oral argument on the briefs was heard on September 8, 1976. On September 7, 1976, complaint counsel moved to strike from the record certain documentary exhibits which had not been relied on either in proposed findings or in replies. This motion was opposed in part by respondents, and except for those deletions which respondents were against, complaint counsel’s motion was granted by my order dated September 13, 1976. By leave of the Commission, the date for filing this initial decision was set for November 29, 1976. [4] After reviewing all the evidence, the proposed findings, conclusions, and briefs submitted by the parties, and based on the entire record, including my observation of the demeanor of all witnesses, I make the following findings of fact.? ® Proposed findings not adopted in the form proposed or in substance, are rejected as either not supported by the entire record, or as involving immaterial matters. The following abbreviations are used in citing to the record: “Tr.” (transcript of testimony); “CX” (complaint counsel’s exhibits); “RX” (respondents’ exhibits). CX 1, an index to complaint counsel’s exhibits, contains a description of each document, date received or rejected, source, and part of the document which is in evidence, {Exhibits which were offered and received for only a part of the d > received portion bracketed in red.) The same information for respondents’ exhibits appears on RX 1. All in camera. exhibits are listed in my omnibus in camera order of June 23, 1976. By the terms of this order (§ 4) there is no limitation whatever on the public use of this material in decisions written by the undersigned, the Commission, or other reviewing authorities. Also, my in camera order of June 23, 1976 (9 5) states that in camera status will end on June 30, 1981, when all in camera exhibits are to be placed on the public record. In reviewing documentary exhibits, it is helpful to consult CX’s 801A-805E which give the employment history of ders and recipi of resp ’ memoranda and letters. [5] The record, excluding pre-hearing conferences, consists of 4,703 pages (121 of which are oral argument on briefs). There are approximately 1,000 trial exhibits consisting of several thousand pages. The witnesses were as follows: A, Name Called By Tr. Pages Robert E. Smith Complaint 314-367 C.C. Crow Publications, Inc. Counsel 535-569 (“c.e.") Lester E. Anderson Random Lengths Publications, Inc. ec. 368-527 Gordon J. King Hampton Lumber Sales (formerly with Boise Cascade) cc. 570-702 James C. Schmidt Louisiana Pacific Corporation (formerly with Boise Cascade (Continued) Initial Decision 91 F.T.C.

(Fn 2. Continued) and Georgia-Pacific) ee, 703-802 William R. Coston Oregon-Pacific Company , (formerly with Champion) ec. 804-913 Donald K. Barton :

(formerly with Georgia-Pacific) ec, 914-981 George W. Rummel Gulfgate State Bank (formerly with Champion) ce. 991-1045 [6} James F. Lynn MacMillan-Bloedel Corporation ec. 1056-1108 - Mahlon W. Day National Building Centers (formerly with Weyerhaeuser) Cc. 1131-1205 Michael Glassman , Federal Trade Commission ee. 1215A--1287 Frank V. Langfitt Georgia-Pacific Resp. 1370-1663 Stanley S. Dennison Georgia-Pacific, Resp. - 1566-1784 William Swindells, Jr. .

Willamette Reap. 1187-1874 Paul A. MacDonnell Georgia-Pacific Resp. © 1879-1984 Robert A. Starling ‘ Georgia-Pacific Resp. 1997-2080 Daniel I. Allred Georgia-Pacific Resp. 2083-2184 R. Paul Kay Weyerhaeuser ‘ Resp. 2198-2318 Donald W. Cobb Boise Cascade Resp. 2892-2452 [7] Craig Marshall Boise Cascade Resp. 2456-2520 Conrad R. Kelley Champion Resp. 2561-2756 Bob Prange :

Bowie-Sims-Prange Reap. 2759-2859 David Vagos Furman Lumber Company Resp. 2862-2915 Milton Sandy, Jr.

Sandy Lumber Sales Company Resp. 2920-2949 John P. O'Reilly Haggerty Lumber and Supply Company Resp. 2958-2975 Robert L. Fallow, Jr.

Roseburg Lumber Company (formerly with Boise Cascade) Resp. 2981-3031 Roy Weinstein 3065-3260 National Economic Research 3263-3460 Associates Resp. 3464-3579 Peter O. Steiner 3587-3825 The University of Michigan Resp. 4433-4566 Robert E. Ridgeway American Plywood Association ce. 4047-4154 Gilbert N. Miller .

Georgia-Pacific Resp. 4201-4383 BOISE CASCADE CORPORATION, ET AL. 9 1 Initial Decision [8] II FINDINGS OF FACT The Respondents 1. Respondent Georgia-Pacific Corporation (“Georgia-Pacific”) is a Georgia corporation with its principal office and place of business located at 900 S.W. Fifth Ave., Portland, Oregon. (Complaint and Georgia-Pacific Answer { 3.) 2. Georgia-Pacific is a manufacturer and distributor of softwood and hardwood plywood, paper and other forest products. In 1971, Georgia-Pacific’s total corporate sales were $1,447,300,000. (Complaint and Georgia-Pacific Answer { 3; CX 460.) 8. Respondent Champion International (“Champion”) is a New York corporation. At the time complaint issued its principal office and place of business were located at 777 3rd Ave., New York, New York. (Complaint and Champion Answer { 2.) Champion’s corporate headquarters was subsequently moved to Stamford, Connecticut. (Tr. 2570.) 4. Champion (through its United States Plywood Division) is a manufacturer and distributor of plywood and other wood products. (Tr. 2561.) Champion’s 1971 sales of all products were $1,599,829,000. (Complaint and Champion Answer { 2.) 5. Respondent Boise Cascade Corporation (“Boise”) is a Delaware corporation with its principal office and place of business located in Boise, Idaho. (Complaint and Boise Answer 1.) 6. Boise manufactures and distributes wood products, including plywood,? and had total sales [9] in 1971 from all products of $1,785,870,000. (Complaint and Boise Answer { 1.) 7. Respondent Weyerhaeuser Company yellow is a State of Washington corporation with its principal office and place of business located in Tacoma, Washington. (Complaint and Weyerhaeuser Answer 4.) 8. Weyerhaeuser is a manufacturer and distributor of plywood and other forest products, including lumber, particleboard, wallboard, and paper. In 1971, Weyerhaeuser’s sales of all products were $1,299,533,000. (Complaint and Weyerhaeuser Answer § 4; CX’s 101Hi, 110E, 807B.) 9. Respondent Willamette Industries, Inc. (“Willamette”) is an Oregon corporation, with its principal office and place of business located at 3800 1st National Bank Building, Portland, Oregon. (Complaint and Willamette Answer { 5.) 10. Willamette ‘is a manufacturer and distributor of paper products, plywood, lumber, and particleboard. In 1971, Willamette’s total 3 In addition, Boise’s Eastern Division produces “Kingsberry” pre-fabricated homes which are manufactured in panelized sections and assembled on site. (CX 421, p. 9.) Initial Decision 91 F.T.C.

_ sales from all products were $194,173,636. (Complaint and Willamette Answer 7 5; CX 65B.) ;

The Product 11. This case involves plywood manufactured by respondents from two types of softwood evergreen trees — the Douglas fir grown principally in or near the Pacific Northwest, and the yellow pine grown in the South.* [10] 12. Plywood is a flat wood panel, constructed of thin sheets of wood bonded together with the grain direction of each sheet or “ply” at right angles to the one adjacent to it. The plywood “sandwich” consists of thin outer veneer sheets on either side of a thicker central layer. (CX 320, p. 2; Tr. 572, 1874, 1895.) 18. Plywood is manufactured by debarking and cutting logs into “peeler blocks” approximately 8 feet 6 inches in length. The peeler blocks are softened by steaming. (Tr. 1873.)5 14. After the steaming process, the “peeler blocks” are then revolved against a sharp blade and “peeled” into continuous sheets in much the same manner as paper is unwound from a roll. (Tr. 1873-74.) These peeled veneer sheets are passed down a conveyor, clipped to the desired lengths and dried. (CX 320, pp. 2-8, 11-12; Tr. 1874.) 15. The veneer sheets are then graded by quality according to the incidence of defects. The highest grades, designated “N” (intended for natural finish) and “A,” must be completely smooth and devoid of any open defects when sanded. The remaining grades — “B,” “C,” and “D” — may have defects of specified size and in some instances of specified number. Grade “D” veneer [11] may have any number of defects so long as these defects do not seriously impair the strength or serviceability of the panel. (CX 320, pp. 2-8, 11-12; Tr. 386-87, 1894— 95.) 16. The veneers are coated with glue and arranged together in the desired number of plies — most plywood is made in 8, 4, or 5 plies — to form the plywood “sandwich.” The stacked veneers are then glued under pressure in a hot press. (CX 320, p. 2; Tr. 572, 1874.) 17. Plywood panels with inner cores composed of D grade veneers are known as “interior type.” Interior grade panels are not used in 4 “Southern yellow pine” is not one species. It is a term applied to Loblolly, Slash, Shortleaf, and Longleaf pines. (CX 820, p. 4.) 5 The technical standard for the manufacture of plywood is established by the plywood industry under the auspices of the Product Standards Section of the U.S. Department of Commerce and is published by the National Bureau of Standards in “Softwood Plywood — Construction and Industrial Standard PS 1-66,” and its successor, PS 1- 74. (CX 320; Tr. 1895.) 6 Because it is impossible to peel the log entirely, there is always a small “core block” remaining after the peeler block is converted into veneers. These cores constitute a by-product of the plywood production process and are either ald nebelht ne mend intan ahinn and than anld (OV ONID ca ananamns Me ADNON BOISE CASCADE CORPORATION, ET AL. ll 1 . Initial Decision applications where there is constant exposure to weather. Plywood panels of “exterior type” construction, which may be exposed to weather, are constructed with C grade inner veneers. (CX 320, pp. 2-3; Tr. 350.)7 18. Following the drying process the plywood panels are trimmed to desired size. Panels 4 feet by 8 feet. are the most commonly produced. (RX’s 484A-435F; Tr. 350, 1874.) 19. Plywood panels containing higher veneer grades are often sanded to meet the requirements of such specialized end-uses as interior cabinet work and stair treads. In addition, panels may be improved or upgraded by repairs (patches) which eliminate defects in the face veneers. (CX 320, pp. 11-12, 20; Tr. 1874.) Plywood which incorporates the N, A or B grades of veneer on the face panel and . which is fully sanded for complete smoothness on both sides is known as “sanded” plywood. (CX 320, p. 11.) , 20. Unsanded plywood — also known as “sheathing” — contains C and D grades of veneer in the face and back. Since plywood grade designation is expressed by reference to the face and back veneers, sheathing designated as [12] “CD interior” consists of C grade veneer on the face, D grade veneer on the back and D grade inner plies. (CX 320, p. 11; Tr. 353, 1895-96.) 21. In addition to the sanded and sheathing products,’ plywood veneers of various grades may be manufactured into specialty products designed for particular uses. Among these are special engineering grades designed for applications in-which unusually rigid structural properties are important. (CX 320, p. 20.) 22. Of the 12.5 billion square feet of plywood shipments reported by the American Plywood Association in 1974, approximately 8.7 billion square feet, or 69.7 percent, were sheathing; 2.7 billion square feet (21.9 percent) were sanded; and 1 billion square feet (8.3 percent) were specialty products. The most commonly produced softwood plywood product is CD interior with exterior glue,® which accounted for approximately 66.6 percent of sheathing shipments reported by the American Plywood Association in 1974. (RX’s 11N, Q.) 23. Residential construction in which CD sheathing is widely used - for flooring, walls, and roofing,!° is the principal plywood application. The American Plywood Association estimates that 54.8 percent of 7 Almost all plywood — western or southern, interior or exterior — is now made with a moisture repellant exterior glue line. (Tr. 361.) 8 “Plyform” or “concrete form” is a plywood product which has an oiled edge and is used to form the mold for poured concrete. After the concrete hardens, the plyform is removed and used again. (Tr. 353, 536.) 9 Also known as “Standard Exterior” or “CDX.” Note that CDX is an “interior”-type panel bonded with an exterior glue. (Tr. 360-61, 1894-96.) :

10 Plywood has taken over almost all of the roof-sheathing market, and is an important factor in sidewall sheathing as well as in flooring where it is replacing the traditional oak floor. (Tr. 1875.) Initial Decision 91 F.T.C.

industry production in 1973 was used in residential construction. [13] Other construction accounted for 18.6 percent. The industrial market including such applications as packaging materials and furniture accounted for 18.6 percent. The agricultural and over-the-counter markets accounted for 18 percent of industry production. (RX 12G; Tr. 353, 1874-75, 1423.) 11 The Industry 24. The production and sale of plywood is a substantial industry. In 1964 there were 164 plywood mills producing 11,678,621 thousand square feet (3/8 inch basis).!2 In 1974 the number increased to 195 mills which produced 15,878,380 thousand square feet (3/8 inch basis). (RX 11E.) 25. From the origin of the plywood industry in the early twentieth century until 1947, all plywood was produced in the States of Washington and Oregon. In 1947 the western plywood industry expanded into northern California, and in 1952 to the States of Idaho and Montana. (RX’s 11E-F.) [14] 26. During the early 1960’s, the technology of laminating southern pine veneers into a successful plywood bond was developed. The first southern mill specifically designed for plywood was constructed by Georgia-Pacific at Fordyce, Arkansas,!3 and the first shipment of plywood from that mill was made in December 1963. (CX 460; p. 10; Tr. 1377-78.) Before the lamination problem was solved, southern pine was mainly used in the manufacture of pulp, paper or lumber, but it was not used for plywood. (RX 90B.) 27. Today there are three major plywood producing regions in the United States: the original “western” region encompassing the States of Oregon and Washington west of the Cascade mountains and 11 These end-use percentages have remained relatively constant during the time period 1971-78: 1971 1972 1973 Residential construc- ;

tion 538.6% 54.6% 54.8% General construction “ 128 12.8 13.6 Industrial 19.5 19.2 18.6 Agriculture/over-thecounter 14.0 13.4 13.0 (RX 12G) 12 For statistical purposes, various thicknesses of plywood are frequently converted to a uniform 3/8 inch basis for measuring volume in square feet regardless of thickness. For example, a 4 foot x 8 foot panel of 1/2 inch plywood contains 32 square feet (4 feet x 8 feet) of surface footage on an actual basis and 42.7 square feet [1/2 inch divided by 3/8 inch (4 feet x 8 feet)] of surface footage on a 3/8 inch basis. 13 During 1962 and-1963, Georgia-Pacific acquired the Crossett Company in Crossett, Arkansas and the nearby Fordyce Lumber Company. With these acquisitions, which together cost about $140 million, Georgia-Pacific obtained 800.000 acres of nine timber. (RX 90B.) BOISE CASCADE CORPORATION, ET AL. : 18 1 Initial Decision northern California; the “inland” (or “Inland Empire”) region, which includes those portions of Washington and Oregon east of the Cascade mountains, and the States of Idaho and Montana; and the “southern” region comprising Maryland, Virginia, North Carolina, South Carolina, Georgia, Florida, Alabama, Mississippi, Arkansas, Louisiana, Texas, and Oklahoma. (RX 11C.) The production share by region in 1974 was as follows:

Western 61.4% Southern 32.3 Inland 6.3 (RX 11D) In terms of the key product manufactured in the South, plywood sheathing, the regional shares in 1974 were as follows: Southern 45.7% Western 35.6 Inland 18.7 (RX 11Q) [15] 28. Total industry and respondents’ production of all softwood plywood are as follows:

TABLE 1: Production of All Plywood By Industry and By Individual Respondents (In thousands of square feet - 3/8 inch basis) 1964 1969 1971 1973 Industry 11,678,621 18,694,392 16,634,971 18,304,599 Georgia-Pacific 1,038,000 1,944,000 2,709,000 2,434,000 *Boise 401,985 920,419 ” 1,366,648 1,352,480 Weyerhaeuser 624,280 851,600 1,036,700 1,213,200 *Champion 763,683 1,046,125 1,134,717 1,200,600 *Willamette 510,468 811,434 1,001,523 1,074,800 (Source: CX 930C) * Includes all production of joint venture mills in which the particular respondent is a joint venture partner.

29. The five respondents account for the following percentage of total industry production:

TABLE 2: Percentage of Total Production Controlled By Each Respondent _ 1964 1969 1971 1973 Georgia-Pacific 8.89 14.20 16.28 13.30 *Boise 3.44 6.72 8.22 7.39 Weyerhaeuser 5.35 *Champion 6.54 *Willamette 4.37 5 firm total 28.59 (Source: Finding 28) Initial Decision 91 F.T.C.

6.22 6.23 6.63 1.64 6.82 6.56 5.93 6.02 5.87 40.70 43.57 39.74 * Includes all production of joint venture mills in which the particular respondent is a joint venture partner.

[16] 30. Total industry and respondents’ production of southern pine plywood are as follows:

TABLE 3: Total Softwood Plywood Production By Industry And By Respondents (In thousands of square feet - 3/8 inch basis) Industry 80,024 Georgia-Pacific 64,000 *Boise 0 Weyerhaeuser 0 *Champion 0 *Willamette 0 (Source: CX 930C) 1969 1971 1978 2,875,355 4,410,062 5,558,618 962,000 1,729,000 1,824,000 52,802 66,202 123,447 196,000 310,100 472,600 189,041 264,037 265,481 157,650 280,696 328,407 * Includes all production of joint venture mills in which the particular respondent is a joint venture partner.

31. The five respondents account for the following percentage of total southern plywood production:

TABLE 4: Percentage of Total Southern Production Controlled By Each Georgia-Pacific 79.98 *Boise 0 Weyerhaeuser 0 *Champion 0 *Willamette 0 5 firm total 79.98 (Source: Finding 30) Respondent 1969 1971 1973 33.46 39.21 32.81 1.84 1.50 2.22 6.82 7.03 8.50 6.57 5.99 4.78 5.48 6.36 5.91 54.17 60.09 54.22 * Includes all production of joint venture mills in which the particular respondent is a joint venture partner.

[17] 32. The record does not contain precise proof of the dollar value of annual plywood production, but it can be estimated. In 1978, Georgia-Pacific, the dominant southern plywood producer, had an average sales realization of approximately $100 (per thousand square feet) on sales from its southern sheathing plants. (RX 452 in camera.) Applying the Georgia-Pacific experience to total southern: production BOISE CASCADE CORPORATION, ET AL. 15 1 Initial Decision sales of southern sheathing of $555,861,800. Western production is more difficult to estimate because the product mix of the western and inland regions is varied and includes higher priced items such as sanded and specialty. In any event, since southern production was only 30 percent of total industry production in 1973 (CX 321, p. 3), it can readily be seen that total industry production (18,304,599 thousand feet) produced sales of approximately $2 billion. Census data, which combines softwood plywood with veneers, show 1972 sales valued at $2,011,500,000. (CX’s 677A-E.) 38. Georgia-Pacific is the largest manufacturer of softwood plywood, and it is recognized by other softwood plywood manufacturers, including respondents, as the industry leader and the. dominant southern plywood producer. (CX’s 110Z9, 325B, 356A, 461, p. 47, 502A, 589, 616; RX 90A-B.) Respondents’ Plywood Operations 34. With the exception of respondent Willamette,!* which for all practical purposes has no distribution outlets apart from its mills, respondents operate multiple level distribution systems where sales are made either directly from producing mills through centralized mill sales offices (usually in carload lots or from owned and operated and yeographically dispersed distribution outlets variously called “distribution centers,” “branches,” “warehouses,” “CSC’s” (“Customer Service Centers,” [18] Weyerhaeuser’s name for its outlets) or “BM & S’s” “Building Materials and Service,” Boise’s name for its outlets). (See Findings 35-58.) These distribution outlets may make sales out of inventory in ‘break-bulk” quantities or may sell on the basis that the plywood is to »e shipped directly from the mill in carload or truckload lots, referred 0 as a “direct mill” sale by a branch. Customers of both the mills or the listribution outlets may range across the entire spectrum of plywood sustomers from end-users such as residential and industrial contractors ind manufacturers to intermediate buying groups, retail lumberyards, ind the distribution outlets of other plywood producers. But essentialy, respondents’ distribution outlets are wholesale warehouses which ell to lumber dealers who, in turn, resell to building contractors. (CX’s 356A, 461, p. 48; Tr. 995-96, 1133-34).

14 Almost all of Willamette’s sales are made from its mills: only 2 percent of its sales are made from companywned retail lumberyards located in Oregon. (See Finding 55.) Initial Decision 91 F.T.C Georgia-Pacific 35. In 1975 Georgia-Pacific produced plywood at 18 mills located a follows:

West Coos Bay, Ore.

Coquille, Ore.

Springfield, Ore.

Toledo, Ore.

South Crossett, Ark. (2 mills) Emporia, Va.

Fordyce, Ark.

Gloster, Miss.

Louisville, Miss.

Monticello, Ga.

~ Russellville, 8. C.

Savannah, Ga.

Taylorsville, Miss.

[19] Whiteville, N.C.

Talladega, Ala.

Warm Springs, Ga.

Prosperity, S. C.15 (CX’s 452; Tr. 1529-30) 36. Georgia-Pacific’s Building Products Division initially market all of Georgia-Pacific’s softwood plywood (whether produced a Georgia-Pacific mills in the West or South or purchased from other producers) through sales departments located in Portland, Oregon Crossett, Arkansas; and Augusta, Georgia. The Crossett and Augusti sales departments are under the control of the Portland sales office About 90 percent of Building Products Division sales of plywood ar made to Georgia-Pacifie’s own Distribution Division. (CX 138A; Tr 1427, 1570.) 37. In addition to its own production, Georgia-Pacific purchase plywood from several sources including both manufacturers ani independent wholesalers. (Tr. 2087.) Virtually all of the plywoo purchased from outside sources is sold by the Georgia-Pacifi 18 A Georgia-Pacific mill in Chiefland, Florida was closed during 1974. Three mills (Urania, Louisiana; Ne Waverly, Texas; and Corrigan, Texas) were spun off in 1972 to Louisiana-Pacific Corporation pursuant to an order ¢ BOISE CASCADE CORPORATION, ET AL. VW 1 Initial Decision Distribution Division. (Tr. 1561-62.) Plywood purchased from outside sources accounts for approximately 25 percent of the plywood sold by Georgia-Pacific’s Distribution Division.1® 38. Georgia-Pacific’s Distribution Division has 145 “Distribution Centers” operating throughout the United States. The centers or branches are wholly-owned outlets which sell a full line of wood and other building material products to dealers, industrial accounts, and [20] major contractors. Each of these centers is operated as an individual profit center which means that plywood produced at company mills or outside sources is transferred or sold at a certain cost and the centers are responsible for making a profit on the resale. (CX 461, p. 48; Tr. 954, 1560-61, 1566-68, 1891, 2000, 4383; see also Findings 97, 98.) 39. As indicated in Finding 36, more than 90 percent of Georgia- Pacific’s plywood sales are made through the branches. The remainder is made directly from the mills through “Product Managers” located in Portland, Oregon; Crossett, Arkansas; and Augusta, Georgia. (Tr. 1372-78, 1427, 1483-85, 1569-70.)17 Boise 40. Boise began producing softwood plywood in 1959. (Tr. 2334.) Presently, it owns and operates 13 softwood plywood mills, located as follows:

West Kettle Falls, Wash.

Yakima, Wash.

Spokane, Wash.

Camp Adair, Ore.

Valsetz, Ore.

Albany, Ore.

Independence, Ore.

Medford, Ore.

Sweet Home, Ore.

Elgin, Ore.

Emmett, Idaho 16 Only 1 1/2 percent of total sales of southern plywood are derived from the sale of outside purchases. (Tr. 1549- 0.) 17 In addition, there are mill representatives located in Atlanta, Georgia; Clifton, New Jersey; Washington, D. C.; Shicago, Illinois; and Dallas, Texas. (Tr. 1483-85.) Initial Decision 91 F.T.C.

[21] South18 Moncure, N. C.

DeQuincy, La.19 ‘(CX’s 315A-C in camera, 363C in camera, 401; Tr. 573, 2334) 41. A Boise subsidiary, Bovill, Inc., is a 50 percent joint venture partner with a Southern Natural. Gas Company subsidiary, Southern Natural Resources, Inc., in Boise Southern Company (“Boise Southern”). Boise Southern operates the softwood plywood mill located in DeQuincy, Louisiana, which began production in 1972. (CX’s 316, 317 in camera, 421, p. 20, 682A-Z67 in camera; Tr. 2393.) For the purpose of this litigation, and specifically in ruling on the admissibility of certain Boise Southern exhibits, I have concluded that evidence relating to the acts and practices of Boise Southern in connection with the operation of the DeQuincy mill may be received in evidence as indicative of the policies of respondent Boise for the following reasons:

[22] First, the joint venture agreement between Boise and Southern Natural Gas contemplates that respondent Boise will contribute its lumber expertise to the joint venture. Southern Natural Gas had no expertise in this area. (CX’s 682M-N, S-U in camera.) Second, by the terms of the joint venture agreement respondent Boise may appoint or remove the chief executive officer of Boise Southern at will. (CX’s 682G-i in camera.) This indicates latent control over the policies of Boise Southern.

Third, key operating personnel have transferred freely between Boise Southern and respondent Boise. For example, the current president of Boise Southern (Bill Patterson) had previously worked for Boise (CX 802K) and Jerry Johnson, the plywood sales manager at Boise Southern, was initially employed by Boise and later returned to work for Boise. (Tr. 2412-18, 2451.) A Boise official testified: “before the [DeQuincy ] mill started operating and before he [Johnson] moved down there we instructed him on procedures of selling down there.” (Tr. 2412.) While he was employed at DeQuincy Mr. Johnson conferred with a plywood sales control manager at Boise several times a week. (Tr. 2418-14.) Weekly market reports prepared by Mr. Johnson at Boise Southern, which included pricing, production, and shipment informa- 18 In addition to the southern mills indicated, Boise acquired a plywood plant in Ps la, Florida in D b 1969, This plant was permanently closed in October 1974 and the equipment was removed. Its primary product: throughout its years of operation were hardwood plywood, hardwood plywood paneling, and hardwood plywood siding made from woods such as mahogany, cypress, and cativo. It produced small amounts of softwood plywood betweer 1972 and 1974. (CX 315A in camera; Tr. 575, 669, 2352-57.) Still another Boise plywood mill located at Fort Bragg California was sold in 1973. (CX 401.) BOISE CASCADE CORPORATION, ET AL. 19 1 Initial Decision tion, were sent to officials at Boise. (CX’s 370, 802A-P.) Moreover, while he was in the employ of Boise Southern, Mr. Johnson received a copy of the Moncure weekly market report which contained pricing, production and shipment information, as well as a copy of the Boise quarterly plywood price forecast. (CX’s 388, 389, 840A-D.) Finally, the Boise Southern profit statement indicates that Boise has the responsibility for selling the softwood plywood produced by Boise Southern (CX 350F in camera), but apparently Boise’s actual role in marketing has been advisory. (Tr. 2413.) [23] 42. Boise’s Building Materials and Services Division (‘BM & S”) currently operates 44 outlets which sell a variety of wood and hardware products, including softwood plywood. Each of these “BM & S” outlets is a profit center. (CX’s 318A-C, 319, 421, p. 9; Tr. 596-97, 738.) 43. Western softwood plywood produced by Boise and not sold through “BM & S’s” is sold by the Boise Wood Products Division located in Portland, Oregon. Southern softwood plywood is essentially sold by Boise directly from its mill sales office located in Moncure, North Carolina. (Tr. 2333, 2881-82.)2° In addition, some of Moncure’s plywood production has been sold by the six Boise “BM & S’s” located in Springfield, and Newport News, Virginia; Georgetown, Delaware; and Raleigh, Charlotte and Greensboro, North Carolina. (CX’s 387A-B; Tr. 2389, 2478-80.) Boise Southern (the joint venture with Southern Natural Gas) sells southern softwood plywood directly from its mill sales office in DeQuincy, Louisiana. (Tr. 2393-94.) Weyerhaeuser 44, Weyerhaeuser produces softwood plywood at 12 mills located as follows:

West Longview, Wash.

Snoqualmie Falls, Wash.

Coos Bay, Ore.

Cottage Grove, Ore.

Klamath Falls, Ore.

Springfield, Ore.

[24] South Dierks, Ark.

20 Until mid-1970, southern pine plywood produced at Moncure was sold by Boise’s Portland, Oregon sales office. Tr. 576, 671, 2881.) Initial Decision 91 F.T.C Jacksonville, N. C.

Mountain Pine, Ark.

Philadelphia, Miss.

Plymouth, N. C.

Wright City, Okla.

(CX 167; Tr. 2198) 45. Weyerhaeuser sells over 50 percent of its plywood througt direct carload and truckload facilities (“trading centers”) located ir Tacoma, Washington and Hot Springs, Arkansas. (Tr. 2194-95.) 46. The balance of Weyerhaeuser’s domestic plywood sales (about 82 percent of production) are made through 62 wholly-ownec distribution outlets, known as: Customer Service Centers (“CSC’s” located throughout the United States.2! (Tr. 2194-95, 2244.) Weyer. haeuser’s “CSC’s” are warehouses which receive direct carloads anc resell in smaller quantities. (Tr. 2194, 2199.) 47. The Weyerhaeuser “CSC’s” are individual profit centers. (CX’s 881A-B; Tr. 1166.) The profit of a “CSC” is calculated by subtracting from its gross sales, the transfer cost of the wood sold and the costs of operation. (Tr. 1166-68, 1170.) 48: In addition to the distribution of its own production, Weyerhaeuser annually purchases for resale approximately 500 million square feet of plywood from other manufacturers. (Tr. 2244-45. Approximately 90 percent of the sales of this outside plywood are made through the Weyerhaeuser “CSC’s.” (Tr. 2245.) [25] - 49. Weyerhaeuser, through its “CSC’s” and trading centers, sells mainly to retail dealers (RX’s 434B, D, H) including chains such as Lowe’s (RX 434i; Tr. 2286) and Wickes (Tr. 2284) as well as some independent wholesalers and wholesale buying organizations. (CX 112; RX 434C; Tr. 2284.) 50. Champion, through its U.S. Plywood Division, produces plywood at 14 mills which are located as follows: West Shasta, Calif.

Seattle, Wash.

Mapleton, Ore.

Willamina, Ore.

21 If Weyerhaeuser’s outside purchases of plywood (500 million feet or 1/3 of total sales) are included, the “CSC's” BOISE CASCADE CORPORATION, ET AL. . 21 1 ‘Initial Decision _ . Gold Beach, Ore.

Lebanon, Ore.

Roseburg, Ore.

Bonner, Mont.

South Hammond, La.

Waycross, Ga.

Newberry, S. C.

Corrigan, Texas Cordova, Ala.

Pocomoke City, Md. (50% interest) (Tr. 2565, 2743-44, 2944) 51. Virtually all of the plywood produced by Champion mills or purchased from outside sources is sold by wholly-owned company warehouses or branches. Champion owns 125 warehouses located throughout the United States. Each of these branches operates as an independent profit center. (Tr. 813-14, 1022-28, 2569-72, 2698.) The branches sell a full line of wood products, primarily to retail dealers and to the building and industrial markets. (Tr. 2569-72.) [26 ] 52. The Champion branches order softwood plywood through Champion’s central purchasing office, located in Eugene, Oregon, and known as West Coast Purchasing (WCP). Plywood is ordered by the branch either for direct shipment to the customer or for its own inventory for subsequent distribution to customers, usually by truck. (Tr. 2572-73.) 58. Approximately 60 percent of total Champion sales are made out of branch inventory while about 40 percent of total sales are made directly from the mill: Mill sales are usually in carload or truckload quantity. Sales shipped directly from the mill to the branch’s customer, save the branch the transactional cost of breaking bulk and putting the plywood into inventory. Accordingly, branches try to sell as much plywood as they can directly from the mill. (Tr. 814, 2572.) Willamette 54. Willamette owns and operates 11 softwood plywood mills located as follows:

West Sweet Home, Ore.

Dallas, Ore.

Initial Decision 91 F.T.C.

Foster, Ore.

Lebanon, Ore.

Griggs, Ore.

Springfield, Ore.

Redmond, Ore. (50% owned) South Dodson, La.

Natchitaches, La. (50% owned) Ruston, La. (85% owned) Minden, La. (50% owned) (CX’s 839A, 65B; Tr. 1738-39) [27] 55. Approximately 98 percent of the plywood produced by Willamette is sold directly from its various mills. Most sales are made by telephone out of offices located in Albany, Oregon and Ruston, Louisiana. Only about 2 percent of Willamette’s production is sold through seven wholly-owned retail lumberyards located in Oregon. (Tr. 1740-41.) 56. Virtually all products sold through Willamette’s Albany and Ruston sales offices, as well as the sales by its wholly-owned retail lumberyards, are manufactured by Willamette. (Tr. 1748.) 57. Willamette’s principal plywood customers at the mill level are office wholesalers (those who ordinarily buy and sell without taking physical possession of the plywood) and wholesale distributors (those wholesalers who ordinarily take possession of the plywood before reselling it), although mill direct sales are also made to retail lumberyards and industrial accounts such as fabricators. (CX’s 87C, i.) From its wholly-owned retail lumberyards, Willamette sells primarily to building contractors and to do-it-yourself consumers. (Tr. 1740.) “Commerce”

58. Each respondent manufactures, sells, and distributes softwood plywood throughout the United States, and each is engaged in “commerce” as “commerce” is defined in the Federal Trade Commission Act. (Complaint and Answers { 6.) Significance of Price 59. Competition in the southern plywood industry is essentially in terms of price since pine sheathing, the primary item produced by BOISE CASCADE CORPORATION, ET AL. 23 1 Initial Decision .

respondents and other southern producers, is considered to be fungible and not readily susceptible to quality differentiation. (Tr. 1896, 2603.) 22 [28] 60. The demand for plywood sheathing is mainly a function of the residential housing industry. (RX’s 11H, 12D, 18i, 14A; Tr. 675, 1423, 1966.) Overall demand for the product does not increase by reason of a price reduction at a time of depressed housing. starts. (RX’s 10G, 69M, Z9.) On the other hand, prices increase sharply when the number of housing starts accelerate. (Tr. 1428 and see note 98, infra.) There are long-term contracts for the sale of plywood, but in those instances the price is left open to be decided at time of shipment. (See Finding 94.) Generally plywood is bought by the housing industry at time of actual need. (RX’s 10G-H, 11D, 18C, i, 14A-16B.) These ultimate purchasers do not build up inventories.23 Because of the price inelastic nature of the product, a price reduction does not produce an overall increase in demand; it merely means that the existing business, as determined by the housing market, will be shared at a lower profit among the producers. Given the nature of the - demand for the product, and the concentrated structure of the industry (Finding 31), plywood producers have a strong incentive to avoid price cutting. As a Georgia-Pacific branch manager put it: If all of a sudden I am starting, or I feel that I am getting more than my share of that market, it is an indication to me that maybe I am selling my wood too cheap. (Tr. 1892-93; see also Tr. 1758-59, 2742.) Or in the words of a Willamette official who was giving his version of why West Coast freight was added to southern pine plywood prices to arrive at a delivered price which was near the western price: [29] He [the plywood purchaser] couldn’t buy plywood any cheaper from anyone else so there was no reason to cut our prices. (Tr. 1754.) Respondents’ Pricing Practices 61. The central issue in this case is the legality of the pricing practices followed by respondents since 1968 after the opening of the southern pine plywood industry.

62. As indicated earlier (Findings 25, 26), prior to the opening of the southern plywood industry in 1963 by Georgia-Pacific, virtually all24 plywood was manufactured from the Douglas fir trees grown in 22 For evidence of quality differences between southern and western plywood see Findings 131(a), (b). 23 Purchases for inventory, however, may be made by lumber wholesalers and retailers in anticipation of rising _ narkets. (Tr. 849.) But see CX 356A which indicates that independent distributors are becoming increasingly “less willing to stock [plywood ]. . .for redistribution” and Tr. 2871 for evidence that retailers do not tend to buy for future needs.

24 Plywood had been manufactured in the South prior to Georgia-Pacific’s entry, but Georgia-Pacific was the first sroducer to build a southern plant designed exclusively for plywood manufacture. (Tr. 1376-17.) Initial Decision 91 F.T.C.

the Pacific Northwest and the “Inland Empire” areas of Idaho and Montana.

63. All softwood plywood, whether produced in the West or the South, is generally bought on a delivered price basis. (CX 665D; Tr. 321, 956-57, 1084, 1148-49, 1911, 2340.)25 64. Both before and after the opening of the southern plywood industry in 1963, the delivered price of western plywood was a function . of a mill price to which actual freight from the West Coast was added. (Tr. 1891-92, 1747, 1863.)26 In the sale of western plywood, the [30] freight charge, which was paid by the purchaser to the carrier, was the actual rail rate from the West Coast to the customer’s destination.?7 65. The reason Georgia-Pacific was anxious to expand into plywood production in the South was that it had found that southern pine plywood for rough uses, such as sheathing for residential construction, costs no more to produce than its Douglas fir counterpart, and Géorgia- Pacific expected that in the long run it would cost less. The main advantage however which Georgia-Pacific anticipated from the opening of the southern plywood industry was in the area of freight. In 1965 it cost buyers $15 to $18 to ship 1,000 square feet of plywood from the Pacific coast to southeastern cities such as Memphis and Atlanta. Actual freight costs from southern pine plywood mills, even allowing for slightly heavier weight per square foot, ranged from a third of that amount to practically nothing depending on mill and customer location. By pricing its southern pine plywood at or near the same delivered price of Douglas fir plywood, Georgia-Pacific planned to add this saving in freight to its gross margins. (RX’s 90A—B.)?8 [31] 66. There were several possible impediments to Georgia-Pacific’s plan. In the first place, the mere fact that plywood was to be shipped . from the South could add materially to price uncertainty in the industry and thereby reduce margins. This particular hazard came about because of the crucial differences between western and southern freight rates. (Findings 67, 68.) Gs For different forms of delivered pricing in the South, see Finding 126. 26 While the freight charge is based on the actual rail rate from the West Coast, the total amount paid may be overstated because the rate is multiplied by “association” weights rather than the actual weight of a particular shipment. See Finding 85.

