Pool Corporation; Analysis To Aid Public Comment, 72923-72928 [2011-30435]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 76, Number 228 (Monday, November 28, 2011)]
[Notices]
[Pages 72923-72928]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-30435]


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FEDERAL TRADE COMMISSION

[File No. 101 0115]


Pool Corporation; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint and the terms of the consent order--embodied in the consent 
agreement--that would settle these allegations.

DATES: Comments must be received on or before December 22, 2011.

ADDRESSES: Interested parties may file a comment online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write ``PoolCorp, File No. 101 
0115'' on your comment, and file your comment online at https://ftcpublic.commentworks.com/ftc/poolcorpconsent, by following the 
instructions on the Web-based form. If you prefer to file your comment 
on paper, mail or deliver your comment to the following address: 
Federal Trade Commission, Office of the Secretary, Room H-113 (Annex 
D), 600 Pennsylvania Avenue NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Linda Holleran (202) 326-2267, FTC, 
Bureau of Competition, 600 Pennsylvania Avenue NW., Washington, DC 
20580.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec.  2.34 of 
the Commission's Rules of Practice, 16 CFR 2.34, notice is hereby given 
that the above-captioned consent agreement containing a consent order 
to cease and desist, having been filed with and accepted, subject to 
final approval, by the Commission, has been placed on the public record 
for a period of thirty (30) days. The following Analysis to Aid Public 
Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for November 21, 2011), on the World Wide Web, at https://www.ftc.gov/os/actions.shtm. A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue NW., Washington, DC 
20580, either in person or by calling (202) 326-2222.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before December 22, 
2011. Write ``PoolCorp, File No. 101 0115'' on your comment. Your 
comment--including your name and your state--will be placed on the 
public record of this proceeding, including, to the extent practicable, 
on the public Commission Web site, at https://www.ftc.gov/os/publiccomments.shtm. As a matter of discretion, the Commission tries to 
remove individuals' home contact information from comments before 
placing them on the Commission Web site.
    Because your comment will be made public, you are solely 
responsible for making sure that your comment does not include any 
sensitive personal information, like anyone's Social Security number, 
date of birth, driver's license number or other state identification 
number or foreign country equivalent, passport number, financial 
account number, or credit or debit card number. You are also solely 
responsible for making sure that your comment does not include any 
sensitive health information, like medical records or other 
individually identifiable health information. In addition, do not 
include any ``[t]rade secret or any commercial or financial information 
which is obtained from any person and which is privileged or 
confidential,'' as provided in Section

[[Page 72924]]

6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR 
4.10(a)(2). In particular, do not include competitively sensitive 
information such as costs, sales statistics, inventories, formulas, 
patterns, devices, manufacturing processes, or customer names.
    If you want the Commission to give your comment confidential 
treatment, you must file it in paper form, with a request for 
confidential treatment, and you have to follow the procedure explained 
in FTC Rule 4.9(c), 16 CFR 4.9(c).\1\ Your comment will be kept 
confidential only if the FTC General Counsel, in his or her sole 
discretion, grants your request in accordance with the law and the 
public interest.
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    \1\ In particular, the written request for confidential 
treatment that accompanies the comment must include the factual and 
legal basis for the request, and must identify the specific portions 
of the comment to be withheld from the public record. See FTC Rule 
4.9(c), 16 CFR 4.9(c).
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    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a result, we encourage you to submit 
your comments online. To make sure that the Commission considers your 
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/poolcorpconsent by following the instructions on the web-based 
form. If this Notice appears at https://www.regulations.gov/#!home, you 
also may file a comment through that Web site.
    If you file your comment on paper, write ``PoolCorp, File No. 101 
0115'' on your comment and on the envelope, and mail or deliver it to 
the following address: Federal Trade Commission, Office of the 
Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue NW., 
Washington, DC 20580. If possible, submit your paper comment to the 
Commission by courier or overnight service.
    Visit the Commission Web site at https://www.ftc.gov to read this 
Notice and the news release describing it. The FTC Act and other laws 
that the Commission administers permit the collection of public 
comments to consider and use in this proceeding as appropriate. The 
Commission will consider all timely and responsive public comments that 
it receives on or before December 22, 2011. You can find more 
information, including routine uses permitted by the Privacy Act, in 
the Commission's privacy policy, at https://www.ftc.gov/ftc/privacy.htm.

