United States v. General Dynamics Corp. case brief summary
FACTS
Two coal firms merged, with shares roughly equivalent to those in Von’s Grocery, and were challenged by the Department of Justice (DOJ).
DISCUSSION
Nonetheless, the Court noted that the market share and a company’s past ability to produce was not conclusive proof of market power, particularly in the coal industry, which relied upon long-term contracts and where the strength of its reserves was the best indicator of market power.
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FACTS
Two coal firms merged, with shares roughly equivalent to those in Von’s Grocery, and were challenged by the Department of Justice (DOJ).
DISCUSSION
Nonetheless, the Court noted that the market share and a company’s past ability to produce was not conclusive proof of market power, particularly in the coal industry, which relied upon long-term contracts and where the strength of its reserves was the best indicator of market power.
Analysis
- This case holds that the structural presumption (of market concentration equating market power) is rebuttable.
- This case could be read as a limited exception—where the market must be measured in the appropriate units—or as a broad exception—anything that shows market shares do not reflect market power is admissible.
- After General Dynamic, the Attorney General revised the merger guidelines to preserve the presumption, but also to allow more room for rebuttal.
- General Dynamics was a “flailing” firm, which was extremely unlikely to become competitive, much less dominant, because of the merger. Consequently, General Dynamics may suggest that any merger with a failing firm will not be anti-competitive.
- This was the last decision the Supreme Court made on mergers.
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Full case text at: http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=415&invol=486
ReplyDelete"Material Service Corp., a deep-mining coal producer, and its successor, appellee General Dynamics Corp., acquired, through stock purchases, control of appellee United Electric Coal Companies, a strip-mining coal producer. The Government brought suit alleging that this acquisition violated 7 of the Clayton Act. The District Court found no violation on the ground, inter alia, that the Government's evidence - consisting principally of past production statistics showing that within certain geographic markets the coal industry was concentrated among a small number of large producers, that this concentration was increasing, and that the acquisition here would materially enlarge the acquiring company's market share and thereby contribute to the concentration trend - did not support the Government's contention that the acquisition substantially lessened competition in the production and sale of coal in either or both of two specified geographic markets. This conclusion was primarily based on a determination that United Electric's coal reserves were so low that its potential to compete with other producers in the future was far weaker than the aggregate production statistics relied on by the Government might otherwise have indicated, virtually all of United Electric's proved reserves being either depleted or already committed by long-term contracts with large customers so that its power to affect the price of coal was severely limited and steadily diminishing."