. 27 Except for inland (Idaho and Montana) mills which use the West Coast rate. (See note 30, infra.) 28 In 1963, Georgia-Pacific projected an annual return on investment before taxes of 59.7 percent from a Crossett, Arkansas plywood mill and a net profit before taxes of $14.93 (per thousand square feet on average sales of $57.75). (CX’s 845A-C in camera.) In 1964, Georgia-Pacific projected a return on investment after taxes of 27.5 percent from a second Crossett, Arkansas mill and a capital recovery period of about three years. From this mill Georgia-Pacific projected an average net profit before taxes of $23.90 (per thousand square feet) on average net sales of $66.75 (per thousand square feet). (CX’s 488A-B, F.) A basic ption of the planning for this Crossett mill was that there would be a freight “advantage” (z.c., difference between West Coast and actual freight) of $8.75 per thousand square feet. An even greater “advantage” ($15) was projected from a Virginia plywood mill. (CX 490B.) For similar calculations for Louisville, Mississippi ($12) see CX 491F; for a Moncks Corner, South Carolina plant ($12.00) see CX 493C; for Waverly, Virginia ($15.00) see CX 493E; for Savannah, Georgia ($12.50) see CX 495D; and for Chiefland, Mata, (@10 EN 2.0. OV EOIN BOISE CASCADE CORPORATION, ET AL. 25 L Initial Decision 67. The Interstate Commerce Commission rail rates applicable to western plywood shipments are established in the form of concentric bands or zones running north and south and originating with the Portland, Oregon zone which includes most of the western plywood producing region. As a shipment of plywood travels from the West to the East, it enters progressively higher West Coast freight zones and the rail rate is commensurately higher.29 Almost all plywood shipments originating in the zone of origin where the Douglas fir plywood mills are located have the same freight rate (the so-called “Portland, Oregon” rate) to any point within one of the [82] eastern destination zones.2° Under this “zone” freight rate for western plywood, there is no uncertainty about the freight rate factor in delivered prices. A customer located in Greensboro, North Carolina, for example, pays the same freight rate regardless of the mill in Oregon or Washington from which the plywood originated. Similarly, that precise same freight rate is applicable to customers located anywhere in the freight band stretching from Maine to Florida along the East Coast of the United States. (CX’s 51A-B, 348A, 681; Tr. 579, 1891-92, 1445-46, 1745, 1982- 34, 2806.) ' 68. In contrast to the predictable West Coast freight rate, the Interstate Commerce Commission plywood freight rates from points of origin in the southern United States are established on a “point-topoint” basis; that is, the published freight rate for each point of origin varies to each point of destination. For example, the rail rate from Ruston, Louisiana, to Greensboro, North Carolina, is significantly different from the rate from Ruston to Griffith, North Carolina, and still other freight rates apply to shipments from Minden, Louisiana to either Greensboro or Griffith, North Carolina. (CX’s 51B, 91Z32, 865; Tr. 374, 510, 1891-93, 2741.)31 [33] 69. In addition to the problem of the southern freight rate, there were other factors which could have created uncertainty in the new southern plywood venture, and thereby depress prices. Thus as southern plywood output grew, it was anticipated that pressure would ao Rail freight rates for plywood are ordinarily expressed as dollars and cents per 100 pounds. (Tr. 1933.) Plywood prices are ordinarily expressed as dollars and cents per 1,000 square feet. For pricing purposes, the weight of 1,000 square feet of 1/2 inch plywood is 1,525 pounds (an “association” weight, see Finding 84) and the freight charge to the “$2.79” zone will be $2.79 (per hundred pounds) times 1,575 pounds (per thousand square feet), or $42.55 per 1,000 ay There is a separate West Coast freight schedule for plywood shipped into the southwest United States from mills located in northern California. (CX’s 348A, 681; Tr. 999-1000.) Although mills located in Idaho and Montana, as well as mills located in eastern Washington and Oregon, are not in the West Coast (i.e., the Portland, Oregon) zone, it is common industry practice to use the higher West Coast rate in calculating delivered prices from these “inland” mills. (CX 348A and Tr. 2626-27.) 31 In addition, while western freight rates are applied uniformly to the total weight in a car, southern freight rates are based on an “incentive’ system, which means that there is a lower freight rate per 100 pounds as the total weight in the car increases. (Tr. 1893, 1785-86.) Initial Decision 91 E.T.C.

be created for producers to share at least some of the freight savings with their customers. (RX’s 90A-B.)32 70. Also, Georgia-Pacific’s planning for the opening of the southern pine industry contemplated that the southern production would add no more to the available supply than “about 10 percent of the normal annual growth in the industry” and — Since no let-up is in sight and since the market research people have projected a long-range substantial growth in the industry, there would seem to be no problem from this standpoint. (Cx 488C.) Clearly a “problem” would exist (in the form of a threat of sharply lower prices) if as the new southern production came on stream, instead of “normal annual growth” there existed a severely depressed housing market.33 [34] 71. Finally, there was concern that instability in southern prices and any tendency of southern production to depress plywood prices in general, would have an adverse impact on major producers of Douglas fir plywood in the Pacific Northwest. (RX’s 90A-B.) 72. Against the background of a plan to add the difference between West Coast and actual freight to its gross margins, and the possible creation of price instability because of factors inherent in the southern venture, Georgia-Pacific adopted a policy at the opening of the southern pine plywood industry in 1963 of including in the delivered -_price for southern yellow pine plywood, freight calculated on the basis of the West Coast rail freight rate from Portland, Oregon, rather than the actual freight from its southern mills. (RX’s 90A-B; Tr. 1391-95.) In other words, a West Coast freight factor was used to arrive at prices for pine plywood which were intended to be the same as the delivered prices of fir plywood. (Tr. 1431, 1634-35.) Georgia-Pacific’s policy of including West Coast freight in Southern plywood delivered prices has continued since 19638. (Findings 75(a), 76(a), 78(a), 96(a).) 73. Georgia-Pacific’s policy of calculating delivered prices by adding West Coast freight was followed by the other respondents when they subsequently entered the southern pine plywood industry. The record shows the following:

(a) Willamette. Willamette began producing southern pine plywood in 1965 at 32 See also CX 490C where calculations were made by Georgia-Pacific in 1964 on the difference between maintaining and losing the “freight advantage.” Note that in 1971, Georgia-Pacific personnel are concerned about a customer “. . trying to find out about any freight advantage that might be enjoyed by Southern Pine sheathing producers.” (CX 584, see also CX 585.) 33 At about the same time that Georgia-Pacific was making its projections, Weyerhaeuser anticipated that the production of the southern mills could have created a severe competitive problem in the form of a price depressant unless housing starts increased. (CX’s 99W; see also Tr. 2210-11.) This fear of the southern plywood industry persists: in September, 1974, a Boise Southern official reported “there is not enough demand to use all that is produced.” (CX BOISE CASCADE CORPORATION, ET AL. 27 1 Initial Decision the Ruston, Louisiana mill of its Santiam Lumber Company subsidiary. (CX 1A; Tr. 1750-51.) With its entry into the southern plywood industry, Willamette told its customers that “These prices [southern pine plywood prices] are based on the current Coast mill less 5 & 3% with freight from the Coast added.” (CX’s 2B, 5A, 12A.) Willamette has added West Coast freight to its southern plywood prices ever since. [35] (CX’s 3, 5A—C, 6A-B, 7, 9A-15A, 16-17C, 18, 20, 22-25, 68, 69A, 88A—L, 89A, 90, 861, 862A, 884H; see also Findings 76(e), 78(d), 79(d).) (b) Weyerhaeuser. Weyerhaeuser began producing southern pine plywood in 1964 and 1965 at mills located in Jacksonville and Plymouth, North Carolina. (CX 99C; Tr. 2199.) Weyerhaeuser entered the southern yellow pine industry with the expectation that the delivered prices of its southern mills would approximate the delivered prices of West Coast plywood, with the difference between actual and West Coast freight “to be an incremental gain for the [southern] mill.” (CX 99V(1); Tr. 2216.) Thereafter, Weyerhaeuser continued to add West Coast freight to the price of its southern pine plywood. (CX’s 97, 98, 104A, 106A, 107A, 108, 111A, 112B, 113B, 114A, 180A, 187A, 883A, 885-87; see also Findings 75(b), 76(c), 7&(c), 96(c).) (c) Champion. U.S. Plywood (Champion’s plywood division) entered the southern pine plywood industry in 1964 as a 50% partner with Temple Industries in a joint venture called “Southern Pine Plywood Corporation” of Diboll, Texas. (Tr. 2609.)34 From the outset of its southern plywood business, it was U.S. Plywood’s policy to sell pine plywood at a price equal to the price of Douglas fir delivered from the West Coast. (Tr. 2610.) Champion has added West Coast freight to its southern plywood prices ever since. (CX’s 192A, 200, 202A-B, 203A, 205B, 219B, 238A-B, 266, [36] 271H, J, 362A-C; Tr. 811, 1016; see also Findings 75(c), 76(d), 78(e), 96(d).) (d) Boise. Boise’s initial investment in the southern plywood industry was in the form of the purchase of a minority interest in the Triangle Plywood Corporation, Moncure, North Carolina, in 1968. Boise acquired a majority interest in this mill in 1969 and 100% ownership in 1973. (CX 364D in camera; Tr. 2335.) Boise planned for its entry into the southern pine plywood industry on the basis of the freight advantage between West Coast and southern rates. (CX’s 324A-—J.) With its entry into the southern plywood business, Boise used West Coast freight in calculating delivered prices. (Tr. 578-79, 717, 757.) For current use by Boise of West Coast freight, see Findings 76(b), 78(b), 96(b).) . 74. The southern pine plywood prices of respondents and all other southern plywood producers,?° include West Coast freight, whether the transaction is in the [37] form of contract or spot sales, or made from distribution centers or from mills, and irrespective of the “form” in 34 By 1967, in addition to its joint venture at Diboll, Texas, U.S. Plywood had a wholly-owned plywood mill located in Hammond, Louisiana, and a joint venture plywood mill in Pocomoke City, Maryland. (Tr. 2727.) 35 The only important exception to this pattern is the practice of one non-respondent producer, MacMillan-Bloedel, of quoting an F.O.B. price plus actual freight. (Tr. 1058-60.) However, even in the case of MacMillan-Bloedel the West Coast freight is absorbed into the quoted F.O.B. price. (CX’s 202A-B, 417.) Subsequent to issuance of the proposed complaint in this matter, Georgia-Pacific changed, at least temporarily, to an F.0.B. mill form of pricing southern pine plywood. That change remained in effect for approximately two months. (CX’s 681A, 642, 661, 808A, 809A-810B; Tr. 1408-09, 1667-68.) Georgia-Pacific’s F.0.B. mill price was not a bona fide mill price, however, since it was calculated on the basis of West Coast freight. (CX 631A.) Georgia-Pacific has reverted . to pricing southern pine plywood (both for internal transfers and for sales to outside customers) on the basis of a “mill price” to which West Coast freight is added. (Tr. 1539.) Also, in September, 1974, a Boise official reported that a number of mills in Georgia and Alabama (not otherwise identified) had gone to an F.O.B. mill price plus actual freight. (CX 417; see also Tr. 789-40, 866.) In February 1974, Willamette contemplated using a true F.O.B. mill price and discontinuing the practice of quoting on a West Coast basis in order “to give a clearer, more concise price to our customer while preventing us from making mistakes as to where we can get the best price and still give our customer the most competitive price.” (CX 68.) Initial Decision 91 F.T.C.

which the price may be quoted. (Findings 75-80, 125, 126.) Moreover, the West Coast freight factor is included in intra-corporate transfers, which means that it is passed on to dealers, builders, and eventually to the consuming public. (Findings 75-80, 96-98.) 75. In sales of southern plywood from respondents’ distribution outlets, the record shows the following about the use of West Coast freight:

(a) Georgia-Pacific. The Georgia-Pacific distribution centers include West Coast freight in setting prices to their customers. (CX’s 610A-i, 867-69; Tr. 919, 981, 934, 956-57.) 36 [38] (b) Weyerhaeuser. In order to determine the “CSC” selling price for southern pine plywood, West Coast freight “must be added” to a base price. (CX’s 104A, 106A, 107A, 108, 111A, 114A.) (c) Champion. West Coast freight is added to a base price in arriving at the delivered price which the U.S. Plywood branches charge their customers. (CX’s 238A, B, 263, 266, 271H; J; Tr. 810-11, 1016.) In addition, West Coast rail freight is added in sales by branches which are shipped directly from the U.S. Plywood mills to the customers of the branch. (CX’s 232-37, 239A-251A; Tr. 814, 1026-27.) 76. In contracts for the sale of southern plywood, the record shows the following with respect to the use of a West Coast freight factor: (a) Georgia-Pacific. In 1969 50% of Georgia-Pacific’s southern pine sheathing sales in the southeast were made pursuant to contracts. The 1969 contracts, as well as later Georgia-Pacific contracts, included West Coast freight in the prices. (CX’s 366A, B, 531, 586G.) (b) Boise. West Coast freight is part of the delivered price in contracts negotiated at the Moncure mill. (Tr. 719-20, 3000.) (c) Weyerhaeuser. In all contracts for the sale of southern pine plywood, West Coast rail freight is added by Weyerhaeuser. (Tr. 1190-92.) (d) Champion. Approximately 15% of the total softwood plywood sales of U.S. Plywood branches is sold pursuant to [39] long-term contracts. (Tr. 2654.) In Champion’s long-term contracts for the sale of southern plywood West Coast freight is added. (CX’s 194-196, 205A-B, 209A—B, 215A-B, 216A-B.) (e) Willamette. As much as 40% of Willamette’s southern production has been sold pursuant to contracts. (Tr. 1845-47.) These contracts include West Coast freight. (CX 90; Tr. 1838.) 77. In intra-corporate transfers of southern plywood between respondents’ mills and respondents’ distribution outlets, West Coast freight is added. (See Finding 96.) 78. In sales of southern plywood from respondents’ mills, the record shows the following with respect to use of West Coast freight: 36 See also CX 590 which shows that a Georgia-Pacific branch sets its price “based on Crow’s.” As indicated in Finding 91, the Crow’s price always requires the automatic addition of West Coast freight. BOISE CASCADE CORPORATION, ET AL. 29 1 Initial Decision (a) Georgia-Pacific. In sales of southern pine plywood made directly by Georgia- Pacific’s mills, West Coast freight is added. (CX’s 581, 880; Tr. 712, 789-40.)37 (b) Boise. In sales from the DeQuincy mills, the Boise Southern policy is — We sell our wood on a net delivered price to destination. To figure this price you take your base price less a 5-3 discount and add the West Coast freight. (CX 417; see also CX 35A, F in camera.) For Boise’s policy respecting use of West Coast freight in sales of plywood produced by its Moncure, North Carolina mill, see Finding 93(b) and Tr. 578-79.38 (c) Weyerhaeuser. In direct mill sales of southern pine plywood by Weyerhaeuser, West Coast freight is added. (CX’s 885-87; Tr. 1186.) (d) Willamette. Since Willamette began selling southern pine plywood, its mills have computed their delivered prices by adding on the West Coast rail freight rate to base prices. (CX’s 2A-B, 3, 5A-C, 6A-B, 7, 9A-15A, 16-17C, 18, 20, 22-25, 68, 69A, 88A-L, 89A, 90, 861, 862A, 866A.) (e) Champion. In its direct mill sales, U.S. Plywood adds West Coast freight to a base price. (Tr. 814, 863-64, 1026-27; see also Tr. 2132, 2724.) 79. In inter-manufacturer sales and purchases of southern plywood between respondents, or between respondents and other manufacturers, the record shows the following about the use of West Coast freight:

(a) Georgia-Pacific. In purchases of southern pine plywood by Georgia-Pacific, West Coast freight is added to a mill price. (CX’s 360A-C, 601A-B, 609A-B, 628A-B; Tr. 1551.) (b) Boise. In Boise’s purchases of southern pine plywood for its Kingsberry Homes Division (a manufacturer of panelized homes), West Coast freight is added to [41] arrive at the delivered price. (CX’s 336A-C, 353, 361, 362A-C, 366A-B, 397, 405.) (c) Champion. The West Coast rail rate is used in purchases by U.S. Plywood from other southern mills. (CX’s 199A-B, 595A_-C, 664.) (d) Weyerhaeuser. In purchases of southern plywood by Weyerhaeuser from Willamette, a base price is used which requires that West Coast freight be added. (CX’s 41, 58, 884H.) 80. Although a substantial proportion of southern plywood is shipped to buyers by truck, the West Coast rail rate is used by respondents to arrive at delivered prices, whether shipments are made by rail or truck. (CX’s 15A, 75C, 76E-F, 88D, 89A, 158P-Z15, 238A-B, 258B, 254, 255, 263, 401, 440A, D, L, S, 441A, B, i, K-L, 442A, G, N,S, X, 23, Z7, Z8, 581, 596A—-C, 702B; RX’s 347A-E; Tr. 579, 1536.)39 81. Southern plywood is invoiced either freight prepaid or freight collect with the delivered price calculated to include West Coast 37 See also CX 549 which shows that sales by mills are treated in the same manner as mill direct sales by branches. In mill direct sales by branches, West Coast freight is added. (See Finding 97.) 38 Until it was closed in 1974, Boise’s Pensacola, Florida mill included West Coast freight in sales of southern plywood. (CX’s 355W in camera, 360A-C.) 39 See Findings 120-122 for respondents’ policies respecting truck pick-ups by customers. Initial Decision 91 F.T.C.

freight. In terms of net return to the seller or payments by the buyer, there is no difference between a transaction invoiced freight collect or freight prepaid. If freight is prepaid, the mill pays the actual freight to the carrier and receives from the buyer the total invoiced delivered _ price including West Coast freight. If the terms of the transaction are freight collect, the buyer deducts the amount of actual freight, pays it to the carrier, and remits the balance of the delivered price, which includes West Coast freight, to the seller. [42] I attach no significance to the fact that most southern pine plywood is invoiced on a freight prepaid basis while most western plywood is invoiced freight collect.4° Complaint counsel failed to prove, as alleged in Complaint J 18(g), that there is any deception in the sale of southern plywood whether it is. sold freight prepaid or freight collect. Purchasers of plywood know that the delivered price includes West Coast freight, and there is no evidence that respondents intend to conceal (or have concealed) the West Coast freight factor by invoicing on a freight prepaid basis. (See Tr. 2240-41, 2804.) West Coast Freight Formula and Price Uncertainty 82. By using the West Coast freight factor, respondents have transferred the certainty of the western freight rate schedule to the South. As a result the freight factor in the price of southern pine plywood does not vary by mill or customer location.*! The freight is calculated as if all the southern mills were located in the Portland, Oregon zone, and as if all customers were located in one of the neatly concentric (and predictable) West Coast zones where the rates increase as plywood is shipped from the West to the East. (CX 51A-B; see also Tr. 374, 718, 1402, 1525, 2741.) 83. Uncertainty about other aspects of southern plywood prices was also limited by practices followed by respondents. One of these practices relates to the fact that the freight charge on a particular transaction involving either western or southern plywood is a function of the West Coast rate multiplied by the weight of the plywood. Because the weight of plywood may vary from mill to mill (depending in part on the particular [43] species of softwood used in the manufacturing process), this factor, too, could have caused price uncertainty. (CX’s 471, 808C, 864; Tr. 1828-29, 2723.) ° 84. The problem of weight uncertainty has been resolved by use of the so-called “association” weight of plywood rather than the actual weight of each shipment. The “association” weights (CX’s 192A, 470A; 40 See CX’s 69A, 126A, 868A, 866A, 886229; Tr. 1830, 2240; but see also Tr. 880, 1657 for evidence of a contrary practice (freight collect shipments from southern mills) by several respondents. 41 See hawavar Windine 119 urhinh dicnuaane anetain Unda anne. bmn Ve --a at. BOISE CASCADE CORPORATION, ET AL. 31 1 Initial Decision Tr. 357-58, 394-95, 815) are also known in the industry as “estimated,” “standard,” “shipping,” “guaranteed,” 4? “established,” “average,” or “industry” weights. (Tr. 357-58, 395, 587, 1068, 1537, 2722-23.) There is a different “association” weight for each thickness, to wit: “Association” Weight Per Thou- Thickness (Inches) — sand Pounds 1/4 790 5/16 950 3/8 1125 1/2 1525 5/8 1825 3/4 2225 (CX’s 17B, 604)43 [44] 85. The “association” weights are usually above the actual weights of western plywood resulting in “underweights” which always accrue to the benefit of respondents’ mills. (CX’s 832A, 86B-D, 387A, 40A-B, 191B, 192A-B, 218, 325A-B, 365Z11 in camera, 423A, C-F, H, J, L, N, P in camera, 424A-429B in camera, 430A, C, E, G-H, in camera, 431A-C in camera, 432A, C, E, G in camera, 483A in camera, 434E in camera, 435A, C-J in camera, 436D in camera, 437E in camera, 438 in camera, 439D in camera, 473A-484D in camera; Tr. 595, 815-16, 2239- 40.)#4 Southern pine weighs more than Douglas fir; therefore, the actual weights of southern plywood are closer to the “association” weights. (CX 192A; Tr. 815, 1066, 2242, 2476-77.) Nevertheless, there are “underweights” in the southern plywood industry. See, for example, CX’s 471, 559K which indicate underweights at most Georgia- Pacific southern plywood mills and CX 864 which shows that all Willamette southern mills have had underweights on an annual basis; but see also CX 192A (“there really are no underweights, as a rule, on southern pine”).

42 A U.S. Plywood official believed that the term “ jation” weights implies “that got together and decided on a set of weights for all plywood shipped. The fact that many other mills use the same shipping weights we do is purely coincidental.” Accordingly, this official advised his sales personnel “Please make certain that all of your people who handle plywood sales are aware of the importance to always refer to shipping weights as ‘Guaranteed Weights’.” (CX 198.) ‘3 The “association” weights currently in use in the plywood industry were contained in the National Recovery Act Code of Fair Competition, published in 1934. (RX's 8D, 9D.) The same weights were subsequently published by the Office of War Information in 1943 (RX’s 6A, 7F), and by the Office of Price Stabilization in 1952. (RX 5F.) The use by the Douglas fir plywood industry of such a weight schedule was err ly thought to have been discontinued prior to a Commission challenge to the legality of the practice in Douglas Fir Plywood Association, 47 F.T.C. 416, 440 (1950) rev'd sub. nom. Oregon- Washington Plywood Co. v. FTC, 194 F.2d 48 (9th Cir. 1952). ‘4 For evidence that respondents’ marketing strategy (shipment of lightest wood to distant markets) is directed at maximizing “underweights,” see CX’s 823, 377C in camera, 499A. Additional evidence respecting the preservation of “underweights” is shown in CX’s 54, 192A, 213. 82 ; FEDERAL TRADE COMMISSION DECISIONS Initial Decision 91 F.T.C.

86. While the use of association weights in the South may not result in the same volume of “underweight” profit as that produced in the West, such an industry-wide schedule is essential in order to reduce price uncertainty, and, in fact, it has resulted in freight charges which are absolutely predictable. (Finding 88.) Aside from its [45] role in assuring such certainty in freight charges, industry-wide “association” weights serve no apparent legitimate purpose. Thus an official of Georgia-Pacific observed that actual average weights for each mill can be calculated and this “would be beneficial to both the railroad industry and Georgia-Pacific.” (CX 472A; see also CX 485B and Tr. 1541.) One producer, MacMillan-Bloedel, on the basis of actual tests, has established with the railroads a schedule containing an approved weight for each thickness of plywood which is substantially different from the “association” weight. (Tr. 1064-65.) 87. Respondents use “association” weights in arriving at the total West Coast freight charge, whether the sale of southern plywood is made from a distribution center or mill, and whether it is a spot or a contract sale.45 In addition, “association” weights are used in all intracorporate transfers. The record evidence showing the use of “association” weights appears as follows:

(a) Georgia-Pacific. Georgia-Pacifie’s sales of southern softwood plywood, including intra-corporate transfers, are made on the basis of freight charges calculated from “association” weights.*® (CX’s 487B, D, 516A-C, 544A-E, 559K, 591B, 594B, 597D, 604, 617B, 618B, 620B, 623B.) (b) Boise. Boise calculates freight charges for southern plywood on the basis of “association” weights. (CX’s 887A-388C; Tr. 587, 590-91, 2382, 2390.) (c) Weyerhaeuser. At all times since Weyerhaeuser has sold southern softwood ' plywood, it has computed the freight charges [46] on the basis of association weights. (CX’s 97, 98, 111A, 114A; Tr. 1164-66, 1190, 2239.) (d) Willamette. Willamette uses “association” weights in calculating freight charges in its mill sales. (CX’s 17A-B, 51B, 69A, 88D; Tr. 1828.) (e) Champion. U.S. Plywood uses “association” weights in its computation of freight charges. (CX’s 192A-B, 238A-B, 282A-G, 284A-D, 362B; Tr. 2722-23.) 88. The combination of the West Coast rail freight rate and “association” weights eliminates all uncertainty about the freight factor in the delivered price of southern plywood. The freight charge to any customer in any of the West Coast freight zones is completely predictable; in fact, no calculation is necessary since Crow’s and Random Lengths, the industry’s trade publications, conveniently multiply the West Coast rate by the “association” weights. For example, Crow’s typically reports:

4s“. all shipments {of southern pine ] are based on West Coast freight to destination, again using association or guaranteed weights. . . .” (CX 192A.) 48 Except for the period when Georgia-Pacific experimented with F.O.B. mill prices. (CX’s 808A-810B; see note 35, pany BOISE CASCADE CORPORATION, ET AL. 33 « 1 Initial Decision PLYWOOD FREIGHT RATES! 467 60 65 83 1.34 1.45 1.53 1.60 1.63 J93____ 3.65 4.75 5.15 655 10.59 11.55 12.19 1265 12.99 $50 435 5.70 6.20 7.99 12.75 1385 14.55 15.20 1850 N25. 8.20675 7.50 9.35 15.19 1645 17.20 18.00 18.35 W256 7.00 «49.15 950 12.65 2045 22.25 2335 24.40 2665, 15 «BAD 1095 1185 15.15 2345 26.65 27.99 29.20 23.75, 2225, 50.25 13:35 14.45 10.45 29.89 3250 34.05 55.50 26.25 165 1.67) 1.70 1.72 1.80 1.84 191 1.93 1.97 3903 33,05 13.20 13.45 13.69 14.20 14.55 15.10 15.25 15.55 $50. 15.70 15.85 16.15 16.35 17.10 17.50 18.15 1335 18.70 V25-_ 18.55 18.80 19.15 19.35 20.25 20.70 2165 2i,a 2215 YWS25_ 25.15 25.45 25.95 26.25 27.45 28.05 29.15 29.45 20.05 \a25— 30.19 30.59 51.05 31.49 32.85 3369 34.85 35.00 35.55 22S, 36.10 37.15 37.85 38.25 40.05 40.95 4250 4295 43.55 (CX 879B)47 1 Plywood freight rates per thousand pounds as of January 29, 1971. Rates have increased substantially since that _ time. For example, the rate in the $1.97 zone has increased to $2.79 as of January 19, 1976. (Tr. 1392.) 2 Rate in zones from West Coast to the East Coast. 3 “Association” weights per thousand pounds. [47] 89. Price uncertainty in the plywood industry i is further reduced by the widespread use of prices published by Crow’s and Random Lengths as the mill or base prices to which West Coast freight multiplied by “association” weights is added. (Findings 90-99.) 90. Crow’s4® and Random Lengths*? are trade publications which report the prices for plywood and other wood products that prevailed in the market during the preceding week. Prices reported in these publications are based on a rotating sample of mills and wholesalers throughout the country. (Tr. 335-36, 340-41, 377-81, 388, 412, 414-15.) The prices reported in the two publications are considered by the publishers to be “judgment calls” and are representative prices at the time the publications go to press. (Tr. 343-44, 421-22.) Three of the respondents (Georgia-Pacific, Champion, and Willamette) have been 47 Tables such as the one appearing in CX 879B are known throughout the industry and are used daily by all plywood buyers and sellers. (Tr. 539.) 48 Published by C.C. Crow Publications, Inc., Portland, Oregon. “Crow’s” is used herein to refer to both Crow’s Plywood Letter which has been published on Friday of each week since April 1958, as well as the Mid Week Report which first appeared in March 1974. (Tr. 315-16, 320-23, 325.) 49 Published by Random Lengths Publications, Inc., Eugene, Oregon. “Random Lengths” is used herein to refer to a weekly Price Guide and Market Report, which has reported plywood prices since the laté 1950's, as well as a Wednesday Midweek Report which first appeared in January 1974. (Tr. 368-71.) Initial Decision 91 F.T.C.

asked regularly by these publications to report their prices, while two others (Boise and Weyerhaeuser) have been surveyed sporadically. (Tr. 336, 382, 413-14, 561.) 91. The prices quoted in Crow’s and Random Lengths are in the form of a “mill” or “base’’®° price to which rail freight from the West Coast must be added, and the [48] standard industry wholesale discounts of 5 percent and 3 percent®! are deducted, in order to arrive at delivered prices. This “mill” form is used by Crow’s and Random Lengths in the reporting of both southern pine and western fir plywood prices. (CX 680A; Tr. 321, 334-35, 354, 374, [49] 376, 402-03.) The prices appearing in Crow’s and Random Lengths are intended to be the prices charged by producing mills in sales to independent wholesalers or to company-owned distribution outlets: they do not purport to be the prices charged by wholesalers or distribution outlets in sales to retailers. (Tr. 418.) 92. The position of the respondents that there is no pattern of uniform price lists52 in the plywood industry to which West Coast freight is added, vastly understates the importance of the two industry price reporters. The weight of the evidence is that in calculating offering prices, respondents routinely use Crow’s or Random Lengths in arriving at their base prices.53 Thus Champion’s Southeast Regional Sales Manager observed:

50 In the case of southern pine plywood, the “mill” or “base” price should not be confused with a bona fide F.0.B. price since customers cannot pick up at the “mill” or “base” price and thereby avoid West Coast freight. (See Finding 120.) The buyer's delivered cost is the “mill” or “base” price plus an amount equal to West Coast freight which is automatically added; or when a mill pick up is made by the buyer, he pays the delivered price including West Coast freight, less a small discount. (Finding 121.) In the case of western plywood, the Crow’s or Random Lengths prices are an F.O.B. price in the sense that actual freight (except for inland mills) is added to obtain delivered cost, but the amount of freight paid is inflated because of “underweights”. (See Finding 85.) 51 The ‘trade discounts of 5 percent and 3 percent are so prevalent that Random Lengths reports its prices as “subject to wholesale discounts of 5 percent and 3 percent on plywood and particle board” (RX’s 424A~426Z6; Tr. 402- 03) and Crow’s reports “Plywood and particle board less 5% and 3%.” (CX’s 879A-U; see also CX 559D; Tr. 354, 402-08, 584-86, 712.) There is, however, evidence of some negotiation of discounts which vary fzom the industry standard. (CX 90; Tr. 672-73, 714, 719, 1783-84.) A discount of “5 + 5” is given to Georgia-Pacific distribution outlets (Finding 97) and it also appears in inter-manufacturer purchases. (CX 553.) Also widely used in the plywood industry is a 2 percent cash discount for prompt payment. (Tr. 584-86, 811.) The 5 percent and 3 percent discount means, for example, that on a Crow’s price of $100, first, $5 (5 percent) is deducted; then from the balance of $95, the 3 percent is deducted ($2.85) producing a total discount of $7.85 and a price of $92.15. The 2 percent cash discount is then applied for a net price of $90.31. Note that respondent U.S. Plywood has deducted the 2 percent cash discount after first deducting the full amount of West Coast phantom freight from the delivered price. (CX 200.) 52 Currently, respondents do not regularly issue external price lists (Tr. 1429, 1603; but see Tr. 1741-42 for use by Willamette of a “market letter which contains plywood prices”). Note also that U.S. Plywood substituted Random Lengths for its own price list. (CX 860A.) 53 While prices reported in both Crow's and Random Lengths are widely used throughout the plywood industry, there can be no question on the basis of a review of all documents in the record, that Crow’s is the main reference for plywood prices. Although the two publications may not agree on price at all times, the differences are small, and, in fact, may reflect merely different ways of reporting the same information. Thus prior to 1974, Crow’s often published a “split” or range of prices (hence the industry terminology “low Crow’s” or “high Crow's”). This practice was discontinued in early 1974. (Tr. 354-56.) Random Lengths, on the other hand, publishes a straight car price and a higher mixed car price, which in effect shows a discount for heavy volume buyers of straight cars. (Tr. 410; see also Tr. 611; note, however, that when a particular thickness is in short supply (CX 467A), a straight car for that thickness commands a premium ¢ over the mixed car ir price. (Cx 466A. ») While the Crow’s “split” is intended to > show a range of reavemoaery s Bie ane cette ae bee eres al. after. BOISE CASCADE CORPORATION, ET AL. 35 1 : Initial Decision [51] Almost without exception, the price of Pine Sheathing to a good credit-risk is ‘the low. of Crow's or Random Lengths less 5% and 3%. The Crow and Random Lengths split lists [i.e., where a range of prices is reported] generally allude to the low being the straight car and the high applicable to mixed shipments. (CX 811A.) Similarly, one Boise official, in referring to Crow’s, said it was “frustrating to realize one man sets an entire industries price yield” (CX 342A), while another yearned for the day “When the plywood industry learns to price their own products instead of letting a reporting service do it... .” (CX 346H.) A former Georgia-Pacific branch manager testified that it was no secret that prices were obtained by using Crow’s (Tr. 956-57, 981), and at Weyerhaeuser “industry price” means the “price appearing in Industry reporters.” (CX 882B.)54 [52] Despite this proof of the influence of the two publications, the record does not show that the prices reported in Crow’s or Random Lengths fix the base price for all levels of the entire industry. If such were the case — that all mills and distribution outlets were always between straight and mixed cars, as in the Random Lengths reporting. (CX 811A.) As it happens, the ClGw's “split” often conforms to the Random Lengths straight car-mixed car variation. When there is no split in Crow’s, the Crow's price is usually the exact same as the Random Lengths straight car price, and in the few instances of differences, the variance is usually $1.00. In sum, the two reporters are in substantial agreement most of the time. Note, for example, in 1970, the following comparison of Crow’s (C) and Random Lengths (RL) prices for 1/2” 3 ply southern sheathing. The Random Lengths straight car prices appear in parenthesis. L:

Rl 65(64) 65{64) 64(64) 65(64) 64(63) C: 6&4 64 64 64 68 RL: 65(64) 65(64) 64(63) 63(62) 63(62) C: 64 to 65 64 to 65 68 to 65 62 to 64 62 to 63 RL: 6665) 68(67) 68(68) 769) TA) Cc: 64 to 66 67 67 to 68 67 to 68 70 RL: — 74(73) 16(75) 75(74) 15(73) 771) C: 2 to 3 5 to 16 % 3 20 to 72 RL: — 74(73) 74(74) 26(75) 76(74) 76(74) C: 72 t 7% 14 to 15 74 to 15 4 4 RL: | 76(76) 7X79) 83(82) 83(82) 85(84) C: 76 19 82 to 83 82 to 83 84 to 86 RL: — 87(85) 87(85) 86(85) 85(84) 85(84) C: 86 to 88 86 to 87 86 to 88 84 to 85 84 to 86 RL: 85(84) 84(83) '82(80) 75(74) THT) CG: ° 8 84 80 to 82 TB to 16 12 to 78 RL: —70(69) 70(70) 70(70) .

C: 69 to 70 72 72 (Source: CX’s 674A to 674Z17; RX’s 425A to 425225.) _ 34 The influence of the industry price reporters is such that on Friday, when Random Lengths’ prices are released, the publisher may receive over 600 telephone calls from subscribers. About 80 subscribers to Random Lengths receive the Friday report by Telex. (Tr. 379-80.) Crow’s has five open telephone lines which are used all day Friday to answer inquiries about the newly published prices. (Tr. 546.) If the Georgia-Pacific’s Portland office happens to be closed on Friday, arrangements are made to wire Crow’s prices to thé regional managers as soon as they are published. (CX 546A.) :

The testimony of several employees of respondents to the effect that they do not rely on Crow’s or Random Lengths (Tr. 1429, 1672, 2087-39, 2341) is contradicted by other testimony and, more importantly, is contrary to temporaneous busi: d ts which show overwhelmingly the crucial importance which respondents and the entire plywood industry attach to the prices reported by the two publications. When such a conflict exists, it is the accepted rule in antitrust litigation that p business d ts not iated with the preparation of litigation are given the most weight. United States v. United States Gypsum Co., 333 U.S. 364, 395-96 (1948). I have ~ followed this rule throughout this initial decision. Initial Decision 91 F.T.C.

selling at Crow’s or Random Lengths — then presumably base prices would never change. But base prices in the plywood industry do change, mainly as a result of the volatility of the housing industry.*> Accordingly, all that can be properly attributed to the trade reporters is that each week starts with the previous Friday’s reported prices (or internal price lists derived from the reporters) as the industry’s mill direct prices. (See Findings 93-96.) [53] By the same token, distribution outlets use the weekly mill prices (as reported by Crow’s or Random Lengths) for mill direct sales and as a base for setting their prices for less than carload lots which inevitably are higher than these reported mill prices. (Tr. 785, 916-20 and Findings 97, 98.)56 During any given week, however, and particularly when the market is unstable because of volatility in the housing industry, cyclical pressures may operate to move mill prices up or down so that by the end of the week a new mill price may be reported by Crow’s and Random Lengths.5* Because of the influence of Crow’s and Random Lengths, the pattern of the industry is that buyers shop in the early part of the week after the preceding Friday publication of Crow’s and Random Lengths, buy on Wednesday, and on Thursday and Friday they await the next edition of Crow’s and Random Lengths to see if the market has been weakened or strengthened. (CX 340A; also see CX’s 338C, 572A, 853B for influence of Crow’s and Random Lengths on weekly buying patterns.) [54] 93. The use of Crow’s or Random Lengths*8 at respondents’ mills as a source of southern plywood base prices (to which West Coast freight is automatically added) is shown by the following: (a) Georgia-Pacific. In quoting southern softwood plywood prices, Georgia- Pacific mill sales representatives use intra-company “Mill Notes” which are derived from Crow’s. (Tr. 711-12 and Finding 96(a); see also CX 650A.) Departures from 58 See Findings 144-151 and CX’s 526A-Z70, 546A, 547A, 550A, 554A, 570A, 577A. Not surprisingly, if the market is stable, Crow's and Random Lengths do not change (CX’s 42, 506) and most plywood will be sold at or near the reported prices for more than a week. (CX 860A.) Several witnesses described the movement of plywood prices with anecdotal references to “hourly” changes. (Tr. 785, 1177-78, 1417, 2932.) While such changes “could” nceivably take place, the pattern as revealed in Boise’s daily booking prices, is for a fairly stable price to exist during any given week. (See CX’s 685A-T and CX’s 686A-Z110.) See also CX's 89A-B, where a Willamette official observes that plywood prices “fluctuate sone times more than on just a weekly basis” [emphasis added }] and CX 581 which shows use of a weekly pricing guide at Georgia-Pacifie’s Crossett Division which requires that variations “must be documented.” See also CX 104A which shows use of a weekly mill direct price at Weyerhaeuser. 56 Transfer prices (which are the basis of the distribution outlet’s resale prices and are derived from Crow’s, see Findings 96-98) are not changed at Georgia-Pacific during an entire week. (Tr. 916-20, 1697-98.) In a rising market, however, Georgia-Pacific branch managers are instructed that prices may be raised in mid-week since many customers prefer to buy at a small increase in mid-week, rather than run the risk of having to pay a substantially higher price during the first part of the next week. (CX 576.) In addition, note that the Weyerhaeuser “CSC's” received a weekly national price list which contained a “list” price and a “floor” price. (CX’s 104A-B.) 57 See RX’s 69G-Z50 and Findings 144-151.

38 In all Findings, whenever there is mention of a Crow's or Random Lengths price, it should be understood that West Coast freight is always added to the Crow’s and Random Lengths price. (See Finding 91.) BOISE CASCADE CORPORATION, ET AL. 87 1 - Initial Decision .Crow’s even in the instance ofa single thickness to a particular account calls for an explanation at Georgia-Pacific:

~ Since this agreement involves pricing in a range below the average of Crow, I will offer an explanation for the variation. Weyerhaeuser is our chief . competition on this type of business and they elect to be extremely competitive on 1/2”. Occasionally, we elect to meet the situation after conferring with the branch and the regional managers. Besides this account, Lester Lumber Company, we have the situation with E. W. Codwin. There is no problem getting the average of Crow on other thickness. (CX 540.) (b) Boise. During the hearings, Boise witnesses testified that significant changes had been made in the method of doing business at the Moncure, North Carolina mill, and that neither West Coast freight nor Crow’s are used in the price +. ealeulations at this mill. These witnesses claimed that since February [55] 1972,59 e Boise. quotes solely on the basis of an F.O.B. mill price, or a net delivered price . using actual freight or an approximation thereof from Moncure as depicted in a - map (RX 307) showing various zones (zones A to F) radiating from Moncure. (Tr. 2841, 2361-62, 2406, 2460-61, 2488-84, 2486, 2502, 2985, 2988-92.) This testimony “must be evaluated in the light of contemporaneous business documents which clearly reveal that Boise has not departed from the industry pattern. Notations made on the Moncure sales manager's desk calendar show conclusively that in 1974 _- Boise routinely arrived at its Moncure offering prices by starting with the base prices appearing in Crow’s, deducting the standard industry discounts of 5% and 3% ’ (a factor of .9215), and adding West Coast freight. (CX’s 813A-Z30.) For example, on. Friday, August 30, 1974, Crow’s (CX 928Z13) reported the following prices for Southern pine plywood: 3/8” 1/28 ply) 1/2°(4 ply) 5/8” 3/4"

$91, $107 $116" $137 : $168 Multiplying each price by the factor of .9215 (for the functional discounts of 5% and - 8%) and adding the applicable West Coast rate of freight to the most eastern zone where Moncure is located ($2.51 multiplied by association weights, CX’s 92822, 23) delivered prices based on Crow's plus West Coast freight would be: 3/8 1/2(3) 1/24) 5/8 3/4 $112.1065 $136.9005 $145.1940 $172.0455 $210.6620 156] The desk calendar of the Moncure mill sales manager for the following week (Cx 81329) shows these entries in the row entitled “Crow’ 's + frt”: 38 - 1/2{8) 1/2(4) 5/8 8/4 “$11211 «$186.90 $145.19 $172.04 $210.66 Immediately t below the “Crow’s + frt” notations are the following entries for the so-called “Zone A”:

3/8 1/2(8) 1/2(4) 5/8 3/4 $113 $140 $146 $172 $211 5° For use of Crow's plus West Coast freight prior to February 1972, see Tr. 717-18, 754, 788-90. Initial. Decision 91 F.T.C.

If the same calculations are made for all the entries in CX’s 813A—Z80 (the desk calendar) and CX’s 928A-Z31 (Crow’s), about 40% of the time the Moncure Zone A prices are exactly the same as Crow’s plus West Coast freight. In the other nearby zones, there are small additions to Crow’s plus West Coast freight.6° In short, while Moncure’s prices are not exactly in line with Crow’s at all times, whatever differences exist usually result in Moncure prices which are higher than Crow’s plus West Coast freight. (Tr. 2343-44, 2462, 2992.) There is evidence that Moncure’s departures from the usual formula (by charging prices higher than Crow’s) are well-known in the industry and are attributed to its heavy-selling of mixed loads to the local trade. (Tr. 522-23, 898.) (c) Champion. In “PTS” sales (i.e., when price is set at time of shipment, see Finding 94), the selling prices charged by U.S. Plywood branches to their direct mill [57] customers are based on the Crow’s prices which appear on the Friday prior to — shipment..(CX’s 265-66, 269, 271D, H, J, 272A, 273.) (d) Willamette. In addition to the use of the reporters in its substantial volume of “PTS” contracts (See Finding 94(d)), Willamette refers to Crow’s and Random Lengths in setting its spot prices, including its non-contract “PTS” sales. (CX’s 29A, 67B.) (e) Weyerhaeuser. Weyerhaeuser ties its direct mill pricing strategy to prices appearing in Crow’s or Random Lengths. (CX’s 97, 98, 117, 152B.) 94. Contracts for future delivery of southern plywood invariably have an open-ended price term which is usually expressed as the price appearing in Crow’s or Random Lengths (more often Crow’s) at the time of shipment, plus West Coast freight (calculated on the basis of “association” weights) less the standard industry discounts. These contracts are known in the plywood industry as “PTS” contracts (“Price at Time of Shipment”),61 in contrast to most spot sales which are made on a “PTO” (“Price at Time of Order”) basis. “PTS” transactions are not confined solely to contracts, however; individual orders may be placed subject to a “PTS” term, the price to be determined by referring to Crow’s or Random Lengths on the indicated shipping date. The record shows the following with respect to the use of Crow’s and Random Lengths in “PTS” transactions: (a) Georgia-Pacific. “PTS” contracts for the sale of Georgia-Pacific’s southern plywood use Crow’s or Random Lengths as the pricing reference. (CX 650A; Tr. 1469, 1551, 1960-61.) See also CX 183C where a Weyerhaeuser official reported, after a visit with Georgia-Pacific officials, that “most pricing arrangements [in Georgia-Pacific southern plywood contracts] are made based on Crow’s weekly letter.” In [58] 1969, approximately 50% of Georgia-Pacific southern sheathing sales were made to chains or large retail operators pursuant to “PTS” contracts based on Crow’s. (CX 581.) .