Analysis of Agreement Containing Consent Order To Aid Public Comment

    The Federal Trade Commission has accepted for public comment an 
Agreement Containing Consent Order to Cease and Desist (``Agreement'') 
with Pool Corporation (``PoolCorp''). PoolCorp is the world's largest 
distributor of products used in the construction, renovation, repair, 
service, and maintenance of residential and commercial swimming pools. 
The Agreement resolves charges that PoolCorp used exclusionary acts and 
practices to maintain its monopoly power in the pool product 
distribution market in violation of Section 5 of the Federal Trade 
Commission Act, 15 U.S.C. 45.
    The administrative complaint that accompanies the Agreement 
(``Complaint'') alleges that PoolCorp used its monopoly power in local 
geographic markets to prevent manufacturers from supplying pool 
products to new entrants since at least 2003. As a result, PoolCorp 
foreclosed rival distributors from obtaining pool products--a necessary 
input to compete--and significantly raised its rivals' costs, thereby 
lowering output, increasing prices, and diminishing consumer choice.
    The Commission anticipates that the competitive issues described in 
the Complaint will be resolved by accepting the proposed Order, subject 
to final approval, contained in the Agreement. The Agreement has been 
placed on the public record for 30 days for receipt of comments from 
interested members of the public. Comments received during this period 
will become part of the public record. After 30 days, the Commission 
will again review the Agreement and comments received, and will decide 
whether it should withdraw from the Agreement or make final the Order 
contained in the Agreement.
    The purpose of this Analysis to Aid Public Comment is to invite and 
facilitate public comment concerning the proposed Order. It is not 
intended to constitute an official interpretation of the Agreement and 
proposed Order or in any way to modify their terms.
    The Agreement is for settlement purposes only and does not 
constitute an admission by PoolCorp that the law has been violated as 
alleged in the Complaint or that the facts alleged in the Complaint, 
other than jurisdictional facts, are true.

I. The Complaint

    The Complaint makes the following allegations.

A. Industry Background

    This case involves wholesale distribution in the swimming pool 
industry. There are over nine million residential pools in the United 
States, and over 250,000 commercial pools operated by hotels, country 
clubs, apartment buildings, municipalities, and others. In 2010, the 
distribution of pool products was an estimated $3 billion industry in 
the United States. Manufacturers use distributors to sell the products 
used to build, repair, service, and maintain residential and commercial 
swimming pools (``pool products''). Pool products include, among 
others, pumps, filters, heaters, covers, cleaners, diving boards, 
steps, rails, pool liners, pool walls, and the parts necessary to 
maintain pool equipment. Distributors purchase pool products from 
manufacturers, warehouse them, and then resell the products to pool 
retail stores, pool service companies and pool builders (collectively, 
``pool dealers'' or ``dealers''). Dealers, in turn, sell the pool 
products to the ultimate consumer: owners of residential and commercial 
swimming pools. The swimming pool industry is very fragmented and 
wholesale distributors make it more efficient for manufacturers and 
dealers to sell their products. Distributors purchase most, if not all, 
brands of pool products that are produced by manufacturers so that they 
can provide convenient one-stop shopping for their dealer customers. 
Distributors also extend credit and provide quick delivery of pool 
products to thousands of dealers. The vast majority of dealers are mom-
and-pop operations that are too small to buy directly from 
manufacturers; for these dealers, distributors are their only source of 
pool products. Distributors also allow manufacturers to operate their 
factories year-round by purchasing large quantities of pool products 
throughout the year, even though the pool industry is seasonal.
    In general, manufacturers are willing to sell their products to any 
credit-worthy distributor that has a physical warehouse and personnel 
with knowledge of the pool industry. Manufacturers typically prefer to 
have two or more distributors selling their products in a local 
geographic market in order to ensure that the distributors compete and 
give competitive service and prices to their dealer customers.
    To compete effectively as a distributor, a firm must be able to buy 
pool products directly from manufacturers. There are no cost-effective 
alternatives. While there are

[[Page 72925]]

over 100 manufacturers of pool products, there are only three full-line 
manufacturers that produce almost all of the products used to operate 
or repair swimming pools: Pentair Water Pool & Spa; Zodiac Pool 
Systems, Inc.; and Hayward Pool Products. Collectively, these 
manufacturers represent more than 50 percent of all pool product sales. 
To be successful, a distributor must sell the products of at least one 
of these manufacturers. As recognized by PoolCorp, a positive 
relationship with these and other manufacturers is ``critical'' to the 
success of a distributor.

