UNITED STATES SUPREME COURT DECISIONS ON-LINE

Procter & Gamble (Procter), a large, diversified manufacturer of household products, acquired in 1957 the assets of Clorox Chemical Co., the leading manufacturer of household liquid bleach, and the only one selling on a national basis. Clorox had 48.8% of the national market, with higher percentages in some regional areas. Clorox and one other firm accounted for 65% of liquid bleach sales, and, with four other firms, for almost 80%, with the rest divided among more than 200 small producers. Procter is a dominant factor in the area of soaps, detergents and cleaners, with total sales in 1957 in excess of a billion dollars, and an advertising budget of more than $80,000,000, due to which volume Procter receives substantial discounts from the media. The FTC challenged the acquisition, and, after hearings, found that the substitution of Procter for Clorox would dissuade new entrants in the liquid bleach field, discourage active competition from firms already in the industry due to fear of retaliation from Procter, and diminish potential competition by eliminating Procter, the most likely prospect, as a potential entrant. The FTC, which placed no reliance on post-acquisition evidence, held the acquisition violative of § 7 of the Clayton Act and ordered the divestiture of Clorox. The relevant line of commerce was found to be household liquid bleach, and the relevant geographical market was held to be the Nation and a series of regional markets. The Court of Appeals reversed, stating that the FTC's finding of illegality was based on "treacherous conjecture," mere possibility, and suspicion. The court found nothing unhealthy about the market conditions in the industry, found "it difficult to base a finding of illegality on discounts in advertising," found no evidence to show that Procter ever intended to enter the bleach field, and relied heavily on post-acquisition evidence to the effect that other producers "were selling more bleach for more money than ever before."

Held:

1. Any merger, whether it is horizontal, vertical, conglomerate, or, as in this case, a "product-extension merger," must be tested clubjuris

Page 386 U. S. 569

by the standard of § 7 of the Clayton Act, that is, whether it may substantially lessen competition, which requires a prediction of the merger's impact on present and future competition. P. 386 U. S. 577.

2. This merger may have anticompetitive effects. Pp. 386 U. S. 578-581.

(a) In this oligopolistic industry, the substitution of the powerful acquiring firm for the smaller but dominant firm may substantially reduce the competitive structure of the industry by dissuading the smaller firms from competing aggressively, resulting in a more rigid oligopoly, with Procter the price leader. P. 386 U. S. 578.

(b) The acquisition may also tend to raise the barriers to new entrants, who would be reluctant to face the huge Procter, with its large advertising budget. P. 386 U. S. 579.

(c) Potential economics cannot be used as a defense to illegality, as Congress struck the balance in favor of protecting competition. P. 386 U. S. 580.

(d) The FTC's finding that the acquisition eliminated Procter, the most likely entrant into the liquid bleach field, as a potential competitor was amply supported by the evidence. Pp. 386 U. S. 580-581.

358 F.2d 74, reversed and remanded.