(b) Boise. “PTS” contracts or orders for the sale of southern pine plywood produced by Boise use Crow’s as the price reference. (CX’s 365Z10 tn camera, 420F, 80 Generally, Moncure’s production is sold very close to the mill. (CX 356C; Tr. 722-23, 898, 2459, 2500, 3002, 3020- 21.) 61 “PTS” contracts cover a period of six months toa year. (Tr. 1836, 2289, 2291, 2384.) BOISE CASCADE CORPORATION, ET AL. 39 1 Initial Decision 221, Z36, 239, Z48, Z51, Z60, 263, 266, 275, Z78, Z81; see also CX 326D in camera; Tr. 719-21, 3000.) 62 (c) Weyerhaeuser. It is common practice for Weyerhaeuser to use Crow’s or Random Lengths in “PTS” contracts. (Tr. 1191-92, 2281.) In 1975, 42% of Weyerhaeuser’s production was sold on a “PTS” basis. (Tr. 2221-22.) (d) Willamette. Willamette’s “PTS” contracts for sale of southern pine plywood are based on Crow’s or Random Lengths. (CX’s 29A-B, 67B, 79A-F, 90; Tr. 852, 1783-84, 1835, 1838-39.) Between 1970 and 1974, approximately 40% of Willamette’s southern plywood production was sold pursuant to such “PTS” contracts. (CX 29A; Tr. 1835, 1844-47.) 63 [59] (e) Champion. U.S. Plywood’s “PTS” contracts (or its proposals for “PTS” contracts) often refer to prices appearing in Crow’s or Random Lengths. (CX’s 209A, 215A-B, 216A-B, 219A-C, 227A; Tr. 858-54.) 95. Crow’s or Random Lengths prices are used as the base price (West Coast freight is automatically added) in inter-manufacturer sales and purchases of southern plywood. The record shows the following:

(a) Georgia-Pacific. Georgia-Pacific’s purchase contracts for the future delivery of southern pine plywood are keyed to prices appearing in Crow’s or Random Lengths. (CX’s 548, 551, 558, 601A, 609A, 618A-B, 628A-B; Tr. 2132-35.) (b) Boise. Purchase contracts entered into by Boise for its Kingsberry Homes division refer to prices published in Crow’s or Random Lengths. (CX’s 836A-C, 353, 361, 366A-B, 397, 404A, 586A, B, F-H; Tr. 2392-98.) (c) Weyerhaeuser. Weyerhaeuser purchases plywood from Willamette at “low Crow’s” less certain discounts. (CX’s 41, 58, 82; see also Tr. 2302.) (d) Champion. The price terms in purchase agreements negotiated by U.S. Plywood often refer to Crow’s or Random Lengths. (CX’s 214A, 228A-D, 264, 595A- C; Tr. 2651-52, 2671.) 96. In addition to common use of Crow’s or Random Lengths as base prices in “PTS” contracts or orders, mill sales, and intermanufacturer sales and purchases of southern plywood (Findings 93- 95), the record shows that respondents (with the exception of Willamette which is [60] not vertically integrated) generally transfer®4 southern plywood from their mills to their distribution outlets at ® Approximately 30 percent of Moncure’s total 1971 southern pine plywood production was sold p toa “PTS” contract with Wickes in which the price was Crow’s, less functional discounts, plus West Coast freight. (Tr. 719- 21, 786-87.) 83 Although Willamette sold as much as 55 percent of its total production on the basis of “PTS” contracts tied to Crow's or Random Lengths (CX 29A; Tr. 1835), this apparently did not deter the vice-president of the pany from testifying that he did not rely on Crow’s or Random Lengths as the basis for his prices. (Tr. 1811.) *4 By use of the term “transfer” I do not mean to imply that these intra-corporate sales are somehow less binding than strict commercial transactions between buyer and seller. At Georgia-Pacific: We don’t allow the branches to dictate the prices to the mills and we long ago set up that the mills’ prices shall be established at the going market prices similar to any outside supplier. (CX 605.) Note also the following condition imposed by a Georgia-Pacific mill in connection with the proposed sale of plywood to certain distribution centers:

Failure to perform by either party will be excused only by lack of cars for shipping, fire, strikes, flood, or other major force beyond the control of either party. Market conditions, inventories, price levels, order files, etc., in no way provide either party with a reason for non-performance. (CX 688B.) (Continued) Initial Decision 91 F.T.C.

prices which are derived from Crow’s or Random Lengths. West Coast freight to the distribution outlets, calculated on the basis of association weights, is added to these reporter-derived base prices. The record shows the following with respect to these intra-corporate transfers: ~ [61] (a) Georgia-Pacific. About 80% of the plywood transferred to the Georgia- Pacific distribution centers from Georgia-Pacific’s Building Products Division (the manufacturing arm of the company) is done on an “allocated basis.” (Tr. 1573- 74.) The transfer prices for allocated sales are communicated to the centers through so-called “Mill Notes”. (Tr. 1387-88, 1574.) The Mill Note base prices are taken from Crow’s. (CX’s 526A—Z64, 528, 592A, 602B-603, 607B, 617A, 687-641, 645A; 646A, 647A, 648A; Tr. 984-35, 987.) Note in CX 617A a Mill Note was revised because the published Crow’s price was different from an earlier, orally communicated transfer price.

The delivered prices in transfers of southern plywood to the Georgia-Pacific distribution centers, whether “allocated” or not, include West Coast freight. (CX’s 587, 544A, 600A, 614A, 637, 645A, 646A, 647A, 648A; Tr. 921-22, 934, 1390-91, 1545- 47, 1948.)67 {62] (b) Boise. Boise’s Moncure mill contracted with the Boise “BM & S” Division for the transfer of a fixed amount of southern plywood to certain “BM & S's”. The transfer price for this contract, which was entered into in 1971, was determined by deducting functional discounts from the price reported in Crow’s two Fridays prior to shipment. (CX 387; Tr. 2477-78; see also CX 322B in camera.) In this Moncure-“BM & S” contract there was a variation from the usual industry formula of using West Coast rate less actual freight. Under this contract, the Boise “BM & S’s” paid a freight charge of $1.80 per hundred-weight (derived from the West Coast rate of $2.07, less 27¢ per hundred-weight, the average freight cost to the destinations normally shipped by Moncure), plus actual freight from the mill to each “BM & S”. (CX’s 387A-B; Tr. 2477-78.) While this departure from the standard industry formula resulted in some differences in the prices to each “BM & S” within the same West Coast freight zone, nevertheless, in this instance, too, a transfer price was used which included freight derived from the West Coast rate rather than the sharply lower actual freight rate. (CX’s 387A_C, 390.) (c) Weyerhaeuser. Since 1971, plywood produced at Weyerhaeuser mills has been transferred to the Weyerhaeuser “CSC’s” at the average of prices reported in Crow’s and Random Lengths plus West Coast freight. (CX 131; Tr. 1142, 2227-29, 2267-68.) (d) Champion. Plywood produced by U.S. Plywood’s mills is transferred to the See also CX 647A (“These are firm and non-cancellable orders on the part of either party except for force majeure”) and Tr. 1554 where the Georgia-Pacific official in charge of mill sales testified “We stand at arm’s length with the Distribution Division [branches }, so to speak.” Specifically, 1 do not find credible the testimony of Georgia-Pacific officials that transfers are simply an internal method of dividing up the “pie”. (Tr. 1578, et seq.) Cont ts and other testimony prove that transfer prices have a far more pervasive influence on the plywood market. (See Findings 97, 98.) 65 Under the allocation system, each Distribution Division region agrees with the Building Products Division that a fixed amount of softwood plywood will be transferred each week to each region. The regional manager then sets an allocation to be shipped weekly to each branch within his region. (CX’s 559M, N, 645A-648B; Tr. 960, 1573-74. ) 66 The record proof showing reliance on Crow’s is not diminished, and, in fact, is supported by the equivocation of the Georgia-Pacific vice-president in charge of the distribution centers who testified that the company uses “some sort of market report service transfer cost.” (Tr. 1574.) 6? Note that in all transfers where the base price is “Crow's” (i.e., CX’s 526A-Z64) West Coast freight is added automatically. (See Finding 41 \ BOISE CASCADE CORPORATION, ET AL. 41 1 Initial Decision branches at transfer prices established on [63] Friday of each week. These prices are intended to reflect the current mill prices. (CX 177B; Tr. 2581-85.) Usually these prices are identical to the Crow’s prices. (Tr. 1021-22, 2689.) Moreover, the transfer price charged a U.S. Plywood branch for a direct mill shipment to the branch’s customer is tied to the Crow’s price Friday prior to shipment. (CX’s- 252, 253A, 256-260, 271D, 272A.) On all transfer sales, U.S. Plywood charges its branches transfer prices which -include West Coast rail freight. (CX’s 208A, 282A, 288B, 234A, 235A, 236A, 237A, 239A, 240A, 241A, 242B, 243A, 244A, 245A, 246B, 247A, 248B, 249A, 250A, 251A, 5 1 2 1 10 2 645 755 59 32 87.777946 263,5 1 2 1 10 3 712 756 109 32 95.249886 274-78;5 1 2 1 10 4 832 757 43 25 96.824440 Tr.5 1 2 1 10 5 886 758 72 31 96.133781 1000,5 1 2 1 10 6 969 758 122 32 95.042191 1006-07,5 1 2 1 10 7 1099 758 124 32 88.826874 2613-14,5 1 2 1 10 8 1231 759 85 32 77.396858 2713.)2 1 3 0 0 0 550 833 1326 1633 -1 3 1 3 1 0 0 558 833 1318 803 -1 4 1 3 1 1 0 604 833 1272 45 -1 5 1 3 1 1 1 604 833 50 32 86.733429 97.5 1 3 1 1 2 698 834 47 33 86.733429 As5 1 3 1 1 3 766 834 57 33 96.714401 for5 1 3 1 1 4 842 845 60 22 96.029961 uses 1 3 1 1 5 922 836 37 31 96.029961 of5 1 3 1 1 6 978 836 59 32 96.971558 thes 1 3 1 1 7 1057 836 97 32 96.497849 trades 1 3 1 1 8 1174 839 169 39 96.613045 reporters5 1 3 1 1 9 1363 840 38 30 96.913239 at5 1 3 1 1 10 1420 838 58 32 96.453949 thes 1 3 1 1 11 1498 838 247 33 96.414932 distributional5 1 3 1 1 12 1766 839 110 33 96.229126 outlet4 1 3 1 2 0 563 882 1311 45 -1 5 1 3 1 2 1 563 876 84 40 96.911270 levels 1 3 1 2 2 670 894 82 23 96.393883 once5 1 3 1 2 3 774 885 58 33 96.820595 thes 1 3 1 2 4 853 886 152 41 97.006836 plywood5 1 3 1 2 5 1027 886 28 33 96.873070 is5 1 3 1 2 6 1076 887 221 40 96.873070 transferred,5 1 3 1 2 7 1318 887 59 34 96.837990 thes 1 3 1 2 8 1398 889 115 32 96.931931 records 1 3 1 2 9 1534 889 157 33 96.949486 evidences 1 3 1 2 10 1712 889 162 34 96.793861 indicates4 1 3 1 3 0 562 914 1313 69 -1 5 1 3 1 3 1 562 933 78 33 96.123672 that5 1 3 1 3 2 655 935 58 32 96.699280 thes 1 3 1 3 3 729 935 216 34 96.802429 distributions 1 3 1 3 4 961 937 127 32 96.815521 outlets5 1 3 1 3 5 1103 940 54 29 96.808334 sets 1 3 1 3 6 1172 937 89 33 96.566521 theirs 1 3 1 3 7 1276 914 90 57 95.808418 basics 1 3 1 3 8 1381 938 153 43 96.614975 offerings 1 3 1 3 9 1548 940 105 41 96.517723 prices5 1 3 1 3 10 1669 940 43 42 96.949097 by5 1 3 1 3 11 1727 941 148 42 96.654800 relating4 1 3 1 4 0 562 984 1312 46 -1 5 1 3 1 4 1 562 984 93 33 96.900780 them5 1 3 1 4 2 670 985 141 43 96.034958 directly5 1 3 1 4 3 823 989 36 30 96.999573 to5 1 3 1 4 4 872 987 153 33 96.918579 transfers 1 3 1 4 5 1036 987 117 42 96.511932 prices,5 1 3 1 4 6 1166 988 118 40 96.952995 which,5 1 3 1 4 7 1297 989 34 32 96.666153 in5 1 3 1 4 8 1345 992 90 38 96.666153 turn,5 1 3 1 4 9 1448 1001 58 22 93.306206 ares 1 3 1 4 10 1519 990 115 33 91.887115 drived5 1 3 1 4 11 1648 990 89 33 93.286362 from5 1 3 1 4 12 1752 990 122 34 92.765572 Crow’s4 1 3 1 5 0 562 1036 1312 47 -1 5 1 3 1 5 1 562 1046 37 22 96.076927 or5 1 3 1 5 2 613 1036 155 33 95.427673 Random5 1 3 1 5 3 781 1037 154 42 96.415176 Lengths.5 1 3 1 5 4 950 1038 48 33 97.003006 As5 1 3 1 5 5 1013 1038 168 33 96.623528 indicated5 1 3 1 5 6 1195 1038 130 42 96.582245 earlier,5 1 3 1 5 7 1340 1040 42 32 95.900787 all5 1 3 1 5 8 1397 1040 38 33 95.900787 of5 1 3 1 5 9 1447 1040 97 34 97.006836 these5 1 3 1 5 10 1558 1041 124 33 96.699631 outlets5 1 3 1 5 11 1696 1052 57 22 96.919563 ares 1 3 1 5 12 1767 1042 107 41 96.908340 profit4 1 3 1 6 0 561 1087 1313 47 -1 5 1 3 1 6 1 561 1089 142 30 96.545868 centers.5 1 3 1 6 2 731 1087 179 42 96.393356 (Findings5 1 3 1 6 3 936 1090 50 39 96.695099 38,5 1 3 1 6 4 1015 1090 50 39 96.695099 42,5 1 3 1 6 5 1092 1090 51 39 96.499237 47,5 1 3 1 6 6 1171 1089 65 41 96.506432 51.)5 1 3 1 6 7 1264 1090 78 32 96.436928 This5 1 3 1 6 8 1369 1101 126 30 96.769943 means,5 1 3 1 6 9 1522 1091 56 33 96.725449 for5 1 3 1 6 10 1604 1092 165 42 95.851273 example,5 1 3 1 6 11 1796 1092 78 33 96.498543 that4 1 3 1 7 0 562 1136 1310 49 -1 5 1 3 1 7 1 562 1136 286 43 95.701752 Georgia-Pacific5 1 3 1 7 2 883 1139 216 33 95.202469 distributions 1 3 1 7 3 1134 1143 143 37 95.202469 centers,5 1 3 1 7 4 1313 1141 106 33 96.649406 which5 1 3 1 7 5 1455 1142 68 42 96.395813 buys 1 3 1 7 6 1558 1142 147 43 90.662109 straight5 1 3 1 7 7 1739 1142 133 34 90.662109 carload4 1 3 1 8 0 560 1187 1312 44 -1 5 1 3 1 8 1 560 1187 185 40 96.636986 quantities5 1 3 1 8 2 759 1188 91 33 96.636986 from5 1 3 1 8 3 864 1189 59 32 96.830986 thes 1 3 1 8 4 937 1189 286 42 96.481125 Georgia-Pacific5 1 3 1 8 5 1237 1190 85 33 96.734093 mills5 1 3 1 8 6 1337 1194 37 30 92.913841 at5 1 3 1 8 7 1389 1191 122 33 92.913841 Crow’s5 1 3 1 8 8 1524 1191 65 34 96.468887 less5 1 3 1 8 9 1603 1203 20 22 96.468887 a5 1 3 1 8 10 1636 1192 153 34 96.728294 discounts 1 3 1 8 11 1802 1193 39 33 96.728294 of5 1 3 1 8 12 1853 1195 19 31 96.684349 54 1 3 1 9 0 559 1238 1312 46 -1 5 1 3 1 9 1 559 1241 140 37 96.620743 percent5 1 3 1 9 2 716 1238 67 33 95.990341 ands 1 3 1 9 3 801 1241 19 31 95.990341 55 1 3 1 9 4 836 1243 140 38 96.530556 percent5 1 3 1 9 5 991 1241 75 40 96.854057 plus5 1 3 1 9 6 1084 1241 94 32 96.086800 West5 1 3 1 9 7 1195 1241 102 32 96.734795 Coast5 1 3 1 9 8 1313 1241 131 43 96.651222 freight5 1 3 1 9 9 1459 1242 73 41 93.132965 (CX5 1 3 1 9 10 1549 1243 100 39 91.010277 325B;5 1 3 1 9 11 1668 1244 53 31 96.916039 Tr.5 1 3 1 9 12 1738 1244 133 40 81.899895 925-26,4 1 3 1 10 0 559 1288 1312 47 -1 5 1 3 1 10 1 559 1288 119 40 37.902344 934),685 1 3 1 10 2 692 1292 93 29 96.748650 must5 1 3 1 10 3 797 1289 81 33 97.016197 then5 1 3 1 10 4 892 1293 54 30 97.007095 sets 1 3 1 10 5 958 1290 90 33 93.306038 theirs 1 3 1 10 6 1060 1291 133 32 92.951202 carloads 1 3 1 10 7 1207 1291 106 41 96.705307 prices5 1 3 1 10 8 1326 1292 56 32 96.557945 for5 1 3 1 10 9 1395 1292 68 33 96.899323 mills 1 3 1 10 10 1479 1292 74 40 96.565804 [64]5 1 3 1 10 11 1567 1293 106 33 96.516106 directs 1 3 1 10 12 1686 1293 185 42 96.661858 shipments4 1 3 1 11 0 559 1338 1313 48 -1 5 1 3 1 11 1 559 1338 76 40 46.304760 (i.e.,5 1 3 1 11 2 652 1339 97 32 96.132561 when5 1 3 1 11 3 765 1340 59 32 97.002274 thes 1 3 1 11 4 839 1341 124 32 96.602669 branch5 1 3 1 11 5 979 1341 115 33 96.485329 makes5 1 3 1 11 6 1109 1341 59 33 96.494072 thes 1 3 1 11 7 1183 1342 79 39 96.494072 sale,5 1 3 1 11 8 1278 1342 62 32 96.695465 but5 1 3 1 11 9 1353 1343 58 32 96.563210 thes 1 3 1 11 10 1426 1344 95 32 96.743851 woods 1 3 1 11 11 1536 1344 28 32 96.743851 is5 1 3 1 11 12 1578 1344 137 41 96.584404 shipped5 1 3 1 11 13 1730 1344 142 42 96.956917 directly4 1 3 1 12 0 559 1388 1312 48 -1 5 1 3 1 12 1 559 1388 89 33 96.680618 from5 1 3 1 12 2 664 1389 58 33 96.996094 thes 1 3 1 12 3 736 1390 85 41 96.750168 mill)5 1 3 1 12 4 835 1394 37 29 93.293556 at5 1 3 1 12 5 886 1391 121 32 91.908112 Crow’s5 1 3 1 12 6 1021 1392 65 32 96.911240 less5 1 3 1 12 7 1099 1402 21 22 96.028633 a5 1 3 1 12 8 1133 1392 154 33 96.028633 discounts 1 3 1 12 9 1300 1392 37 33 96.890686 of5 1 3 1 12 10 1350 1394 19 31 96.752480 55 1 3 1 12 11 1382 1397 139 37 96.359940 percent5 1 3 1 12 12 1534 1394 66 32 96.909294 ands 1 3 1 12 13 1613 1395 19 32 91.357040 85 1 3 1 12 14 1645 1398 139 38 96.689110 percent5 1 3 1 12 15 1796 1395 75 41 96.759109 plus4 1 3 1 13 0 559 1439 1312 47 -1 5 1 3 1 13 1 559 1439 94 32 96.826012 West5 1 3 1 13 2 675 1440 102 33 96.296097 Coast5 1 3 1 13 3 797 1441 138 41 96.868858 freight.5 1 3 1 13 4 957 1442 68 40 96.913216 (Tr.5 1 3 1 13 5 1046 1443 70 39 96.960129 927,5 1 3 1 13 6 1137 1443 71 39 92.808357 931,5 1 3 1 13 7 1228 1443 121 40 81.685211 934.)6°5 1 3 1 13 8 1370 1443 66 33 96.921417 For5 1 3 1 13 9 1455 1444 178 42 96.692543 inventory5 1 3 1 13 10 1652 1445 86 32 96.863472 sales5 1 3 1 13 11 1758 1455 38 22 96.891151 or5 1 3 1 13 12 1816 1445 55 32 96.518723 fora 1 3 1 14 0 559 1489 1312 44 -1 5 1 3 1 14 1 559 1489 86 32 96.671227 sales5 1 3 1 14 2 663 1490 38 31 96.559715 of5 1 3 1 14 3 718 1491 136 33 96.559715 smaller5 1 3 1 14 4 870 1502 39 22 96.785133 or5 1 3 1 14 5 926 1491 111 33 96.785133 mixed5 1 3 1 14 6 1055 1491 195 42 96.801003 quantities,5 1 3 1 14 7 1268 1493 166 33 96.428940 additions5 1 3 1 14 8 1452 1505 58 22 96.798409 ares 1 3 1 14 9 1528 1494 97 33 95.476486 made5 1 3 1 14 10 1642 1498 37 29 97.001190 to5 1 3 1 14 11 1696 1494 67 33 96.768753 this5 1 3 1 14 12 1780 1495 91 32 96.667221 basic4 1 3 1 15 0 558 1539 1310 45 -1 5 1 3 1 15 1 558 1539 89 40 96.901428 prices 1 3 1 15 2 668 1543 36 29 96.106270 at5 1 3 1 15 3 723 1540 59 32 96.848389 thes 1 3 1 15 4 803 1541 285 41 96.050888 Georgia-Pacific5 1 3 1 15 5 1107 1542 171 33 92.721046 branches.5 1 3 1 15 6 1299 1542 99 41 92.721046 (CX’s5 1 3 1 15 7 1417 1544 103 40 93.003036 566A,5 1 3 1 15 8 1540 1545 99 39 90.589844 580B,5 1 3 1 15 9 1658 1545 135 39 74.133728 610A-i;5 1 3 1 15 10 1816 1545 52 33 96.648392 Tr.4 1 3 1 16 0 558 1589 1157 47 -1 5 1 3 1 16 1 558 1589 71 40 89.129585 783,5 1 3 1 16 2 640 1590 133 40 96.553886 919-20,5 1 3 1 16 3 785 1591 71 40 96.724602 928,5 1 3 1 16 4 868 1592 71 39 95.879791 931,5 1 3 1 16 5 951 1593 71 39 96.419128 934,5 1 3 1 16 6 1033 1593 133 39 89.968079 977-78,5 1 3 1 16 7 1177 1593 144 37 93.929207 4386-87;5 1 3 1 16 8 1347 1604 55 22 96.941399 sees 1 3 1 16 9 1414 1593 70 33 96.590324 also5 1 3 1 16 10 1496 1594 145 42 96.432343 Findings 1 3 1 16 11 1651 1595 64 40 96.432343 98.)3 1 3 2 0 0 556 1638 1314 343 -1 4 1 3 2 1 0 599 1638 1271 48 -1 5 1 3 2 1 1 599 1638 180 44 96.417793 Similarly,5 1 3 2 1 2 793 1641 57 32 96.417793 thes 1 3 2 1 3 864 1641 266 42 93.285362 Weyerhaeuser5 1 3 2 1 4 1143 1642 146 33 90.852036 “CSC’s”5 1 3 2 1 5 1303 1653 58 23 96.213249 ares 1 3 2 1 6 1375 1644 69 32 96.858818 told5 1 3 2 1 7 1459 1647 35 30 96.543701 to5 1 3 2 1 8 1507 1644 110 42 96.543701 “prices 1 3 2 1 9 1630 1648 37 29 96.976776 at5 1 3 2 1 10 1680 1644 69 33 96.008163 mills 1 3 2 1 11 1763 1645 107 32 96.498810 direct4 1 3 2 2 0 557 1688 1311 48 -1 5 1 3 2 2 1 557 1688 103 33 93.267494 levels5 1 3 2 2 2 683 1689 74 42 0.000000 [7.e.,5 1 3 2 2 3 781 1691 133 33 92.824783 carloads 1 3 2 2 4 936 1692 107 41 96.435989 price]5 1 3 2 2 5 1065 1692 74 42 96.510216 plus5 1 3 2 2 6 1162 1703 20 22 96.780327 a5 1 3 2 2 7 1203 1692 215 34 96.626053 distributions 1 3 2 2 8 1441 1694 163 42 96.266434 margin.”5 1 3 2 2 9 1625 1695 71 40 96.129593 (CX5 1 3 2 2 10 1718 1696 72 38 96.129593 896;5 1 3 2 2 11 1815 1695 53 33 96.748230 Tr.4 1 3 2 3 0 559 1740 1309 47 -1 5 1 3 2 3 1 559 1740 151 39 94.717148 1150-51,5 1 3 2 3 2 739 1742 152 39 66.634857 1168-71,5 1 3 2 3 3 921 1743 151 39 83.352211 1173-75,5 1 3 2 3 4 1099 1743 153 39 92.687897 2262-63,5 1 3 2 3 5 1279 1744 204 41 11.711166 2266-67.)7°5 1 3 2 3 6 1510 1745 70 32 96.509987 Thes 1 3 2 3 7 1607 1745 75 34 95.776070 U.S.5 1 3 2 3 8 1711 1746 157 41 96.304077 Plywood4 1 3 2 4 0 557 1788 1311 49 -1 5 1 3 2 4 1 557 1788 163 35 96.718040 branches5 1 3 2 4 2 733 1791 70 42 96.982910 buys 1 3 2 4 3 814 1803 42 21 96.918930 on5 1 3 2 4 4 861 1784 20 57 93.248169 a5 1 3 2 4 5 904 1793 133 32 93.213280 carloads 1 3 2 4 6 1051 1793 88 32 96.974052 basis5 1 3 2 4 7 1153 1792 107 33 97.002319 which5 1 3 2 4 8 1273 1793 148 34 96.483276 includes5 1 3 2 4 9 1433 1795 95 32 96.521858 West5 1 3 2 4 10 1540 1795 102 33 96.521858 Coast5 1 3 2 4 11 1654 1795 130 42 96.912430 freight5 1 3 2 4 12 1795 1795 73 41 96.962128 (CX4 1 3 2 5 0 556 1840 1312 46 -1 5 1 3 2 5 1 556 1840 104 38 96.311775 811A;5 1 3 2 5 2 680 1840 51 33 95.963318 Tr.5 1 3 2 5 3 751 1842 152 39 89.499466 1006-11,5 1 3 2 5 4 920 1842 168 41 88.016411 2613-14);5 1 3 2 5 5 1107 1845 36 30 96.928947 to5 1 3 2 5 6 1159 1843 67 32 96.640778 this5 1 3 2 5 7 1242 1844 151 33 96.169502 transfers 1 3 2 5 8 1408 1845 88 41 96.980553 prices 1 3 2 5 9 1513 1845 58 33 96.409378 thes 1 3 2 5 10 1588 1845 162 33 96.509781 branches5 1 3 2 5 11 1765 1846 66 32 96.796417 adds 1 3 2 5 12 1849 1857 19 21 96.935760 a4 1 3 2 6 0 556 1890 1310 47 -1 5 1 3 2 6 1 556 1890 143 42 96.734406 markups 1 3 2 6 2 713 1891 102 33 96.751984 based5 1 3 2 6 3 829 1902 42 22 96.262573 on5 1 3 2 6 4 885 1893 58 32 96.262573 thes 1 3 2 6 5 957 1893 142 33 96.751495 numbers 1 3 2 6 6 1111 1893 38 33 96.912247 of5 1 3 2 6 7 1160 1893 110 42 96.613434 pieces5 1 3 2 6 8 1282 1894 139 33 96.264336 ordered5 1 3 2 6 9 1435 1895 43 42 96.401726 by5 1 3 2 6 10 1491 1896 89 33 96.987236 theirs 1 3 2 6 11 1591 1899 193 30 96.669563 customers.5 1 3 2 6 12 1798 1896 68 41 96.714493 (Tr.4 1 3 2 7 0 557 1940 104 41 -1 5 1 3 2 7 1 557 1940 104 41 96.480850 1016.)3 1 3 3 0 0 554 1991 1314 144 -1 4 1 3 3 1 0 595 1991 1273 47 -1 5 1 3 3 1 1 595 1991 51 32 90.075554 98.5 1 3 3 1 2 689 1991 186 33 90.075554 As-shown5 1 3 3 1 3 896 1992 33 33 96.861191 in5 1 3 3 1 4 952 1992 145 43 96.603279 Findings 1 3 3 1 5 1117 1994 49 39 96.337585 97,5 1 3 3 1 6 1189 1993 162 34 96.337585 branches5 1 3 3 1 7 1372 2005 58 22 96.354645 uses 1 3 3 1 8 1452 1995 58 33 96.626434 thes 1 3 3 1 9 1531 1995 151 33 96.868553 transfers 1 3 3 1 10 1702 1995 106 43 96.867126 prices5 1 3 3 1 11 1829 1996 39 33 96.498245 of4 1 3 3 2 0 554 2040 1312 46 -1 5 1 3 3 2 1 554 2040 133 32 92.322983 carloads 1 3 3 2 2 712 2040 75 41 96.470718 lots,5 1 3 3 2 3 812 2042 76 32 96.470718 that5 1 3 3 2 4 911 2042 37 41 96.913383 is,5 1 3 3 2 5 972 2043 59 32 96.565384 thes 1 3 3 2 6 1054 2047 138 29 96.678360 currents 1 3 3 2 7 1214 2043 228 42 96.668922 replacements 1 3 3 2 8 1463 2048 73 30 96.891563 costs 1 3 3 2 9 1558 2045 38 33 95.821030 of5 1 3 3 2 10 1619 2056 20 22 91.836510 a5 1 3 3 2 11 1661 2046 143 40 89.508026 carload,5 1 3 3 2 12 1829 2057 37 22 96.476334 as4 1 3 3 3 0 554 2091 1313 44 -1 5 1 3 3 3 1 554 2091 157 40 96.581528 reported5 1 3 3 3 2 723 2091 35 32 93.275757 in5 1 3 3 3 3 773 2091 121 33 91.474899 Crow’s5 1 3 3 3 4 907 2103 38 22 96.236000 or5 1 3 3 3 5 956 2093 155 32 96.090363 Random5 1 3 3 3 6 1122 2094 155 41 95.930122 Lengths,5 1 3 3 3 7 1291 2104 37 22 96.923141 as5 1 3 3 3 8 1339 2094 58 33 96.821518 thes 1 3 3 3 9 1410 2094 88 34 96.962257 basis5 1 3 3 3 10 1510 2095 56 33 97.011238 for5 1 3 3 3 11 1578 2095 88 33 96.937126 theirs 1 3 3 3 12 1677 2095 69 33 96.700508 mills 1 3 3 3 13 1759 2096 108 32 96.592064 direct3 1 3 4 0 0 550 2169 1316 264 -1 4 1 3 4 1 0 593 2169 1273 31 -1 5 1 3 4 1 1 593 2169 20 13 72.139984 885 1 3 4 1 2 626 2169 42 19 96.637344 Thes 1 3 4 1 3 679 2171 40 18 93.254814 two5 1 3 4 1 4 728 2169 54 21 85.021873 “5’s”5 1 3 4 1 5 791 2170 93 21 96.918137 discounts 1 3 4 1 6 894 2177 41 14 96.886200 was5 1 3 4 1 7 945 2172 42 19 96.377831 also5 1 3 4 1 8 996 2172 49 19 96.964447 used5 1 3 4 1 9 1054 2174 23 17 96.773743 at5 1 3 4 1 10 1086 2172 45 20 96.015656 U.S.5 1 3 4 1 11 1142 2172 100 25 93.305946 Plywood.5 1 3 4 1 12 1251 2172 60 25 88.969765 (CX’s5 1 3 4 1 13 1321 2173 61 24 93.259155 182A,5 1 3 4 1 14 1390 2174 60 23 89.732750 325B,5 1 3 4 1 15 1459 2174 63 23 96.728897 352A;5 1 3 4 1 16 1532 2175 32 19 95.309967 Tr.5 1 3 4 1 17 1574 2175 51 24 95.309967 811.)5 1 3 4 1 18 1634 2175 77 25 96.876335 Larger5 1 3 4 1 19 1719 2175 103 20 96.591324 discounts5 1 3 4 1 20 1831 2181 35 13 96.794975 area 1 3 4 2 0 552 2201 1313 32 -1 5 1 3 4 2 1 552 2201 60 26 96.927444 given5 1 3 4 2 2 628 2208 26 14 94.719872 on5 1 3 4 2 3 670 2202 77 20 94.719872 certain5 1 3 4 2 4 764 2203 61 21 96.821968 items5 1 3 4 2 5 841 2204 32 20 97.011208 for5 1 3 4 2 6 889 2205 35 19 96.486778 thes 1 3 4 2 7 940 2211 48 19 96.486778 very5 1 3 4 2 8 1004 2211 87 19 96.707962 purposes 1 3 4 2 9 1105 2205 24 19 96.973061 of5 1 3 4 2 10 1143 2205 138 25 96.789810 encouraging5 1 3 4 2 11 1296 2206 35 20 96.851875 thes 1 3 4 2 12 1345 2206 129 21 96.932106 distributions 1 3 4 2 13 1489 2208 76 19 96.937775 outlets5 1 3 4 2 14 1581 2210 21 17 96.937775 to5 1 3 4 2 15 1618 2208 24 19 96.725708 be5 1 3 4 2 16 1657 2214 55 13 96.517929 more5 1 3 4 2 17 1727 2208 138 25 96.130333 aggressively4 1 3 4 3 0 552 2235 1314 31 -1 5 1 3 4 3 1 552 2235 130 25 95.759926 competitive5 1 3 4 3 2 691 2235 19 20 95.759926 in5 1 3 4 3 3 719 2236 96 26 96.479385 securing5 1 3 4 3 4 823 2244 13 13 96.935341 a5 1 3 4 3 5 843 2239 83 24 95.806534 greater5 1 3 4 3 6 934 2238 59 19 95.806534 shares 1 3 4 3 7 1001 2238 24 19 97.011368 of5 1 3 4 3 8 1033 2244 12 13 95.559906 a5 1 3 4 3 9 1054 2238 110 25 95.559906 particulars 1 3 4 3 10 1172 2238 85 20 96.894753 market.5 1 3 4 3 11 1267 2238 64 21 96.046524 These5 1 3 4 3 12 1339 2239 87 24 87.511658 “deals,”5 1 3 4 3 13 1434 2246 40 18 91.925446 see,5 1 3 4 3 14 1482 2247 40 19 77.035210 e.g.,5 1 3 4 3 15 1531 2240 35 20 96.490280 CX5 1 3 4 3 16 1575 2241 43 23 87.389130 533,5 1 3 4 3 17 1625 2241 60 24 92.529770 580C,5 1 3 4 3 18 1693 2241 55 19 97.005180 shows 1 3 4 3 19 1758 2241 34 20 96.933830 thes 1 3 4 3 20 1801 2241 65 20 96.715988 direct4 1 3 4 4 0 552 2268 1313 30 -1 5 1 3 4 4 1 552 2268 117 20 96.762939 connections 1 3 4 4 2 681 2268 92 21 96.551643 between5 1 3 4 4 3 784 2271 91 19 96.254532 transfers 1 3 4 4 4 884 2271 64 25 96.254532 prices5 1 3 4 4 5 958 2271 40 19 96.974426 ands 1 3 4 4 6 1008 2271 65 19 96.974426 resales 1 3 4 4 7 1083 2271 69 25 96.694649 prices.5 1 3 4 4 8 1163 2271 39 20 96.812996 Sees 1 3 4 4 9 1211 2271 42 20 92.873001 also5 1 3 4 4 10 1262 2271 52 21 38.705414 CX's5 1 3 4 4 11 1324 2273 91 23 67.665588 104A-B,5 1 3 4 4 12 1425 2274 91 23 86.579346 106A-B,5 1 3 4 4 13 1526 2274 61 23 96.704041 111A,5 1 3 4 4 14 1597 2274 61 24 93.276581 114A,5 1 3 4 4 15 1668 2274 92 24 47.343540 182A-D,5 1 3 4 4 16 1770 2274 42 24 94.609642 212,5 1 3 4 4 17 1822 2274 43 24 94.609642 509,4 1 3 4 5 0 551 2301 1314 31 -1 5 1 3 4 5 1 551 2301 42 23 93.279297 510,5 1 3 4 5 2 602 2301 94 25 64.079491 517A-B,5 1 3 4 5 3 705 2303 43 23 96.875053 527,5 1 3 4 5 4 757 2303 44 23 81.065971 581,5 1 3 4 5 5 811 2304 42 23 95.846573 535,5 1 3 4 5 6 862 2304 43 23 94.105080 537,5 1 3 4 5 7 915 2304 42 23 92.366135 541,5 1 3 4 5 8 966 2304 83 24 89.359970 559H-i,5 1 3 4 5 9 1059 2305 42 23 96.943527 574,5 1 3 4 5 10 1111 2305 55 19 96.520798 811A5 1 3 4 5 11 1176 2305 40 19 96.973190 ands 1 3 4 5 12 1225 2305 32 19 96.896202 Tr.5 1 3 4 5 13 1270 2306 47 19 96.990463 14265 1 3 4 5 14 1327 2306 32 19 96.812531 for5 1 3 4 5 15 1368 2306 110 20 93.789536 additional5 1 3 4 5 16 1487 2307 60 25 96.752289 proofs 1 3 4 5 17 1555 2307 24 19 96.972229 of5 1 3 4 5 18 1588 2307 34 19 96.984665 thes 1 3 4 5 19 1632 2307 131 25 96.339630 relationships 1 3 4 5 20 1772 2307 93 20 96.922005 between4 1 3 4 6 0 552 2330 1313 69 -1 5 1 3 4 6 1 552 2336 59 44 0.998039 ee5 1 3 4 6 2 627 2330 40 68 48.272186 Sees 1 3 4 6 3 678 2330 46 68 52.945946 ales5 1 3 4 6 4 746 2336 60 53 30.818649 Oke5 1 3 4 6 5 802 2333 39 66 67.297340 6085 1 3 4 6 6 857 2333 22 66 52.184200 Of5 1 3 4 6 7 895 2333 58 66 0.000000 wiech5 1 3 4 6 8 972 2333 61 66 55.381493 seter5 1 3 4 6 9 1049 2373 21 17 96.617752 to5 1 3 4 6 10 1086 2377 12 14 96.617752 a5 1 3 4 6 11 1114 2371 133 25 96.738541 “Customary5 1 3 4 6 12 1264 2371 67 21 96.818443 Initials 1 3 4 6 13 1348 2372 124 26 96.432060 Percentages 1 3 4 6 14 1489 2373 99 25 96.358231 Markup”5 1 3 4 6 15 1603 2373 24 20 96.611809 of5 1 3 4 6 16 1642 2373 34 20 96.843651 thes 1 3 4 6 17 1693 2373 172 26 93.152939 Georgia-Pacific4 1 3 4 7 0 550 2400 811 33 -1 5 1 3 4 7 1 550 2400 131 21 96.924774 distributions 1 3 4 7 2 688 2404 85 18 96.924774 centers.5 1 3 4 7 3 781 2403 49 19 96.690109 This5 1 3 4 7 4 837 2403 86 25 96.690109 markups 1 3 4 7 5 929 2403 16 20 96.299393 is5 1 3 4 7 6 952 2404 65 29 96.216934 added5 1 3 4 7 7 1025 2406 22 18 93.136139 to5 1 3 4 7 8 1054 2404 79 24 92.932037 Crow’s,5 1 3 4 7 9 1140 2404 35 20 96.920395 thes 1 3 4 7 10 1183 2404 41 20 96.755569 mills 1 3 4 7 11 1231 2405 64 20 95.394035 directs 1 3 4 7 12 1302 2406 59 24 96.773155 price.3 1 3 5 0 0 592 2434 1271 32 -1 4 1 3 5 1 0 592 2434 1271 32 -1 5 1 3 5 1 1 592 2435 18 12 77.785233 705 1 3 5 1 2 625 2434 58 20 95.846939 Prior5 1 3 5 1 3 690 2437 21 17 94.354004 to5 1 3 5 1 4 721 2436 54 23 94.354004 1971,5 1 3 5 1 5 783 2436 92 25 95.592720 plywood5 1 3 5 1 6 884 2443 42 13 96.977516 was5 1 3 5 1 7 935 2437 126 20 95.882492 transferred5 1 3 5 1 8 1070 2440 21 17 96.922112 to5 1 3 5 1 9 1100 2437 34 20 96.432457 thes 1 3 5 1 10 1142 2437 89 21 15.288124 “CSC's”5 1 3 5 1 11 1240 2440 22 18 96.601532 at5 1 3 5 1 12 1269 2438 35 20 96.786377 thes 1 3 5 1 13 1313 2439 159 25 95.534462 Weyerhaeuser5 1 3 5 1 14 1480 2440 40 19 95.700195 mills 1 3 5 1 15 1529 2440 65 20 93.304398 directs 1 3 5 1 16 1600 2440 80 20 92.366081 carloads 1 3 5 1 17 1689 2440 60 26 96.672882 price.5 1 3 5 1 18 1757 2440 41 24 94.742477 (Tr.5 1 3 5 1 19 1806 2441 57 23 95.147667 2266;2 1 4 0 0 0 550 2467 1314 62 -1 3 1 4 1 0 0 550 2467 1314 62 -1 4 1 4 1 1 0 551 2467 1313 42 -1 5 1 4 1 1 1 551 2467 36 19 96.431953 but5 1 4 1 1 2 599 2473 35 14 96.431953 sees 1 4 1 1 3 647 2467 34 21 92.821854 CX5 1 4 1 1 4 696 2468 52 20 92.145470 109C5 1 4 1 1 5 762 2469 33 19 97.017532 for5 1 4 1 1 6 808 2476 35 13 96.924423 uses 1 4 1 1 7 854 2470 24 19 96.562325 of5 1 4 1 1 8 889 2470 94 20 96.545059 Random5 1 4 1 1 9 995 2470 100 25 96.291916 Lengths.)5 1 4 1 1 10 1108 2471 62 20 96.453033 After5 1 4 1 1 11 1183 2471 54 23 96.774536 1971,5 1 4 1 1 12 1249 2471 35 20 96.628593 thes 1 4 1 1 13 1297 2478 87 19 96.628593 averages 1 4 1 1 14 1396 2473 23 19 96.928162 of5 1 4 1 1 15 1432 2473 73 19 81.559807 Crow's5 1 4 1 1 16 1517 2473 39 20 96.933800 ands 1 4 1 1 17 1570 2469 93 40 95.506828 Random5 1 4 1 1 18 1673 2473 93 26 92.959412 Lengths,5 1 4 1 1 19 1778 2474 37 23 57.285950 i.e.,5 1 4 1 1 20 1829 2474 35 20 97.005013 thea 1 4 1 2 0 550 2499 630 30 -1 5 1 4 1 2 1 550 2499 111 27 11.708519 industry's5 1 4 1 2 2 667 2500 64 21 95.595169 directs 1 4 1 2 3 739 2502 41 19 96.165680 mills 1 4 1 2 4 787 2503 61 24 95.550056 price,5 1 4 1 2 5 855 2509 42 13 96.532852 was5 1 4 1 2 6 905 2503 54 20 96.120209 used.5 1 4 1 2 7 967 2503 46 24 96.625923 (Sees 1 4 1 2 8 1021 2504 87 25 93.305801 Findings 1 4 1 2 9 1114 2504 66 24 75.381004 96(c)). Initial Decision 91 F.T.C.

prices as well as their out-of-inventory less-than-carload prices. Clearly the managers of these distribution outlets must ordinarily sell lessthan-carload lots at [65] prices above the mill replacement cost of a. carload.7! As a former Georgia-Pacific branch manager put it, “Down at the branch level, we knew our cost, and we couldn’t play with it too much because the percentage of profit was too low.” (Tr. 954.)7? In fact, the only reason for having branches is that they provide a package of services to local customers which enable them to sell out of inventory in smaller (break bulk)73 quantities above [66] the Crow’s or mill direct carload prices. (See Finding 97 and Tr. 1151, 2194, 2199, 2256-57.) Note in this connection, that a spokesman for the Georgia- Pacific distribution outlets wrote that unless the outlets are able to buy from the Georgia-Pacific mills at “low Crow’s” rather than “mid Crow’s” (when Crow’s reported a split price) they could not warehouse and redistribute to chains and other large operators which buy on the basis of the average of Crow’s. (CX 531.) A record of losses — in other words, sales below replacement costs (i.e., the mill direct or “Crow’s” price) — affects the profitability of the branch as well as the compensation and job security of the distribution outlet manager.’¢ [67 ] 11 Georgia-Pacific personnel are specifically instructed not to set their plywood prices on the basis of average cost, but rather on replacement cost. (CX 576; see also CX 644A.) At U.S. Plywood, where sales out of the branch are “all based on the transfer cost” (Tr. 1032), actual average cost is not used; instead, branch prices are based on current mill prices. (Tr. 1033.) Specific transactions at respondents’ branches may be negotiated at prices below the average transfer prices. (Tr. 973-74, 1034, 1577, 1581.) 72 Plywood is sold by a branch in a quantity known as a “bunk” or “unit” which, typically, consists of a stack of plywood 80 inches to 33 inches high, the surface e vol of which depends on the thickness of the plywood (eg., a “unit” of 3/8 inch plywood contains 2,816 square feet, surface measure). A truckload varies between 12.to 16 units. A full carload consists of approximately 36 units. (CX 581; Tr. 1956, 1968.) Distribution outlets rarely sell full carloads from inventory (Tr. 1017, 1719) but they do arrange for direct mill shipments of such quantities. (CX 549; see also CX 814; Tr. 971, 2572.) 13 There is evidence, however, that in a severely depressed market, such as the recession of 1974-75, the usual pattern of the industry may not always prevail, and wholesale prices below mill direct prices do occur. (RX’s 69G.) See also RX 312 and CX 661 where sales out of warehouse at prices lower than Crow’s in 1970 and 1973 are newsworthy items.