B. PoolCorp's Monopoly Power

    The relevant market is no broader than the wholesale distribution 
of pool products in the United States and numerous local geographic 
markets. With the exception of large national retail chains that 
purchase pool products for their retail centers located throughout the 
United States, competition among distributors for sales to dealers 
occurs locally. PoolCorp has monopoly power in numerous local markets, 
as evidenced by a persistently high market share of 80 percent or more 
for the past five years. PoolCorp's conduct of foreclosing new 
distributor entrants from obtaining pool products directly from 
manufacturers represents a significant barrier to entry.

C. PoolCorp's Conduct

    Beginning in 2003 and continuing to today, PoolCorp has implemented 
an exclusionary policy that effectively impeded entry by new 
distributors by preventing them from being able to purchase pool 
products directly from manufacturers. Specifically, when a new 
distributor attempted to enter a local geographic market, PoolCorp 
threatened manufacturers that it would not deal with them if they also 
supplied the new entrant. PoolCorp threatened to terminate the purchase 
and sale of the manufacturer's pool products for all 200+ PoolCorp 
distribution centers located throughout the United States. PoolCorp's 
policy did not exclude existing rivals from obtaining pool products 
from manufacturers.
    PoolCorp's threat was significant. The loss of sales to PoolCorp 
could be ``catastrophic'' to the financial viability of even major 
manufacturers. No other distributor could replace the large volume of 
potential lost sales to PoolCorp, particularly in markets where 
PoolCorp is the only distributor. New entrants could not offer any 
economic incentive to manufacturers that would offset the risks imposed 
by PoolCorp's threats.
    After receiving these threats, manufacturers, including the three 
``must-have'' manufacturers, refused to sell pool products to the new 
distributors and canceled any pre-existing orders. PoolCorp thus 
effectively foreclosed new distributors from obtaining pool products 
from manufacturers that represented more than 70 percent of all pool 
product sales.
    In some cases, the new distributors were able to purchase pool 
products from other distributors. This counterstrategy, however, did 
not mitigate the effects of PoolCorp's conduct. As a general rule, 
distributors do not sell pool products to other distributors. Even when 
possible, this alternative is not a viable long-term strategy because 
it substantially increases the entrant's costs and lessens its quality 
of service. For example, buying pool products from a distributor forces 
the new distributor entrant to pay transportation costs from the 
distributor's location rather than receiving free shipping under 
manufacturer programs. The purchases are also at a marked-up price and 
do not qualify for key manufacturer year-end rebates.
    By effectively increasing its rivals' costs, PoolCorp's 
exclusionary policy prevented the new distributor entrants from being 
able to compete aggressively on price. Additionally, without full 
control of their inventory, the entrants' ability to provide quality 
service to their dealer customers was diminished. PoolCorp specifically 
targeted new entrants, rather than established rivals, because the new 
distributors represented a significant competitive threat due to their 
likelihood to compete aggressively on price in order to earn new 
business. PoolCorp's conduct, therefore, had the purpose and effect of 
maintaining and enhancing PoolCorp's monopoly power in numerous local 
markets where its dominance would otherwise be threatened by new 
entrants. PoolCorp's exclusionary policy, therefore, has likely 
resulted in higher prices and reduced output. There are no 
procompetitive efficiencies that justify PoolCorp's conduct.

