Dollar Tree, Inc. and Family Dollar Stores, Inc.; Analysis of Proposed Consent Orders To Aid Public Comment, 42810-42819 [2015-17767]

Download as PDF 42810 Federal Register / Vol. 80, No. 138 / Monday, July 20, 2015 / Notices may file a comment through that Web site. If you file your comment on paper, write ‘‘Red Flags Rule PRA, Project No. P095406’’ on your comment and on the envelope, and mail or deliver it to the following address: Federal Trade Commission, Office of the Secretary, Constitution Center, 400 7th Street SW., 5th Floor, Suite CC–5610 (Annex J), Washington, DC 20024. If possible, submit your paper comment to the Commission by courier or overnight service. 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 September 18, 2015. For information on the Commission’s privacy policy, including routine uses by the Privacy Act, see http:// www.ftc.gov/ftc/privacy.htm. David C. Shonka, Principal Deputy General Counsel. [FR Doc. 2015–17764 Filed 7–17–15; 8:45 am] BILLING CODE 6750–01–P FEDERAL TRADE COMMISSION [File No. 141 0207] Dollar Tree, Inc. and Family Dollar Stores, Inc.; Analysis of Proposed Consent Orders To Aid Public Comment Federal Trade Commission. Proposed consent agreement. AGENCY: ACTION: The consent agreement in this matter settles alleged violations of federal law prohibiting 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 orders— embodied in the consent agreement— that would settle these allegations. DATES: Comments must be received on or before August 3, 2015. ADDRESSES: Interested parties may file a comment at https:// ftcpublic.commentworks.com/ftc/ dollartreeconsent online or on paper, by following the instructions in the Request for Comment part of the SUPPLEMENTARY INFORMATION section below. Write ‘‘Dollar Tree, Inc. and Family Dollar Stores, Inc.—Consent Agreement; File No. 141–0207’’ on your comment and file your comment online at https://ftcpublic.commentworks.com/ ftc/dollartreeconsent by following the instructions on the web-based form. If mstockstill on DSK4VPTVN1PROD with NOTICES SUMMARY: VerDate Sep<11>2014 16:30 Jul 17, 2015 Jkt 235001 you prefer to file your comment on paper, write ‘‘Dollar Tree, Inc. and Family Dollar Stores, Inc.—Consent Agreement; File No. 141–0207’’ on your comment and on the envelope, and mail your comment to the following address: Federal Trade Commission, Office of the Secretary, 600 Pennsylvania Avenue NW., Suite CC–5610 (Annex D), Washington, DC 20580, or deliver your comment to the following address: Federal Trade Commission, Office of the Secretary, Constitution Center, 400 7th Street SW., 5th Floor, Suite 5610 (Annex D), Washington, DC 20024. FOR FURTHER INFORMATION CONTACT: Sean Pugh, Bureau of Competition, (202–326–3201), 600 Pennsylvania Avenue NW., Washington, DC 20580. SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34, notice is hereby given that the above-captioned consent agreement containing consent orders 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 July 2, 2015), on the World Wide Web, at http://www.ftc.gov/ os/actions.shtm. You can file a comment online or on paper. For the Commission to consider your comment, we must receive it on or before August 3, 2015. Write ‘‘Dollar Tree, Inc. and Family Dollar Stores, Inc.—Consent Agreement; File No. 141– 0207’’ 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 http:// 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 PO 00000 Frm 00024 Fmt 4703 Sfmt 4703 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 privileged or confidential,’’ as discussed in Section 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. 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/ dollartreeconsent by following the instructions on the web-based form. If this Notice appears at http:// www.regulations.gov/#!home, you also may file a comment through that Web site. If you file your comment on paper, write ‘‘Dollar Tree, Inc. and Family Dollar Stores, Inc.—Consent Agreement; File No. 141–0207’’ on your comment and on the envelope, and mail your comment to the following address: Federal Trade Commission, Office of the Secretary, 600 Pennsylvania Avenue NW., Suite CC–5610 (Annex D), Washington, DC 20580, or deliver your comment to the following address: Federal Trade Commission, Office of the Secretary, Constitution Center, 400 7th Street SW., 5th Floor, Suite 5610 (Annex D), Washington, DC 20024. If possible, submit your paper comment to the Commission by courier or overnight service. Visit the Commission Web site at http://www.ftc.gov to read this Notice and the news release describing it. The FTC Act and other laws that the 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). E:\FR\FM\20JYN1.SGM 20JYN1 Federal Register / Vol. 80, No. 138 / Monday, July 20, 2015 / Notices 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 August 3, 