™ Tr. 814, 937-89, 954, 1711, 1945, 1969-70, 2000, 2027-28, 4386-87. Several officials of respondents testified in sweeping generalities that transfer costs have “no” effect on distribution outlet prices. For example, one high official of Georgia-Pacific said the transfer price has “nothing to do with what they can get for the plywood, but if we are transferring at a higher price than they can resell it for, why they are going to yell.” (Tr. 1560.) They “yell” because “They have to make a profit.” (Tr. 1561.) A similar pattern prevails throughout the record — first, an unequivocal (and unbelievable) statement that transfer costs have nothing or little to do with resale prices, followed later by a retraction saying that transfer prices happen to impact very directly in several crucial areas, namely, the profitability of the distribution center as well as the compensation and employment security of branch managers. Compare, for example, Tr. 2008 (no relationship between transfer cost and prices) with Tr. 1998-99, 2000, 2027-29 (the object of a distribution center is to show a profit) and Tr. 2265 (distribution outlets should worry if they do not cover costs). See also Tr. 4213-14 which shows that transfer prices are used to determine the profitability of the producing mill. While the record shows that branch managers have discretion in setting their prices and that these prices respond to market conditions (Tr. 771, 810, 928, 931, 934, 1014, 1172, 1586, 1596, 1601-02, 1891-93, 222A), the economic realities of the plywood industry, as indicated in the text of this Finding, dictate that this discretion be limited by the requirement that branch prices be above the direct mill level. As the record plainly shows, the distribution outlets are economically justified only if they are able to provide services which produce a higher than direct mill price. Moreover, as profit centers, they have every incentive to sell above the direct mill price since the inevitable result of prices lower ‘BOISE CASCADE CORPORATION, ET AL. 43 1 Initial Decision 99. In sum, at all levels of distribution southern pine plywood is sold on the basis of a formula — well known to the entire industry — that the basic prices are Crow’s or Random Lengths prices or within a narrow range of Crow’s or Random Lengths prices, that certain standard discounts are usually taken from those prices, and that West Coast rail freight multiplied by “association” weights is added to these base prices. (Findings 72-98.)7> Thus shortly [68] after the Georgia- Pacifie’s Russelville, South Carolina mill opened, a local competitor could confidently report:

They [Georgia-Pacific] have adopted the following price basis. Low Crow’s less 5% less 8% plus West Coast freight. (CX 886.) And Crow’s is obviously reflecting industry custom when it says routinely week after week that a 5 percent and 3 percent functional discount is taken off its reported prices and Addition of Portland freight to Southern Pine prices will provide approximate delivered costs. (CX’s 928C-Z31.) 100. The weight of the evidence is that in sales from respondents’ southern mills to southern branches, at any given point in time, respondents use a single base price for southern pine, but not necessarily the same price.76 With the addition of West Coast freight, this results in the same delivered price to each respondent’s southern distribution centers within the same West Coast zone. Similarly each respondent’s direct mill customers, who are located within the same West Coast zone in the South, are charged the same delivered prices though these direct mill customers (including customers with multiple outlets) may be located at unequal distances from the mills. (CX’s 2A, 7s5 1 6 1 11 2 622 1820 41 54 82.934975 Thes 1 6 1 11 3 676 1820 55 54 38.244598 exact5 1 6 1 11 4 744 1820 128 54 95.064590 calculations5 1 6 1 11 5 880 1849 36 14 96.990921 ares 1 6 1 11 6 922 1843 64 24 96.820793 easily5 1 6 1 11 7 993 1842 65 20 86.510132 made.5 1 6 1 11 8 1067 1841 66 25 96.296700 Using5 1 6 1 11 9 1141 1841 34 19 96.296700 thes 1 6 1 11 10 1183 1840 54 26 96.928047 prices 1 6 1 11 11 1245 1839 112 26 93.553261 appearing5 1 6 1 11 12 1363 1838 21 20 93.553261 in5 1 6 1 11 13 1392 1838 91 20 95.658829 Random5 1 6 1 11 14 1489 1837 89 26 92.849968 Lengths5 1 6 1 11 15 1585 1836 61 21 96.905762 dated5 1 6 1 11 16 1654 1836 116 20 96.905762 November5 1 6 1 11 17 1778 1835 30 23 96.816071 14,5 1 6 1 11 18 1817 1830 47 35 94.031319 19752 1 7 0 0 0 550 1867 1315 68 -1 3 1 7 1 0 0 550 1867 1315 68 -1 4 1 7 1 1 0 550 1867 1315 35 -1 5 1 7 1 1 1 550 1878 44 24 96.839775 (CX5 1 7 1 1 2 602 1878 65 24 90.523560 680A)5 1 7 1 1 3 675 1884 23 13 96.640015 as5 1 7 1 1 4 705 1883 13 14 94.715340 a5 1 7 1 1 5 725 1876 54 20 94.715340 “mills 1 7 1 1 6 788 1876 73 26 96.755394 price,”5 1 7 1 1 7 868 1877 36 19 96.624031 thes 1 7 1 1 8 918 1876 32 7 96.920296 delivered5 1 7 1 1 9 1021 1875 53 25 96.939491 prices 1 7 1 1 10 1081 1875 22 19 96.988029 of5 1 7 1 1 11 1111 1881 13 13 92.959312 a5 1 7 1 1 12 1141 1874 27 25 61.170288 shiy5 1 7 1 1 13 1224 1876 8 6 75.627151 t5 1 7 1 1 14 1240 1873 23 20 92.870392 of5 1 7 1 1 15 1271 1873 54 23 92.870392 1,0005 1 7 1 1 16 1332 1878 73 19 96.070297 squares 1 7 1 1 17 1411 1872 45 19 90.851532 feet5 1 7 1 1 18 1462 1872 23 18 96.988838 of5 1 7 1 1 19 1493 1872 36 18 95.651367 1/25 1 7 1 1 20 1536 1870 45 20 95.651367 inch5 1 7 1 1 21 1588 1870 35 20 93.303497 CD5 1 7 1 1 22 1630 1881 12 3 57.033646 -5 1 7 1 1 23 1650 1869 95 21 96.463791 Exterior5 1 7 1 1 24 1751 1868 51 20 56.094265 Glue5 1 7 1 1 25 1809 1867 56 26 56.094265 3-ply4 1 7 1 2 0 551 1903 1049 32 -1 5 1 7 1 2 1 551 1911 98 19 96.749184 southern5 1 7 1 2 2 655 1910 48 25 96.875282 pines 1 7 1 2 3 709 1910 93 25 95.996178 plywood5 1 7 1 2 4 809 1911 21 18 95.459061 to5 1 7 1 2 5 837 1916 13 13 94.899048 a5 1 7 1 2 6 856 1911 103 18 94.899048 customers 1 7 1 2 7 964 1909 21 20 95.791489 in5 1 7 1 2 8 992 1909 36 20 96.973175 thes 1 7 1 2 9 1035 1910 53 18 96.946350 most5 1 7 1 2 10 1093 1907 90 25 96.937843 easterly5 1 7 1 2 11 1189 1907 58 19 96.300705 West5 1 7 1 2 12 1253 1906 62 20 96.300705 Coast5 1 7 1 2 13 1322 1905 78 24 96.702858 freight5 1 7 1 2 14 1405 1910 49 14 96.958435 zones 1 7 1 2 15 1461 1904 17 19 96.882195 is5 1 7 1 2 16 1484 1910 23 14 96.882195 as5 1 7 1 2 17 1513 1903 87 20 96.847336 follows:2 1 8 0 0 0 911 1879 323 16 -1 3 1 8 1 0 0 911 1879 323 16 -1 4 1 8 1 1 0 911 1879 323 16 -1 5 1 8 1 1 1 911 1879 323 16 95.000000 2 1 9 0 0 0 552 1973 1314 193 -1 3 1 9 1 0 0 552 1973 703 29 -1 4 1 9 1 1 0 552 1973 703 29 -1 5 1 9 1 1 1 552 1977 101 25 95.680855 Reported5 1 9 1 1 2 666 1977 56 25 95.680855 prices 1 9 1 1 3 1174 1973 81 23 91.888855 $115.003 1 9 2 0 0 590 2008 341 21 -1 4 1 9 2 1 0 590 2008 341 21 -1 5 1 9 2 1 1 590 2009 48 20 96.992523 Less5 1 9 2 1 2 650 2009 105 20 96.380089 discounts5 1 9 2 1 3 767 2008 24 21 95.938721 of5 1 9 2 1 4 802 2009 32 20 96.645325 5%5 1 9 2 1 5 847 2008 39 20 96.610298 ands 1 9 2 1 6 899 2009 32 20 96.286087 3%3 1 9 3 0 0 553 2032 1313 69 -1 4 1 9 3 1 0 589 2032 1277 35 -1 5 1 9 3 1 1 589 2043 58 24 95.267036 ($1155 1 9 3 1 2 660 2049 13 13 91.833466 x5 1 9 3 1 3 688 2042 64 25 91.134079 .9215)5 1 9 3 1 4 1800 2032 66 21 96.600868 105.974 1 9 3 2 0 553 2076 223 25 -1 5 1 9 3 2 1 553 2076 85 25 90.465759 Freight5 1 9 3 2 2 649 2076 127 20 96.722351 Calculation3 1 9 4 0 0 591 2107 366 27 -1 4 1 9 4 1 0 591 2107 366 27 -1 5 1 9 4 1 1 591 2109 84 25 96.264862 Freight5 1 9 4 1 2 688 2110 52 19 96.264862 rate:5 1 9 4 1 3 754 2109 56 22 95.964035 $2.795 1 9 4 1 4 823 2114 37 20 96.891998 pers 1 9 4 1 5 874 2108 35 20 96.549576 1005 1 9 4 1 6 922 2107 35 21 94.210556 Ibs.3 1 9 5 0 0 591 2140 365 26 -1 4 1 9 5 1 0 591 2140 365 26 -1 5 1 9 5 1 1 591 2142 125 20 96.005051 Associations 1 9 5 1 2 730 2141 83 25 95.617760 Weights 1 9 5 1 3 825 2140 24 21 96.878555 of5 1 9 5 1 4 863 2141 36 20 96.639282 1/25 1 9 5 1 5 911 2140 45 20 96.624100 inch2 1 10 0 0 0 554 2175 1314 124 -1 3 1 10 1 0 0 595 2175 182 25 -1 4 1 10 1 1 0 595 2175 182 25 -1 5 1 10 1 1 1 595 2175 70 25 96.035271 equals5 1 10 1 1 2 679 2175 49 20 96.035271 15255 1 10 1 1 3 740 2175 37 19 90.145126 Ibs.3 1 10 2 0 0 592 2206 385 27 -1 4 1 10 2 1 0 592 2206 385 27 -1 5 1 10 2 1 1 592 2208 85 25 96.911911 Freight5 1 10 2 1 2 689 2208 49 20 95.880295 Costs 1 10 2 1 3 750 2207 71 26 95.880295 equals5 1 10 2 1 4 835 2208 49 19 96.574982 15255 1 10 2 1 5 896 2206 81 21 96.871925 divided3 1 10 3 0 0 554 2227 1314 72 -1 4 1 10 3 1 0 596 2227 1270 39 -1 5 1 10 3 1 1 596 2241 26 25 96.340256 by5 1 10 3 1 2 636 2242 36 19 96.381271 1005 1 10 3 1 3 685 2247 13 14 96.578018 x5 1 10 3 1 4 711 2241 44 20 96.768600 2.795 1 10 3 1 5 767 2241 71 25 96.469444 equals5 1 10 3 1 6 1321 2241 3 13 28.756538 !5 1 10 3 1 7 1795 2227 71 34 70.015251 42.55°4 1 10 3 2 0 554 2265 1314 34 -1 5 1 10 3 2 1 554 2274 57 21 96.894081 Totals 1 10 3 2 2 625 2274 102 20 95.087814 delivered5 1 10 3 2 3 741 2274 54 25 95.087814 prices 1 10 3 2 4 1787 2265 81 23 94.454056 $148.522 1 11 0 0 0 553 2307 1316 224 -1 3 1 11 1 0 0 553 2307 1314 91 -1 4 1 11 1 1 0 553 2307 355 25 -1 5 1 11 1 1 1 553 2302 61 35 76.389313 (CX’s5 1 11 1 1 2 624 2307 91 23 85.118774 680A-B;5 1 11 1 1 3 723 2307 32 19 96.412796 Tr.5 1 11 1 1 4 762 2307 44 23 96.412796 403,5 1 11 1 1 5 814 2307 94 23 91.035606 1933-34)4 1 11 1 2 0 556 2329 1311 36 -1 5 1 11 1 2 1 556 2340 72 21 92.397606 *Note:5 1 11 1 2 2 639 2340 86 25 96.942612 Freight5 1 11 1 2 3 733 2339 152 26 96.705215 computations 1 11 1 2 4 881 2345 17 14 96.993782 is5 1 11 1 2 5 907 2339 58 20 96.751671 made5 1 11 1 2 6 974 2338 27 25 97.008987 by5 1 11 1 2 7 1009 2338 93 20 95.225906 Random5 1 11 1 2 8 1110 2337 94 25 90.699066 Lengths,5 1 11 1 2 9 1213 2343 41 18 49.205822 eg.,5 1 11 1 2 10 1263 2335 79 26 96.843407 freight5 1 11 1 2 11 1350 2335 33 20 96.983803 for5 1 11 1 2 12 1392 2334 36 20 96.841057 1/25 1 11 1 2 13 1437 2334 50 23 96.841057 inch,5 1 11 1 2 14 1498 2334 70 19 80.524872 152545 1 11 1 2 15 1579 2332 21 21 96.938019 in5 1 11 1 2 16 1607 2332 44 21 96.305222 2.795 1 11 1 2 17 1659 2337 49 15 96.147018 zones 1 11 1 2 18 1717 2331 16 20 96.274002 is5 1 11 1 2 19 1741 2331 74 24 96.485001 $42.55.5 1 11 1 2 20 1824 2329 43 26 96.269363 (CX4 1 11 1 3 0 554 2373 69 25 -1 5 1 11 1 3 1 554 2373 69 25 90.795868 680B.)3 1 11 2 0 0 556 2396 1313 135 -1 4 1 11 2 1 0 598 2396 1270 49 -1 5 1 11 2 1 1 598 2408 17 12 89.750626 765 1 11 2 1 2 628 2406 21 21 93.647247 It5 1 11 2 1 3 661 2406 70 21 96.162621 should5 1 11 2 1 4 745 2406 25 20 96.814056 be5 1 11 2 1 5 781 2406 128 25 96.915230 emphasized5 1 11 2 1 6 922 2405 46 20 96.939453 that5 1 11 2 1 7 980 2405 35 20 96.857964 thes 1 11 2 1 8 1027 2404 95 20 96.820427 evidences 1 11 2 1 9 1135 2403 102 21 96.755531 discussed5 1 11 2 1 10 1250 2403 19 19 96.896446 in5 1 11 2 1 11 1282 2402 41 20 96.896446 this5 1 11 2 1 12 1336 2401 86 41 96.950523 Findings 1 11 2 1 13 1430 2396 78 49 95.626427 relates5 1 11 2 1 14 1519 2400 63 37 96.819183 solely5 1 11 2 1 15 1594 2401 22 18 96.303978 to5 1 11 2 1 16 1627 2399 36 20 96.814598 thes 1 11 2 1 17 1674 2398 94 25 96.938271 questions 1 11 2 1 18 1780 2397 23 20 96.914635 of5 1 11 2 1 19 1815 2396 53 26 96.914635 price4 1 11 2 2 0 556 2430 1313 35 -1 5 1 11 2 2 1 556 2440 135 25 96.453209 uniformity5 1 11 2 2 2 686 2446 20 13 96.899529 in5 1 11 2 2 3 715 2440 53 19 96.939590 sales5 1 11 2 2 4 778 2442 22 17 96.885117 to5 1 11 2 2 5 808 2439 130 20 96.790047 distributions 1 11 2 2 6 947 2440 81 18 96.158348 centers5 1 11 2 2 7 1037 2437 39 21 96.158348 ands 1 11 2 2 8 1122 2439 77 15 95.552940 customers5 1 11 2 2 9 1207 2437 24 19 96.401688 of5 1 11 2 2 10 1239 2435 49 20 96.978539 each5 1 11 2 2 11 1298 2434 85 26 93.221245 respondent.5 1 11 2 2 12 1439 2434 12 20 62.382397 C5 1 11 2 2 13 1540 2434 8 7 52.803650 t5 1 11 2 2 14 1633 2432 4 8 68.740692 |5 1 11 2 2 15 1648 2431 63 21 96.398071 failed5 1 11 2 2 16 1720 2433 22 18 96.991241 to5 1 11 2 2 17 1751 2436 63 19 96.926125 proves 1 11 2 2 18 1822 2430 47 20 96.899109 that4 1 11 2 3 0 556 2448 1313 50 -1 5 1 11 2 3 1 556 2473 139 25 3.026207 respondent's5 1 11 2 3 2 706 2473 100 25 96.835808 practices5 1 11 2 3 3 817 2472 80 20 95.348404 results 1 11 2 3 4 894 2478 19 13 95.950966 in5 1 11 2 3 5 923 2472 81 25 95.950966 exactly5 1 11 2 3 6 1016 2470 104 25 96.565170 matching5 1 11 2 3 7 1130 2470 66 25 95.985863 prices5 1 11 2 3 8 1207 2471 22 18 96.814301 to5 1 11 2 3 9 1240 2469 25 19 96.552925 all5 1 11 2 3 10 1276 2470 112 18 96.127388 customers5 1 11 2 3 11 1399 2473 22 13 96.612968 or5 1 11 2 3 12 1432 2469 21 18 96.970459 to5 1 11 2 3 13 1463 2448 28 49 96.475990 all5 1 11 2 3 14 1501 2467 99 19 96.966805 branches5 1 11 2 3 15 1609 2466 43 24 96.923088 (sees 1 11 2 3 16 1663 2464 88 26 96.270882 Findings 1 11 2 3 17 1762 2464 45 24 96.254166 143)5 1 11 2 3 18 1817 2469 52 14 96.719978 even4 1 11 2 4 0 556 2501 888 30 -1 5 1 11 2 4 1 556 2506 78 25 93.296288 though5 1 11 2 4 2 641 2506 75 21 86.812187 Crow’s5 1 11 2 4 3 723 2506 41 20 96.983192 ands 1 11 2 4 4 770 2506 94 19 95.872818 Random5 1 11 2 4 5 870 2505 86 25 96.552238 Lengths5 1 11 2 4 6 963 2511 35 13 96.510490 ares 1 11 2 4 7 1006 2504 72 25 96.665718 widely5 1 11 2 4 8 1085 2503 50 21 96.856865 used5 1 11 2 4 9 1142 2509 23 14 95.375877 as5 1 11 2 4 10 1172 2503 35 20 93.290924 thes 1 11 2 4 11 1214 2502 110 25 92.599739 industry’s5 1 11 2 4 12 1330 2501 48 20 96.846924 bases 1 11 2 4 13 1384 2500 60 26 96.678299 price.2 1 12 0 0 0 1086 2435 552 14 -1 3 1 12 1 0 0 1086 2435 552 14 -1 4 1 12 1 1 0 1086 2435 552 14 -1 5 1 12 1 1 1 1086 2435 552 14 95.000000 Initial Decision 91 F.T.C.

10, 11, 112B, 212, 884H, 886229; Tr. 713-14, 720-21, 847-48, 857-58, 1017, 1142, 1157-58, 1163-64, 1189, 1200, 1546, 1559, 1839, 2131, 2253-54, 2713-16, 2719.) See, however, Finding 142 for evidence that respondents attempt to impose add-ons or “upcharges” to more distant northern customers [69] within the same West Coast freight zones who are located outside of the primary southern marketing area. In addition, see Finding 96(b) for evidence that Boise, in dealing with its southern distribution centers, adopted a slightly different formula which added actual freight to a phantom freight figure to arrive at different delivered prices to each Boise “BM & 8.” While distribution outlets of a particular respondent usually use a single delivered price in their assigned territories (Tr. 813, 1016, 2041), local market conditions may result in variations in the delivered prices to particular localities within the same West Coast freight zone. (Tr. 735-86, 811, 1181, 1196-97, 2238-39.) 101. Respondents’ officials and ex-employees testified generally that they are not able to predict the future plywood prices of their competitors in a given market. (See Tr. 1489, 1681, 1818, 1944, 2238, 2483, 3004.) This testimony must be evaluated in the light of what respondents actually did; namely, they removed a large element of uncertainty which would have existed in the southern plywood industry but for the adoption of a uniform and predictable West Coast freight rate that is predictably added to base prices derived from the industry reporters. On the subject of predictability, it must be emphasized that when a Champion sales manager writes that “almost without exception the price of Pine Sheathing to a good credit risk is the low of Crow’s or Random Lengths less 5% and 3%” (CX 811A), it is understood in the industry and it is completely predictable that West Coast freight will be added to the Crow’s or Random Lengths prices, as plainly indicated in the publications themselves. (See Findings 88, 91, 99.) On the other hand, the record shows that uncertainty still exists in the plywood industry because of the volatility of the housing market and, as indicated earlier, the Crow’s and Random Lengths prices respond to cyclical pressures. (Finding 92.) But all cyclical pressures are duly reported by Crow’s and Random Lengths (RX’s 69E-85), and whatever the new price level may be, the new week in the southern plywood industry invariably begins with Crow’s or Random Lengths plus West Coast freight. (Findings 92-98.) [70] ‘West Coast Freight as a Focal Point of Southern Plywood Pricing 192) Nat only did nee af the Wact Cnact rate and “accaciatinn” BOISE CASCADE CORPORATION, ET AL. 45 1 : Initial Decision weights eliminate a large measure of uncertainty which would have resulted from the use of the southern freight rates but the West Coast freight factor also served as a focal point for an industry-wide plan to resist passing on locational advantages to purchasers, and to add phantom freight to gross margins, as originally contemplated by Georgia-Pacific. (Findings 103-112.) 108. The significance of West Coast freight as a focal point for resistance to price cutting is shown in contemporaneous documents. Freight “pick-up” or freight “gain” — the industry’s euphemisms for phantom freight — is considered to be so pivotal to pricing in the southern pine industry that respondent. Champion admonishes its field personnel, We have had reports on pine prices that caused the conjecture that someone was playing with the freight pick-up, but we have had no evidence that this is true and the base price has been the culprit. This is a very delicate area and all loose talk on this subject by our branch managers and salesmen should be curtailed. We should not, in any way, endanger this necessary source of income by getting involved in any tale carrying or rumor spreading, as this would be a fatal blow to the southern pine industry, which is in no great shape with the freight pick up, let alone without it. (CX’s 181A-B.) 77 [71] 104. In 1966, a Georgia-Pacific official observed “Freight appreciation has been remarkably stable during the entire year.” (CX 502B.) Five years later, the policy of preserving freight “pick-up” or “gain” is still so central to its southern pine plywood business that Georgia-Pacific personnel are advised, Since we have made a strong commitment to protect freight gain, I feel that we should guard it closely and make any necessary market adjustments in the mill price. (CX 564.) 105. At Weyerhaeuser, . .the key to the SYP [Southern Yellow Pine] Plywood business is freight return, the dollar difference between the West Coast freight rate and the actual freight rate. Our target is 1.25/CWT. This target is an arbitrary figure but past experience indicates it is a fairly realistic figure. (CX 187A.) 106. That phantom freight is a focal point of southern plywood pricing is further shown by respondents’ practice of constructing - elaborate tables showing the amount of freight “pick-up” (phantom freight) which is available depending upon the location of the 11 The attempt of Mr. Kelley, Vice President of Champion, to explain away this document on the witness stand in terms of a special situation relating to uneconomical shipments to the Chicago area or upper Midwest is not credible. His recollection on the witness stand was hazy at best (compare Tr. 2648-50 with Tr. 2749-51), and nothing he said changes the plain ing of the d t itself which shows a general concern for preservation of phantom freight. (See Tr. 27, 33-35.) 46 _ FEDERAL TRADE COMMISSION DECISIONS Initial Decision ~ 91 F.T.C.

customer. Respondents’ marketing strategy is then directed toward either preserving this freight “pick-up” or minimizing freight “loss.” 78 (CX’s 17A-J, 26A-Z25, 40A-B, 41, 88A-L, 91A-Z74, 92A-Z72, 137A-B, 142A, 181A-B, 182A-D, 183A-B, 188, 324A—J, 350F in camera, 356C-D, 364i-J in camera 422A-E in camera, 488A, F, 490A-B, 491A, F, 492A, C, 498A, C, E, 495A, D, 501A, D, 522A, H, 556A, 559A-Z45, 563A-B, 564, 565A-B, 566A-—B, 573A—B, 574, 580A-P, 888A-C; see also a 1965 survey by a non-respondent producer which comments on “how allimportant this comparative rate structure is [the difference between actual and West Coast freight ].”) (CX’s 665D-E.) [72] 107. So well-accepted is the notion of freight “pick-up” in the southern plywood industry that one respondent informs another about its progress in preserving this locational advantage. The vice-president of Willamette apparently told a Boise Cascade official of the amount of 1968 freight “pick-up” which accrued to Willamette as a result of the difference between West Coast and actual freight. (CX 383D.) ' 108. Because of the importance assigned to phantom freight by respondents, a freight rate increase is considered an “advantage.” Just such an increase inspired the following reaction by a Willamette official:

Advantages — Plywood Using as an example 1/2 inch plywood on 1525 lbs. per thousand square feet the Ruston, Louisiana to Washington, D.C. rate has increased from $.75 to $.79 and the coast rate from $1.75 to $1.84 per ewt changing the southwestern rate advantage from $15.25 per thousand square feet to $16.00 per thousand square feet (up $.75 per thousand square feet). This, of course, gives us an advantage in Louisiana in that we market our products from that location at the coast rate thusly taking advantage of an additional freight pickup or at least allowing us to reach further marketing areas at the same freight rate pickup. (CX 862A.) 109. The concept of freight pick-up is included in plywood contracts. For example, there is the following language in a Willamette — Weyerhaeuser agreement:

Sales are restricted to our normal sales area of the Southeast and surrounding states as outlined on the attached map. We will accept an occasional car in the close perimeter, outside this area such as Chicago, Cleveland, or Detroit; but, in turn, Weyerhaeuser will give us a car close to our mills so we can maintain our freight pickup. [73] The final approval of such a destination is for us to say. (CX 41.)79 110. In the southern pine plywood industry, the use of West Coast ”

,” and 78 Also sometimes called freight “return,” freight “premium,” freight “advantage,” freight “all freight “gain.” :

79 See also Tr. 1784 and CX 628A for additional proof that southern pine contracts are negotiated in order to realize an average or mini it af froinht aA BOISE CASCADE CORPORATION, ET AL. 47 1 Initial Decision freight rate and the association weights are not subject to negotiation: bargaining, therefore, is confined to dickering over the “base” or “Crow’s” price. This is shown by the fact that a substantial volume of southern plywood is sold on a “PTS” contract basis where the only price term negotiated is whether or not a small discount or premium is to be taken from or added to the mill base price appearing in Crow’s (or Random Lengths) at the time the order is shipped. (Tr. 582, 698-99, 719-20, 1191-92, 1469, 1558, 1783-84, 2219, 2384-85.)8° West Coast freight, multiplied by association weights is automatically added to these base Crow’s or Random Lengths prices. (See Finding 76.) It is particularly noteworthy that “PTS” contracts are negotiated with respondents’ “best customers” and unless the prices to these buyers are “reasonable” or “equitable,” this large volume business could not be retained. (Tr. 2220, 2280-81; see also CX’s 78A-B.) It is unlikely that knowledgeable and important “PTS” buyers (say, a large chain like Lowe’s, see Tr. 2719-20) would agree to buy at “Crow’s” (a typical “PTS” price term) if there is a pattern in the industry, at any given time, of a large volume of production being sold under Crow’s plus West Coast freight.81 [74] 111. In spot sales, too, competition in the basic plywood price — the mill price for a carload (whether sales are made by the mill itself or by the branch and then shipped mill direct) — is kept. within a narrow range. As U.S. Plywood’s Southeast Regional Sales manager put it, “Almost without exception, the price of Pine Sheathing to a good credit risk is the low of Crow’s or Random Lengths less 5 and 3%.” (CX 811A.)82 See also, Tr. 981 (“Everybody knew the formula [7.e., Crow’s plus West Coast freight]. So if you were out of line you didn’t get the order”) and Tr. 977 (“normally your customer [for a full carload] knew the cost of that plywood before he ever even called you up, because he 80 The size of the di depends on vol and specifications. (CX 326D in camera.) Another factor in “PTS” negotiations is the mix of the contract. (Tr. 2278-79.) For indication of how slight the variations are in “PTS” contracts, see CX’s T9A-F.

51 Note, however, that a plywood producer may decide not to enter into a “PTS” contract for the reason that he anticipates selling above Crow's. (See Tr. 3000.) 82 See, however, CX 210A, B where in response to CX 811A a U.S. Plywood official observed “There are a good many reasons for. . spreads in a given items prices such as the mix in the order, the freight pickup involved in the South and the underweights involved in the West and Whether shipment is via truck or rail and the discounts.” When this official, however, described prices as “all over the map depending on who wants to buy what and how much and who wants to sell what and how much” he relates this to a dollar or two off current list prices. Note also that the Random Lengths’ plywood prices are published subject to the following caveat explaining price variations: For sheathing slightly higher prices are applicable to assortments of several items or when combined with sanded. (CX 680A.) In addition, see Tr. 343 for indication of quantity discounts to particularly large buyers and CX 326C in camera for higher prices to customers “who need quick shipment and will pay a premium for a particular car.” Still another explanation for price differences is that in the period of price controls, between August 1971 and mid-1973 (Tr. 1725- 26), when demand was particularly heavy, different ceiling prices prevailed among producers. But for this unusual situation, a Georgia-Pacific official recognized that “these variations would melt away.” (CX 602A.) Initial Decision 91 F.T.C.

also had access to the same costing information that everybody else had”). [75] Should one mill’s price be substantially different from the others, this is usually a sign that the variant mill does not want to sell its plywood. (Tr. 2126-29.) See also Tr. 422 (“Maybe they [Boise-Cascade ] want to just pull off the market so they just stick a price up there and say, “Well, this ought to keep the customers away for a while, while I consolidate my shipping file’ ”), and Tr. 2783 where an unusual mill price (“considerably below the market”) is characterized as a sign of a temporary loss leader which quickly evaporates.83 In contrast to these anecdotal differences, there are genuine cyclical pressures, essentially related to the housing industry, which require mills to sell above or below the previous week’s Crow’s or Random Lengths with the result _that price differences develop. From these price differences, the price reporters make a judgment call as to where most mills are priced and this becomes the reporters’ prices for the next week. (Tr. 421.) 112. At the distribution outlet level, branches attempt to price above the direct mill carload level (“whatever the traffic would bear,” Tr. 934 and Findings 97-98) for a truckload, a bundle, or a single sheet of plywood. The quantity purchased, the urgency of the delivery, and the attractiveness of the “mix”®4 of the order (whether [76] other profitable lumber products are being purchased besides plywood) result in price variations. (CX’s 104A-B; Tr. 788, 919-20, 1016, 1591, 1893, 1902, 1955-58, 2036, 2766, 2784, 2960.) The extent and intensity of these price variations — that is, different prices above the direct mill prices with differences reflecting quantity, delivery, and mix — depend on local market and competitive conditions. (CX’s 104A-B; Tr. 928, 931, 934, 2036, 2849.) In a market with some weakness, the range in an inquiry involving a mixed purchase of 1/2 inch CDX and 5/8 inch CDX. was from $149 to $153 for the 1/2 inch. (Tr. 2776.) When the market is stable or strong, the price quotes are within 50¢ of each other. (Tr. 2779.) On the downside or in a rapidly rising market “exceptionally ” large spreads in prices appear such as $7 to $8. (Tr. 2780-82.) See also Tr. 2892, where a dealer called by respondents testified that 30 to 40 percent of the time, price quotes differ by less than one dollar, and the usual range was between $1 to $3. The record shows, moreover, that price variations quickly evaporate. Thus a sudden increase or decrease in distribution outlet sales is a signal to a a2 While the industry reporters have on occasion reported sharp price differences (see, ¢.g., RX’s 690, P-Q, ZA2, 243), it is significant that every week the reporters are able to announce one price for each item. The publisher of Random Lengths testified: : :

- We can get a range of prices from the individual sources that we contact, I suppose an average would be a range of $5 to $7. But then, as you narrow, or, as you look at this range, you take all of the prices, their [sic] emerges a more common price at which most people are priced. (Tr. 421.) §4 For the sionificance of “mix” in nlvwood sales. see Tr. 2257-58. BOISE CASCADE CORPORATION, ET AL. 49 1 Initial Decision branch manager that his price is too low or too high and an adjustment is made. (Tr. 1892.) Effect of West Coast Freight on Locational Decisions 118. Operators of southern plywood mills prefer to ship east of the mill where the West Coast freight rate increases, rather than to the west, where it decreases. This preference appears, for example, in this early policy statement of Willamette officials respecting their Ruston, Louisiana, mill:

‘Frankly, Bill, we can move it to much better advantage pricewise, east of us, rather than going into Texas, Oklahoma, Kansas or Missouri. In fact, we are at a great disadvantage in going into Oklahoma or Kansas particularly. At the present time in Texas we have been offering our stock only into the Fort Worth - Dallas area. We do not have any one in the [77] Houston area, but have quoted a few cars for this area. The only other areas you have yards in that we have been quoting to is around St. Louis, and, again, around Kansas City there is a disadvantage to us. .

As you have outlined in your letter, if we are going to sell in the Texas area, we are going to have to sell it on the basis of competing with the $1.19 coast rate. Then if we add the cost of trucking, it makes it a disadvantage over what we can get into such areas as Georgia, Florida, or other Southern States. For instance, we have a trucking rate into Fort Worth of .40¢. If we deduct this from the $1.19 coast rate, this gives us only a .79¢ advantage where if we can sell this same material into Georgia or Florida on a $1.54 rate with only about a .50¢ or .60¢ rail and truck rate, it gives us a net .90¢ to $1.00 advantage, which dollar and centwise is better than we can do into the Texas area.

Of course, if we had a tremendous production we could not pick and choose like we are doing at the present time, but unless this company puts up another mill some place I do not think we will have over 5 million feet a month, and that could be a year away. At the present time, we are only looking for 3 or 4 million feet a month total production. (CX 9A.)85 114. Since the freight “pick-up” is a function of West Coast freight less actual freight, respondents not only prefer to sell east of the southern mill (thereby increasing West Coast freight), but they also prefer to distribute close to the plant, thereby decreasing actual [78] freight. (CX’s 99X-Z, 578A, 665D; Tr. 514-15, 1198-99, 2612, 2787.) 115. Complaint counsel failed to prove that the two locational influences described in Findings 118, 114 — the preference for shipment east and the desire to reduce actual freight — have operated to create disincentives to the most efficient geographic location of producing points or disincentives for customers to locate close to producing mills, as alleged in the complaint. (Complaint {’s 18(c), (d).) In the absence of any direct evidence on how sites are chosen, I believe 85 See also CX’s 1A, 2A, 10, 11, 17A-J, 26B-C, 91A-92272, 861. Initial Decision 91 F.T.C.

it is fair to conclude that both sellers and buyers may choose to locate in a particular location for reasons of availability of raw material or proximity to consuming markets which have nothing to do with the denial, or for that matter the receipt, of a geographic advantage due to use of the West Coast freight rate.

116. While the systematic use of West Coast freight less actual freight, means that respondents’ mill net returns may differ depending on consumer location, complaint counsel failed to prove that this results in economically meaningful “discrimination in prices between customers” as alleged in Complaint { 18(b). To the contrary, the weight of the evidence is that all southern pine plywood customers of respondents are disfavored since they all pay phantom freight based on a distant West Coast base.