II. Legal Analysis

    The offense of monopolization under Sec.  2 of the Sherman Act has 
two elements: (1) the possession of monopoly power in the relevant 
market; and (2) the willful acquisition, enhancement or maintenance of 
that power through exclusionary conduct.\2\ A monopolist's refusal to 
deal with a firm if that firm also deals with a rival has long been 
recognized as exclusionary conduct. Exclusionary practices violate 
Section 2 of the Sherman Act when the challenged conduct significantly 
impairs the ability of rivals to compete effectively with the 
respondent and thus to constrain its exercise of monopoly power.\3\
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    \2\ Verizon Commun's. v. Law Offices of Curtis V. Trinko LLP., 
540 U.S. 398, 407 (2004); United States v. Grinnell Corp., 384 U.S. 
563, 570-71 (1966).
    \3\ E.g., Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 
U.S. 585, 605 & n. 32 (1985) (exclusionary conduct ``tends to impair 
the opportunities of rivals'' but ``either does not further 
competition on the merits or does so in an unnecessarily restrictive 
way'') (citations omitted); see also Lorain Journal Co. v. United 
States, 342 U.S. 143, 151-54 (1951) (condemning newspaper's refusal 
to deal with customers that also advertised on rival radio station 
because it harmed the radio station's ability to compete); United 
States v. Microsoft, 253 F.3d 34, 68-71 (D.C. Cir. 2001) (condemning 
exclusive agreements that prevented rivals from ``pos[ing] a real 
threat to Microsoft's monopoly''); United States v. Dentsply, 399 
F.3d 181, 191 (3d Cir. 2005) (condemning policy that kept 
competitors below ``the critical level necessary for any rival to 
pose a real threat to Dentsply's market share'').
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    The factual allegations in the complaint regarding market structure 
support a finding of monopoly power and competitive harm. PoolCorp's 
``all or nothing'' threats acted as a powerful deterrent to 
manufacturers against dealing with new distributor entrants by 
jeopardizing a large and irreplaceable percentage of the manufacturer's 
sales. PoolCorp's conduct effectively foreclosed new entrants from 
manufacturers representing more than 70 percent of pool product sales. 
New entrants were unable to provide any economic incentive to 
manufacturers that could offset the risk posed by PoolCorp's threats. 
Raising rivals' costs by restraining their supply of inputs can be a 
``particularly effective method of anticompetitive exclusion.'' \4\
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    \4\ See Thomas G. Krattenmaker & Steven C. Salop, 
Anticompetitive Exclusion: Raising Rivals' Costs to Achieve Power 
Over Price, 96 Yale L.J. 209, 224 (1986) (explaining that this 
method of exclusion allows a dominant firm to use its vertical 
relationships to create additional horizontal market power); see 
also Dentsply, 399 F.3d at 195 (holding ``all or nothing'' ultimatum 
exclusionary when it ``created a strong economic incentive for 
dealers to reject competing lines in favor of Dentsply's teeth.''); 
In re Transitions Optical, Inc., 75 FR 10799 (Mar. 2010) (proposed 
complaint and analysis to aid public comment).
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    Additionally, the work-around strategy employed by some new 
entrants of purchasing pool products from other distributors 
significantly raised their costs and reduced their ability to provide 
quality service. PoolCorp's exclusionary policy therefore prevented 
these firms from providing a meaningful

[[Page 72926]]

constraint on PoolCorp's monopoly prices.
    Notably, PoolCorp's conduct targeted new entry and did not exclude 
existing rivals. The test for exclusionary conduct, however, is not 
total foreclosure, but ``whether the challenged practices bar a 
substantial number of rivals or severely restrict the market's ambit.'' 
\5\ New entrants may have a more disruptive impact on the market than 
established firms because they may have an increased incentive to 
compete aggressively on price in order to win business. Conduct that 
artificially raises entry barriers by increasing the scale, cost or 
time of entry harms consumers by providing a greater opportunity for 
monopoly pricing.\6\
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    \5\ LePage's, Inc. v. 3M, 324 F.3d 141, 159 (3d Cir. 2003); see 
also Dentsply, 399 F.3d at 190 (explaining that ``it is not 
necessary that all competition be removed from the market'').
    \6\ Herbert Hovenkamp, Antitrust Law ] 1802c, at 64 (2d ed. 
2002) (``Consumer injury results from the delay that the dominant 
firm imposes on the smaller rival's growth''); see also Microsoft, 
253 F.3d at 79 (``it would be inimical to the purpose of the Sherman 
Act to allow monopolists free reign to squash nascent, albeit 
unproven, competitors at will''); LePage's, 324 F.3d at 159 (``When 
a monopolist's actions are designed to prevent one or more new or 
potential competitors from gaining a foothold in the market by 
exclusionary, i.e., predatory, conduct, its success in that goal is 
not only injurious to the potential competitor but also to 
competition in general.'').
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    A monopolist may rebut a prima facie showing of competitive harm by 
showing that the challenged conduct is reasonably necessary to achieve 
a procompetitive benefit. Any efficiency benefit, if proven, must be 
balanced against the harm caused by the challenged conduct.
    There are no procompetitive efficiencies that justify PoolCorp's 
conduct. In some cases, for example, exclusive arrangements with 
suppliers could be necessary to prevent free-riding or to secure 
adequate supply. Here, however, PoolCorp did not offer any services 
upon which a new entrant could free-ride. Further, the pool industry is 
not subject to product shortfalls that could justify exclusive 
arrangements with suppliers. In short, PoolCorp's practice of 
foreclosing new entrants from supply did not help PoolCorp compete on 
the merits by improving its efficiency, quality or prices.