2015. For information on the Commission’s privacy policy, including routine uses permitted by the Privacy Act, see http://www.ftc.gov/ftc/ privacy.htm. Analysis of Agreement Containing Consent Orders To Aid Public Comment mstockstill on DSK4VPTVN1PROD with NOTICES I. Introduction and Background The Federal Trade Commission (‘‘Commission’’) has accepted for public comment, subject to final approval, an Agreement Containing Consent Orders (‘‘Consent Order’’) from Dollar Tree, Inc. (‘‘Dollar Tree’’) and Family Dollar Stores, Inc. (‘‘Family Dollar’’), (collectively, the ‘‘Respondents’’). On July 27, 2014, Dollar Tree and Family Dollar entered into an agreement whereby Dollar Tree would acquire Family Dollar for approximately $9.2 billion (the ‘‘Acquisition’’). The purpose of the proposed Consent Order is to remedy the anticompetitive effects that otherwise would result from Dollar Tree’s acquisition of Family Dollar. Under the terms of the proposed Consent Order, Respondents are required to divest 330 stores in local geographic markets (collectively, the ‘‘relevant markets’’) in 35 states to the Commission-approved buyer. The divestitures must be completed within 150 days from the date of the Acquisition. The Commission and Respondents have agreed to an Order to Maintain Assets to maintain the viability of Respondents’ assets until they are transferred to the Commissionapproved buyer. The proposed Consent Order has been placed on the public record for 30 days to solicit comments from interested persons. Comments received during this period will become part of the public record. After 30 days, the Commission again will review the proposed Consent Order and any comments received, and decide whether the Consent Order should be withdrawn, modified, or made final. The Commission’s Complaint alleges that the Acquisition, if consummated, would violate Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18, and Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 45, by removing an actual, direct, and substantial competitor in localized geographic markets in 222 cities VerDate Sep<11>2014 16:30 Jul 17, 2015 Jkt 235001 nationwide.2 The elimination of this competition would result in significant competitive harm; specifically the Acquisition will allow the combined entity to increase prices unilaterally above competitive levels. Similarly, absent a remedy, there is significant risk that the merged firm may decrease the quality and service aspects of its stores. The proposed Consent Order would remedy the alleged violations by requiring divestitures to replace competition that otherwise would be lost in these markets because of the Acquisition. II. The Respondents As of January 31, 2015, Dollar Tree operated 5,157 discount general merchandise retail stores across the United States under the Dollar Tree and Deals banners. Presently, Dollar Tree banner stores are located in 48 states and the District of Columbia, while Deals banner stores are currently located in 18 states and the District of Columbia. In the Dollar Tree banner stores, Dollar Tree sells a wide selection of everyday basic, seasonal, closeout, and promotional merchandise for $1 or less. At its Deals banner stores, Dollar Tree offers an expanded assortment of this merchandise at prices generally less than $10. Dollar Tree and Deals banner stores range in size from 8,000 to 12,000 square feet of selling space and typically carry between 6,600 to 7,000 stock keeping units (‘‘SKUs’’). As of February 28, 2015, Family Dollar operated approximately 8,184 discount general merchandise retail stores nationwide. Family Dollar sells an assortment of consumables, home products, apparel and accessories, seasonal items, and electronic merchandise at prices generally less than $10. Currently, Family Dollar stores are located in 46 states and the District of Columbia. Stores typically have 7,150 square feet of selling space and carry approximately 6,500 to 7,000 SKUs. III. Competition in the Relevant Markets Dollar stores are small-format, deepdiscount retailers that sell an assortment of consumables and non-consumables, including food, home products, apparel and accessories, and seasonal items, at prices typically under $10. Dollar stores differentiate themselves from other retailers on the basis of both convenience and value by offering a broad assortment but limited variety of 2 The list of cities in which stores will be divested is attached as Appendix A. The list of stores to be divested is attached to the Decision and Order as Schedule A. PO 00000 Frm 00025 Fmt 4703 Sfmt 4703 42811 general merchandise items at discounted prices in stores with small footprints (i.e., approximately 7,000 to 10,000 square feet of selling space), located relatively close to consumers’ homes or places of work.3 Customers often shop at dollar stores as part of a ‘‘fill-in’’ shopping trip. Dollar stores typically compete most closely with other dollar stores that provide the same kind of convenient shopping trip for discounted general merchandise. Walmart competes closely with dollar stores and offers a wide assortment of products at deeply-discounted prices. Although Walmart does not provide the same kind of convenience as that of dollar stores given its less-accessible locations, larger store footprints, and greater assortment of products, Walmart nevertheless competes closely with dollar stores by offering a comparable or better value to consumers in terms of pricing. For purposes of this matter, ‘‘discount general merchandise retail stores’’ refers to dollar stores and the retailer Walmart. Although other retail stores (i.e., supermarkets, pharmacies, mass merchandisers, and discount specialty merchandise retail stores) often sell discounted merchandise similar to that offered by dollar stores and Walmart, these other retailers generally are not as effective at constraining Respondents as are other discount general merchandise retail stores.4 These other retailers do not offer the same value as Walmart or the same combination of convenience and value offered by dollar stores, which tends to make them less effective substitutes for discount general merchandise retail stores. As a result, consumers shopping at discount general merchandise retail stores are unlikely to significantly increase purchases of discounted merchandise at other retailers in response to a small but significant price increase at discount general merchandise retail stores. However, in certain geographic markets, typically characterized by high population density, where the number and geographic proximity of these other retailers is substantial relative to the 3 The term ‘‘dollar stores’’ as used here includes stores operated by Respondents, Dollar General, 99 Cents Only, and Fred’s Super Dollar. Independently-owned retailers that sell discounted merchandise at the $1 or multi-price point in substantially smaller stores are not included. 4 The term ‘‘supermarkets’’ as used here includes traditional supermarkets such as Kroger and Publix, as well as supermarkets included within hypermarkets such as SuperTarget or Kroger’s Fred Meyer banner. The term ‘‘pharmacies’’ includes national retail drug stores such as CVS, Rite Aid, and Walgreens. The term ‘‘mass merchandisers’’ includes retailers such as Target and K-Mart. The term ‘‘discount specialty merchandise retail stores’’ includes retailers such as Big Lots and Aldi. E:\FR\FM\20JYN1.SGM 20JYN1 mstockstill on DSK4VPTVN1PROD with NOTICES 42812 Federal Register / Vol. 80, No. 138 / Monday, July 20, 2015 / Notices competing discount general merchandise retail stores, the collective presence of these other retailers acts as a more significant price constraint on the discount general merchandise retail stores operating in the area.5 Thus, the relevant line of commerce in which to analyze the Acquisition is no narrower than discount general merchandise retail stores. In certain geographic markets, the relevant line of commerce may be as broad as the sale of discounted general merchandise in retail stores (i.e., discount general merchandise retail stores as well as supermarkets, pharmacies, mass merchandisers, and discount specialty merchandise retail stores). Whether the relevant line of commerce is discount general merchandise retail stores or discounted general merchandise in retail stores depends on the specifics of the geographic market at issue, such as population density and the density and proximity of the Respondents’ stores and competing retailers. The relevant geographic market varies depending on the unique characteristics of each market, including the local road network, physical boundaries, and population density. A strong motivation of consumers shopping at discount general merchandise retail stores is convenience. As with grocery shopping, the vast majority of consumers who shop for discounted general merchandise do so at stores located very close to where they live or work. The draw area of a dollar store, which varies depending on whether it is located in an urban, suburban, or rural area, may range from a couple of city blocks to several miles. Other market participants, such as supermarkets and retail pharmacies, may have similar, although somewhat broader draw areas. Walmart’s stores, particularly Walmart Supercenters, tend to have a considerably broader draw area. In highly urban areas, the geographic markets are generally no broader than a half-mile radius around a given store. In highly rural areas, the geographic market is generally no narrower than a three-mile radius around a given store. In areas neither highly urban nor highly rural, the geographic market is generally within a half-mile to three-mile