Cost of Phantom Freight 117. The West Coast freight rate used in the sales of southern pine plywood is recognized by respondent Champion as phantom freight. (CX 200.) 118. Because plywood is a relatively heavy product, shipping costs are an extremely important part of the total delivered price. Depending on the buyer’s proximity to the mill of origin and the base price, the freight [79] cost may amount to as much as 30 percent of the total delivered price.86 119. Actual freight from respondents’ southern mills is substantially less than the West Coast phantom freight which is included in southern plywood delivered prices. To illustrate, in 1972 actual freight from Georgia-Pacific’s Chiefland, Florida mill to markets in Tampa, Orlando, Tallahassee, and West Palm Beach, Florida, ranged between 14¢ and 21¢. The West Coast rate to these cities was $2.01, resulting in an5 1 5 3 7 2 805 2112 148 31 96.863380 averages 1 5 3 7 3 969 2100 133 42 96.490356 freight5 1 5 3 7 4 1116 2100 137 42 96.854553 pick-up5 1 5 3 7 5 1268 2098 39 33 93.305061 of5 1 5 3 7 6 1321 2098 156 39 92.535973 $20.85755 1 5 3 7 7 1492 2107 61 32 96.693230 pers 1 5 3 7 8 1567 2094 168 35 96.024651 thousands 1 5 3 7 9 1753 2104 121 33 97.013718 squares 1 5 3 7 10 1890 2093 83 34 96.869164 feet.5 1 5 3 7 11 1989 2092 74 42 96.939857 (CX4 1 5 3 8 0 744 2145 1318 49 -1 5 1 5 3 8 1 744 2154 154 40 59.797989 580E.)875 1 5 3 8 2 927 2154 65 31 96.884354 For5 1 5 3 8 3 1021 2152 193 33 96.144745 references5 1 5 3 8 4 1242 2154 36 30 96.551842 to5 1 5 3 8 5 1306 2149 147 35 96.449570 detailed5 1 5 3 8 6 1480 2148 109 34 96.760178 tables5 1 5 3 8 7 1616 2147 155 42 96.100807 showings 1 5 3 8 8 1797 2145 59 34 96.518173 thes 1 5 3 8 9 1883 2155 179 24 96.835472 enormous4 1 5 3 9 0 745 2197 1318 51 -1 5 1 5 3 9 1 745 2206 132 42 96.994316 freight5 1 5 3 9 2 888 2204 177 44 96.593010 “pick-up”5 1 5 3 9 3 1077 2204 109 33 96.895706 which5 1 5 3 9 4 1198 2203 141 33 96.891693 accrued5 1 5 3 9 5 1351 2205 37 31 96.410545 to5 1 5 3 9 6 1399 2201 220 43 96.410545 respondents5 1 5 3 9 7 1631 2200 91 33 96.823967 from5 1 5 3 9 8 1734 2209 59 24 96.823967 uses 1 5 3 9 9 1804 2198 39 33 96.734192 of5 1 5 3 9 10 1854 2198 95 33 96.364761 West5 1 5 3 9 11 1960 2197 103 33 96.741653 Coast4 1 5 3 10 0 745 2256 450 44 -1 5 1 5 3 10 1 745 2258 142 42 96.305359 freight,5 1 5 3 10 2 899 2268 55 22 96.298462 sees 1 5 3 10 3 967 2256 148 43 96.671204 Findings 1 5 3 10 4 1126 2257 69 32 96.434235 106.3 1 5 4 0 0 745 2330 1319 134 -1 4 1 5 4 1 0 787 2330 1277 35 -1 5 1 5 4 1 1 787 2341 19 12 69.066261 885 1 5 4 1 2 820 2340 44 24 91.423599 See,5 1 5 4 1 3 873 2346 40 19 65.179047 e.g.,5 1 5 4 1 4 922 2339 52 20 27.610428 CX's5 1 5 4 1 5 982 2339 83 23 56.478497 928228,5 1 5 4 1 6 1074 2338 47 24 26.048363 229,5 1 5 4 1 7 1129 2337 64 20 96.870560 which5 1 5 4 1 8 1203 2337 55 20 96.743011 shows 1 5 4 1 9 1267 2343 13 14 93.301926 a5 1 5 4 1 10 1288 2337 75 20 92.684532 Crow’s5 1 5 4 1 11 1370 2336 54 25 96.884193 prices 1 5 4 1 12 1432 2335 34 20 96.824005 for5 1 5 4 1 13 1474 2335 37 20 96.969879 1/25 1 5 4 1 14 1519 2334 44 21 96.665520 inch5 1 5 4 1 15 1570 2335 13 19 94.847778 35 1 5 4 1 16 1591 2334 34 25 94.847778 ply5 1 5 4 1 17 1632 2333 116 25 96.967995 (southern)5 1 5 4 1 18 1755 2332 23 21 96.991333 of5 1 5 4 1 19 1785 2332 74 24 94.085220 $87.00,5 1 5 4 1 20 1867 2331 41 20 96.426315 ands 1 5 4 1 21 1915 2337 14 14 96.426315 a5 1 5 4 1 22 1937 2331 57 19 96.981850 West5 1 5 4 1 23 2002 2330 62 21 96.981667 Coast4 1 5 4 2 0 745 2363 1318 34 -1 5 1 5 4 2 1 745 2375 45 18 97.002571 rates 1 5 4 2 2 800 2376 21 17 96.669670 to5 1 5 4 2 3 831 2373 35 19 96.669670 thes 1 5 4 2 4 877 2374 53 18 94.233673 most5 1 5 4 2 5 938 2372 90 25 94.233673 easterly5 1 5 4 2 6 1036 2377 50 14 96.879097 zones 1 5 4 2 7 1096 2371 23 20 96.952423 of5 1 5 4 2 8 1126 2371 70 23 96.162071 $38.305 1 5 4 2 9 1205 2370 33 20 96.068275 for5 1 5 4 2 10 1246 2376 13 14 96.732712 a5 1 5 4 2 11 1267 2370 77 25 96.732712 weights 1 5 4 2 12 1352 2369 24 20 96.252510 of5 1 5 4 2 13 1386 2369 47 20 93.227592 15255 1 5 4 2 14 1443 2368 43 24 56.197731 lbs.,5 1 5 4 2 15 1495 2368 34 20 96.946365 thes 1 5 4 2 16 1538 2366 144 22 91.377426 “association”5 1 5 4 2 17 1691 2365 78 26 96.898491 weights 1 5 4 2 18 1777 2365 34 21 96.858246 for5 1 5 4 2 19 1819 2365 37 20 96.726501 1/25 1 5 4 2 20 1865 2364 46 20 96.726501 inch5 1 5 4 2 21 1915 2359 9 36 71.638184 35 1 5 4 2 22 1941 2364 39 25 96.668404 ply.5 1 5 4 2 23 1990 2364 24 19 96.873787 In5 1 5 4 2 24 2023 2363 40 20 96.927513 this4 1 5 4 3 0 745 2396 1319 35 -1 5 1 5 4 3 1 745 2406 100 25 95.938690 example,5 1 5 4 3 2 855 2406 35 19 96.992699 thes 1 5 4 3 3 901 2405 78 26 96.524216 freight5 1 5 4 3 4 988 2405 16 20 96.524216 is5 1 5 4 3 5 1013 2405 25 20 83.734230 335 1 5 4 3 6 1048 2406 84 24 93.496658 percent5 1 5 4 3 7 1141 2404 22 19 96.554840 of5 1 5 4 3 8 1173 2404 35 19 96.696518 thes 1 5 4 3 9 1218 2404 50 19 96.124619 totals 1 5 4 3 10 1278 2402 102 20 96.855057 delivered5 1 5 4 3 11 1389 2402 55 25 96.903572 prices 1 5 4 3 12 1452 2401 23 21 96.745819 of5 1 5 4 3 13 1483 2401 85 24 95.707115 $125.30.5 1 5 4 3 14 1579 2400 39 20 95.707115 For5 1 5 4 3 15 1626 2399 68 20 96.834900 actual5 1 5 4 3 16 1703 2398 88 21 96.932297 invoices5 1 5 4 3 17 1799 2397 93 25 96.504486 showings 1 5 4 3 18 1900 2397 78 20 96.504486 similar5 1 5 4 3 19 1985 2396 79 26 96.676559 freight4 1 5 4 4 0 745 2438 367 26 -1 5 1 5 4 4 1 745 2440 92 24 96.751610 charges,5 1 5 4 4 2 844 2446 34 12 93.174042 sees 1 5 4 4 3 886 2438 51 20 76.703270 CX’s5 1 5 4 4 4 943 2438 81 23 91.741074 867-72,5 1 5 4 4 5 1030 2438 82 20 95.967575 875-76.3 1 5 5 0 0 746 2462 1319 179 -1 4 1 5 5 1 0 787 2462 1276 30 -1 5 1 5 5 1 1 787 2473 19 12 87.786324 875 1 5 5 1 2 820 2472 38 20 93.287582 Sees 1 5 5 1 3 870 2471 51 20 47.188663 CX's5 1 5 5 1 4 931 2471 87 20 50.471840 205A-B5 1 5 5 1 5 1029 2470 65 20 97.003830 which5 1 5 5 1 6 1105 2470 67 20 96.798264 shows5 1 5 5 1 7 1182 2476 13 14 96.363342 a5 1 5 5 1 8 1205 2471 102 18 96.363342 customers 1 5 5 1 9 1318 2469 19 19 96.766701 in5 1 5 5 1 10 1348 2467 117 24 96.766701 Savannah,5 1 5 5 1 11 1475 2467 93 25 97.000420 Georgia,5 1 5 5 1 12 1579 2466 76 25 96.984940 buying5 1 5 5 1 13 1665 2465 54 20 96.850555 from5 1 5 5 1 14 1729 2471 13 14 96.850555 a5 1 5 5 1 15 1753 2464 46 21 96.065971 U.S.5 1 5 5 1 16 1810 2464 94 26 96.065971 Plywood5 1 5 5 1 17 1915 2463 118 20 96.611992 warehouses 1 5 5 1 18 2043 2462 20 20 96.562599 in4 1 5 5 2 0 746 2495 1317 35 -1 5 1 5 5 2 1 746 2505 117 24 96.983788 Savannah,5 1 5 5 2 2 874 2504 93 26 96.707970 Georgia,5 1 5 5 2 3 978 2504 40 20 96.793915 ands 1 5 5 2 4 1028 2503 78 26 96.201935 paying5 1 5 5 2 5 1116 2503 77 25 96.201935 freight5 1 5 5 2 6 1204 2505 53 17 96.881607 costs5 1 5 5 2 7 1267 2503 88 24 96.916969 ranging5 1 5 5 2 8 1366 2501 54 20 96.965294 from5 1 5 5 2 9 1429 2501 69 23 96.543777 $12.155 1 5 5 2 10 1507 2503 23 18 96.728180 to5 1 5 5 2 11 1539 2500 68 23 95.890717 $34.255 1 5 5 2 12 1616 2506 36 18 96.943382 pers 1 5 5 2 13 1663 2499 55 24 95.982956 1,0005 1 5 5 2 14 1727 2504 75 20 96.970024 squares 1 5 5 2 15 1811 2497 45 20 95.786491 feet5 1 5 5 2 16 1865 2497 34 20 96.942734 for5 1 5 5 2 17 1909 2496 41 20 93.218575 this5 1 5 5 2 18 1960 2495 103 26 92.981483 intra-city4 1 5 5 3 0 746 2529 1318 34 -1 5 1 5 5 3 1 746 2539 109 24 96.649307 shipment,5 1 5 5 3 2 868 2538 115 25 96.869545 depending5 1 5 5 3 3 995 2544 26 13 96.942039 on5 1 5 5 3 4 1035 2537 78 25 96.296310 weights 1 5 5 3 5 1124 2536 24 20 96.772064 of5 1 5 5 3 6 1160 2536 93 25 96.270081 plywood5 1 5 5 3 7 1265 2535 117 25 96.732285 purchased.5 1 5 5 3 8 1396 2534 39 20 96.888855 Sees 1 5 5 3 9 1447 2534 43 20 96.394661 also5 1 5 5 3 10 1503 2533 35 21 96.047165 RX5 1 5 5 3 11 1552 2533 24 20 96.047165 875 1 5 5 3 12 1588 2533 64 19 96.734276 which5 1 5 5 3 13 1664 2532 68 19 96.931252 shows5 1 5 5 3 14 1744 2533 83 18 96.966484 currents 1 5 5 3 15 1839 2530 68 20 96.724716 actual5 1 5 5 3 16 1919 2529 80 25 96.479752 freight5 1 5 5 3 17 2011 2529 53 19 96.771240 from4 1 5 5 4 0 746 2562 1318 34 -1 5 1 5 5 4 1 746 2570 190 26 79.386040 Georgia-Pacific’s5 1 5 5 4 2 945 2570 116 24 96.830933 Savannah,5 1 5 5 4 3 1070 2569 89 26 96.896133 Georgia5 1 5 5 4 4 1168 2569 42 20 97.005875 mills 1 5 5 4 5 1220 2571 21 18 96.956116 to5 1 5 5 4 6 1250 2569 75 23 96.026169 Miami,5 1 5 5 4 7 1336 2568 81 19 95.889168 Florida5 1 5 5 4 8 1425 2567 23 20 93.279266 of5 1 5 5 4 9 1456 2568 43 19 89.708191 57¢.5 1 5 5 4 10 1507 2566 43 21 96.920929 Thes 1 5 5 4 11 1558 2567 82 19 95.042770 currents 1 5 5 4 12 1648 2566 58 18 96.798706 West5 1 5 5 4 13 1715 2565 63 19 96.657921 Coast5 1 5 5 4 14 1786 2566 45 18 96.788315 rates 1 5 5 4 15 1840 2566 22 17 96.925827 to5 1 5 5 4 16 1870 2563 42 20 96.686089 this5 1 5 5 4 17 1920 2569 50 14 96.776306 zones 1 5 5 4 18 1978 2562 17 20 96.603638 is5 1 5 5 4 19 2003 2562 61 23 96.782539 $2.79.4 1 5 5 5 0 746 2595 1319 46 -1 5 1 5 5 5 1 746 2605 43 36 72.816772 (Tr.5 1 5 5 5 2 799 2605 63 24 43.529896 1882)5 1 5 5 5 3 871 2604 31 37 96.462357 On5 1 5 5 5 4 915 2611 6 12 96.441132 a5 1 5 5 5 5 933 2604 106 37 68.514763 shipments 1 5 5 5 6 1043 2604 24 19 68.514763 of5 1 5 5 5 7 1077 2603 55 38 85.188690 1,0005 1 5 5 5 8 1140 2608 75 33 96.046822 squares 1 5 5 5 9 1219 2602 80 38 61.204659 feet5 1 5 5 5 10 1278 2591 17 67 61.204659 of5 1 5 5 5 11 1306 2602 39 39 96.740158 1/25 1 5 5 5 12 1353 2601 46 40 95.778427 inch5 1 5 5 5 13 1408 2600 91 40 82.599785 plywood5 1 5 5 5 14 1508 2600 58 40 67.429985 (15255 1 5 5 5 15 1574 2591 36 67 48.653748 the,5 1 5 5 5 16 1611 2598 116 42 0.716591 scoring5 1 5 5 5 17 1736 2600 22 17 57.821289 to5 1 5 5 5 18 1765 2596 146 21 19.528641 association eee 0.2 aan OF ~~ 1 ANN Wn nnn Fane BOISE CASCADE CORPORATION, ET AL. 51 1 Initial Decision _ Effect on Choice of Means of Transportation 120. Southern pine plywood cannot be picked up by a customer’s truck at a true F.O.B. mill price in order to save the cost of West Coast freight. (CX’s 113B, 880.) [80] 121. Instead of allowing mill pick-ups in the customer’s own truck at a true F.O.B. price, the practice followed by all respondents, should the customer (including distribution outlets in intra-company transfers) elect to pick-up in his own truck, is to take the delivered price, which includes West Coast rail freight, and allow a small discount (usually $2 to $4 per thousand feet) or in the case of Willamette the actual truck freight cost, as a pick-up “allowance.” (CX’s 5A, 9B, 15A, 487B, 511, 515, 520A-B, 557A-558B, 562, 580C, 583B, 596A-C, 885Z1, 886Z26; Tr. 717-18, 741-44, 1009, 1030, 1184-85, 1632, 1691, 2592-93.) 122. Truck pick-ups by customers of respondents are at a minimal level. At Georgia-Pacific, it is 1 percent of plant production. (CX 487B.)88 There are relatively few truck pick-ups at Weyerhaeuser “CSC’s” (Tr. 1188, 1185) or Champion mills. (Tr. 2701.) Mill pick-ups at Boise’s Moncure mill were 4.6 percent of 1971 shipments and 1.3 percent of 1972 shipments. (CX’s 441L. 4428S.) The Moncure mill had no pick-ups in 1973 (CX 401; Tr. 2502-03), but in 1974 customer truck pickups increased. (RX 347A; see also Tr. 2376.) Exchange of Information 123. There is no charge in the complaint and no proof was presented by complaint counsel that respondents met and formally conspired to add West Coast freight, or to adopt “association” weights, or to use Crow’s and Random Lengths as a handy base price reference. But. there can be no doubt that as customers of each other, and as members of the same trade association (American Plywood Association),89 thére are ample opportunities [81] for each respondent to familiarize itself with all the basic policies of the other respondents, including the use of West Coast freight. (See Findings 79 and 95 and CX’s 34, 325B, 327, 383D, 352A; Tr. 2703-04.) Moreover, the record contains direct evidence of the exchange of information among respondents which relates to the southern plywood pricing formula discussed in earlier Findings. For example, a Weyerhaeuser represen-— tative could infer from a discussion with Georgia-Pacific’s mill sales manager that Georgia-Pacific did most of its “PTS” contract pricing based on Crow’s. (CX 138C; see also CX 142.) Willamette’s senior vices8 In Mareh 1971, Georgia-Pacific did not allow customer truck pick-ups at their mills. (CX 559E.) 8® At a meeting of the American Plywood Association, Weyerhaeuser and Georgia-Pacific representatives had “conversations which ranged from customer commitments to plywood marketing practices.” (CX 183A.) Initial Decision 91 F.T.C.

president apparently furnished Boise Cascade with the amount of freight “pick-up” realized by Willamette in 1968. (CX 333D.) And a Georgia-Pacific official reported:

Incidentally, Jimmy Schmidt, Sales Manager for Boise’s Southern Pine Mill in North Carolina, was in the office last week and indicated that they are making all their 1/2 inch in 3-Ply construction and are selling it all at not to exceed $1.00 under the 4-Ply/5-Ply. (CX 593.) _ “Justification” for Use of West Coast Freight 124. According to respondents the only significance of West Coast freight is that it is “backed off” the delivered price to achieve a socalled “index” price which allows ready comparisons between the price of Douglas fir plywood and the price of southern pine plywood. (Tr. 1626-27, 1744-45, 2032, 2201-03, 2276.) While it is true that the use of West Coast freight does allow ready comparisons between southern prices. and western prices, as well as between prices of competing southern producers (see Finding 82 and CX 51), the record shows overwhelmingly that West Coast freight is added to a base price (not “backed off”) for the purpose of arriving at a delivered price which approximates the delivered price of Douglas fir. (Findings 65-79, 89- 99, 102-08, 129-30.) [82] 125. Respondents also argue that the use of West Coast freight is justified because their customers wanted southern prices which could easily be compared to western prices, particularly at the outset of the southern pine plywood industry. As indicated in Finding 124, the record supports the contention that the industry-wide method of pricing — Crow’s, Random Lengths or base prices derived from these _ reporters, plus West Coast freight — results in plywood prices, both western and southern prices, which are easily compared, and that respondents’ customers may even favor this method of setting prices. (CX’s 51A-B; Tr. 1524-25, 1626-27, 1745, 2276, 2804, 2810.)9° But the fact that the system may serve the convenience of some of respondents’ customers does not mean that it necessarily serves the interests of the plywood consuming public. The plywood customers of respondents who appeared in these hearings are plywood middlemen (brokers and wholesalers) who, essentially, resell to lumber dealers who, in turn, resell to building contractors. These middlemen are terribly concerned about small differences in price among competing sellers at any point in time because they operate on narrow margins. They are not concerned, however, about a substantial, though uniform phantom freight charge which can be passed on to their customers. Note the 90 See, however, CX 68 where Willamette officials say that abandonment of a West Coast basis will “enable us to BOISE CASCADE CORPORATION, ET AL. 53 1 Initial Decision > 6 following exchange with one of respondents’ “customer” witnesses, a plywood middleman:

Q. Mr. Vagos, as I understand your testimony, it would not concern you if part of your delivered price consisted of phantom freight as that term is used in CX 200? A. What matters is what the competitive price is at the point at which I am quoting it to my customer. What matters is what I am quoting to my customer delivered. What the form is does not matter to me. [83] Q. So you wouldn’t care if phantom freight was a component of that price? A. No, it does not matter. (Tr. 2892-93.)91 Moreover, on the subject of convenience,” the experience of nonrespondent MacMillan-Bloedel demonstrates that actual freight can readily be used in price calculations. (Tr. 1100.) Besides, even in respondents’ formula method of pricing, actual freight must be calculated since it is paid to the carrier, either by the mill (if prepaid) or by the purchaser (if invoiced freight collect). (See Finding 81.) It is apparent also that respondents rely on actual freight computations to determine the amount of phantom freight or “freight pick-up” in each transaction. (Finding 106.) 126. There was testimony by respondents’ officials and plywood middlemen that use of an “index” price plus West Coast freight was simply a matter of form and that price quotations in other “forms,” such as a single-figure delivered price without reference to West Coast freight or even F.O.B. prices where the customer arranges transportation from the mill, have been used whenever a customer desires one of these other forms of price quotations. (Tr. 1805, 2033, 2276, 2629, 2887.) The record shows, however, that irrespective of the “form” of the quotation, respondents’ basic method of doing business is to take a base price and add West Coast freight to arrive at a delivered price. (See Finding 124.) In other words, no matter what the form of the transaction, a southern plywood customer simply cannot avoid paying West Coast freight. Thus a Weyerhaeuser customer was told, [84] It is quite true that all of us learn something new everyday but it is hardly news that Southern Pine plywood cannot be picked up on a straight F.0.B. mill base to save the West Cost applied freight. This is an equalizer that has been going on in the market for as long as Southern Pine plywood has been manufactured. (CX 113B.) Similarly, a U.S. Plywood customer asked that it be shipped as follows: The material will be shipped F.O.B. mill freight collect. Freight charges are not to be added to the invoice, regardless of standard industry practice. (CX 849B.) ®1 This wholesaler (Vagos) simply puts a margin on top of a mill price and “What really is important is what price our competitors have and if we are working off the same price and if we get the price to get the order, that is important.” (Tr. 2913.) Contrast. this testimony with the complaint of officials of National Homes who “contend that only actual freight should be charged and not the West Coast applicable rate.” (CX 579.) Initial Decision 91 F.T.C.

U.S. Plywood’s reaction to this request was “With reference to the FOB mill, freight collect, regardless of standard industry practice I’m sure we are not interested. . . .” (CX 849A.) Respondents argue, based upon testimony elicited from respondents’ officials, that the use of the form of pricing in which West Coast freight is added to a base price has been declining since 1970 because comparisons with the delivered price of fir are no longer as imperative as they were previously, now that fir has been withdrawn from the South. According to respondents, the usefulness of this “form” of pricing is currently confined largely to the “gray” area where fir and pine still compete. (Tr. 1606-07, 1853, 2203, 2276.) This argument nicely confuses “form” and “substance” and is wrong about both. First, as a matter of “form,” the record shows that a base _ price plus West Coast freight is still extensively used throughout the plywood industry. Thus, Crow’s is obviously reflecting industry practice when it continues to use the West Coast freight formula (Tr. 321, 335, 354); the West Coast freight formula is still used in “PTS” contracts (Findings 76, 94); direct mill sales are made in terms of a base price plus West Coast freight (Findings 78, 93); intra-corporate transfers are in the form of a base price [85] plus West Coast freight (Finding 96); and, in general, prices in the form of a base price plus West Coast freight are still widely used throughout the southern plywood industry. (Tr. 847, 869, 1539, 2202, 2277, 2724.) In 1973 the form of pricing which added West Coast freight to a base price was so prevalent that Georgia-Pacific described a switch from this method to F.O.B. pricing as a “major change.” (CX 808A.) In 1974, Boise Cascade speculated about the implications of a “completely different way of pricing and extending freight from the traditional method.” (CX 839B.) Also in 1974, Willamette officials contemplated the significance of discontinuing “our practice of quoting on a West Coast basis or referring to a West Coast basis in any of our quotations or price lists.” (CX 68.) As for the so-called F.O.B. “form” in transactions where the customer arranges transportation, a true F.O.B. price is not used; instead, respondents use a delivered price which includes West Coast freight and allow a small discount. (Findings 120, 121.) Turning to “substance,” it is true that a base price plus West Coast freight can be converted into a simple delivered price. But when this is done in the southern plywood industry, the delivered price includes West Coast freight. (CX 202A; Tr. 717-18, 810-11, 956-57.) In January 1973, counsel for the Federal Trade Commission and counsel for Georgia-Pacific had the following exchange which makes no reference ta tha OFaAnww” Af tha tuananatinns BOISE CASCADE CORPORATION, ET AL. 55 1 Initial Decision 1. Question. Does Georgia-Pacific use and has it used the Coast Rail Freight Rate as the basis for computing delivered prices for shipments of softwood plywood from Southern plants? _ Answer. Yes, Georgia-Pacific Corporation does use and has used the Rail Freight Rate from the West Coast to Southern delivery points as one factor in determining prices for softwood plywood shipped from its Southern plants. [86] 2. Question. If so, please describe the history of how Georgia-Pacific came to use its method of freight computation. , Answer. Before the existence of the Southern softwood plywood industry, plywood supplied to Southern purchasers was manufactured and delivered from West Coast fir plywood plants and obviously contained as one of its delivered price factors rail freight from a West Coast fir plywood plant. The Southern pine plywood industry then had and still does have as a competitor West Coast manufactured fir plywood. Thus, in pricing Southern manufactured pine plywood with its higher inplant manufacturing costs, the delivered price of West Coast plywood became a necessary factor to consider in order to price Southern plywood competitively with West Coast plywood. (CX 487A.) 127. There is no dispute between the experts called by either side — Mr. Glassman (FTC staff economist) and Dr. Steiner (the economist called by respondents) — that it was rational, in a profit maximization sense, for respondents, at the outset of the southern pine industry, to attempt to sell southern yellow pine plywood at the same delivered price as western fir plywood. (Tr. 1228-29, 3622, 4585, 4541.) In fact, Mr. Glassman testified that from the producers’ standpoint it was a matter of “economic necessity” (“economic necessity” here meaning profit maximization (Tr. 4535, 4541)) for the two products to be priced at the same level because a southern price below the western price would have created a disincentive to ship fir plywood into the South at a time when the southern pine mills could not possibily produce enough plywood to satisfy southern needs. (Tr. 1228-29.) Mr. Glassman’s testimony, however, is fairly read as meaning that it is the function of the market to determine whether the objective of price parity between pine and fir is realized, and he specially denied that this objective is an economically acceptable rationale for use of a distant basing point. (Tr. 1228-29.) [87] Moreover Mr. Glassman did not say that more than 18 years after the formation of the southern pine industry, when southern sheathing production now exceeds western sheathing production, there is any necessity for southern mills to arrive at their prices by adding on West Coast freight. While it is true, according to Mr. Glassman, that the price relationships of the two products will tend to be in line (Tr. 1230), respondents have not explained why that “line” cannot be drawn at sharply lower plywood prices — for both southern and western plywood — which reflects the enormous new capacity and locational cost advantages of southern mills.

Initial Decision 91 F.T.C.

Respondents’ retained economist, Dr. Steiner, testified that he would have expected Southern plywood to have found its own independent pricing level by this time, and that the level would approximate the costs, allowing for a fair profit, of the most efficient producer. (Tr. 3625-28.)92 Instead, southern plywood prices and profits continue to reflect phantom freight from the West Coast (see Findings 132 and 137 for proof of increasing southern prices and profits) rather than a trend toward a competitive price as established by the most efficient producer.

Oddly enough, because of phantom freight the most efficient producers in the plywood industry have lower profits than the less efficient mills. This is illustrated by the fact that although southern delivered prices are lower than western, the operation of the industry’s phantom freight formula, nevertheless, produces higher profits for the southern mills than the more effficient western “sheathing” plywood mills. For example, in 1973 western sheathing was being sold by Georgia-Pacific’s [88] western plants producing predominantly sheathing — the most efficient sheathing plants in the industry (Finding 140) — ata net average price of $89.61 per thousand square feet (calculated on the basis of delivered price less actual freight) while southern plywood was being sold at a net average price of $100.03 (2.e., including West Coast freight, less actual freight). (RX 452 in camera.) The record shows that at a price of $89.61, Georgia-Pacific was able to realize a substantial profit before taxes on sales of western plywood from its efficient western “sheathing” mills of $23.77. The record shows, however, that a price of $100.03 for southern plywood produced a still higher profit of $26.83. (RX 452 in camera.) 128. The rationality of the objective of the southern pine plywood mills — to achieve a southern pine price at or near a western fir price — was further articulated as follows:

(a) The delivered price of fir plywood (which includes West Coast freight paid to the railroads) had established the “value” of the product and respondents were entitled to realize that “value” by use of the West Coast freight factor. (Tr. 1142- 44, 1151-52, 1634-35.) (b) Sale of southern pine plywood at substantially lower prices — say, by using actual freight — would have produced an undesirable result (to the producers), namely, “If we were under the price that somebody else [89] was paying by very 92 It is doubtful that further entry into the South will be so significant as to erode prices and profits. The American Plywood Association predicted that “By 1973. . .most really substantial increases in Southern capacity will have been accomplished. From that point on, any additions will be primarily a matter of expanding existing facilities.” (RX 10J.) In fact, the prediction has been proven quite accurate. (See RX 11E and CX 133C.) 93 The profits of Georgia-Pacific’s southern plywood mills declined in the deep ion years 1974 and 1975 — in addition to the building recession, there were strikes in southern mills (RX 452 in camera, Tr. 4220, 4222-23); it should be noted, however, that except for two years, between the period 1964-1975, Georgia-Pacific’s southern mills usually had substantially higher profits per thousand square feet than all of Georgia-Pacific’s western mills. (RX 456 in BOISE CASCADE CORPORATION, ET AL. 57 1 Initial Decision much, they would just take all of our plywood and that would be the end of it.” (Tr. 1754.) _ (¢) Although freight costs from the South were substantially less than southern rates, there was no cheaper price realistically available in the market. As a Willamette official explained:

He [the customer in the South] couldn’t buy plywood any cheaper from.anyone else so there was no reason for us to cut our price. (Tr. 1754.) (d) As for the substitution of the neatly predictable West Coast rate for the extremely unpredictable southern schedule, it is respondents’ view that the plywood business is “competitive enough” without this added complication. (Tr. 2741.) Price History 129. When southern pine plywood was first sold, respondents used the same base prices as western plywood, and with the addition of West Coast freight arrived at delivered pine prices which were the same as western delivered prices. (CX’s 2A-B; Tr. 1003-04, 1421.)9%4 [90] 130. The basic policy of respondents has been to attempt to sell southern plywood at or near the delivered price of western plywood, with the difference between actual freight and West Coast freight, to be taken as an incremental gain for the southern mills. (CX 99V(1); RX’s 90A-B; Tr. 1394, 1431, 2203-06, 2210-11, 2216, 2610; Findings 72- 73.) 131. Despite the plan of respondents to charge a delivered price for southern plywood which was the same as the delivered price of western plywood, differences in the prices of the two products developed. The record shows the following:

(a) Because southern plywood was perceived at the outset of the industry as inferior in quality to western plywood, southern mills found that it was necessary, shortly after the introduction of pine, to sell the new product at a price which was slightly less than the delivered price of western plywood. (Tr. 953, 1636, 1673, 1753, 1759-60, 2203-04, 2610-11, 2737-40, 2790-91.) (b) Although southern pine plywood is considered by industry members as equivalent in quality to western fir (Tr. 2832-33), consumer preference for fir has persisted (Tr. 1472, 1676-77, 2873), as have somewhat lower prices for pine plywood during most of the period 1963 to the present. To illustrate, during the period January, 1969 to August, 1971, Random Lengths issued 134 reports where a direct comparison can be made between western and southern prices for 1/2 inch 3-ply sheathing. In 18% of the reports, the prices are the same. In 15% of the reports, southern plywood was higher than western (about half the time, a difference of $2 or less). In 72% of the reports, western was higher than southern, but the differences in these reports were within a narrow range: 21% — a $1 difference; °4 See also a 1965 report prepared for MacMillan-Bloedel (Tr. 1073-74) which stated: Southern Pine Sheathing is sold on a basis of the DELIVERED price of West Coast Sheathing, less actual freight at Southern rail rate to point of destination, less functional discounts of 5/3/2%. (CX 665D.) [Emphasis in original J.

Initial Decision 91 FTC.

51% —.a difference of $2 or less; 68% — a [91] difference of $3 or less; 84% — a difference of $4 or less. (RX’s 424A-426Z7.) : During the deep recession year 1974, sharper differences were reported. In none of the 50 Crow’s for this period were western prices cheaper than southern prices, and in only three reports were the two products priced the same. In over half of the reports, the differences range between $4 and $9. (CX’s 928A-Z31.)® It is significant, however, that even during 1974, and after the massive increase in southern capacity, the prices of the two products tended to be in parity when prices were rising, reflecting presumably an increase in demand and the fact that more plywood was being bought. For example, in the week of March 15, 1974, the price of western plywood rose to $145. (CX 928N.) It remained near that level for the next four weeks when the prices of southern and western were reported as: -Western Southern 150 150 142 140 145 : 143 145 145 (CX’s 9280-Q, 933B) [92] (c) The prices of western and southern plywood tend to be close in markets where both kinds of plywood are sold in significant quantities. (CX 462D; Tr. 911, 1679-80, 1762-63, 1867, 2212-15.)% And while the exact same price for fir and pine is uncommon (Tr. 502), a non-respondent producer observed that currently “there is not that much of a difference in price between fir and pine.” (Tr. 1099.) (d) The long range objective of the plywood industry is to abolish all price differences between pine and fir. In the words of one Georgia-Pacific official: Certainly, we hope to bring the market together by bringing Pine up rather than Fir down. (CX 571A.)97 [93] As for the original reason for the price variation — quality differences — the producers of southern pine plywood have at least attempted to eliminate this source of price differences:

It is important to note that Southern Pine plywood producers have joined the grading and quality control program of the western producers. Consequently, all 95 Whatever differences may have existed in southern and western prices did not eliminate the phantom freight or freight “pick-up” which resulted from use of West Coast freight. For example, in 1974 the average. reported differential between western and southern 1/2 inch CDX 4-5 ply prices was less than $9.00. (CX’s 928A-Z31.) During the same period, the West Coast rates in the most easterly zone ranged between $2.19 and $2.51, which means that the freight charge on southern plywood delivered subject to West Coast freight was between $33.40 and $38.30. (CX 928B, M, 22.) 8 Testimony respecting sharply higher prices for fir in the South is largely hypothetical since fir sheathing is no longer an important factor in the South where most southern plywood is sold. (Tr. 1761-62, 1867, 2212.) See also CX’s 571A, 573A, and Tr. 1475, 1664-65, 1679-80, which show that outside of its primary marketing area in the South southern pine is sold at prices substantially above the southern plywood prices reported in Crow’s. 87 Georgia-Pacific's distribution chief testified, “We may not always hit our objective right but that is our objective, to sell it [Southern Pine ] as close to that price of the competitive product.” (Tr. 1635; see also Tr. 1679.) The pattern has been that wherever there is an inadequate supply of fir sheathing, the price of pine sheathing approaches the fir price. (Tr. 2886.) Note in this connection that fir production is moving toward the more profitable sanded and BOISE CASCADE CORPORATION, ET AL. 59 1 Initial Decision softwood plywoods fly under one flag, as opposed to flags of various competing species. (CX 462i; see also CX 370.) 132. Notwithstanding the massive increase in capacity brought about by the opening of the southern pine industry, there has been no downward trend in plywood prices. In 1974, when the industry “suffered as a consequence of the most severe and prolonged housing depression in history” (RX 11D), the yearly high for 1/2 inch 3-ply sheathing, southern and western, was about $150. (RX’s 458A—459B.) This price was substantially higher than the yearly high for either product reported during the period January 1969 to August 1971. (RX’s 436-447.) 98 [94] Entry9 133. The profitability of the southern plywood industry (Finding 187) has attracted new mills. In 1969, 34 southern plywood mills. were in operation, producing 21 percent of the total plywood produced in the United States that year. By 1974, there were 55 southern mills which accounted for 32.3 percent of total U.S. Plywood production, and 45.7 percent of total sheathing production. (RX’s 11E-F, Q.) The record indicates, however, that since 1973 significant new entry has become unlikely.109 134. Statistics published by the American Plywood Association indicate that during the period from 1963, when the first southern plywood mills were opened, until 1978, the number of western mills decreased from 157 to 189. During the same time period, the production of softwood plywood, as reported by the American Plywood Association, increased 79 percent from 10.2 billion square feet (3/8 inch basis) to 18.3 billion square feet. Sixty-nine percent of this increase was accounted for by the southern mills which, as indicated above, by 1974 accounted for 32 percent of total industry production. (RX 11E-F.) 135. By the early 1970’s southern pine plywood had virtually displaced Douglas fir plywood in the South with some notable exceptions such as sanded plywood which is still made predominantly 98 See also CX’s 839B, H, and RX 301 for evidence of all-time high plywood prices in 1973 when the early 1970’s housing boom was still having an impact. (RX 455B and Tr. 1720, 2247.) For price ranges between 1969 and the first six months of 1974 see RX 301; see also CX 461, p. 48 for price range between 1967 and first six months of 1972. %® There is little in the record about the current cost of entry into the plywood industry except that it has gone up precipitously in the last few years. (Tr. 1531-33, 2697.) In order to build its huge Bonner, Montana plywood operation in 1973, it cost U.S. Plywood $114 million for land and timber, plant site, and sawmill. The mill, rated at 300 million feet annual capacity, cost $25 million. (Tr. 2721-22.) A mill in Alabama rated at 120 million feet annual capacity was estimated to cost $11,642,000 to build in 1974. (CX 844C in camera.) 100 See note 92 supra.

Initial Decision 91 F.T.C.

in the Pacific Northwest. [95] (CX 110W; Tr. 1088-99, 1383, 1762, 2044, 2212, 2792.)101 136. The record shows that despite the original apprehension about quality, the difference in price between West Coast plywood and southern plywood led to this acceptance of southern pine plywood. (Finding 131 and Tr. 1438-39, 2793.) Respondents, however, producers in the West as well as the South, have accomplished objectives which are advantageous to them in both geographic areas as a result of the realignment of industry production patterns. To begin with, this realignment did not mean a precipitous drop in the profits of respondents’ western mills. In the pre-recession year of 1978, Georgia-Pacific’s western mills showed a profit which was more than three times higher than the profits of its western mills at the outset of the southern pine industry in 1964. (RX 456 in camera.)1°2 What the realignment does mean is that the southern mills have absorbed the increased demand for sheathing in the South while production in the West of sheathing remains static. (CX 178A; RX 11E.) But stable or even decreased production of sheathing in the West is not unwelcome by respondents considering the raw material problem in that area. Much of the timber supply available to western producers is on public land, unlike the South where an adequate timber supply is owned or leased by the mills. In the period 1970-1975, the amount of available public timber had been sharply reduced and with the withdrawal of millions of acres from commercial use the cost of Douglas fir stumpage had increased by 318 percent. [96] (RX 11L; see also Tr. 1876 (“timber on the West Coast was becoming harder to procure at an economic price, there were vast stands of southern-pine timber available at what appeared to be. . .excellent purchases”) as well as Tr. 1884 (“our timber base was shrinking on the West Coast”) and Tr. 1424 for contrasting impact in the West and South of bids on forest sale timber.) 193 Against this background of a shortage of timber and increasing prices in the West, the realignment, when combined with the use of West Coast freight, has accomplished the following: (a) Respondents’ western mills are able to concentrate on high price and high 101 To this day, the southern mills have not been able to produce a satisfactory fully sanded product b of the wide grain of pine. (Tr. 1378, 1381.) Sanded and specialty products bring a considerably higher return than sheathing. (Tr. 1381.) 102 In contrast, a large number of worker-owned plywood mills on the West Coast have either been phased out or been acquired by other companies. (Tr. 2723-24.) 103 For additional evidence respecting western and southern timber supply and prices, see CX 495B; Tr. 1376-77, 1527-28. See also RX 69L for indication that even during the housing depression of 1974, producers of plywood bid up federal timber to extremely high levels underscoring “a strong concern over the prospects for a steady and adequate BOISE CASCADE CORPORATION, ET AL. 61 » Initial Decision profit. specialty items including fully sanded plywood which is not produced in the South.1¢ Weyerhaeuser, in fact, anticipated in 1970 that “Sanded plywood which is primarily western Douglas fir should benefit from a shrinking raw material availability.” (CX 110Z8 and see Tr. 2208.) Because of the shrinking timber base, ~ Georgia-Pacific has converted its Coos Bay, Oregon mill from a-mix of 30% sanded - :' 10% sheathing to 100% sanded. (Tr. 1885.) The significance of this conversion is manifest. Even in 1973 before the conversion was completed the net profit before taxes of the Coos Bay mill was $36.17 per thousand square feet (CX 483B in camera), as compared to $22.88 for all Georgia-Pacific western mills and $26 .83 for all Georgia-Pacific southern mills. (RX 456 in camera.) [97] (b) Western sheathing has been withdrawn from the South, but continues to.dominate in many Northeast, Central and North Central markets although these markets. are closer to southern mills than they are to western mills. (Compare western sheathing distribution in RX 11U with southern sheathing distribution in RX 112Z1.) The record indicates that in areas outside of the South, where fir sheathing predominates, respondents’ policy is to resist any erosion of fir prices ‘which might be caused by pine shipments. Thus in 1970, the Georgia-Pacific Minneapolis branch manager reported on a maverick in his area who bases his prices “on Crow’s So Pine, where-as this market can demand Crow’ '3 West Coast.” (CX 545A; see also Finding 131(c).)195 ©.

(c) Southern sheathing has replaced western sheathing in the South at prices _ which represent a discount from western base prices to which West Coast freight - has been added. This “southern” delivered price, loaded with phantom freight (see note 93, supra), produces an impressive level of southern mill profits. (Finding 187.) 137. The entry of new southern mills had led to neither a general downward trend in plywood prices (Finding 182) nor has it affected the profitability of established southern mills. In 1964, Georgia-Pacific’s net profit before taxes per thousand square feet of plywood produced in southern mills was $10.40. In the pre-recession years of 1972 and 1973, Georgia-Pacific’s profit margin on southern production had risen to $28.49 and $26.83, [98] respectively.1°¢ A sharp decline of profits in the recession year 1974 (when the building industry collapsed and several southern mills were on strike), was followed by a handsome increase of Georgia-Pacific’s southern plywood profits in 1975. (RX 456 in camera; Tr. 4220, 4222-23.) _ 188. Many “entrants” into the southern plywood industry are firms 104 See note 101, supra.