III. The Order

    The proposed Consent Order remedies PoolCorp's anticompetitive 
conduct. Paragraph II of the Order addresses the core of PoolCorp's 
conduct. Specifically, Paragraph II of the proposed Consent Order 
prohibits PoolCorp from:
     Conditioning the sale or purchase of pool products, or 
membership in PoolCorp's preferred vendor programs, on the intended or 
actual sale of pool products by a manufacturer to any distributor other 
than PoolCorp;
     Pressuring, urging or otherwise coercing manufacturers to 
refrain from selling, or to limit their sales, to any distributors 
other than PoolCorp; and
     Discriminating or retaliating against a manufacturer for 
selling, or intending to sell, pool products to any distributor other 
than PoolCorp.
    The definition of ``distributor'' includes any entity that buys 
pool products directly from manufacturers and resells those products to 
dealers or others. The Order explicitly allows PoolCorp to enter into 
exclusive agreements with manufacturers to purchase private-label pool 
products.
    Paragraph III of the Proposed Order requires PoolCorp to implement 
an antitrust compliance program. Paragraph IV-VI impose reporting and 
other compliance requirements. The Order will expire in 20 years.

    By direction of the Commission, Commissioner Rosch dissenting.
Donald S. Clark,
Secretary.

Statement of Commissioners Julie Brill, Jon Leibowitz and Edith Ramirez 
Regarding the Complaint and Proposed Consent Order in In Re Pool 
Corporation

November 21, 2011

    The Commission is today issuing for public comment a Complaint and 
Order that would resolve allegations that Pool Corporation 
(``PoolCorp'') used anticompetitive acts and practices to exclude 
rivals from, and to maintain its monopoly power in, several local pool 
product distribution markets, in violation of Section 5 of the Federal 
Trade Commission Act, 15 U.S.C. 45.
    On the basis of staff's investigation and as outlined in the 
Complaint, we have reason to believe that a violation of the antitrust 
laws has occurred--and that Commission action is in the public 
interest. 15 U.S.C. 45(b). Specifically, the Complaint alleges that 
PoolCorp, which possesses monopoly power in many local distribution 
markets, threatened its suppliers (i.e., pool product manufacturers) 
that it would no longer distribute a manufacturer's products on a 
nationwide basis if that manufacturer sold its products to a new 
distributor that was attempting to enter a local market. Although these 
manufacturers preferred to have a broad and diverse distribution 
network, they declined to add distributors because they feared 
retribution from PoolCorp. These decisions were not made for 
independent business reasons.\7\
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    \7\ We disagree with Commissioner Rosch's conclusion that 
manufacturers refused to deal with new entrants for independent 
business reasons. In our view, the evidence demonstrates a causal 
relationship between the manufacturers' decisions and PoolCorp's 
alleged conduct.
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    As alleged in the Complaint, PoolCorp's actions foreclosed new 
entrants from obtaining pool products from manufacturers representing 
more than 70 percent of sales. Significantly, there is no efficiency 
justification for PoolCorp's conduct. That is, without any legitimate 
justification, PoolCorp dictated whether new competitors could access 
the full range of merchandise needed to compete effectively in the 
market. Cf. Toys ``R'' Us, Inc. v. FTC, 221 F.3d 928, 930 (7th Cir. 
2000) (actions by dominant toy retailer to prevent would-be entrants 
from obtaining access to toys judged to be anticompetitive). Some of 
PoolCorp's targets were able to survive by purchasing pool products 
from other distributors rather than directly from the manufacturers. 
However, we assess consumer harm relative to market conditions that 
would have existed but for the respondent's allegedly unlawful conduct. 
Here, PoolCorp's strategy significantly increased a new entrant's costs 
of obtaining pool products. Conduct by a monopolist that raises rivals' 
costs can harm competition by creating an artificial price floor or 
deterring investments in quality, service and innovation.\8\ The higher 
cost structure PoolCorp imposed on new entrants prevented them from 
providing a competitive constraint to PoolCorp's alleged monopoly 
prices. And without full control of their inventory, the new 
distributors' ability to provide high quality service to their dealer 
customers was diminished. The harm to consumers that occurred as a 
result was substantial. In the end, consumers had fewer choices and 
were forced to pay higher prices for pool products.
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    \8\ See, e.g., Thomas G. Krattenmaker & Steven C. Salop, 
Anticompetitive Exclusion: Raising Rivals' Costs to Achieve Power 
Over Price, 96 Yale L.J. 209, 224 (1986) (finding that a dominant 
firm's strategy of restraining rivals' access to supply can be a 
``particularly effective method of anticompetitive exclusion'' 
because it allows the dominant firm to use its vertical 
relationships to create additional horizontal market power).
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    Although we recognize that PoolCorp's alleged conduct did not 
target incumbent distributors, we nevertheless have reason to believe 
that the conduct harmed competition and consumers. Separate from 
PoolCorp,