105 Note that in 1976, Georgia-Pacific’s Minneapolis branch is obtaining the same price for fir and pine. (Tr. 1679.) 106 As late as 1973 Georgia-Pacific anticipated that the construction, of a new southern plywood plant would produce a réturn on investment after taxes of 16.4 percent, a projected capital recovery period of 4.2 years (estimated cost of plant $11,642,000), net profit before taxes of $31.92 (per thousand square feet) on average net sales of $104.19 (per thousand feet). (CX’s 844A, C, E in camera.) Weyerhaeuser's southern plywood mills have been significantly more profitable than its western plywood mills in _ terms of profit contributions as a percentage of sales. (CX’s 897A-926 in camera.) Sheathing, in general, and 2 x 4 studs were the most profitable items sold by Champion in 1972 when measured as a percentage of sales return to manufacturing. (CX 859.) While Boise’s Moncure Mill has had losses (CX’s 422A-E in camera), its management projected a return on investment before taxes of 34.6 percent in 1973, 48.7 percent in 1974; and 50.5 percent in 1975. (CX 364i in camera.) Moncure’s losses are attributable to fires, excessive down time due to mechanical failures, a shortage of fuel, labor and management problems. (CX's 364D in camera, 814 in camera; Tr. 2481, 2505, 2508, 2985.) Initial Decision 91 F.T.C.

with investments in West Coast operations. Respondents, all of whom operate western mills, own 33 of the 55 southern plywood mills in existence in 1974. (Findings 35, 40, 44, 50, 54, 133.) 139. New. entrants have been encouraged to follow existing practices. One potential new entrant, Owens-Illinois, was told that Georgia-Pacific would distribute [99] the output of the Owens-Illinois plant on the basis of an agreement which used the West Coast freight formula. (CX’s 489A, 601A.) 140. On the basis of this record, I cannot make a conclusive finding with regard to the overall comparative production costs of the southern and western mills. At the opening of the southern plywood industry in 1963, Georgia-Pacific found that it cost no more to produce southern plywood than it did to produce western plywood (Finding 65; see also Tr. 2618-19, 2625-26, for similar experience of Champion, but for evidence of higher southern costs, see Tr. 955, 1036-37, 2737-39.) Moreover Georgia-Pacific anticipated that in the long run it would cost less to produce southern plywood. (RX’s 90A-B.) There is also evidence that there is a long run trend toward higher stumpage prices in the West because most of the timber there is on public lands. (Finding 136.) On the other hand, because of certain characteristics of the southern pine species, the production process for southern plywood may have produced some higher costs, particularly in the early stages of the industry. (CX 487A; Tr. 955, 1036-37, 1877-78.) Complaint counsel introduced evidence showing that the costs of producing most thicknesses of sheathing plywood in the South in 1973 were less than the overall costs in the West. For example, for 1/2 inch CD interior 4 ply with exterior glue, the overall western cost was $114.73 (CX 848, p. 23) as compared to $111.94 in the South. (CX 842, p. 21.)107 Respondents, relying on the same sources as complaint counsel (American Plywood Association annual cost reports) showed that overall costs in 1974 in the South — $134.11 (RX 449, p. 21) — were higher than in the West — $130.40. (RX 450, p. 18.) 108 [100] Respondents also introduced evidence that the most efficient sheathing-producing plants are the western plants where 80 percent or more of the production is sheathing, and 20 percent or less is sanded or other plywood products. APA 1974 data shows that costs of these socalled western “sheathing” mills — $119.30 (RX 450, p. 18) — are 107 Also, during the entire period 1969-1972, ge plywood facturing costs were lower in the South than in the West. (CX 838C.) 108 There are no APA data for the years prior to 1974 showing “sheathing” mills. _ BOISE CASCADE CORPORATION, ET AL. 63 Initial Decision ibstantially lower than the costs of southern mills, all of which roduce sheathing mainly.1°° The usefulness of this evidence is iminished, however, because of the exclusion, in the comparison, of all ieathing which is manufactured in the West by so-called “mixed” lants, that is, mills in which production of sheathing is less than 80 ercent of the total. As it happens, these so-called mixed mills account or almost half of total western production sheathing and therefore the xclusion, according to complaint counsel, makes respondents’ comparims suspect. Respondents, on the other hand, argue that inclusion of 1e so-called mixed mills (as in the 1973 American Plywood Association ata) produces a comparison of western and southern costs which is iherently unreliable because the accounting procedures of the ‘american Plywood Association do not permit proper allocation of artain “green end” and drying costs of mixed mills to sheathing production. (CX’s 982A-C.) These conflicting claims of the parties cannot be resolved on the basis of the exhibits and limited testimony especting comparative costs. Accordingly, I make no general finding n the overall costs of producing western plywood as compared to guthern plywood, although there are specific findings relating to costs nd profits which are derived from data which does not involve ossible discrepancies in APA reporting procedures. (See, for example, ‘indings 127, 137.) [101] ther Factors Influencing Plywood Prices 141. The West Coast freight factor has become a focal point for outhern yellow pine plywood pricing. (Findings 102-113.) Furthernore, the West Coast rate when combined with “association” weights nd common reference to Crow’s and Random Lengths prices has emoved a large measure of price uncertainty. (Findings 82, 88, 89-99.) ‘he effects of these practices are to maintain southern prices at an artificially high level reflecting phantom freight, and to keep ransactional price variations within a narrow range. (Findings 73-79, 6-99, 110-112, 117-119.) The record shows, however, that the range of prices, even if it is ‘arrow, is important enough to plywood buyers and sellers, particulary brokers, middlemen, and purchasers for distribution outlets so that . hey invest time and effort when placing orders in probing the market ry telephone for the most favorable transactional price. (Tr. 479-80, 89-90, 871, 1083-84, 1752-58, 1904, 1936-37, 2094-95, 2126-29, 2222-23, '340, 2482, 2766-67, 2780-81, 2890-92.) Respondents, however, have “108 One major reason for the change was higher glue costs in the South where pine plywood production requires lore expensive adhesives. The cost of phenol-based glues rose dramatically in 1974 because of the oil price increase. 2X 11H.) Initial Decision 91 E.T.

exaggerated the intensity and scope of this bargaining process, and specifically reject the notion, advanced by respondents, that plywood sold in an “auction market” in which, at any point in time, wic variations in prices are the rule rather than the exception. Everyone : the plywood industry knows that negotiations are narrowly circun scribed by Crow’s, West Coast freight, association weights, ar standard discounts. (See Findings 74-112.) 11° [102] That some bargaining takes place is not in dispute and shown, for example, by the contracts written on a “PTS” basis which may have the price term expressed as either a small addition or reduction from Crow’s or Random Lengths. (CX’s T9A-—F, 90, 195-9 205B, 209A, 219A-C, 227A, 353 and Finding 110.) As indicated ; Findings 92, 110-112, the record shows that the mix of the purcha:. and the quantity involved influence transactional prices in “PTf contracts as well as spot sales, 142. The formula used by the southern plywood industry — Crow or Random Lengths plus West Coast freight multiplied by associatic weights — results in fairly predictable prices to direct mill customer: and distribution outlets in the freight zones radiating from Portlan Oregon to the East. (Finding 100.) This predictability is subject 1 distortions, however, to the extent that there are “add-ons” or “t charges” — amounts which are added to the delivered price. There wi testimony that while all respondents use West Coast freight zones i their direct mil] and distribution outlet pricing, they increase, « attempt to increase, the delivered price for sales outside of the primary marketing area by the amount of extra actual freight to tk non-primary area. In effect, the use of “add-ons” may produce small concentric circles originating at the mills and branches, which a) superimposed on the West [103] Coast zones, and could result in price above the level established by adding West Coast freight. Essentially, “add-ons” are designed to compensate the mills « distribution centers for freight “loss” they would incur if more tha primary area actual freight were deducted from the phantom freigt as computed from the West Coast. (CX’s 112B, 187A—B, 203A—H, 54 600A-B, 614A-M, 624A; Tr. 860-61, 1546-47, 2041-48, 2712-16.) TI significance of “add-ons” is questionable, however, because there 0 The fact that plywood producers and dealers as well as trade publications have an overblown view of t competitiveness of the plywood industry is consistent with the Commission's experience with “the rarity with whi industry witnesses. . .ever acknowledge the ab of vig petition in any form.” British Oxygen Compa CCH Trade Reg. Rep. 1973-76 Transfer Binder, 4 21,063 at p. 20,919 n. 26 (1975) [86 F.T.C. 1241}. Besides, the ve testimony cited by respondents in support of the notion of intensive negotiations over price is hedged with cavea The Crow's publisher testified “they will spar sometimes between each other” (Tr. 547) and a dealer witness testifi ““f you have a difference of opinion as to what the prevailing price should be” than a counteroffer is made. (Tr. 293 Contrast this with the unequivocal testimony of the ex-manager of a Georgia-Pacific branch in Florida, one of the k plvwood markets. (“normally vour customer. knew the cost of that nlvwood before he ever even called vou un. becav BOISE CASCADE CORPORATION, ET AL. 65 1 - Initial Decision little evidence indicating that sales are made outside of the primary marketing area of the southern mills. (See CX’s 356C, 560A.) What the record does show is that all sellers attempt to sell east of the mill (where the West Coast rate increases) but yet as close to the mill as possible to reduce freight “loss” and realize the highest net mill return. (Finding 114.) In sum, there is little evidence of a substantial volume of sales at different prices either to direct mill customers or to distribution outlets within a single West Coast freight zone.111 143. Complaint counsel failed to prove that any of the practices engaged in by respondents — use of West Coast freight, adoption of association weights, and common use of Crow’s or Random Lengths as base prices — has resulted in exactly matching price offers to any customers [104] although, as indicated in Findings 92, 110-112, the record shows that differences are usually kept within a narrow range. 144. In addition to the factors cited in Findings 92, 110-112 which create some variation in transactional prices, there are cyclical pressures which influence plywood price levels. (Findings 145-151.) 145. Conditions beyond the control of respondents, such as a change in the number of housing starts (a volatile factor tied to interest rates and the general state of the economy) affect the level of plywood prices. (CX 110G; RX’s 13i, 14A—B, 69Z9, ZA7-Z48, 83; Tr. 558-59, 1966, 2338, 2785-87, 2871-72.) 112 146. Weather conditions, boxcar shortages, and strikes also impact on plywood price levels as they affect production and the demand for plywood. (CX’s 498, 644A; RX’s 69Z1, Z5, 85, 317, 326; Tr. 675, 693, 1422-23, 1425, 2461-62, 2785-87, 2933-34.) 147. As demand changes, the length of the mills’ order files (unshipped orders) tends to influence price levels since plywood sellers aim to avoid inventory buildup as well as a situation where there are too many orders. (CX’s 326D, E in camera, 504B; RX 69R; Tr. 447-48, 1078-79, 1425-26, 1595-97, 2336-87, 2461, 2598.) 113 [105] 148. Several witnesses testified that respondents have a corporate “philosophy” to operate at full capacity and that this, too, 111 Witnesses were asked typically a series of hypothetical questions by respondents’ 1 which d an opportunity to sell to a nearby customer at one price while another, more distant customer (in the same West Coast freight zone) was “competing” for the same wood. Uniformly, the witnesses testified that they would prefer to sell to the nearby customer and would only sell to the more distant customer if a higher delivered price was offered. (See, e.g., Tr. 1447-48, 1666-67.) In the real world, respondents’ sales personnel use a single delivered price for primary markets within a particular West Coast freight zone, and sell most of their plywood to these primary customers at the same price. (See Finding 100.) :

12 A good building year — over 2,000,000 new housing starts — will drive plywood prices up. (Tr. 1423.) 113 A Champion official testified as follows with respect to the influence of the order file: {I}f we have an order for every single quotation that we made, we would shortly have so many orders we wouldn’t know what to do with them. So we would have to raise our price to keep the order files from getting into an untenable situation.

Conversely, if we didn’t get any orders, we would know our prices are too high and we would have to lower them in search of the market price. (Tr. 2742.) 66 FEDERAL TRADE COMMISSION: DECISIONS Initial Decision 91 F.T.C.

influences price levels. (Tr. 1887, 1602A, 1761, 2207, 2337, 2481, 2567-68, 3009.) But the record shows that this “philosophy” notwithstanding, in slack periods mills are closed down (Tr. 1862, 2337, 2394, 2481, 2744), or production is cut back. (CX 138C, 326E in camera.)114 Weyerhaeuser’s overall objective in pricing is — To conduct our business in a manner as not to contribute to continued severe pricing declines by forcing production into a weakening market, and to eliminate to the extent possible wild price swings. (CX 896.) 115 [106] In addition, mills go “off the market” for short periods of time for tactical reasons. (CX’s 398, 4150, 853B; RX’s 306B, D, E; Tr. 2408.) Moreover, there is other evidence indicating a substantial gap between corporate “philosophy” and practice. For example, in 1974 when a depressed housing market sharply reduced plywood demand, 25 mills closed down and the industry as a whole operated at only 77 percent of capacity. (RX 11K; see also CX 848 for evidence of less than capacity production during part of 1969 and 1970.)116 On the other hand, complaint counsel presented no evidence showing a systematic adjustment of capacity in order to stabilize prices, and there is evidence that at times excess production may result in a willingness of plywood producers to accept lower prices. (CX 570A; RX 69N.) 149. Some western plywood is sold to brokers or other middlemen who then ship the plywood east in anticipation of a future sale although no actual sale had yet been made. When these so-called “unsold rollers” come to rest at a “diversion” point (or “hit the bumper” in the industry jargon) they must be sold quickly because of high demurrage charges. The existence of these “unsold rollers” may depress plywood price levels (CX 678, p. 11; RX’s 69Z36, 309A, 317, 334; Tr. 462-65, 687-88, 874), but unsold “rollers” represent a small proportion of total plywood sales (Tr. 3752)117 and there is no evidence that a significant amount of southern plywood is sold on such a basis. [107] 150. There is no reliable evidence that speculation in plywood 114 The stat t of the “philosophy” itself is ambiguous. The Weyerhaeuser official who stated that it was policy to “run it at capacity” immediately added “unless-it got too terribly bad we would have to curtail production.” (Tr. 2207 and see CX 896 cited in text to this Finding.) By the same token, a U.S. Plywood official who said on direct that his company operates at “optimum production levels” (Tr. 2567) acknowledged on cross that two plants had been recently closed because of the “horrible market.” (Tr. 2744.) It is also significant that respondents’ overall capacity to produce sheathing, the main product of the southern mills, has been adjusted to the extent that western mills are switching to the production of high-profit sanded and specialty items. (See Finding 136(a).) 418 For similar policy at Georgia-Pacific, see CX 559C. 116 Mill shut downs are not confined to slack periods. Even in rising markets, some mills may refuse to quote prices in anticipation of still higher prices in Crow’s and Random Lengths. (See CX 853B.) 117 See also CX 115, which indicates that the sale of an “isolated distress car” is an exception to the Weyerhaeuser aaMee. 28 ott a wa oe 2b o-- a.- BOISE CASCADE CORPORATION, ET AL. 67 t | Initial Decision futures on the Chicago Board of Trade affects transactional prices, or has any relevance whatever to the issues raised in this complaint.118 | 151. Complaint counsel failed to prove that plywood prices are maintained at a stable level by reason of any of the practices engaged in by respondents. To the contrary, there is uncontroverted evidence of price fluctuations in both western and southern plywood base prices caused by the cyclical factors discussed in Findings 145-147. The record shows, for example, that the base prices — as reported by Random Lengths — could not be maintained at a stable level in the face of a severely depressed building market in 1974-1975. (RX’s 6924, Z19.) For additional proof that price fluctuations occur regularly see CX 96D; RX’s 83, 436-447, 458A-459B.119. But however often base prices may change the southern plywood industry inevitably adds West Coast freight to the new base prices as reported in Crow’s and Random Lengths. (Findings 72-80, 89-99.) Ill __ Discussion és.

- Softwood plywood, an essential building material of the housing industry, was manufactured prior to 1963: by respondents and other producers exclusively from the [108] Douglas fir trees grown in or near the Pacific Northwest.120 This western fir plywood, which still accounts for about 60 percent of plywood production, is sold to buyers located throughout the United States121 at mill prices to which a substantial freight charge is added in order to arrive at delivered prices.122 The freight charge from the western mills is the actual123 freight from the Pacific Northwest to eastern freight zones, and is taken from the so-called “West Coast” or Portland, Oregon rail freight rate schedule.124 Beginning in 1968, the western plywood producers, led. by the industry’s largest firm, Georgia-Pacific, entered a new geographic area 118 Counsel for respondents informed the administrative law judge that “we don’t intend to base our defense in any respect on the existence of the futures contracts.” (Tr. 2986.) Notwithstanding this, repr ion, I have ined respondents’ proposed findings 179-180 (“The Plywood Futures Market”) as well as the material cited therein. Based upon this ination, I have hed the lusion stated in the text of this Finding. 19 See also CX 462M, for the following assessment by a Georgia-Pacific official: “There have been dedicated efforts made to control price fluctuation, but little, if any, progress ean be claimed. Being a dity, I fear that our product will continue to suffer from price fluctuations.” . 120 Findings 23, 25, 26. .

121 But see Finding 135 with respect to sheathing distribution in the South. 222 Findings 27, 68, 64.

123 The freight charge is inflated, however, by the prevalence of “underweights” in western shipments. (Finding 85.) In addition, the “Inland” mills located in Idaho and Montana set. their delivered prices on the basis of the higher freight from Portland, Oregon. (See note 30, supra.) 184 Tin dines R4, 67, a 68 ae FEDERAL ‘TRADE COMMISSION. DECISIONS Initial Decision Ls ms 91 FTC.

oo ‘the South, where vast stands. of yellow: pine: were. available for plywood manufacture.125 The pricing policy. followed by respondents i in ~ the. sale of. southern plywood from 1968 to. the present i is the central point of this case.

_ According: to..the complaint, “Georgia-Pacific and ‘the. four other ; respondents, whose combined production. accounts for over 50 percent of all plywood shipped from southern mills, have followed a practice of refusing to sell. at true F.O.B. [109]. prices; instead, they charge delivered prices for southern plywood which include the West Coast freight rate rather than the actual freight from southern mills to their customers: =:

Although the. ‘complaint at one point “describes the challenged practice — the use.of West Coast freight in southern shipments — as.a “basing point system” (Complaint { 4), in the main: charging section (“Nature of the Offense”) the term “basing point system” does not appear. There, the offenses charged are a combination or “parallel courses of business behavior” which allegedly establish and maintain “a system of delivered prices based on computation of rail freight from the Pacific Northwest for shipments from mills located outside of that region” (Complaint { 17(a)). The complaint further charges that among the effects of these practices are (1) that prices. are. stabilized and certainly is provided in the pricing. of softwood plywood among competitors (Complaint 4 18(a)) and (2).actual and potential. competition are reduced and hindered (Complaint § 18(b)). ; By its very terms, then, the complaint can be fairly read as covering both a “basing point system,” and a system of delivered prices based on concurrent use of an arbitrary freight formula which reduces or hinders price competition. That complaint counsel may have decided not to press one of the two alternative theories pleaded is not prej judicial so long as respondents were apprised of the issues at stake and were given an opportunity to litigate those issues. ITT Continental Baking Co. Inc. v. FTC, 582 F.2d. 207 (2nd Cir. 1976). Clearly respondents were so apprised since at. the earliest stage of this proceeding complaint counsel indicated that they would emphasize a price tampering theory, and that absolute price uniformity, the presumed result of a rigid basing point system, was not to be an essential part of complaint counsel’s case.126 [110] — Under either theory, however, the main issue raised by the complaint is the same: whether there is a private arrangement arrived at by formal agreement or otherwise, centering around the use of West Coast freight, to affect. prices illegally. To put it another way, the 125 Finding 26.

126 See, eg., Pre-hearing Trial Brief of Complaint Counsel at p. 38 et seg. (filed October 14, 1975). BOISE CASCADE CORPORATION, ET AL. 69 1 Initial Decision ultimate question that must be decided is whether there is a combination or a conspiracy under the Sherman Act to tamper with “price by the use of a West Coast freight factor, or if there is no combination, whether the collective, although non-collusive, use of - West Coast freight by respondents when shipping from southern mills is a violation of Section 5 of the Federal Trade Commission Act by reason of its impact on prices.

‘Before turning to the conspiracy issue and the concepts of _ “agreement” or “meeting of the minds,” I believe it is important first ~* to outline the economic effects of the use of the West Coast freight - factor. The reason that the usual order of proceeding — that is, starting with the question of “agreement” (“the initial ingredient of a _- violation of § 1 of the Sherman Act”)!27 — has not been followed, is that this case is brought under Section 5 of the Federal Trade Commission Act, and the legality of conduct under that statute need not turn on the Sherman Act concept of “agreement.” Besides, in Container Corporation, the most recent Supreme Court analysis of price-fixing combinations, the Court seemed much more concerned with the economic consequences of what was done rather than with its ability to infer a combination from certain conduct. As in Container Corporation, therefore, it must be determined whether the challenged conduct — here, the use of a West Coast freight factor in the South — reduces or interferes with the setting of prices by free market forces. If any such effects on price occur then an agreement relating to [111] West Coast freight would be per se illegal.1?° Furthermore, as indicated later the collective adoption of an arbitrary mechanism affecting price may violate Section 5 of the Federal Trade Commission Act, even in the absence of agreement. Respondents, of course, contend that there is neither an agreement nor collective adoption of an arbitrary pricing device, and that the only influences on plywood prices are the “natural” market phenomena, such as new housing starts, the weather, mill capacities, day-to-day bargaining, and other factors having nothing to do with West Coast freight. ie? United States v. Container Corporation, 393 U.S. 333 at 335 (1968). 128 United States v. Container Corporation, 393 U.S. 388 at 237. In the now famous footnote 59 to United States v. _ Socony- Vacuum Oil Co., 310 U.S. 150 at 225 n. 59 (1940), Mr. Justice Douglas writing for the Court said: “But that does not mean that both a purpose and a power to fix prices are y for the establishment of a piracy under § 1 of the Sherman Act. . [A] conspiracy to fix prices violates Section 1 of the Act though no overt action is shown, though it is not established that the conspirators had the means available for the plishment of their objective, and though the conspiracy embraced but a part of the interstate or foreign ce in the dity.” This language was clearly dictum since on the facts in Socony- Vacuum proof of effect on prices existed. In any event, even ing a literal reading of footnote 59 may apply to an explicit price-fixing agreement, it is significant that when Mr. Justice Douglas was confronted with the problem of inferring a piracy from duct in Contain - Corporation, he looked to see whether the arrangement operated to limit or reduce price competition. When he found the effects, he said “The limitation or reduction of price competition brings the case within the ban, for as we held in United States v. Socony-Vacuum Oil Co., n. 59 interference with the setting of price by free market forces is * ft mom en ” 398 U.S. at 337.

Initial Decision 91 RTC. f The parties are sharply divided on the facts even to the point where e there is a dispute as to whether West Coast freight is actually added or not. On this threshold issue, from my reading of the entire record, I. have [112] concluded that respondents do indeed arrive at their price quotations for southern pine plywood by routinely adding West Codist : freight to certain base prices.129 ' There is disagreement, too, about most other aspects of southern : plywood pricing, but there is little room for argument on the basis of this record about what the use of West Coast freight has not accomplished. Certainly from the largely unexplained and hopelessly disconnected mass of documents that complaint counsel poured into the record, I cannot discern a pattern showing that the use of West. Coast freight results in a southern plywood industry which operates as a classic basing point system is supposed to operate: there is no proof in the record of exactly matching delivered price quotes to particular customers; there is no proof that price cutters are “punished” by establishing punitive basing points; and most significantly there is no showing that the industry routinely follows an absolutely uniform base price to which West Coast freight is added, although base prices are usually kept within a narrow ambit of prices appearing in Crow’s and Random Lengths.13° It is especially significant that complaint counsel did not call a single customer of respondents or any other plywood producer who could testify about a pattern of matching prices, although complaint counsel were admonished on several occasions that this is the obvious way to prove that the industry operates in such a way that buyers are confronted in the marketplace by identical prices — the presumed result of a traditional basing point system. The total failure to produce evidence on this point, when evidence is readily available, leads to the conclusion that at least on this particular question — exact price uniformity — the evidence would have been adverse to [113] complaint counsel,131 and consistent with respondents’ position that there is no pattern in this industry of precisely matching prices to each customer. Moreover, not even the economic staff of the Federal Trade Commission could say that the plywood industry functions according to the classic model of a rigid basing point system. The staff economist called by complaint counsel acknowledged that he was not an expert in the plywood industry, and for some unaccountable reason he had not 129 Findings 72-80, 96-99, 126, 130 Findings 89-99, 101, 110-112, 143. See Kaysen, Basing Point Pricing and Public Policy, Q. J. of Econ., Vol. 68, ve 3 fase rin naea and Malchup, THE BASING POINT SYSTEM (1949) for discussion of components ofa rigid 1 Cf. Mammoth Oil Co. v. United States, 275 U.S. 13, 52 (1927); Local 167 v. United States, 291 U.S. 293, 298 (19384).

BOISE CASCADE CORPORATION, ET AL. val 1 : Initial Decision read the record in this case, although the same economist, in his masters dissertation on basing points, had decried the failure of government prosecutors to rely more heavily upon expert economic analysis.!32 I would have expected that if the documents which the government put into the record tend to establish the existence of a traditional basing point system, then this material would have been carefully organized as part of a well-structured economic case. Instead, all that the FTC staff economist did was to present an ABC primer on the way in which a traditional rigid basing point system is supposed to operate (which is hardly in dispute), but he had to concede on crossexamination that he had no knowledge of how close the plywood market actually comes to the academic model he had postulated. It should also be emphasized that at least one of respondents’ objectives (in contrast to the means used to achieve that objective) — a desire to obtain a delivered price for southern pine which approximates the delivered price of Douglas fir — is not the issue in this case. [114] To the contrary, the FTC staff economist indicated that it was rational, _in a profit maximization sense, at the start of the southern plywood industry for respondents to attempt to obtain a price for the southern product which was at or near the delivered price of the western product. The FTC staff economist testified that a lower delivered price at the outset of the southern yellow pine industry would have created a _ disincentive to ship Douglas fir plywood into the areas which might ordinarily be expected to be serviced by the southern mills, but which the southern mills could not adequately supply during the initial phase of their operations.133 Respondents’ officers offered a more direct explanation for their pricing policy. According to their testimony, the delivered price of Douglas fir plywood had established the market “value” of the product, and therefore, it was proper for the new southern mills to attempt to obtain this “value” although a significant part of the delivered price “value” of western plywood consisted of actual freight from the West Coast which was paid to the railroads and not realized by western mills. That this “freight pick-up” (the industry terminology for excess of phantom over actual freight) could result in an incremental gain in gross margins (while not upsetting the price of western plywood) was undoubtedly a consideration behind the adoption of the West Coast freight formula: obviously, Georgia-Pacific and the other respondents did not go South to depress plywood prices generally or to reduce profits.134 Still another rational explanation 132 See RX 86, p. 67. Respondents’ retained expert, on the other hand, decided not to read most of the documentary evidence although it was apparent that these exhibits were the foundation of complaint counsel's case. (Tr. 3715-17.) 133 Finding 127.

134 Findings 65-73, 127, 128, 131(d), 132, 137. Initial Decision 91 F.T.C.

(offered by one officer of a respondent company) was that any sharp cut in southern plywood prices, say, by taking the West Coast base price and simply adding on actual freight from southern mills, would have produced an apparently undesirable result (to him), namely, “we would sell it out right away. . if we were under the price that somebody else was paying very much, they would just take all of our plywood and that would be the end of it.” 195 [115] What all these explanations come down to, is that it is not irrational in a profit maximization sense for competitors simultaneously to come to the parallel realization that the long run profits of all firms in an oligopoly setting 136 will suffer if the price for a demand inelastic, undifferentiated product is cut sharply by one firm; therefore, in their own self-interest and in order to maximize profits, all firms attempt to sell the production from a new geographic area at or near the same delivered prices as the old production area, with any saving in freight resulting from locational advantages viewed as a legitimate source of additional profits.137 While the objective of the southern policy of the plywood manufacturers is neither obscure nor irrational, this, of course, does not mean that respondents may use any means to accomplish that objective. The assumption of our competitive system is that the market (pressures of supply and demand, including locational advantages of mills), will determine the price at which southern pine plywood is sold, and that no aspect of pricing whatever, including the level of prices, or the intensity of price cuts, or the relationship between fir plywood prices and pine plywood prices, or the stability of prices, may be set by a private arrangement among the producers.

As indicated above, from the record I cannot conclude that there was such a private arrangement to maintain a traditional rigid basing point system. Nevertheless, the record shows ample cause for respondents to be motivated toward a price-tampering arrangement aimed at slightly different objectives than precisely matching prices. [116] In the first place, there was the obvious point that if pine sheathing plywood could be sold in southern markets near the same delivered price as West Coast sheathing, this would be a source of substantial new profits, assuming the price of western sheathing could be maintained outside of the South, or western production was converted 135 Finding 128.

136 The five respondents control over 50 percent of southern production, with Georgia-Pacific alone having over 30 percent of the market. (Finding 31.) A tight oligopoly has been defined as an industry with a “very small number ’ (eight or fewer) firms supplying 50 percent of the market, with the largest firm having @ 20 percent or higher share. . . .” Kaysen and Turner, ANTITRUST POLICY 72 (1959). var owt eR en ar na tan 190 BOISE CASCADE CORPORATION, ET AL. 73 Initial Decision » high profit products which could not be readily produced in the outh.138 Additionally, respondents realized that demand would soon uild to pass on to buyers the dramatic savings in freight which were t least theoretically possible as a result of the new mill locations.139 here was apprehension, too, that if building starts declined, the new ills would create excess capacity pressures, and with their high fixed »sts they might become a general price depressant instead of a source f additional profits to be derived from the freight advantage.140 inally, the success of the southern venture in generating incremental ains to gross margins might be endangered because there existed a ibstantial problem relating to widely divergent southern freight items. Shipments east from the Pacific Northwest mills are made to istorically neat and concentric eastern freight zones at the same rail ite irrespective of the western shipping point, with the result that the nportant freight factor in western shipments is exactly predictdle.441 In contrast, the South has a patchwork pattern of widely aried freight rates which differ from mill to mill and from customer cation to customer location.142 Unless doubt about the freight part of - uthern delivered prices were removed, this, too, might tend to create ywnward pressure on prices as plywood producers strive to avoid ing undersold in a market rife with locational uncertainty. [117] By using the West Coast freight factor in quoting prices, respon- 2nts accomplished several objectives consistent with achieving the dals and resolving the problems outlined above. First, the West Coast freight factor served as a focal point for an idustry-wide plan to fix the price of southern plywood at or near the ime level as the delivered price of western plywood, and thereby low respondents to take the freight “pick-up” as an incremental gain gross margins, rather than passing on this locational advantage to jyers.143 By use of the West Coast freight factor, respondents, in ‘fect, signaled to each other on what to add to base prices and what at to cut: they effectively informed each other on where to hold the mt on price competition and thereby keep up the prices of both estern and southern plywood.144 This is borne out by record evidence lowing that the West Coast freight factor was given a mantle of 138 Findings 65-73, 182, 136, 187.

139 Finding 69.

40 Finding 70.

441 Finding 67.

442 Finding 68.

143 Findings 65, 69, 73, 102-112.

144 For a description of focal points as a basis for tacit agr it among oligopolists see Scherer, INDUSTRIAL ‘RKET STRUCTURE AND ECONOMIC PERFORMANCE 179 (1971). See also Wall Products Co. v. National psum Co., 326 F. Supp. 295, 315-16 (N.D. Calif. 1971). Initial Decision 91 F-T.C invulnerability (“we should not, in any way, endanger this necessar source of income. . .”).145 With uncertainty as to the possibility of dee] price cuts to reflect locational advantages removed, competition wa: limited to small differences in base prices among respondent firms.!4 Second, by using the West Coast zones in place of the souther1 freight rate,, respondents immediately eliminated the element 0 uncertainty in their delivered prices which would have resulted from : diverse freight factor. Combined with the use of still another arbitrar: pricing element — association weights — all uncertainty about transportation [118] costs was removed.147 And with the knowledg: that each week’s bargaining would at least take into account bas prices appearing in Crow’s or Random Lengths, a large measure o price predictability was achieved,!48 although it is plain that cyclica _ pressures which impact on plywood price stability still persist.14° It should be noted that respondents’ own explanation for th adoption of the West Coast device is consistent with the propositio: that the use of West Coast freight factor minimally has the effect o reducing pricing uncertainty. According to respondents, by using th West Coast rate, the industry is able to produce southern prices which! are easily comparable to the orderly western prices as well as making; southern prices, themselves, easily comparable.15° But the fact that i a relatively concentrated industry, the producers arrange to extend a1 existing formula, which tends to create price predictability, to a nev geographic area hardly argues in its favor. To the extent that wester prices are in‘ fact certain and predictable, this results from th happenstance15! of the West Coast freight rate. There is nothing however, inevitable about transferring the predictability of the actual West Coast freight factor to the South. As I indicated earlier, actual freight from southern mills varies all over the lot and, undoubtedly could have produced a great deal of uncertainty with concomitan downward pressure in pricing. Indeed, the mere fact that respondent take it upon themselves to arrange for the arbitrary transfer of th certainty of West Coast rates to the new southern area is stron; evidence of intent to remove what could have been a major source o price competition. [119] Respondents also say that the price for southern pine is competitive price (presumably set by what the market will bear because at the outset of the southern plywood industry what th “4s Finding 108 and see Findings 73-80, 96-112, 146 Findings 110-112.

447 Findings 82-88.

448 Findings 89-101, 110-112.

149 Finding 151.

150 Finding 125.

BOISE CASCADE CORPORATION, ET AL. vii) 1 Initial Decision market would bear was the delivered price of western plywood which included West Coast freight.152 However, in a market where almost all of the important sellers are uniformly quoting prices on the basis of West Coast freight, the “market” has no realistic choice as to what it will or will not bear.153 Moreover, I am not persuaded by respondents’. argument that eventually entry (and increased production) will mean that the freight advantage will be passed on, as prices reach the level of costs of the most efficient producers. There is no sign that this has happened in nearly thirteen years of southern production,154 or that it ever will happen if the industry is left to its own devices. Since “entry” in this instance largely consists of western producers opening southern mills,455 they “enter” with a built-in incentive not to undercut the western mills by the full extent of the locational advantage. In fact, this is exactly what happened — the western producers all followed the Georgia-Pacific lead and used the West Coast rate to price southern plywood near the level of the western product. Even new (i.e., nonwestern) producers who may have been induced to enter the South because of the lure of high profits apparently have found very little cause to challenge a West Coast freight system which produces such favorable results for a standardized, price inelastic product in a concentrated industry.156 Moreover, as indicated in Finding 133, further entry into the southern plywood industry on a [120] scale significant enough to erode prices is unlikely. As for other market conditions which in the long run may tend to drive the southern price down, it is now clear that the most obvious market influence in the pricing of a product for which the transportation cost forms a substantial part of the delivered price — the proximity of mills to users — has been neutralized by the industry-wide adoption of the very arrangement which is the subject of this proceeding. To sum up, the West Coast freight formula is simply a convenient private arrangement for maintaining southern plywood prices at a level satisfactory to respondents while facilitating the traditional oligopolistic objectives of containing price cutting and limiting price uncertainty. Such a private arrangement is contrary to the assumption of the antitrust laws that the market should determine all aspects of prices, including at what stage locational advantages are asserted and sharp differences in prices may develop. Here, the respondents have adopted a method by which they can interfere with the operation of 153 Finding 74.

454 Finding 127.

155 Finding 138.

156 Findings 132, 137, 139.

76 FEDERAL ‘TRADE COMMISSION DECISIONS Initial Decision 91 F-T.C.

the market mechanism. When competitors adopt such a formula affecting price, this means that a private understanding, centering upon an arbitrary device, is playing a key role, rather than the market itself, in determining whether the objectives of obtaining the same (or nearly the same) price for western and southern plywood and limiting price uncertainty are realized or not. I believe an arrangement of this sort is unlawful whether it is considered as either (1) a conspiracy under the Sherman Act, or (2) an unfair method of competition under Section 5 of the Federal Trade Commission Act. Turning first to the Sherman Act 157 and the conspiracy issue, it has been the rule since Interstate Circuit v. United States, 306 U.S. 208 (1939) that when competitors accept (even without previous formal agreement) [121] an invitation to participate in a plan, the necessary consequence of which is restraint of trade, this is enough to establish an unlawful conspiracy or combination.58 Accordingly, it can be argued that when Georgia-Pacific’s West Coast phantom freight formula of quoting prices was assiduously followed by the others, and thereafter all respondents maintained a system of quoting prices which was based on the artificial factor of West Coast phantom freight, this represented a meeting of the minds or, if you will, an illegal tacit agreement in the Interstate Circuit sense.

But whatever the ultimate reach of Interstate Circuit, clearly it does not mean that every action of an industry innovator or leader which is followed in turn by competitors is tantamount to an “invitation” and “acceptance” from which an unlawful Interstate Circuit combination can be inferred. In Theatre Enterprises, Inc. v. Paramount Film Distributing Corp., 346 U.S. 587 (1954), for example, the Supreme Court held it was not error to deny a directed verdict on a conspiracy charge in circumstances when parallel conduct could readily: be. explained as the pursuit of individual self-interest without regard to competitor reaction, although it was undisputed that each firm was aware of the action of its competitors. On the other hand, it has been suggested that an Interstate Circuit agreement may be inferred if there is evidence of anticompetitive effects flowing from interdependent conduct when the action of each firm is made in expectation that others will follow, and the conduct under examination is consistent 157 Section 1 of the Sherman Act reads as follows: Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared to be illegal. . . .15 U.S.C. § 1 (1964). 158 See also American Tobacco Co. v. United States, 328 U.S. 781, 809-10 (1946) (“The essential combination or conspiracy in violation of the Sherman Act may be found in a course of dealing or other cir as well as in an ’ nee nee nN BOISE CASCADE CORPORATION, ET AL. 7 Initial Decision rith. the self-interest of each firm only if it is certain that all ompetitors will do the same.159 [122] Applying the rationale of “interdependence” to this case, it is rossible to infer an Interstate Circuit agreement or combination from ‘he fact that no one respondent could expect to sell pine plywood at or rear the delivered price for fir plywood unless it were certain that inother respondent would not take full advantage of its locational 2dge, cut pine prices so as to reflect actual freight only, and thereby 10pe to increase its market share. If, however, combinations are to be nferred solely on the basis of such interdependent calculations, it would. mean that practically all pricing decisions in relatively -oncentrated industries would have conspiratorial overtones, given the ‘act that when the number of sellers is small, and the demand for a itandardized product is inelastic, competitors can scarcely avoid full ‘ecognition of their mutual dependence upon each other as they seek to naximize profits at the right price.16° But whether or not such mere nterdependence in concentrated markets is an adequate basis for an nference of illegal conspiracy, is a question I do not have to reach on che facts of this case. For here, something extra — a clear signal, a 1elping hand if you will — was added to the mechanics or process of nterdependent decision-making; namely, by use of the West Coast ‘ate schedule the coordination of oligopolistic decision-making around 1 convenient focal point was made possible, and the unpredictable slement of freight variations inherent in the southern freight rates was removed.

There is ample precedent for the proposition that the use of such wivate devices to facilitate joint profit-maximizing decisions by ligopolists is not permitted under the antitrust laws. In the words of cement Institute, itis the adoption of such “means and measures” and 1 “handy instrument” to accomplish an otherwise lawful (or at least 1eutral) result that compels a conclusion that an illegal combination 2xists.161 It is especially [123] significant that in Cement Institute, the Supreme Court noted that an inference of an Interstate Circuit ‘invitational” conspiracy may arise from the fact that all respondents ‘allow a pricing pattern based on an arbitrary freight basing point.16 As for its impact on price certainty, the West Coast freight factor 1as served a purpose similar to the exchange of price information in container Corporation. As in Container Corporation, this is an ndustry dominated by relatively few sellers of a standardized, price 18° See Turner, The Definition of Agreement Under the Sherman Act: Conscious Parallelism and Refusals To Deal, 6 Harv. L. Rev. 655, 681 (1962). [hereinafter cited us Turner }. 160 Chamberlain, THE THEORY OF MONOPOLISTIC COMPETITION 46-51 (19685). 161 FTC v. Cement Institute, 388 U.S. 683 at 713 (1948). 162 Jd, at 716, footnote 17, and panying text, 78 ~~. FEDERAL TRADE COMMISSION DECISIONS | Initial Decision 91 FTC inelastic product, in which traditionally a lower price does not mean a larger share of the available business but a sharing of the existing business at a lower return. Knowing this, the rational. plywood producer will naturally seek to avoid competitive price cutting. But if he is uncertain about a key element in his competitors’ prices, he will be under’ pressure to edge downward.'65 The use of the neatly concentric West Coast freight factor in place of the untidy southern rates represents nothing less than an industry arrangement which has been adopted not only as a common rallying point for maintaining southern prices at a level satisfactory to the respondents and ‘for resisting price-cutting pressures, but also to eliminate a large measure of price uncertainty. Even before Container Corporation, it was the . rule that an inference of conspiracy may be drawn from the use of unnatural pricing formulas involving arbitrary freight rates where nonequidistant sellers were [124] able to match their competitors’ prices more easily and “eliminate a kind of uncertainty that is a potent force disrupting stable noncompetitive oligopoly pricing.” 164. ~ While I have concluded that a Sherman Act rationale of an illegal implied agreement applies in the circumstances described above, my decision does not rest solely on that basis. I believe that concurrent use by respondents of an arbitrary device which may influence price levels or reduce price uncertainty is an unfair method of. competition, whether it comes about from an agreement or otherwise. In reaching this conclusion, I start from the proposition that an “agreement” among competitors is summarily proscribed under the antitrust laws because it is a form of private regulation respecting prices and profits which is contrary to our basic economic assumption that the competitive marketplace will control. See, Northern Pac. Ry. v. Unitea States, 356 U.S. 1, 4-5 (1958); United States v. Trenton Potteries Co. 273 U.S. 392, 396-398 (1927). This does not mean, however, that the antitrust policy which condemns agreement can be read as allowing other forms of self-serving arrangements which achieve the same result of substituting for the competitive market private decision: making by presumed rivals. The basic policy of favoring the market a: the source of pricing decisions is not so limited as to be concernec merely with agreements, tacit or otherwise. As it happens, the very purpose of Section 5 of the Federal Trade Commission Act was to implement antitrust policy by eliminating Wes Chamberlain, THE THEORY OF MONOPOLISTIC COMPETITION 51-52 (1965). See also Kaysen ani Turner, ANTITRUST POLICY 160 (1959) in which the authors describe the function of price uncertainty it concentrated industries as follows:

But in markets where oli listic el its are p, some ig and uncertainty about the behavior o. rivals is an important competitive element in the market, since it prevents “rational” oligopolistic calculatio: leading to joint maximization of profits.

464 Turner, surpra note 159 at 674.

BOISE CASCADE CORPORATION, ET AL. 79 i . Initial Decision _ every mechanism which may be devised (including devices for working restraints beyond: the traditional method of conspiracy) to frustrate competition. See, FTC v. Beech-Nut Packing Co., 257 U.S. 441 (1922); FTC v. Brown Shoe Co., 384 U.S. 316 (1966); Atlantic Refining Co. v. » FTC, 381 US. 357 (1965); Fashion Originators Guild of America Inc. v. FTC, 312 U.S. 457 (1941). In other words, in applying Section 5, there is no necessity for distinguishing between “agreement” and any other form of [125] artificial pricing mechanism including the concurrent, _ although arquendo non-collusive, adoption by competitors of an _ artificial formula for quoting prices. This is the plain holding in ~ Triangle Conduit & Cable Co. v. FTC, 168 F.2d 175 (7th Cir. 1948) aff'd. . by an equally divided Supreme Court sub nom. Clayton Mark & Co. v. - FTC, 336 U.S. 956 (1949) where the court sustained Count 2 of a ~ complaint which was based on the “concurrent use of a formula - method of making delivered price quotations with the knowledge that each did likewise, with the result that price competition between and among them was unreasonably restrained.” 168 F.2d at 176. I believe that Triangle Conduit is controlling authority on the question of the legality of artificial formula-pricing under Section 5, irrespective of ~ the existence of a Sherman Act conspiracy. The decision in that case is perfectly consistent with the Supreme Court’s treatment of the same question in Cement Institute:

While we hold that the Commission’s findings of combination were supported by evidence, that does not mean that existence of a “combination” is an indispensible ingredient of an “unfair method of competition” under the Federal Trade Commission Act.165 As for the absence of price uniformity, I do not consider this to be crucial. The mechanism used by the plywood industry is as artificial and as self-serving as an outright agreement in influencing the level of prices, and there is no reason, again, for distinguishing between “agreement” or “device” when it comes to determining the level of uniformity which is required before a violation is found. As indicated ~ earlier, I have concluded that the respondent plywood manufacturers combined to influence the level at which southern plywood was sold by adopting an arbitrary formula which created a pricing focal point and limited price uncertainty. It is of no consequence, [126] therefore, that the practices under consideration did not result in absolute price uniformity, or that certain market factors influencing price levels are beyond respondents’ control. The Supreme Court has said that price is *s PTC y. Cement Institute, 333 U.S, 688, 721, note 19 (1948). Initial Decision ae 91 FTC.

so sensitive a barometer of our market economy (“the central nervous. system of the economy”) 166 that no aspect of pricing can be left to : private: regulation; accordingly, concerted activity to influence or: tamper with the level of prices, directly or indirectly, is as violative of. the antitrust laws as one aimed at absolute uniformity. United States v. Container Corp., 393 U.S. 383 (1969); United States v. General Motors Corp., 384 U.S. 127 (1966); United States v. Socony- Vacuum Out . Co., 310 U.S. 150 (1940). As the Supreme Court: noted. in Socony- Vacuum, it is the interference with the free play of the market which is the gravamen of the offense:

“Any combination which tampers with price structure is engaged in an unlawful ~ activity. Even though the members of the price-fixing group were in no position to control the market, to:the extent that they raised, lowered, or stabilized prices, . they would be directly interfering with. the free play of market. forces. The Act: places all such schemes beyond the pale and protects that vital part of our economy : against any degree of interference. 310 U. S. at 221.167 [127] There is no reason why a different stanadard respecting price uniformity should be applied to parallel adoption of an arbitrary West Coast basing point which influences prices in much the same artificial way as an outright agreement respecting price levels. On the question of factors influencing price, respondents’ retained expert, Dr. Peter Steiner, gave extensive testimony in which: he reviewed in detail aspects of plywood marketing which contribute to price uncertainty and instability in the plywood industry. This testimony is substantially consistent with my findings that there may indeed be factors which influence plywood prices (whether they be transactional prices, or the level of prices, or the trend in prices) apart from the West Coast freight factor.168 But I do not understand that ' the legality of a practice turns on what respondents did not do, or on what respondents could not control, or on what respondents left untouched after adopting the West Coast formula as a means of keeping prices up and reducing uncertainty in the market. That the industry retains some of the hallmarks of a competitive market. is irrelevant, as the Court has plainly indicated in Socony-Vacuum and 166 United States v. Socony- Vacuum Oil Co., 310 U.S. 150, 224 n. 59 (1940). 187 If the only issue in this case was whether respondents had conspired to charge exactly matching prices, then I would agree with respondents that the language in Chain Institute v. FTC, 246 F.2d 231 at 239 (8th Cir. 1957) (“If there is competition in base prices there cannot possibly be any ‘systematic matching’ of delivered prices,” language cited by the Court from the Commission's supplemental brief) might be controlling. However, J interpret a complaint alleging the stabilization and reduction of petition to be grounded on Socony-Vacuwm and its progeny which have held that neither the existence of price variations nor the inability of firms to contro! the market are crucial. See, e.g., United States v. Gasoline Retailers Assn., Inc., 285 F.2d 688 (7th Cir. 1961);. Plymouth Dealers’ Assn. of No. Cal. v. United States, 279 F.2d 128 (9th Cir. 1960); United States v. American Smelting and Refining Co., 182 F. Supp. 834 (S.D.N.Y. 1960).

168 Findings 141-151.

BOISE CASCADE CORPORATION, ET AL. 81 1 Initial Decision Container Corporation if respondents adopt an arbitrary [128] mechanism which tampers with price in any way.'6° Based on the record evidence, I have concluded that this is precisely what respondents have done. Irrespective of what competition remains, it is clearly illegal for competitors to arrange matters so that any aspect of competition is removed with the result that one can never tell how competitive the market would have been but for the restraint. [129] Furthermore, on the question of price uniformity, the Commission need not ignore the obvious fact that the plywood industry has, in effect, put into place a system which could easily produce absolute uniformity. The elements of such a system — ready availability of a uniform base price (the prices reported in Crow’s or Random Lengths) plus use of an arbitrary freight factor, as well as so-called “association” weights could produce price uniformity down to the last penny. Moreover, since the record plainly shows that each of these pricing factors has been used by respondents, the dangers inherent in such a threat are very real indeed. Clearly, the Federal Trade Commission has authority to dismantle the illegal parts of this machinery even though absolutely uniform prices have not been obtained. FTC v. Cement Institute, 333 U.S. 683, 708 (1948).

Confronted with an industry which has already accumulated all of the means which it needs to fix uniform prices, and especially such a highly suspicious mechanism as an arbitrary West Coast freight rate and “association” weights, the Commission need not sit by until total uniformity comes about.170 Where the facts indicate that the respondents have followed a parallel course of conduct which creates all that is necessary to carry out the conspiracy, particularly the parallel adoption of an artificial pricing element, this is more than an 169 The arrangement in Container Corporation was stricken down by the Supreme Court although the District Court made findings relating to generally declining prices and the lack of price uniformity as well as the existence of myriad market and competitive factors affecting price. In its decision, the lower court cited the following factors as affecting the prices of each firm: estimates prepared from its internal manual; current plant production load or existence of idle time in its plant, a condition which varies widely in each plant from week to week, season to season, and with the rise and fall of business activity of its customers, suitability of the equipment in its plant for the production of the particular container and the expense of obtaining new equipment when y;5 1 5 1 7 15 1791 1995 84 26 96.797050 availability5 1 5 1 7 16 1885 1995 22 21 96.797050 of4 1 5 1 8 0 593 2029 1314 28 -1 5 1 5 1 8 1 593 2037 40 20 95.790398 any.5 1 5 1 8 2 643 2032 74 25 95.790398 specials 1 5 1 8 3 729 2031 104 21 96.790932 materials5 1 5 1 8 4 843 2032 77 20 96.295914 needed5 1 5 1 8 5 931 2034 21 18 96.872719 to5 1 5 1 8 6 961 2031 87 26 96.872719 produces 1 5 1 8 7 1057 2032 36 20 96.995193 thes 1 5 1 8 8 1102 2031 67 24 95.267616 order;5 1 5 1 8 9 1180 2031 125 25 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represented5 1 9 1 2 2 733 2231 25 25 96.690292 by5 1 9 1 2 3 766 2231 36 20 97.007553 thes 1 9 1 2 4 809 2231 66 23 96.991608 order;5 1 9 1 2 5 883 2230 83 26 96.851898 general5 1 9 1 2 6 975 2231 80 20 96.477585 markets 1 9 1 2 7 1061 2230 125 21 96.477585 conditions5 1 9 1 2 8 1181 2237 21 14 96.641037 in5 1 9 1 2 9 1209 2230 35 20 96.915527 thes 1 9 1 2 10 1250 2229 142 21 96.001373 southeastern5 1 9 1 2 11 1399 2229 76 21 96.836906 United5 1 9 1 2 12 1482 2229 70 21 96.796967 States5 1 9 1 2 13 1558 2229 52 20 94.835495 ands 1 9 1 2 14 1606 2235 19 14 94.835495 in5 1 9 1 2 15 1633 2229 35 20 96.818016 thes 1 9 1 2 16 1675 2228 121 26 95.353966 corrugated5 1 9 1 2 17 1804 2224 104 49 96.855324 container4 1 9 1 3 0 593 2262 1139 28 -1 5 1 9 1 3 1 593 2263 93 27 96.975060 industry5 1 9 1 3 2 695 2264 139 26 96.759529 particularly;5 1 9 1 3 3 844 2265 64 25 96.875412 prices5 1 9 1 3 4 916 2264 23 20 96.995041 of5 1 9 1 3 5 946 2264 28 20 95.708687 its5 1 9 1 3 6 982 2266 69 18 96.789421 recent5 1 9 1 3 7 1058 2265 54 19 96.475700 sales5 1 9 1 3 8 1118 2264 24 20 96.475700 of5 1 9 1 3 9 1149 2264 36 20 96.913902 thes 1 9 1 3 10 1193 2269 56 15 96.275963 same5 1 9 1 3 11 1257 2269 24 14 96.275963 or5 1 9 1 3 12 1288 2263 59 20 96.818558 others 1 9 1 3 13 1354 2263 121 25 96.627914 corrugated5 1 9 1 3 14 1544 2262 5 4 71.702103 i5 1 9 1 3 15 1605 2265 22 17 96.993744 to5 1 9 1 3 16 1634 2262 48 20 96.515709 that5 1 9 1 3 17 1724 2264 8 6 95.933922 cust2 1 10 0 0 0 592 2273 1317 248 -1 3 1 10 1 0 0 593 2273 1316 116 -1 4 1 10 1 1 0 593 2273 1314 51 -1 5 1 10 1 1 1 593 2297 84 26 96.689140 loyalty;5 1 10 1 1 2 686 2297 68 20 96.717064 effects 1 10 1 1 3 761 2298 24 19 96.863396 of5 1 10 1 1 4 792 2298 36 19 97.007912 thes 1 10 1 1 5 836 2298 60 19 96.903992 orders 1 10 1 1 6 903 2303 26 14 96.870209 on5 1 10 1 1 7 940 2298 25 19 96.745804 its5 1 10 1 1 8 973 2299 53 18 96.833542 costs5 1 10 1 1 9 1034 2298 41 19 96.991066 ands 1 10 1 1 10 1084 2297 82 26 96.984688 profits;5 1 10 1 1 11 1175 2297 41 20 96.984688 ands 1 10 1 1 12 1224 2296 65 26 96.984352 prices5 1 10 1 1 13 1297 2296 90 20 96.678726 believed5 1 10 1 1 14 1395 2298 22 17 96.753365 to5 1 10 1 1 15 1425 2296 52 20 96.746765 have5 1 10 1 1 16 1485 2295 51 21 95.817413 been5 1 10 1 1 17 1546 2297 52 19 95.540558 most5 1 10 1 1 18 1606 2295 91 26 96.450249 recently5 1 10 1 1 19 1705 2273 93 51 96.559570 charged5 1 10 1 1 20 1801 2301 24 13 96.862671 or5 1 10 1 1 21 1832 2294 75 26 96.761154 quoted4 1 10 1 2 0 593 2328 1316 28 -1 5 1 10 1 2 1 593 2330 26 26 96.748985 by5 1 10 1 2 2 632 2331 138 25 96.658142 competitors,5 1 10 1 2 3 784 2331 58 19 96.725555 when5 1 10 1 2 4 856 2331 49 23 96.642616 such5 1 10 1 2 5 919 2330 112 20 96.263062 defendants 1 10 1 2 6 1044 2331 87 19 96.730263 believes5 1 10 1 2 7 1144 2331 18 19 95.938797 it5 1 10 1 2 8 1174 2330 37 20 95.938797 has5 1 10 1 2 9 1224 2329 107 21 96.833481 sufficient5 1 10 1 2 10 1343 2329 53 20 96.833481 basis5 1 10 1 2 11 1409 2329 33 20 96.912216 for5 1 10 1 2 12 1453 2329 50 20 96.669624 such5 1 10 1 2 13 1516 2328 68 21 95.877815 belief.5 1 10 1 2 14 1600 2328 74 21 96.624901 United5 1 10 1 2 15 1685 2328 67 20 92.782379 States5 1 10 1 2 16 1764 2334 20 13 92.782379 v.5 1 10 1 2 17 1798 2328 111 20 93.603020 Container4 1 10 1 3 0 595 2363 661 28 -1 5 1 10 1 3 1 595 2363 137 28 96.715942 Corporations 1 10 1 3 2 734 2363 21 26 96.715942 of5 1 10 1 3 3 760 2364 103 23 96.390640 America,5 1 10 1 3 4 869 2364 38 19 91.196152 2735 1 10 1 3 5 914 2363 22 20 89.169724 F.5 1 10 1 3 6 943 2363 61 26 96.951988 Supp.5 1 10 1 3 7 1013 2364 29 24 93.677132 18,5 1 10 1 3 8 1053 2359 21 36 90.514038 265 1 10 1 3 9 1079 2363 177 25 89.898232 (M.D.N.C.1967).3 1 10 2 0 0 592 2394 1317 127 -1 4 1 10 2 1 0 636 2394 1272 28 -1 5 1 10 2 1 1 636 2397 27 13 80.836990 1705 1 10 2 1 2 676 2397 24 20 94.253555 In5 1 10 2 1 3 712 2397 70 19 96.718773 Allied5 1 10 2 1 4 792 2397 68 25 96.825500 Papers 1 10 2 1 5 868 2397 59 20 93.264297 Mills5 1 10 2 1 6 938 2403 18 14 86.193428 v.5 1 10 2 1 7 967 2396 58 25 96.532219 FTC,5 1 10 2 1 8 1037 2397 36 19 96.532219 1685 1 10 2 1 9 1084 2397 47 20 91.855705 F.2d5 1 10 2 1 10 1142 2397 45 23 96.801819 600,5 1 10 2 1 11 1197 2397 37 19 96.890869 6065 1 10 2 1 12 1243 2396 45 24 95.823280 (7th5 1 10 2 1 13 1297 2395 41 21 95.974495 Cir.5 1 10 2 1 14 1350 2395 61 25 96.862022 1948),5 1 10 2 1 15 1422 2395 35 21 96.942421 thes 1 10 2 1 16 1468 2394 77 21 96.937859 Circuits 1 10 2 1 17 1554 2394 64 21 96.441788 Courts 1 10 2 1 18 1627 2394 44 21 96.484062 said5 1 10 2 1 19 1681 2394 47 21 96.632439 that5 1 10 2 1 20 1738 2394 68 20 93.236267 where5 1 10 2 1 21 1817 2394 18 19 89.664017 “.5 1 10 2 1 22 1849 2409 4 4 89.901619 .5 1 10 2 1 23 1867 2394 41 19 90.273186 .thea 1 10 2 2 0 592 2427 1317 28 -1 5 1 10 2 2 1 592 2432 84 23 95.882339 patterns 1 10 2 2 2 686 2431 75 24 95.882339 clearly5 1 10 2 2 3 771 2430 94 25 96.488480 provides5 1 10 2 2 4 874 2436 13 13 96.488480 a5 1 10 2 2 5 897 2436 70 14 96.838203 means5 1 10 2 2 6 976 2431 23 18 96.683342 of5 1 10 2 2 7 1008 2430 68 25 96.866966 fixing5 1 10 2 2 8 1086 2430 89 20 96.860641 uniforms 1 10 2 2 9 1186 2429 64 26 93.281418 prices5 1 10 2 2 10 1259 2428 159 27 68.171143 [respondents’]5 1 10 2 2 11 1428 2431 116 23 96.612991 temporary5 1 10 2 2 12 1553 2428 111 26 96.356995 departures 1 10 2 2 13 1672 2427 55 20 96.339577 from5 1 10 2 2 14 1737 2427 54 20 96.662804 theirs 1 10 2 2 15 1799 2429 78 23 96.892685 systems 1 10 2 2 16 1886 2433 23 13 96.946991 or4 1 10 2 3 0 592 2460 1316 29 -1 5 1 10 2 3 1 592 2465 118 23 96.896614 temporary5 1 10 2 3 2 722 2463 93 25 96.088142 inability5 1 10 2 3 3 826 2466 21 17 95.759209 to5 1 10 2 3 4 857 2470 59 19 96.799576 carry5 1 10 2 3 5 927 2464 88 24 96.991455 through5 1 10 2 3 6 1026 2464 54 19 96.961205 theirs 1 10 2 3 7 1090 2470 87 18 96.855736 purposes 1 10 2 3 8 1186 2463 49 20 96.946953 does5 1 10 2 3 9 1246 2464 36 18 96.928429 not5 1 10 2 3 10 1292 2462 67 20 96.765663 affects 1 10 2 3 11 1369 2461 26 21 96.391075 its5 1 10 2 3 12 1405 2461 88 26 93.272224 legality.5 1 10 2 3 13 1504 2461 168 26 76.631927 [Respondents’]5 1 10 2 3 14 1681 2461 74 25 96.876175 degrees 1 10 2 3 15 1765 2460 25 20 96.857162 of5 1 10 2 3 16 1888 2460 20 20 96.987335 in4 1 10 2 4 0 592 2495 691 26 -1 5 1 10 2 4 1 592 2497 82 24 96.961472 stifling5 1 10 2 4 2 681 2497 55 24 96.631302 prices 1 10 2 4 3 787 2497 85 24 94.767792 petitions 1 10 2 4 4 881 2497 17 20 96.673042 is5 1 10 2 4 5 905 2499 36 17 96.987709 not5 1 10 2 4 6 947 2497 36 20 96.855164 thes 1 10 2 4 7 1089 2497 23 20 97.011505 of5 1 10 2 4 8 1118 2496 55 21 96.918198 theirs 1 10 2 4 9 1179 2495 104 26 96.236969 liability.”2 1 11 0 0 0 1514 2468 363 12 -1 3 1 11 1 0 0 1514 2468 363 12 -1 4 1 11 1 1 0 1514 2468 363 12 -1 5 1 11 1 1 1 1514 2468 363 12 95.000000 2 1 12 0 0 0 742 2504 340 11 -1 3 1 12 1 0 0 742 2504 340 11 -1 4 1 12 1 1 0 742 2504 340 11 -1 5 1 12 1 1 1 742 2504 340 11 95.000000 Initial Decision 91 F.T.C.

adequate basis for remedial action by the Commission. See, FTC v. Cement Institute, 333 U.S. 683, 693 (1948). [130] In sum, enough anticompetitive mischief has already been accomplished by respondents and no additional proof of wrongdoing, such as uniform prices or a fixed price level, is necessary. With the opening of the vast stands of southern pine, the consuming public had every reason to expect that at least one significant cost included in the price of a new home — plywood sheathing — would be sharply reduced. The West Coast phantom freight formula was a form of private regulation which the industry adopted to prevent this from happening. This plan ‘ succeeded in restricting price competition to a narrow range and in keeping the delivered price of the new southern product pegged near the delivered price of western plywood although the southern mills were practically next door to important building markets in the eastern half of the country. The Commission should dismantle this illegal scheme whether it is characterized as (1) a conspiracy, or as (2) an unfair method of competition which is contrary to the policy of the antitrust laws. For the reasons stated above, the use of West Coast freight in shipments from southern mills violates Section 5 of the Federal Trade Commission Act under either rubric. IV RELIEF On the question of relief, the rule is that the agency is allowed wide discretion so long as the remedial order is reasonably related to the unlawful practices found to exist. FTC v. Mandel Bros., Inc., 359 U.S. 385 (1959).

Here, an artificial phantom freight factor not only influences the level of delivered prices but it removes a large degree of price uncertainty. Therefore, an order which eliminates all use of any arbitrary basing point is fully justified. In addition, the order will prohibit reference to “association” weights which are inextricably linked to the use of a West Coast freight factor in arriving at predictable delivered prices. [131] , Under the authority of FTC v. National Lead Co., 352 U.S. 419 (1957), the order will include a provision requiring a bona fide F.O.B. option to buyers. Respondents have manipulated the level of delivered prices and created a large measure of price certainty by use of the mechanism of a West Coast freight factor. While the order will not proscribe the individual use of delivered prices (so long as freight is not calculated from an arbitrary base and actual freight is used) what is needed, in the words of National Lead is a “hreathine enoall duvine BOISE CASCADE CORPORATION, ET AL. 88 1 Initial Decision which independent pricing might be established without the hang-over of the long-existing pattern of collusion.” 352 U.S. 419 at 425. True F.O.B. prices, which allow customer pick-ups when they are economically attractive to a buyer are clearly the most effective way of breaking the current industry pattern of adding West Coast freight to arrive at delivered prices and using artificially inflated “F.O.B.” prices which inevitably include West Coast freight. A bona fide F.O.B. price “would reintroduce the kind of uncertainties, as to what price will meet or beat the quotations of competitors, that will restore some measure of competitive pricing.” 171 The order, however, will not prohibit reporting of prices by respondents to Crow’s and Random Lengths, as complaint counsel urge. While it is true that Crow’s or Random Lengths may be used, along with West Coast freight and “association” weights, to arrive at uniform prices, there is no pragmatic way of preventing use of published data. The reporting services have ample industry sources to consult (non-respondent mills, lumber brokers, wholesalers, and other customers of respondents), and nothing of consequence will be - accomplished if respondents are foreclosed from reporting prices to those media, except possibly to make it more difficult for these publications to exercise their unchallenged right to report on the facts of plywood marketing. On the basis of this record, where no convincing showing was made by complaint counsel that Crow’s or Random Lengths are manipulated or controlled by respondents, I would not interfere with this right. Besides, neither the transmittal by respondents nor the publication by the reporters of mill [132] prices are the real issues in this case. The heart of the matter is the use of West Coast freight as an inevitable addition to the reported prices. Vv CONCLUSIONS 1. The Federal Trade Commission has jurisdiction over the subject matter of this proceeding and over respondents Boise Cascade Corporation, Champion International Corporation, Georgia-Pacific Corporation, Weyerhaeuser Company and Willamette Industries, Inc. 2. The acts and practices charged in the complaint took place in commerce within the meaning of the Federal Trade Commission Act. 3. While engaged in the sale and distribution of softwood plywood, the respondents, individually, and in combination, are now pursuing and for a number of years have pursued parallel courses of business 171 Turner, supra note 159 at 676.

Initial Decision 91 F.T.C.

behavior constituting unfair methods of competition and unfair acts in commerce. Specifically, respondents, individually, and in combination, have been and are now engaged in the following unfair methods of competition and unfair acts and practices:

(a) establishing and maintaining a system of delivered prices based on computation of rail freight from the Pacific Northwest for shipments made from mills located outside of that region; (b) establishing and maintaining a system of delivered prices based on computation of rail freight and applying it to shipments made by other modes of transportation;

(c) refusing to permit customers who purchase from southern plants the option of picking up purchases at the plant at true F.O.B. mill prices; and [133] (d) using the identical schedule of estimated weights as a basis for’ quoting delivered prices.

4. The capacity, tendency and effects of these practices of respondents are to:

(a) stabilize prices and provide a large degree of certainty in the pricing of softwood plywood among competitors; (b) inflate the price of softwood plywood to consumers; (c) reduce and hinder actual and potential competition among respondents in the sale and distribution of softwood plywood; (d) discourage use of the cheapest and most efficient mode of transportation.

5. The conduct of respondents described above constitutes unfair methods of competition, and unfair acts and practices ii commerce in violation of Section 5 of the Federal Trade Commission Act (U.S.C. Title 15, Section 45), as amended.

Accordingly, the following order will be issued: ORDER I DEFINITIONS For the purposes of this order, the following definitions shall apply: [134] “points of origin price” — a price set by a respondent for a purchase by a customer at a mill or distribution point from which a delivered price is quoted to that customer. The “point of origin price” shall be no greater than the delivered price offered to the customer less the actual transportation costs which would have been incurred by the seller if the sale were made on a delivered price basis. “dolinered mrvre” —__ a nrinw cat hw 2a rocnandant far « nuynhaan hey a BOISE CASCADE CORPORATION, ET AL. , 85 1 Initial Decision customer which includes the cost of transportation to a designated destination point.

II It ts ordered, That respondents Boise Cascade Corporation, Champion International Corporation, Georgia-Pacific Corporation, Weyerhaeuser Company and Willamette Industries, Inc.; their subsidiaries, any concern controlled by a respondent, including joint ventures; their successors and assigns, and their officers, agents, representatives, and employees, directly or indirectly, through any corporate or other device, individually or in combination, in connection with the sale or distribution of softwood plywood, shall forthwith cease and desist: [135] 1. From using, in any manner whatever, any rate of freight or freight factor other than the actual rate of freight applicable to a given sale or purchase when calculating, negotiating or quoting the | delivered price for such sale or purchase.

2. From using, in any manner whatever, any rate of freight or freight factor other than the actual rate of freight applicable to a given intra-corporate transfer when calculating, negotiating or quoting the value to be assigned to such transfer. ' 3. From using, in any manner whatever, any estimated weights as a basis for arriving at freight charges applicable to a given sale or purchase when calculating, negotiating or quoting the delivered price for such sale or purchase unless such estimates are based upon experience with the actual weight of softwood plywood produced by the mill from which shipment is to be made. Such experience shall be accumulated and updated by representative sampling or by other reasonable methods at least once a year.

4. From using, in any manner whatever, any estimated weights as a basis for arriving at freight charges applicable to a given intracorporate transfer when calculating, [136] negotiating or quoting the value to be assigned to such transfer unless such estimates are based upon experience with the actual weight of softwood plywood produced by the mill from which shipment is to be made. Such experience shall be accumulated and updated by representative sampling or by other reasonable methods at least once a year.

Ill It is further ordered, That when a delivered price is offered by a respondent to a customer for the purchase of softwood plywood in quantities of at least a truckload, that respondent shall also allow such Opinion 91 F.T.C.

customer the option of obtaining a point of origin price and of arranging or furnishing transportation from the mill from which shipment would have been made had the delivered price been accepted. IV It is further ordered, That each respondent shall, when a sale of softwood plywood is made on a delivered price basis and is shipped in truckload or carload quantities by common or contract carriers, state on the invoice the amount of actual freight charged the customer, the common or contract carrier rate from the place of shipment [137] to the customer’s destination, the specified estimated weights, if and when used, and the point of origin price.

Vv It is further ordered, That each respondent shall notify all persons having sales and policy responsibilities in its organization of the terms of the order and publish same in at least two major trade journals or periodicals twice annually for each of ‘two years from the effective date of this order.

VI It is further ordered, That each respondent notify the Commission at least thirty (80) days prior to any proposed change in the corporate respondent which may affect compliance obligations arising out of the order, such as dissolution, assignment or sale resulting in the emergence of a successor corporation, or the creation or dissolution of subsidiaries or joint ventures.

Vil It is further ordered, That within sixty (60) days after the effective date of this order, each respondent shall file with the Federal Trade Commission a written [138] report setting forth in detail the manner and form of its compliance with this order. OPINION OF THE COMMISSION By Dixon, Commissioner:

This matter comes before us on a spirited appeal by respondents from an initial decision finding them guilty of tampering with the price of softwood plywood. The complaint was issued on April 18, 1974, charging respondents, five manufacturers of softwood plywood, with having individually and in combination pursned novel) --- BOISE CASCADE CORPORATION, ET AL. 87 1 Opinion business behavior alleged to constitute unfair methods of competition and unfair and deceptive acts and practices in violation of Section 5 of the Federal Trade Commission Act (15 U.S.C. 45). [2] In particular the complaint stated that respondents have (a) established and maintained a system of delivered prices for softwood plywood based upon computation of the freight charge from the Pacific Northwest for shipments made from plywood mills located in the South; (b) established and maintained a system of delivered prices based on computation of rail freight and applied these computations to shipments made by other and cheaper modes of transportation; (c) refused to permit customers the option of purchasing at respondents’ southern plywood plants at a true F.O.B. price; and (d) used identical and inaccurate estimated shipping weights as the basis for computing the freight component of delivered price quotations. The alleged effects of these practices have been to (a) stabilize prices and increase certainty in the pricing of plywood among competitors; (b) reduce and hinder actual and potential competition among respondents in the sale and distribution of plywood; (c) create disincentives to the most efficient location of plywood producing points; (d) create disincentives for customers to locate close to plywood producing points; (e) discourage use of the cheapest and most efficient mode of transporting plywood; (f) discriminate in prices between customers; and (g) deceive customers with respect to freight. A trial was held before Administrative Law Judge (ALJ) Morton Needelman, who found a violation of Section 5 as charged, although he rejected certain particulars of the complaint. Respondents have taken vigorous exception to the ALJ’s initial decision, professing to find it riddled with inconsistencies and lacking in support for the conclusions reached. In our view the initial decision embodies a good deal of thoughtful and independent analysis of a voluminous and not altogether unambiguous trial record. Its alleged inconsistencies, we think, are rather the reflection of a generally successful attempt to characterize a complex pattern of behavior which does not conform neatly to traditional models of guilty, or innocent, commercial conduct. Such nonconformity doubtless accounts for the vehemence with which the opposing parties have been able to insist on the correctness of their respective positions and the illogic of the opposition’s. This is a genuinely close and unusual case. [3] Nevertheless, certain preliminary observations may be ventured without fear of substantial contradiction, subject, of course, to the much more extensive exposition in the initial decision. Plywood is manufactured from Douglas fir (grown mainly in the Pacific Opinion 91 F.T.C.

Northwest) and various yellow pine species grown in the South. (I.D. 11).1 Until 1947 all plywood was produced in the States of Washington and Oregon. Thereafter production began in Idaho, Montana, and Northern California. (I.D. 25) By 1968 technological advances had made possible fabrication of plywood from southern pine, and expansion into the South occurred apace. (I.D. 26) The southern region now includes Maryland, Virginia, North Carolina, South Carolina, Georgia, Florida, Alabama, Mississippi, Arkansas, Louisiana, Texas, and Oklahoma. (I.D. 27) In 1974 the West accounted for 61.4 percent of plywood production and the South for 32.3 percent. (I.D. 27) The South, however, produced 45.7 percent of. plywood sheathing, (I.D. 27) the product of concern here, and respondents accounted for more than 50 percent of southern production. (60.09 percent in 1971; 54.22 percent in 1973; I.D. 31) Plywood has traditionally been purchased on the basis of a “delivered price,” consisting of a so-called “mill price” (or “base” or “index” price, See n. 2 infra.) plus a freight factor, with deduction of various uniform wholesale discounts as appropriate. (I.D. 63) Interstate Commerce Commission rail freight rates applicable to western plywood shipments are based upon concentric bands or freight zones running from North to South and radiating eastward. The zones originate with the Portland, Oregon zone, which includes most of the western plywood producing region. As a shipment of plywood travels from West to East it enters progressively higher West Coast freight zones, and applicable freight costs rise correspondingly. Within any given western freight zone, however, freight rates are identical. (I.D. 67) [4] , Freight charges from the West are calculated on the basis of weight, with the same rate per pound applicable regardless of shipment size. When plywood was produced entirely in the West the freight factor added to obtain the delivered price was, roughly speaking, actual rail freight from point of origin. (I.D. 64) The qualification results from the fact that in computing and quoting the freight cost, respondents used a set of uniform “association weights” or “estimated weights” to determine shipment weight. The actual weight of a particular shipment of plywood varies with the amount of moisture retained in the wood, so that identical orders may have different weights and incur different actual shipping costs. Association weights resulted in 1 The following abbreviations are used herein: 1D. Initial Decision (Finding No.) I.D. p. Initial Decision (Page No.) Tr. Transcript of Testimony, Page No.

Cx Complaint Counsel’s Exhibit No.

RY Raonandante! Dubihit Ma ‘BOISE CASCADE CORPORATION, ET AL. 89 a: Opinion uniform quotation of Shipping costs irrespective of the costs actually incurred. (I.D. 84,85) ‘When plywood production ‘expanded into the South; southern manufacturers continued to compute delivered prices by adding West Coast freight to a base price, although the resulting freight factor obviously diverged sharply from the freight actually applicable to a particular sale. The record indicates that the base price to which West: Coast freight was added might, at any given time, vary slightly among competing firms, but it generally fell within a narrow range of the” ~» Southern pine plywood price reported by industry reporters Crow’s and _ Random Lengths. In addition, the record indicates that base prices — ~ varied substantially over ‘time, on occasion changing from one hour to. the next, though more often persisting for much longer periods. (LD. p. 52 n. 55; 141-2; 144-151) [5] When southern pine plywood production began it was viewed as a source of substantial added profits: for the plywood companies, owing to the large freight cost savings resulting from greater proximity of southern mills to their customers. The logic of southern expansion as viewed at the time is summarized in a magazine article introduced by respondents describing the reasoning of the President of the earliest and largest entrant, Georgia-Pacific:

Why was Cheatham so anxious to get into plywood i in the South? G-P has found that southern pine plywood for rough uses (e.g., siding) costs no. more.to produce than its’ : Douglas fir equivalent, and as time passes may cost less. But the big advantage is the . Saving on freight. It costs $15 to $18 to ship 1000 square feet of standard plywood from . the Pacific coast to southeastern cities like Memphis and ‘Atlanta. Freight costs for southern pine plywood, even allowing for its slightly heavier weight per square foot, range from perhaps a third of that down to practically nothing, depending on mill and _ market location. By pricing its pine plywood competitively with the delivered price of ~ Douglas fir plywood, G-P can add the freight saving to its margin. . .:. (RX 90; ID. 65) ‘Economists testifying for both sides in this case agreed that in its _ early stages of development, it was consistent with the operation of a competitive market for southern plywood to sell at a price largely - determined by the price at which western plywood was sold. (I.D. 127) Western plywood comprised the main part of supply, even within the South, and southern mills were thus able to reap the full pecuniary - 2 Respondents contest this characterization, arguing that quotation of West Coast freight was purely a matter of form, and that West Coast freight ‘was simply “backed out of” (subtracted from) a previously determined delivered price to arrive at an “index” price that was comparable to the mill price quoted for. western plywood (i.e., buyers trying to decide whether to buy from a western or a southern mill could determine which was cheaper by comparing the western mill price with the southern “index” price, since identical western freight would be added to both). We believe, however, that these contentions are adequately dealt with in the detailed findings of the ALJ and that the textual characterization is consistent with the prepond of the evid (LD. 72-80; 96-99, 126) ; Southern freight rates, unlike western rates, are established on a point to point basis, with freight. charges varying from mill to mill.and customer to customer. Southern rates also include an incentive structure whereby per- *-+ that nartion of a shipment exceeding a specified weight. (I.D. 68) 9. FEDERAL TRADE COMMISSION DECISIONS — Opinion — RTC rewards of their favorable location. From the beginning, however, it. was recognized that “[a]s southern plywood output grows; so will the pressure for producers to share at least some of the freight savings with purchasers.” (RX 90). _ - Sig ahh gles -As southern production expanded, one would indeed have expected ... above normal profits resulting from lower freight costs to have been. transferred in ever greater proportions from producers to consumers, with southern plywood manufacturers competing more intensely with each other (rather than West Coast mills) for business. The ALJ concluded, however, that respondents’ continued use of West Coast ej freight and association weights in calculating the prices they sought to. charge has had the effect of retarding the [6] natural operation of competitive forces, resulting in the. stabilization of southern pine... _ Plywood prices at higher levels than would otherwise have existed. The _ ALJ held that this practice could be condemned as an unfair method of . competition, violative of Section 5, a practice with the tendency and. effect. of stabilizing prices, along the lines of the Seventh Circuit’s. alternative holding in Triangle Conduit and Cable Co., Inc. v. FTC, 168. F. 2d 175 (7th Cir, 1948), aff'd. per cwriam by an equally divided Court, sub nom. Clayton Mark & Co. v. FTC, 336 U.S. 956 (1949)... _ Alternatively, the ALJ held that the practice could be characterized as — a combination on the part of respondents to tamper with one element of price, the freight component, illegal under traditional Sherman Act theory regardless of its effect, see eg., United States v. Socony- Vacuum Oil Co., 310 U.S. 150, 224, n. 59 (1940); Plymouth Dealers Association of Northern California v. United States, 279 F. 2d 1281 (9th Cir. 1960). Respondents contest these conclusions and our own review of the issues follows. Z Evidence of Effects on Prices Respondents contend that the record lacks evidence to support the ALJ’s conclusion that. their practices stabilized southern. plywood prices. In respondents’ view, southern prices are fully competitive and have not been artificially maintained by respondents’ common use of West Coast freight. While conceding that some measure of competition may exist in the industry, complaint counsel submit that the challenged practices have nevertheless placed substantial limitations _ upon it.

The underlying question to which we would, ideally, like to know the response is one which the ALJ not unreasonably refused to allow several witnesses to answer, i.e., “but for respondents’ practice of —computing prices by means of a formula that included the addition of West Coast freight (based on association weights), would southern BOISE CASCADE CORPORATION, ET AL. 91 1 Opinion plywood prices at any given time have been lower than in fact they were?”4 Obviously the query is one that by its [7] very nature cannot be answered with total assurance, and the ALJ properly refused to allow non-expert witnesses to tender what would have been no more than sheer speculation. (eg., Tr. 2820-2821) Nevertheless, if the competitive consequences of the challenged practices are to be evaluated, the question cannot be avoided, or at least we must acknowledge that we are ultimately trying to answer this question no matter what more manageable inquiries we may substitute in its place.5 Several sorts of observations may be relevant. Among others are the following: (1) By what method are prices set—can we plausibly infer from the way in which prices are established, including the parties’ understanding of what they are doing, that prices are not likely to reach competitive levels?é [8] (2) What prices were actually quoted? Can one infer from particular prices quoted, their magnitude, variations, differences between customers or locations that such prices were not competitive? (3) Did the industry realize above-normal profits? Competition should lead to the dissipation of excess profits. Their persistence over time may signal anticompetitive behavior. The ALJ concluded that the use of West Coast freight exercised a stabilizing influence on southern prices because it eliminated a large measure of the uncertainty facing a plywood seller when quoting prices. (I.D. pp. 117-118) The ALJ further concluded that the use of West Coast freight provided a means by which at least part of the freight advantage enjoyed by southern mills over western mills could be preserved as profit for the southern mills even after the West Coast was no longer a significant source of competition. As noted earlier the evidence indicates that southern plywood delivered prices were customarily calculated by the addition of West Coast freight to a base price. This base price might vary slightly at any particular time as between different sellers and buyers, and was in some instances the subject of negotiation, but as the ALJ found it would be generally set within a narrow range of the quotations 4 By “lower” we do not mean simply lower for all customers. Elimination of restraints of trade may result in raising prices to some purchasers (perhaps those whom it is costlier to supply) while lowering them to others. Ina freight intensive industry the reallocation might occur roughly along lines of relative actual freight costs. 5 Compl | perceive in this line of questioning a “Catch 22” situation in which it cannot be proven that prices would have been lower absent the use of West Coast freight because the very use of West Coast freight precludes the existence of data from a market not using West Coast freight. The point is well taken. The question involved here is, by its nature, not susceptible of definitive proof. That does not mean the inquiry cannot be attempted, and that schemes alleged to stabilize prices are immune from scrutiny. Rather, as with any alleged trade restraint, we must simply decide what were the likely tendency and effect of the practices involved. 6 The best illustration would be overt conspiracy between competitors, which may or may not raise prices, but is so likely to produce such an effect and constitutes such an extreme departure from the competitive norm that the law - prohibits it without further inquiry, e.g., United States v. Socony- Vacuum Oil Co., 310 U.S. 150 (1940). Opinion 91 F.T.C.

appearing in the industry price reporters, Crow’s and Random Lengths. In the ALJ’s view, then, when a particular mill or distribution outlet quoted a price it was aware that competitors might be making slight departures from reported base prices (a source of some uncertainty) but could also be entirely sure that the freight factor being applied by those competitors would be identical, rather than varying in proportion to the substantial differences in actual freight costs which might exist. This assurance would arguably incline sellers throughout the industry to quote higher prices to buyers (and prices which varied with the buyers’ distance from the West Coast) than they would have were the possibility open that competitors might be making concessions based upon the actual freight advantages available to them, without reference to a formula price including West Coast freight. The collective result of these individual decisions would be, at any specified time, higher and different price levels than would exist absent use of the uniform freight factor.

Several respondents dismiss this position as “nonsense.” (Champion- Georgia Pacific-Weyerhaeuser Appeal Brief at 38). In their view, the fact that base prices were not identical at any given time indicates that the use of West [9] Coast freight was simply a competitively inconsequential matter of form. Whether bargaining and price concessions occurred with respect to the size of the base price or the size of the freight factor was irrelevant as long as bargaining with respect to the ultimate delivered prices resulted. In respondents’ view, presumably, the normal bargaining and variation in pricing which might be expected to result from the fact that different sellers enjoy varying and substantial freight advantages to particular customers did in fact occur, but was reflected in the form of variations in the base (and resulting delivered) price, rather than variations in the nominal freight factor.

Of course, where offering prices are universally established pursuant to a formula which discriminates against buyers based upon their distance from a fixed location far from the actual point(s) of shipment, the fact that random discounts from the formula price are given to some buyers as the result of bargaining and market conditions does not ‘mean that the full discriminatory effect of the formula and its industrywide use is thereby dissipated. Similarly, the fact that at any given time quoted prices vary slightly, or that over time quoted prices . vary substantially, does not mean that the general level of those prices is a competitive one. The post-complaint explanations of respondents’ counsel are not lightly dismissed, but they are somewhat at variance with documentary and some testimonial evidence as to how respon- BOISE CASCADE CORPORATION, ET AL. 93 1 Opinion (a) How Is Price Setting Understood; What Prices Are Quoted As the law judge recognized, respondents viewed the West Coast freight factor as more than a matter of form. It was, in practice, added to the base price to arrive at a delivered price for plywood (I.D. 75-76, 78-80), and it was seen by respondents as a source of substantial profit, such profit varying to the extent that West Coast freight differed from freight costs actually incurred by the southern mill. Thus, the record contains numerous detailed discussions and analyses by various sales personnel of so-called “freight pick-up,” the difference between western freight and actual freight which would accrue as “an incremental gain for the mill.” (CX 99v(1)) Elaborate charts were prepared to show the difference between western freight to numerous points in the South and actual freight from the mill to those points. (I.D. 106) A 1965 marketing study prepared for prospective entrant MacMillan-Bloedel explains the role of West Coast freight: There is no such thing as a fixed. FOB Mill Pricelist as we know it. Southern Pine Sheathing is sold on a basis of the DELIVERED price of West Coast Sheathing, [10] Jess actual freight at Southern rail rate to point of destination, less functional discounts of 5/8/2%. This means your FOB mill net varies with each of the different rate combinations used to various Market points. Obviously, the closer you can sell your Sheathing to the producing plant, the greater your freight advantage and net mill value. The sample average freight rate grid attached gives some idea of how all-important this comparative rate structure is. This grid serves the immediate purpose, but a detailed ‘study, by some reputable Rail Transportation Consultant, should be undertaken as part of our eventual Marketing Plan. (See Appendices II and III for specific rates and $freight advantage/disadvantage.) CX 665D [emphasis added } Why this concern with western freight and freight pick-up? Why should the difference between western and southern freight have been viewed as in any way a meaningful measure of potential profitability if in fact the inclusion of West Coast freight in southern delivered prices was merely a matter of form? Respondents argue, and the ALJ agreed, that in the infancy of the southern plywood industry it was reasonable to expect that southern prices would in large measure be determined by prices for western production, which until southern production reached a certain level continued to constitute the major source of supply to the South. Thus, variations in western freight might indeed have represented a reasonable measure of expected variations in price and profit realizations by southern plants.”

7 Note, however, that the record reflects an early small disparity between southern and western base prices due to the belief of some buyers that western plywood was a superior product. (I.D. 131(a)) Opinion 91 FTC.