[[Page 72927]]

there are few, if any, incumbent distributors in the local markets at 
issue here. By targeting new distributor entrants, PoolCorp's conduct 
harmed the very companies that were most likely to compete aggressively 
on price and to introduce innovative services or ways of doing 
business.\9\ The Commission has seen this pattern before. The targets 
of anticompetitive exclusion are often the new rivals that incumbents 
foresee as most likely to shake up the market and benefit consumers at 
the expense of incumbents.\10\ We fail to do our job if we permit a 
monopolist to decide, without sufficient efficiency justification, 
whether or on what terms a rival will be permitted to enter the market.
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    \9\ See id. at 246 (explaining that potential competition by new 
entrants can provide a ``significant competitive check'' distinct 
from established firms).
    \10\ See, e.g., Allied Tube & Conduit Corp. v. Indian Head, 
Inc., 486 U.S. 492, 499-500 (1988) (condemning association action to 
prevent inclusion of plastic conduits in relevant standard); 
Realcomp II, LTD. v. FTC, 635 F.3d 815 (6th Cir. 2011) (condemning 
Multiple Listing Service rules that disadvantaged new brokerage 
model), cert. denied, 2011 U.S. Lexis 7292 (Oct. 11, 2011); Toys 
``R'' Us, Inc. v. FTC, 221 F.3d 928 (7th Cir. 2000) (condemning 
dominant toy company's actions that limited sources of toys 
available to new warehouse clubs).
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    Because we have reason to believe that PoolCorp's conduct had the 
purpose and effect of maintaining PoolCorp's monopoly power in numerous 
local markets where its dominance was threatened by new distributor 
entrants, we support the attached Complaint and Order.

Dissenting Statement of J. Thomas Rosch In the Matter of Pool 
Corporation, FTC File No. 101-0115

November 21, 2011

    This case presents the novel situation of a company willing to 
enter into a consent decree notwithstanding a lack of evidence 
indicating that a violation has occurred. The FTC Act requires that the 
Commission find a ``reason to believe'' that a violation has occurred 
and determine that Commission action would be in the public interest 
any time it issues a complaint. 15 U.S.C. 45(b). In my view, the same 
standard applies regardless of whether the Commission is seeking a 
litigated decree or a consent decree for the charged violation. 
Accordingly, I would reject the proposed consent decree and close the 
investigation.
    After a year and a half of investigation, we have not been able to 
identify any harm to consumers or competition as a result of actions by 
Pool Corporation, Inc. (``PoolCorp''), and further investigation 
appears unlikely to uncover such effects. As an initial matter, it is 
important to note that, even accepting the allegations in the 
complaint, PoolCorp did not engage in a general pattern of exclusionary 
conduct. Rather, the complaint alleges that PoolCorp threatened 
manufacturers not to supply an entering distributor in various local 
markets. There is no allegation that PoolCorp sought to restrict supply 
to (1) incumbents in any of these local markets, (2) established 
distributors seeking to expand into markets dominated by PoolCorp, or 
(3) established distributors in any of the dozens of other local 
markets across the country.
    The limited scope of PoolCorp's alleged exclusionary conduct is, of 
course, no defense. PoolCorp's alleged threats to manufacturers, had 
they been successful, may well have violated the antitrust laws. But 
that is not what happened. The investigation revealed that PoolCorp's 
demands were not honored by manufacturers. Instead, the evidence showed 
that manufacturers made unilateral decisions not to supply the de novo 
entrants in the various local markets.
    There were legitimate reasons for pool equipment manufacturers not 
to sell to these entrants. A manufacturer will typically accept a new 
distributor only if the distributor will add to the value of the 
distribution network by, for example, improving growth opportunities or 
increasing promotional activities. Manufacturers often require a de 
novo entrant to have adequate facilities, a history of successful 
operations, and a favorable credit history before supporting it. In 
this case, many of the allegedly excluded de novo entrants did not 
satisfy these requirements. The lack of evidence establishing causation 
between PoolCorp's requests and action by the manufacturers, combined 
with plausible justifications for the manufacturers' actions, should be 
fatal to this case.
    Another problem with this case is that no entrants were actually 
excluded.\11\ That is because the entrants were able to obtain supplies 
from other manufacturers or distributors. The only claim to the 
contrary is in Paragraph 28 of the complaint, which alleges that in 
Baton Rouge, ``the new entrant's business ultimately failed in 2005'' 
because of the lack of ``direct access to the manufacturers' pool 
products.'' The complaint neglects to mention that this entrant was 
able to secure supplies from other sources and later sold itself to an 
established out-of-state distributor. Since then, that distributor, 
which has had full access to supplies, has been a highly effective 
rival to PoolCorp. Thus, to the extent PoolCorp's threats had an effect 
in Baton Rouge, they may have led to more, not less, competition.
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    \11\ The majority statement purports to be based on the 
Complaint. However, the majority statement ignores the central 
theory of the Complaint--exclusion of rivals through foreclosure of 
supply (Complaint ]] 18-28)--and does not assert that any rivals 
were actually excluded. Instead, the majority statement focuses on 
an alternative theory of competitive harm--raising rivals' costs--on 
which the Complaint offers scant details. (Complaint ]] 29-31.) As 
support for this theory, the majority statement relies on an article 
by Krattenmaker and Salop. See Thomas G. Krattenmaker & Steven C. 
Salop, Anticompetitive Exclusion: Raising Rivals' Costs to Achieve 
Power Over Price, 96 Yale L.J. 209, 224 (1986). As these authors 
note, however, a raising rivals' costs strategy is unlikely to be 
successful in a market with low entry barriers. Id. at 225 (entry 
must ``be difficult''), 236 n.85 (``Obviously, some barriers to 
entry and expansion must exist for price to rise.''). Here, neither 
the complaint nor the majority statement alleges that there are any 
significant barriers to entry in this industry.
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    A third problem with this case is that there was no consumer 
injury. The investigation did not uncover price increases, service 
degradation, or other anticompetitive effects in any local markets.\12\ 
Economic analysis corroborated these results and suggested that even if 
PoolCorp had completely foreclosed its rivals, the pricing effects 
would have been minimal. The lack of consumer harm should not be 
surprising given that PoolCorp's actions, at most, raised the costs of 
a single competitor in each local market, without affecting other 
incumbents or the entry prospects of established, out-of-market 
dealers.
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    \12\ The basis for the majority statement's claim that there was 
``substantial'' consumer harm resulting from the alleged conduct of 
Respondent is a mystery. The complaint contains no factual 
allegations of any harm to consumers, much less ``substantial'' 
harm. Likewise, there are no factual allegations in the complaint 
corroborating the majority's claim that consumers ``had fewer 
choices and were forced to pay higher prices for pool products.''
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    The lack of consumer injury is also corroborated by the very low 
entry barriers in this industry. Opening a pool supply distributorship 
requires access to one or more of the major equipment suppliers, a few 
trucks, a medium-sized warehouse, access to credit, and no more than 
ten employees. There are hundreds of profitable pool supply 
distributors, and entry and expansion are frequent events. Thus, any 
effort to exclude a competitor would become a game of whack-a-mole: As 
soon as one competitor is driven from the market, another would pop up.
    Accordingly, I cannot find that there is a ``reason to believe'' 
that a violation occurred or that accepting the proposed consent decree 
would be in the public

[[Page 72928]]

interest. 15 U.S.C. 45(b). Furthermore, I question whether this 
investigation represented a wise use of Commission resources, 
particularly given the austere climate in which we are operating. Even 
accepting all of the allegations in the complaint as true, the likely 
consumer injury would have amounted to just a few thousand dollars.

[FR Doc. 2011-30435 Filed 11-25-11; 8:45 am]
BILLING CODE 6750-01-P