[11] The concern for West Coast freight rates and preservation of the inviolability of the freight pick-up, however, persists well after southern producers came to account for the bulk of supply in the South and after one would have expected competition among southern producers to have become the overwhelming if not sole determinant of southern plywood prices (e.g., 1.D. 185, 126; CX 40B; 41; 91A-Z74; 92A-— Z72; 137; 142A; 556, 559A-Z45; 563; 564; 565; 566; 580). If respondents’ counsel’s explanation of how competition in the southern plywood industry worked is correct, the concern of southern plywood firms for freight pick-up should soon have been abandoned as a futile and timeconsuming exercise. If actually realized delivered prices bore no relation to western freight costs, freight pick-up would be an arbitrary and inaccurate measure of profit, because the profit ostensibly realized on freight advantage would presumably be dissipated in competitive bidding against other southern mills enjoying similar actual freight advantages, such competition being expressed, however, according to respondent’s view in variations in the base price. The seriousness with which freight pick-up was treated, however, “suggests strongly that it was viewed by respondents as an indicator of profit potential or at least relative profit potential as between various alternative shipping destinations.’ Such a perception could only make sense were respondents able to rely in some measure upon the practice of each other and non-respondent competitors to calculate delivered prices by adding West Coast freight to a base price that would vary within a small range. [12] It is no answer, we believe, to contend that in calculating freight pick-up southern mills were merely indulging the customary propensity of businesspersons to maximize their profit by charging whatever the market will bear. As the ALJ observed, there existed no realistic choice as to what the market would bear, because the market was determined by the sum of the actions of many sellers relying upon an artificial formula to establish the prices they hoped to realize. To be sure, a seller acting independently is entitled to charge whatever customers will pay, irrespective of the seller’s costs. However, but for the common use of West Coast freight by southern producers, there would be no conceivable business reason for any one of them to attempt to measure profit potential in shipping to various destinations ~s Some references to freight pick-up suggest that it was viewed as an absolute measure of the added profit to be realized by the southern mill (compared to its western counterpart) by virtue of the southern mill’s lower shipping costs. This would seem to make little sense if southern mills were incurring different costs of production. Freight pick-up would constitute a more realistic relative measure of the profit to be realized from shipment by a southern plant to one location as opposed to another, ing, of course, that delivered prices in the South could be BOISE CASCADE CORPORATION, ET AL. . 95 1 Opinion by reference to costs of shipping incurred by essentially noncompeting sellers located thousands of miles away.

An illustration of the departures from the competitive model wrought by the use of West Coast freight is seen in the sometimes expressed preference of southern mills to ship in an easterly direction, since easterly shipments would go to areas with higher West Coast freight, albeit actual shipping costs were based on distance rather than direction (e.g., CX 9A, 171, 26B, 561, 566A, 861; Tr. 827-29, 841-42, 861- 63). For example, in a 1971 memorandum an official of Georgia-Pacific observed with respect to the southern plywood industry: All of our competitors truck to job site or to the dealer at no upcharge over the regular carload price, less the usual discounts. The range over which they will truck depends on market conditions, but appears to be roughly up to 500 miles when there is a freight gain. As you know—this gain can sometimes amount to a considerable sum of money when they run into the most westerly part of the highest freight zone. (CX 566A) Again we must wonder, why among southern competitors should there be any advantage in shipping into a more expensive West Coast freight zone? The answer as perceived by respondents is that reaching a higher West Coast freight zone meant the opportunity to realize a higher delivered price (and by shipping into the westerly part of the highest [13] freight zone one would incur the minimal actual shipping cost necessary to take advantage of such a price). This could only be the case if in fact the use of western freight in southern pine pricing was more than simply a matter of form.

Similarly, a 1974 freight rate book distributed by Willamette to its mills. computes the freight pick-up to be realized from shipments to numerous destinations. The book indicates, for example, a greater mill return to be realized by selling from Willamette’s Ruston, Louisiana mill into Atlanta than into Corpus Christi, notwithstanding that actual shipping costs from Ruston were greater to Atlanta. (CX 92P, Z-59) A further corollary of these observations is that changes in West Coast shipping rates relative to southern rates were sometimes viewed as a source of added profit by southern mills (e.g., CX 862A). Again, it does not make sense for a southern mill to view an increase in western freight as a source of added profits when there has been no change in the mill’s cost structure relative to southern competitors, unless of course it is believed and understood that use of a formula price will allow the increase in western rates to be passed along in the form of higher delivered prices to the customers of southern mills. Another indication of anticompetitive effects relied upon by the ALJ was the tendency of a given respondent to quote identical delivered prices to direct mill customers in the southern portions of the same western freight zones (I.D. 100), even though the actual costs of Opinion 91 F-T.C.

delivering to such customers might vary considerably. Once again, one would not expect in a competitive industry in which western freight played only the formalistic role ascribed to it by respondents that the delivered prices quoted to southern purchasers, should depend upon the western freight zone in which they were located. Respondents contest the ALJ’s finding as to uniformity by manufacturer of quoted prices within the southern portions of West Coast freight zones, but we believe it is amply supported by the preponderance of the evidence. This evidence consists of price lists instructing sales agents as to how to set their prices (e.g., CX 2A, 7, 10, 11, 18, 14, 16, 17, 18, 20, 22, 28, 24, 25, 36B, 88B, 112B, 884H, 114, [14] 886Z-29), invoices evidencing actual identical price realizations within the same West Coast freight zone (e.g., CX 419) as well as testimony of witnesses (e.g., Tr. 711-12, 841, 857; see I.D. 100 for additional citations). A similar pattern appears in quotations made for long-term contracts which generally were based upon some variation on the Crow’s price plus West Coast freight. (I.D. 94) West Coast freight was also added to a reported base price or a slight variant to determine the price at which plywood was transferred from the mill to sales outlets of respondents (excluding Willamette which was not vertically integrated and Boise Cascade’s Moncure mill which used a slight variant of the formula). These outlets were operated as separate profit centers, and the evidence thus indicates that transfer prices charged these profit centers by each company varied according to the West Coast freight zone in which the profit center was located. (I.D. 96) Respondents question the relevance of intra-corporate transfer prices, contending that they bear little relationship to the prices which the transferee sales outlets ultimately charge to purchasers. While it is true, if not a truism, to say that sales outlets would seek to sell their plywood at the market price prevailing at the time of sale, it is no less true that this market price was in some measure a function of the quotations being simultaneously rendered by southern sales outlets. And in pricing their products these sales outlets were trying to recoup the cost of acquiring or replacing their inventory, which in turn varied in relation to the West Coast freight zone in which the outlets were located. (I.D. 98) (b) Profit Data Complaint counsel did not introduce evidence as to the comparative profitability of southern plywood production versus western plywood production as part of their case in chief, but some data with respect to comparative cost structures and profitability was introduced by wnnnandaanta im than Anfanan nud her anwinlaintg anemanl tn enhiettal On BOISE CASCADE CORPORATION, ET AL. 97 1 Opinion own detailed analysis of cost data submitted by the parties is contained in the Appendix to this opinion, supplementing I.D. 140. Our analysis indicates that margins on southern plywood have consistently exceeded those on western plywood, and lends support to the ALJ’s conclusion that profitability of southern plywood production has generally exceeded that of western. [15] The persistence of supra-normal profits over some period of time may signal the existence. of anticompetitive conduct, although the existence of such profits is hardly proof positive of unlawful behavior. Increases in demand in a particular region of the country may render production in that area highly profitable, notwithstanding the existence of vigorous competition. However, one would expect the persistence of above-normal profits to act as a signal to others to enter the market, with the eventual result that profits would subside to more normal levels.

Recognizing the uncertainties that are likely to attend the use of profit data as evidence of anticompetitive conduct, and the additional uncertainties as to the particular data introduced in this case, we have placed little reliance upon such data in our disposition of the appeal, although we conclude that the available evidence in no way detracts from, and if anything lends modest support to, our conclusion reached on independent grounds that respondents’ challenged conduct has affected plywood prices.

(c) Other Factors Factors in addition to those discussed hereinabove might also be cited in analyzing the likelihood that an industry has been pricing at supra-competitive levels. For example, high concentration (I.D. 33), a wide range of customers (I.D. 34), a fungible product (I.D. 59) and relatively price inelastic demand (I.D. 60), all present here, are conditions conducive to the occurrence of joint, interdependent price stabilizing conduct, e.g., Posner, Antitrust Law: An Economic Perspective, pp. 62ff. By themselves they signify little; in combination with the more direct evidence regarding industry pricing practices cited above they also lend modest support to the conclusion that the conduct challenged has affected competition.

(d) Summary For the foregoing reasons we conclude that the preponderance of the evidence in this case supports the ALJ’s determination that the joint use by respondents and others of West Coast freight in calculating the delivered price of plywood sold in the South has had the effect of Opinion 91 F-T.C.

stabilizing southern plywood prices at levels they would not otherwise have achieved. [16] In reaching this conclusion we hasten to note that the practice of including West Coast freight in delivered price quotations is only one of many factors affecting the price of southern plywood. Others noted by the ALJ include housing starts (a volatile factor affected by interest rates and the general state of the economy, I.D. 145), weather conditions, boxcar shortages, and strikes (I.D. 146) all of which affect the demand for or supply of plywood and thereby its price. In the face of such formidable and volatile determinants of supply and demand it is not surprising that plywood prices have fluctuated substantially over time. Not even a monopolist would necessarily maintain a fixed price in the face of such extreme shifts in demand. These considerations do not, however, derogate from the role of West Coast freight as one factor influencing the price of southern plywood and in an anticompetitive fashion. Granting fully respondents’ contention that the southern plywood market exhibits some indicia of competitive performance, with numerous buyers soliciting quotations from a variety of sellers and choosing the best, the fact remains that the prices actually realized in this market, as in all markets, are a complex function of the myriad desires not only of buyers, reflected in the prices they offer, but of sellers, reflected in the prices they seek. When firms act in a unified fashion, when they seek to pass on costs imposed uniformly upon all of them, or when they seek to obtain prices established pursuant to an arbitrary pricing formula, it defies common sense to suppose that the sum of these collective actions has no effect on price.® In this case the evidence indicates that respondents viewed the [17] difference between West Coast and southern freight as an appropriate measure of the relative profitability of making sales to various destinations. (pp. 9-12 supra) As a corollary of this, sales of southern plywood to locations in higher West Coast freight zones were viewed as being more profitable than sales to lower freight zones, notwithstanding that actual freight in both instances might be the same. (pp. 12-13 supra) Respondents have sought to charge prices reflecting the addition of West Coast freight to a base price, and within the South at least have transferred plywood to their distribuvs An analog to the situation involved here is that in which a regulatory action (e.g, imposition of stringent occupational and health or environmental requirements) imposes added costs throughout an industry. If it believed such action to be unwarranted an industry would no doubt be quick to argue that one of its inevitable effects would be to increase costs to consumers, notwithstanding that the industry might be trated and di d would remain the same after the regulatory action as before. While a single firm faced with increased costs peculiar to itself cannot pass them on absent monopoly power, where all members of an industry face such increased costs the sum of their efforts to pass on these costs will likely result in some increase in price. This is so even though it may appear to any individual firm (and its agents may so testify under oath in administrative pr dings) that it can and does do no more than meet the prevailing market price. BOISE CASCADE CORPORATION, ET AL. 99 Opinion ( ion outlets at transfer prices which vary depending upon the West Yoast freight zone in which the distribution outlet is located. Such vutlets in turn are operated as profit centers, whose sales must bear ome relationship to their costs. (p. 14 supra) In light of the foregoing we cannot accept respondents’ contention that the southern plywood industry’s practice of using West Coast ‘reight was no more than an inconsequential matter of form. The »bvious inference to be drawn from the fact that the members of an ndustry use a formula for computing prices which disfavors particular suyers (in this case those in higher West Coast freight zones) for reasons wholly unrelated to the costs of supplying them, is that customers will end up paying prices inconsistent with a competitive regime.

Characterized in terms of the burden of proof, which respondents protest they are being unjustly forced to shoulder, we believe that evidence produced by complaint counsel, summarized supra and in the initial decision, was sufficient to support a prima facie inference that the use of West Coast freight affected southern plywood price levels. — It was thereafter incumbent upon respondents to adduce evidence that this inference was misguided. With respect to the earliest years of the southern pine plywood industry we think respondents have refuted the inference of anticompetitive pricing, with the argument that the price of western plywood (it being the dominant source of southern supply) should naturally have been expected to determine the price for southern production. However, this justification will not wash after the earliest years of the industry, when southern plywood became first the dominant, and later, for some sorts of plywood products, the sole source of southern supply. No longer could southern prices, if set at competitive levels, be expected to vary depending upon the West Coast freight zone of the buyer, as the manner in which they were set by individual firms suggests they did. Respondents [18] have not undermined the force of evidence of non-competitive pricing by showing that in some cases bargaining occurs, price concessions are made, and actually realized prices depart from formula prices, because there is no evidence that such bargaining has led to systematic dissipation of the effects of using formula prices which include West Coast freight.1° Accordingly we believe that complaint counsel have To Even a price-fixing cartei (which respondents were obviously not) may experience periodic or frequent “cheating” by its members, deviations in realized prices from those which the cartel attempts to set. And many of the basing point cases cited by the parties in their briefs have involved some measure of deviation in realized prices from those that would be expected to result from uniform adherence to the basing point formula, e.g., Rigid Steel Conduit Assn. et al., 38 F.T.C. 534, 487 (1944), affd. sub nom. Triangle Conduit and Cable Co., Inc. v. FTC 168 F. 24 175 (7th Cir. 1948), affd per curiam by an equally divided Court, sub nom. Clayton Mark & Co. v. FTC, 336 U.S. 956 (1949). But evidence of random variations in realized prices from those that would result by rigid adherence to the formula by which offering prices are set is not proof that the formula is economically meaningless, exerting no impact upon prices (Continued) Opinion 91 FTC.

met their burden of demonstrating that the use of West Coast freight did indeed exert an anticompetitive impact upon southern plywood pricing.

Legal Analysis Although the ALJ found no substantial evidence of overt collusion among the parties with respect to price, he concluded that the presence of a combination could nevertheless be inferred from their pursuit of a common course of conduct involving the inclusion of a uniform freight charge based on West Coast freight for plywood shipments from southern mills. [19] Respondents acknowledge that an agreement by competitors to fix or stabilize even one element of the price of any product would be illegal, United States v. Socony- Vacuum Oil Co., 310 U.S. 150, 224 n. 59 (1940), but they contend that here there was no express agreement and that the inference of agreement drawn by the ALJ is without support. In respondents’ view, their common course of conduct represented merely the continuation of a method of doing business concededly proper while they operated in the West, and found as well by the ALJ to have been justifiable during their earliest years in the South. Citing the Commission’s recent decision in Great Atlantic & Pacific Tea Company Inc., 87 F.T.C. 962, aff'd. 557 F. 2d 971 (2d Cir. 1977), respondents contend that an inference of conspiracy may be drawn from parallel business conduct only “. . . if it appeared more to the interest of competitors to adopt different practices.” Independent Iron Works, Inc. v. United States Steel Corp., 177 F. Supp. 748, 747 (N.D. Cal. 1959), aff'd., 322 F. 2d 656 (9th Cir.), cert. denied, 375 U.S. 922 (1963), cited with approval at 87 F.T.C. 1068. This statement, cited by the Commission in the context of an alleged conspiracy between a supplier and its customer, stands in need of substantial clarification in the context [20] of an alleged combination between competing oligopolists. In a perfectly competitive industry, in which competitors expect little advantage from attempting to. anticipate the reactions of their rivals to their competitive initiatives the Independent Iron Works formulation may be adequate. The perceived self-interest of the atomistic competitor lies in reducing its prices in the direction of its costs, assuming that others will not follow and hoping thereby to secure a larger share of the market and greater ultimately realized. The inference that respondents ask us to draw from their defense evidence would necessitate that we disregard poraneous d y evidence as to how they viewed the significance of West Coast freight and conclude instead that they behaved irrationally and unknowledgeably in supposing that West Coast freight and freight pick-up were economically meaningful concepts. We believe such an inference would be unwarranted. Cf. BOISE CASCADE CORPORATION, ET AL. 101 1 Opinion profits. The fact that over the “long run” such initiatives may be matched by others, sometimes leaving the innovator with the same unsatisfying slice of a smaller pie, is thought not to lead the pricecutting competitor to reconsider its definition of self-interest. Firms in more concentrated industries are able at times to proceed with greater foresight. Is it truly in the interest of a firm to lower prices if its action will surely be matched by others? Often it is not, and thus it may well not be in the firm’s “self-interest,” as the term is used in common parlance, to initiate a price cut or refrain from imitating a competitor’s price rise. But such interdependent self-interested action is obviously not the sort which negates the inference of a conspiracy; to the contrary it may well be evidence of one. As Professor Turner has stated:

. . conscious parallelism is not even evidence of agreement unless there are some other facts indicating that the decisions of the alleged conspirators were interdependent, that the decisions were consistent with the individual self-interest of those concerned only if they all decided the same way. Turner, The Definition of Agreement Under The Sherman Act: Conscious Parallelism and Refusals to Deal, 75 Harv. L. Rev. 655, 658 (1962). And courts in confronting this problem have similarly implied that the inference of agreement may be drawn if the actions of the defendants would be in their own economic interest only if taken in concert with others. Harlem River Consumers Cooperative; Inc. v. Associated Grocers of Harlem, Inc., 408 F. Supp., 1251, 1278 (S.D.N.Y. 1976); North Penn Oil & Tire Co. v. Phillips Petroleum Co., 358 F. Supp. 908, 923 (E.D. Pa. 1973). [21] That test is surely met in this case!! but it arguably proves too much, as Judge Needelman recognizes (I.D. p. 122) because it would seem to condemn all interdependent pricing that leads to prices that diverge from competitive levels.12 In Judge Needelman’s view, however, it is unnecessary to embrace such an extreme proposition because there is here the presence of an additional factor, the 11 Why have the respondents in this case sought to charge prices for southern plywood which reflect the inclusion of West Coast freight? Why would a seller of southern plywood, competing with other southern sellers, transfer plywood to its distribution outlets on the basis of transfer prices which include West Coast freight, thereby impelling those profit centers to seek higher prices the farther East they are? Why would a seller of southern plywood have believed that West Coast freight could be at all relevant to the price which might be received for plywood manufactured and shipped from the South? Such behavior could be thought self-interested only upon the assumption that all or most other competitors would engage in it. 12 It is likely to be the case that anytime a competitor charges prices that differ from those that would result in a competitive market such pricing can be rational only if others are behaving the same way. What seemingly dissuades Professor Turner from finding an unlawful conspiracy under such circumstances is the impossibility of any remedy addressed to conduct short of regulating the prices at which the violators will be allowed to sell. Turner, supra at pp. 670-671. While intimating no view on that issue, which is not presented here, we note that the same consideration does not obtain where the basis of the alleged conspiracy is not simply the exaction of non-competitive prices, but the use of ‘an artificial formula to set such prices. In the latter case a remedy may be formulated (excision of the artificial pricing system) which does not do violence to traditional notions of the proper role of government in a free economy. cf. Turner supra at pp. 676-677.

Opinion 91 F.T.C.

adherence by respondents to a highly artificial formula for establishing their prices. [22] Judge Needelman’s point is well taken13 but we cannot ignore the force of respondents’ counter that the conduct challenged here did evolve in a justifiable way, and the alleged conspiracy thus results from the continuation of such conduct after its original justification had passed. In seeking to infer the reasons for this, some credence must be given respondents’ alternative explanation—force of habit.14 To be sure, this habit was one which various respondents perceived to serve a useful purpose, hence the scattered documentary references by respondents’ agents to the necessity of preserving the freight factor at all costs (e.g., I.D. 103-105), to say nothing of the ubiquitous tables of freight pick-up. (I.D. 106) And respondents’ recognition or its advantages has no doubt contributed to the maintenance of their habit as much as the propensity of humankind to do things as they have always been done. Nevertheless, it would constitute something of an. extension of the common understanding to infer that a “conspiracy” or an “agreement” was the “most likely” cause of the perpetuation of a commercial habit that arose “innocently” and was not excessively difficult to maintain. [23] While this extension may well be warranted as a matter of Sherman _ Act doctrine,15 we need not reach it for our purposes, because Section Five, with its proscription of “unfair methods of competition,” permits a more direct approach to the problem of harmful commercial behavior. Force of habit may explain conduct, and soften the attitude of society toward the actor, but it cannot provide a defense for conduct which loses commercial justification and produces anticompetitive results. The Supreme Court has frequently acknowledged the Commission’s authority to proscribe anticompetitive conduct which may not fit within the confines of the Sherman Act, e.g., FTC v. Brown Shoe Co., 384 U.S. 316 (1966); FTC v. Motion Picture Advertising Serv. Co., 344 13 Respondents contend that Judge Needelman’s “something extra” (I.D. p. 122) is no more than the allegedly collusive activity itself, ie., the use of West Coast freight in quoting southern prices. In our view the artificiality of the system is appropriately viewed as the “extra” factor, above and beyond simple joint conduct leading to noncompetitive pricing patterns. We think it eminently reasonable as a matter of law to suppose that an agr it can be more readily inferred from joint use of an artificial formula pricing system than simply from joint quotation of prices that depart from competitive expectations, e.g., Fort Howard Paper Co., et al. v. Federal Trade Commission, 156 F. 2d 899, 907 (7th Cir. 1946).

14 An argument no doubt calculated by counsel to appeal to a panel of bureaucrats. 18 Arguing in favor of the finding of a conspiracy are price-fixing cases which arose out of conduct begun during the New Deal under the imprimatur of the National Industrial Recovery Act. When the NRA was declared unconstitutional the joint activity it had previously condoned was not sufficiently modified to escape antitrust condemnation. e.g., Fort Howard Paper Co., et al. v. Federal Trade Commission, 156 F. 2d 899, 906 (7th Cir. 1946). This case, however, is slightly more difficult, because it is not clear that what is involved is the continuation of an agreement after its legal justification has been abruptly terminated. Rather we are asked to conclude that the continuation of conduct while its cial justification gradually vanishes and disappears itself constitutes an agreement. Given the availability of an alternative and more direct means of dealing with the problem under Section 5 BOISE CASCADE CORPORATION, ET AL. 103 1 ' Opinion US. 392, 394-95 (1958); FTC v. Cement Institute, 333 U.S. 683, 689-93 (1948), and the Seventh Circuit has previously held that the concurrent although non-collusive adoption by competitors of an artificial method of pricing which restrains competition is unlawful. Triangle Conduit & Cable Co. v. FTC, 168 F. 2d 175 (7th Cir. 1948), affd. by an equally divided Supreme Court sub nom. Clayton Mark & Co. v. FTC, 336 US. 956 (1949). [24] The same conclusion is warranted in this case. Respondents’ joint use of a system of artificial formula pricing has exerted an anticompetitive effect upon pricing in the market for southern plywood. Respondents originally sought to reap as profit the full freight advantage resulting from location of their plants in the South at a time when the bulk of plywood sold in the South continued to be supplied from the West. To accomplish this they sold the plywood they manufactured in the South on the basis of a base price to which West Coast freight was added, a system which persisted even as southern mills became the principal sources of competition with other southern mills. While disparities between the base prices of southern and western plywood suggest that full freight advantage is not realized as profit for southern mills (as opposed to cost savings for consumers), the fact that southern producers have sought to obtain prices that depend upon the West Coast freight zone in which their purchaser is located in reliance upon the industry-wide practice, compels the inference that at least some measure of the freight advantage has been preserved for the industry (rather than returned to consumers) by its use of this system, (pp. 6-17 supra).

We must note that our conclusion that Section Five prohibits such conduct depends importantly upon the extreme artificiality of the formula pricing involved in this case. The artificiality of a pricing system is what at once suggests that its results are likely to depart ~ from competitive norms and on the other hand that its use has little redeeming commercial justification, assumptions that are borne out by the record before us. A system of zone delivered pricing involving industry-wide use of freight zones designed to approximate, though not in all instances precisely identifying, actual freight costs would obviously present different problems. There is no occasion here, however, for us to decide how much artificiality is too much, for aside from depending upon the circumstances, it is clear that computation of prices pursuant to a formula which involves addition of a freight factor based upon freight rates from a location thousands of miles distant from the point from which the product is actually shipped is highly artificial within any sense of the word. [25] Respondents have not objected to the form of order proposed by the Opinion 91 F.T.C.

ALJ, assuming, arguendo, that a violation is found. The order entered herein will proscribe the use of artificial freight factors in calculating plywood prices for outside sales [Par. IJ(1)] or intra-corporate transfers [II(2)] and require respondents to offer customers the option of furnishing their own transportation for quantities of plywood in excess of a truckload, at a bona fide point of shipment f.0.b. price (Par. III). As the law judge observed, “[t]rue F.O.B. prices, which allow customer pick-ups when they are economically attractive to a buyer are clearly the most effective way of breaking the current industry pattern of using artificially inflated ‘F.0.B.’ prices which inevitably include West Coast freight.” (I.D. p. 131) In addition, the order will prohibit use of artificial association weights, [Par. II(3,4)] which were part and parcel of the illegal practice . and permitted the standardization of artificial freight factors. (I.D. 88) However, the order will permit use of estimated weights based upon experience with the actual weight of softwood plywood produced by the mill from which a particular plywood shipment is to be made. Appeal of Boise Cascade Respondent Boise Cascade, while joining generally the arguments raised by other respondents, has filed a separate appeal contending in addition that at least as of February 1972 it discontinued the use of West Coast freight in computing the price of plywood sold from its Moncure, North Carolina mill. The administrative law judge rejected this contention. Boise’s liability was alternatively predicated upon the fact that the DeQuincy, Louisiana mill, operated by Boise and Southern Natural Gas Co. as a joint venture (with each having 50 percent ownership) engaged in the challenged method of pricing. Boise denies liability for the actions of its joint venture. Assuming arguendo that discontinuance of the use of West Coast freight as of 1972 would have warranted dismissal of these proceedings as to Boise, we nevertheless believe that the preponderance of the evidence supports the conclusion that the use of West Coast freight was not in substance abandoned at the Moncure plant. The ALJ concluded that contemporaneous documentary evidence (the desk calendar of the Moncure sales manager, CX 818) indicated that offering [26] prices were arrived at by a process of adding West Coast freight to the price reported in industry reporter Crow’s. The ALJ’s analysis of the desk calendar is contained at I.D. 98(b). In some instances the calendar contains entries reflecting a computation of “Crow’s” plus “freight” corresponding to the Crow’s price plus West Coast freight for the applicable date and wood size (e.g., CX 813 Z11). BOISE CASCADE CORPORATION, ET AL. 105 1 . Appendix Cascade made its sales. The ALJ found that prices for Zone A, that nearest to the Moncure plant, were identical to the corresponding “Crow’s plus freight” around 40 percent of the time, and within a close range of the rest. Boise suggests that the coincidence of its Zone A prices with the formula price, as well as its sales manager’s evident _ concern with the formula price in formulating Boise zone prices reflects at most consideration of the competition rather than any independent use of West Coast freight in arriving at Boise’s own prices.16 Further support for the significance of the calendar entries, however, is supplied by CX 839B, in which Boise officials characterized the effect of a possible consent settlement of the pending charges: [27]. We will have to comply with an FTC order that dictates a completely different way of pricing and extending freight from the traditional method. (CX 839B)?7 On balance we believe that the preponderance of the evidence supports the conclusion that the Moncure plant continued to use the challenged method of pricing following 1972. In addition, there can be little doubt that Boise Southern, Boise’s 50 percent owned joint venture continuously engaged in the challenged practice of calculating the price of southern plywood by means of the addition of West Coast freight. (I.D. 78(b)) We believe that for the reasons set forth by the ALJ at I.D. 41 Boise is properly held liable for the plywood pricing practices of this joint venture. Accordingly we must deny its separate appeal.

Except as noted herein, the initial decision of the administrative law judge is sustained and adopted as that of the Commission,}8 and an appropriate order is appended.

APPENDIX Costs and Profitability of Southern vs. Western Plywood Production Economic theory suggests that in a competitive industry prices will be driven toward 16 While on balance we must reject this contention, we note that it is not inherently unreasonable. And what it suggests is that it was hardly necessary for every producer in the southern plywood industry to include West Coast freight in its delivered prices in order for the challenged system to have effect, (although the ALJ found that with one major exception respondents’ practice was followed by their sma}ler non-respondent competitors, 1.D. 74). So long as the major producers used the system it obviously behooved others to take account of it, or go along with it, in making their own competitive decisions. Boise's evident degree of concern, however, appears a bit too great for us to conclude that it was doing no more than gathering information about the way in which everyone, except for itself, was behaving.

17 Boise objects to the use of “settlement related” documents where no settlement was reached. It would certainly be improper to use the fact that a settlement was attempted as evidence of any sort that a violation occurred. That is not our purpose in citing CX 839. Rather the document is cited as wholly proper evidence of how Boise understood and characterized its own system of pricing in effect as of 1974. Were Boise’s description of its post 1971 system in this appeal an accurate one it is hard to see how it could have viewed any settlement of these charges as imposing “a completely different way of pricing and extending freight” in 1974. 18 Complaint counsel urged at oral argument that we change “pounds” to “square feet” in I.D. 88, and “delivered price” to “price” in subparagraphs I](1) and II(8) of the order. We hereby accede to these requests. 106 - FEDERAL TRADE COMMISSION DECISIONS Appendix 91 F.T.C.

the level of costs, with costs defined to include a return on capital just sufficient to ensure that capital is not diverted to alternative uses. Southern plywood producers initially realized substantial cost advantages by virtue of their greater proximity to sources of demand. While western plywood continued to comprise the bulk of supply it was reasonable for the freight cost savings achieved by southern mills to accrue as profit. As southern production expanded, however, one would expect this profit-to be dissipated by the forces of competition, with the freight cost savings resulting from southern production being transferred in ever greater proportions from consumers to producers. One way to approach the problem of whether the expected competitive effects have occurred is to compare the relative profitability of presumptively competitive western mills with southern mills, a task well begun by considering relative production costs in the two regions. It is apparent that when they entered the South, plywood companies believed that production costs in the new region would be roughly comparable to those in the old, and that they could thus realize additional profits corresponding to the advantage in freight available from the new location. A magazine article introduced into evidence by respondents (RX 90) described the reasoning of Georgia-Pacifie’s President: “Why was Cheatham so anxious to get into plywood in the South? G-P has found that southern pine plywood for rough uses (e.g., siding) costs no more to produce than its Douglas fir equivalent, and as time passes may cost less. But the big advantage is the saving on freight. It costs $15 to $18 to ship 1000 square feet of standard plywood from the Pacific coast to southeastern cities like Memphis and Atlanta. Freight costs for southern pine plywood, even allowing for its slightly heavier weight per square foot, range from perhaps a third of that down to practically nothing, depending on mill and market location. By pricing its pine plywood [2] competitively with the delivered price of Douglas fir plywood, G-P can add the freight saving to its margin. . . .”} The parties are at odds as to whether Georgia-Pacific's original assumption regarding equivalence of production costs was correct, and the Administrative Law Judge declined to make a firm finding on this point. (I.D. 140) Our own review of the record, however, suggests the conclusion that production costs of southern and western sheathing have generally fallen within close range of each other. The most comprehensive cost statistics available are those published by the American Plywood Association (APA). The record contains APA’s annual cost reports for the Southern and Western plywood industries for 1973 and 1974, as well as a chart prepared by Boise Cascade reflecting APA survey data for 1968-1972 (CX 838c) The 1973 reports reveal the following costs for so-called “CDX” plywood: (a panel of C and D grade veneers with exterior glue line), the most common form of sheathing plywood: Thickness Costs per 1000 Sq. Ft.

: South West Coast 5/16” $ 75.80 _$ 72.61 3/8” 83.52 85.75 1/2” (4 ply) 111.94 114.73 5/8” 140.08 143.30 3/4” 169.77 168.31 (CX 842, p. 21; CX 843, p. 23) [3] 1 The article later notes, in keeping with traditional theory, that “As southern plywood output grows, so will the pressure for producers to share at least some of the freight savings with purchasers.” The real issue in this case is whether or not an industry practice, whether maintained by design or habit, has impeded the natural operation of competitive pressures.

BOISE CASCADE CORPORATION, ET AL. 107 1 Appendix The 1974 reports reveal the following costs for the same products: 5/16” $ 89.18 $ 85.83 3/8” : 100.00 96.97 1/2” (4 ply) 184.11 130.40 5/8” , 166.94 162.17 3/4” 197.41 191.68 (RX 449, p. 21; RX 450, p. 24) The Boise summary of APA cost data reflects southern costs on average lower than western for 1969-72, and slightly higher in 1968 (CX 838c). . Respondents object to citation of the above western figures, contending that a more appropriate comparison is between the southern mills surveyed by APA and so-called western sheathing mills, i.e., western mills whose production consists almost entirely of sheathing. The southern mills surveyed by APA consist entirely of sheathing mills, while the western mills surveyed included both sheathing mills and so-called “mixed” mills, those producing both sanded and sheathing products. In 1974, however, APA for the first time included figures for western sheathing mills in addition to figures for the entire sample. The record does reflect that these western sheathing mills are somewhat more efficient than southern mills? but like the law judge we believe the comparison is of only limited utility. The APA surveys are designed to determine the cost of producing sheathing by region, regardless of the type of plant producing the sheathing. Most southern sheathing [4] production occurs in sheathing plants; in the West, however, perhaps half of all sheathing is produced by mixed plants, (e.g., Tr. 4126 “over 50 per cent”) and it is, therefore, entirely proper for a cost survey to include a sampling of such mixed plants. (See also Tr. 4119 ff.)3 While recognizing the propriety of including both mixed mill and sheathing mill costs in a sampling of western sheathing costs, the ALJ appears to have stopped short of drawing any conclusion on comparative costs because in calculating the cost of sheathing produced by mixed mills “the accounting procedures of the American Plywood Association do not permit proper allocation of certain ‘green end’ and drying costs to sheathing production. (CX’s 982A-C)” This results because industry-wide average green end and drying costs for particular products are figured on the basis of average costs incurred by the reporting plants for all veneers processed, regardless of their end use. Since so-called “A” veneers are not used in sheathing, inclusion of green end and drying costs for these veneers in the averages may distort the overall figures. (I.D. p. 100) [5] From our review of the relevant figures, however, it appears that even if misallocations of green end and drying costs have occurred, they could not be of a magnitude sufficient to disturb the conclusion of substantial similarity of inter-regional sheathing costs. Thus, the 1974 APA Western Report (RX 450) indicates that for V2” 2 For example, the cost of producing 1/2” CDX 4 ply incurred by western sheathing plants in the sample was $119.30 (RX 450, p. 13) vs. the above-mentioned southern cost of $130.40. We observe, however, that the figures for 1974 may overstate the disparity between southern and western sheathing plants. Compare RX 452 (in camera) covering Georgia-Pacific sheathing plants, which reflects a western sheathing plant cost advantage of $12.81 in 1974 . but only $7.18 in 1973 and $5.74 in 1975. 3 The ALJ made this point we think quite convincingly in an extended colloquy with respondents’ 1 during voir dire of an APA representative called to authenticate the APA cost studies. (Tr. 4103ff). The bottom line from respondents’ point of view was apparently not so much that APA figures are inaccurate measures of average sheathing costs within the South and West, but that these averages were not relevant to complai V’s effort to utilize the testimony of respondents’ expert, Dr. Steiner, to the government's advantage. Dr. Steiner had testified that over time one would expect prices to approach the marginal costs of the most efficient producers. (Tr. 4108) Appendix 91 F.T.C.

CDX, 4 ply sheathing the average drying cost assigned to all sheathing is $8.56 while at the more efficient sheathing plants it is $8.28.4 For green end costs the average for sheathing plants actually exceeds the quoted industry average ($9.80 vs. $9.48). In either event it is hard to see how a more precise allocation of these cost components for mixed plants would have significantly altered the observed relation between total western and southern producing costs cited above.

With respect to wood costs, which are a major component of total cost and a major source of the cost difference observed between sheathing and mixed mills in the West, the APA survey in fact does distinguish between costs of so-called “A” veneers and costs of the less expensive B, C, and D veneers used in sheathing. (CX 932B; Tr. 4255, 4099). The assignment of higher wood costs to sheathing production at mixed mills than to sheathing production at sheathing mills thus appears to reflect actual cost differences incurred in producing sheathing by the mills. For these reasons then, we conclude that the APA studies may properly be used to compare relative production costs for sheathing in the South and West, and those studies indicate that production costs have fallen within a close range of each other during the several years preceding issuance of the complaint in this matter (a few dollars per thousand square feet). [6] While southern and western sheathing costs have fallen within close range of each other, the record indicates that the mill net return per unit of plywood has been significantly higher for southern mills than for their western counterparts. Reported base prices for southern plywood have generally fallen below base prices for western plywood (I.D. 131), but the addition of western freight to those southern base prices, when only southern freight is being paid, results in a substantially higher return to the southern mill. (The western mill pays actual western freight, so the return to the western mill is measured simply by its base price.) The ALJ’s findings with respect to pricing patterns are contained in LD. 131. He notes that from January 1969, to August 1971, Random Lengths issued 134 reports in which a direct comparison can be made between western and southern prices for 1/2 inch 3-ply sheathing. In 28 percent of the reports southern prices were the same as or lower than western. In the remaining 72 percent of reports wherein western base prices exceeded southern, the reported differences were $4 or less in 84 percent of the cases. $4 would, of course, be far less than the “freight pick-up” or differential between western freight which was added to those southern base prices, and southern freight actually paid. (e.g., CX 91; see n. 6 infra) For 1974 the ALJ found more significant differentials between southern and western base prices, but even in this year, the average reported differential between western and southern 1/2 inch CDX 4-5 ply prices was less than $9. (I.D. p. 91, n. 95) This compares with average freight pick-ups for southern mills in the vicinity of $19 or more.® [7] The foregoing suggests that southern mills have generally realized higher net returns per unit of sales than their western counterparts, which is consistent with evidence to the same effect cited by the ALJ, as well as with evidence of generally, though not uniformly, higher profit margins for southern producers. (CX 127, 187) Having made the foregoing observations we hasten to add that in our view they constitute no more than modest support for the conclusions that we believe are justified 4 This figure pr bly is properly allocated A 5 Reasons why wood costs for sheathing are higher at mixed mills than at sheathing mills are suggested by the testimony of Mr. Ridgway at pp. 4097-4098.

6 The association weight of CDX 1/2 inch 4-5 ply is 1525 pounds (CX 928). Assuming an average freight pick-up of $1.25 per hundred pounds which the record indicates is a reasonable estimate (e.g., CX 187A; 92) the freight pick-up for 1000 square feet of CDX 1/2 inch 4-5 ply would be $19.06. This $19 freight pick-up accruing to the southern mill far more than offsets the average of less than $9 by which western base prices exceeded southern base prices in 1974, to say nothing of the much lower amounts by which western base prices exceeded southern base prices in the 1969-71 navind anmrow fod har the ATT BOISE CASCADE CORPORATION, ET AL. 109 1 Final Order independently by the discussion in the body of our opinion and the initial decision. Aside from numerous uncertainties and inadequacies in the cost and profit information available in this record, it is obvious that supra-normal profitability can readily result from factors other than enticompetitive conduct, for example, unusual growth in a region in which the profits are realized and resultant supra-normal demand. As respondents point out, the issue is not so much whether profits at any given time are above average as whether such above-average profits attract new entry in response, though, of course, such new entry would be expected at some point to result in dissipation of the profits that induced it. FINAL ORDER This matter has been heard by the Commission upon the appeal of respondents’ counsel from the initial decision and upon briefs and oral argument in support thereof and opposition thereto, and the Commission, for the reasons stated in the accompanying Opinion, has denied the appeal.

It ts ordered, That pages 1-132 of the initial decision of the administrative law judge are hereby adopted as the Findings of Fact and Conclusions of Law of the Commission, to the extent not inconsistent with the accompanying Opinion. Other Findings of Fact and Conclusions of Law of the Commission are contained in the accompanying Opinion. [2] It is further ordered, That the following order to cease and desist be hereby entered:

ORDER I DEFINITIONS For the purposes of this order, the following definitions shall apply: ‘point of origin price” — a price set by a respondent for a purchase by a customer at a mill or distribution point from which a delivered price is quoted to that customer. The “point of origin price” shall be no greater than the delivered price offered to the customer less the actual transportation costs which would have been incurred by the seller if the sale were made on a delivered price basis. “delivered price” — a price set by a respondent for a purchase by a customer which includes the cost of transportation to a designated destination point.

II It is ordered, That respondents Boise Cascade Corporation, Champion International Corporation, Georgia-Pacific Corporation, Weyer- Final Order 91 F.T.C.

haeuser Company and Willamette Industries, Inc.; their subsidiaries, any concern controlled by a respondent, including joint ventures; their successors and assigns, and their officers, agents, representatives, and employees, directly or indirectly, through any corporate or other device, individually or in combination, in connection with the sale or distribution of softwood plywood, shall forthwith cease and desist: 1. From using, in any manner whatever, any rate of freight or freight factor other than the actual rate of freight applicable to a given sale or purchase when calculating, negotiating or quoting the price for such sale or purchase.

2. From using, in any manner whatever, any rate of freight or freight factor other than the actual rate of freight applicable to a given intra-corporate transfer when calculating, negotiating or quoting the value to be assigned to such transfer. [3] 8. From using, in any manner whatever, any estimated weights as a basis for arriving at freight charges applicable to a given sale or purchase when calculating, negotiating or quoting the price for such sale or purchase unless such estimates are based upon experience with the actual weight of softwood plywood produced by the mill from which shipment is to be made. Such experience shall be accumulated and updated by representative ‘sampling or by other reasonable methods at least once a year.

4, From using, in any manner whatever, any estimated weights as a basis for arriving at freight charges applicable to a given intracorporate transfer when calculating, negotiating or quoting the value to be assigned to such transfer unless such estimates are based upon experience with the actual weight of softwood plywood produced by the mill from which shipment is to be made. Such experience shall be accumulated and updated by representative sampling or by other reasonable methods at least once a year.

Ill It is further ordered, That when a delivered price is offered by a respondent to a customer for the purchase of softwood plywood in quantities of at least a truckload, that respondent shall also allow such customer the option of obtaining a point of origin price and of arranging or furnishing transportation from the mill from which shipment would have been made had the delivered price been accepted. IV It is further ordered, That each respondent shall, when a sale of BOISE CASCADE CORPORATION, ET AL. 11 1. , Final Order truckload or carload quantities by common or contract carriers, state on the invoice the amount of actual freight charged the customer, the common or contract carrier rate from the place of shipment to the customer's destination, the specified estimated weights, if and when used, and the point of origin price. [4] Vv.

It is further ordered, That. each respondent shall notify all persons . having sales and policy responsibilities i in its organization of the terms _ of the order and publish same in at least two major trade journals or periodicals twice annually for each of two years from the effective date of this order.

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

vil It is is further ordered, That within sixty (60) days after the effective date of this order, each respondent shall file with the Federal Trade Commission a written report setting forth in detail the manner and form of its compliance with this order.

ie FEDERAL TRADE COMMISSION DECISIONS Modifying Order 91 F.T.C.