radius around a given store. Respondents are close competitors in terms of format, customer service, 5 Online retailers are not participants in the relevant product market. The primary appeal of dollar stores is the combination of value and convenience they offer consumers. Given the time required to process and ship items ordered online, Internet retailers are less convenient shopping options for consumers looking to make an immediate purchase on a fill-in trip. VerDate Sep<11>2014 16:30 Jul 17, 2015 Jkt 235001 product offerings, and location in the relevant geographic markets. With regard to pricing, product assortment, and a host of other competitive issues, Respondents typically focus most directly on the actions and responses of each other and other dollar stores, while also paying close attention to Walmart. In many of the relevant geographic markets, Dollar Tree and Family Dollar operate the only dollar stores in the area or the vast majority of convenientlylocated discount general merchandise retail stores. Absent relief, the Acquisition would increase the incentive and ability of Dollar Tree to raise prices unilaterally postAcquisition in the relevant geographic markets. The Acquisition would also decrease incentives to compete on nonprice factors, including product selection, quality, and service. Entry into the relevant geographic markets that is timely and sufficient to prevent or counteract the expected anticompetitive effects of the Acquisition is unlikely. Entry barriers include the time, costs, and feasibility associated with identifying and potentially constructing an appropriate and available location for a discount general merchandise retail store, the resources required to support one or more new stores over a prolonged rampup period, and the sufficient scale to compete effectively. An entrant’s ability to secure a viable competitive location may be hindered by restrictive-use commercial lease covenants, which can limit the products sold, or even the type of retailer that can be located, at a particular location. Sycamore is not an acceptable buyer, Respondents must immediately rescind the divestitures and divest the assets to a different buyer that receives the Commission’s prior approval. The proposed Consent Order contains additional provisions to ensure the adequacy of the proposed relief. For example, Respondents have agreed to an Order to Maintain Assets that will be issued at the time the proposed Consent Order is accepted for public comment. The Order to Maintain Assets requires Family Dollar to operate and maintain each divestiture store in the normal course of business through the date the store is ultimately divested to Sycamore. Because the divestiture schedule runs for an extended period of time, the proposed Consent Order appoints Gary Smith as a Monitor to oversee Respondents’ compliance with the requirements of the proposed Consent Order and Order to Maintain Assets. Mr. Smith has the experience and skills to be an effective Monitor, no identifiable conflicts, and sufficient time to dedicate to this matter through its conclusion. * * * * * The sole purpose of this Analysis is to facilitate public comment on the proposed Consent Order. This Analysis does not constitute an official interpretation of the proposed Consent Order, nor does it modify its terms in any way. IV. The Proposed Consent Order The proposed remedy, which requires the divestiture of 330 Family Dollar stores in the relevant markets to Sycamore Partners (‘‘Sycamore’’), will restore fully the competition that otherwise would be eliminated in these markets as a result of the Acquisition. Sycamore is a private equity firm specializing in consumer and retail investments. The proposed buyer appears to be a highly suitable purchaser and is well positioned to enter the relevant geographic markets and prevent the likely competitive harm that otherwise would result from the Acquisition. Sycamore’s proposed executive team has extensive experience operating discount general merchandise retail stores. The proposed Consent Order requires Respondents to divest 330 stores to Sycamore within 150 days from the date of the Acquisition. If, at any time before the proposed Consent Order is made final, the Commission determines that Alabama .......... Arizona ............ Arizona ............ California ......... California ......... California ......... California ......... California ......... Colorado .......... Colorado .......... PO 00000 Frm 00026 Fmt 4703 Sfmt 4703 Appendix A City Colorado .......... Colorado .......... Colorado .......... Connecticut ..... Connecticut ..... Connecticut ..... Connecticut ..... Connecticut ..... Connecticut ..... Delaware ......... Florida ............. Florida ............. Florida ............. Florida ............. Florida ............. Florida ............. Florida ............. Florida ............. Florida ............. E:\FR\FM\20JYN1.SGM 20JYN1 Montgomery .... Lake Havasu ... Tucson ............ Farmersville ..... Fresno ............. Inglewood ........ Lemoore .......... San Bernardino Aurora ............. Colorado Springs. Denver ............. Federal Heights Lakewood ........ Bloomfield ....... Bridgeport ........ Groton ............. Meriden ........... New Haven ..... West Hartford .. Wilmington ...... Dania ............... Deltona ............ Hollywood ........ Homestead ...... Jacksonville ..... Kissimmee ....... Miami ............... Miami Gardens Plantation ........ Number of stores divested 1 1 1 1 1 1 1 1 1 3 1 1 1 1 1 1 1 1 1 1 1 2 1 1 2 3 3 1 1 42813 Federal Register / Vol. 80, No. 138 / Monday, July 20, 2015 / Notices Number of stores divested City Florida ............. Georgia ........... Georgia ........... Georgia ........... Georgia ........... Georgia ........... Georgia ........... Idaho ............... Illinois .............. Illinois .............. Illinois .............. Illinois .............. Illinois .............. Indiana ............ Indiana ............ Indiana ............ Kentucky ......... Kentucky ......... Louisiana ......... Louisiana ......... Louisiana ......... Maine .............. Maine .............. Maine .............. Maine .............. Maine .............. Maine .............. Maine .............. Maryland ......... Maryland ......... Maryland ......... Maryland ......... Maryland ......... Maryland ......... Maryland ......... Maryland ......... Massachusetts Massachusetts Massachusetts Massachusetts Massachusetts Massachusetts Massachusetts Massachusetts Massachusetts Massachusetts Massachusetts Massachusetts Massachusetts Massachusetts Massachusetts Massachusetts mstockstill on DSK4VPTVN1PROD with NOTICES Massachusetts Massachusetts Massachusetts Massachusetts Michigan .......... Michigan .......... Michigan .......... Michigan .......... Michigan .......... Michigan .......... Michigan .......... Michigan .......... Michigan .......... Michigan .......... VerDate Sep<11>2014 Tampa ............. Atlanta ............. Columbus ........ Decatur ............ Lake City ......... Norcross .......... Stone Mountain Emmett ............ Aurora ............. Berwyn ............ Chicago ........... Elgin ................ Harvey ............. Fort Wayne ..... Gary ................ Indianapolis ..... Covington ........ Louisville ......... Baton Rouge ... Lafayette ......... New Orleans ... Caribou ............ Gray ................ Lewiston .......... Livermore Falls Old Town ......... South Portland Waterville ........ Baltimore ......... Capitol Heights Lanham ........... Mount Rainier .. Oxon Hill ......... Salisbury ......... Silver Spring .... Temple Hills .... Boston ............. Brockton .......... Cambridge ....... Chelsea ........... Dorchester ....... Framingham .... Gloucester ....... Greenfield ........ Holyoke ........... Lowell .............. Medford ........... New Bedford ... North Adams ... Randolph ......... Revere ............. South Yarmouth. Springfield ....... Ware ................ West Springfield. Worcester ........ Benton Harbor Burton .............. Detroit .............. Eastpointe ....... Ferndale .......... Grand Rapids .. Hamtramck ...... Hazel Park ...... Highland Park Holland ............ 16:30 Jul 17, 2015 Jkt 235001 3 7 1 3 1 1 1 1 1 1 13 1 1 1 2 2 1 2 1 1 1 1 1 1 1 1 1 1 4 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 1 1 1 1 1 5 1 1 2 1 1 1 1 Number of stores divested City Michigan .......... Michigan .......... Michigan .......... Michigan .......... Michigan .......... Michigan .......... Michigan .......... Michigan .......... Michigan .......... Michigan .......... Minnesota ........ Minnesota ........ Minnesota ........ Mississippi ....... Missouri ........... Missouri ........... Nebraska ......... New Jersey ..... New Jersey ..... New Jersey ..... New Jersey ..... New Jersey ..... New Jersey ..... New Jersey ..... New New New New New New New New New New New New New New New New New New New New New New New New New New New New New New New New New Jersey ..... Jersey ..... Jersey ..... Jersey ..... Jersey ..... Jersey ..... Mexico .... Mexico .... York ........ York ........ York ........ York ........ York ........ York ........ York ........ York ........ York ........ York ........ York ........ York ........ York ........ York ........ York ........ York ........ York ........ York ........ York ........ York ........ York ........ York ........ York ........ York ........ York ........ New York ........ New York ........ New York ........ North Carolina Ohio ................. Ohio ................. Ohio ................. Ohio ................. Ohio ................. PO 00000 Frm 00027 Inkster ............. Lansing ............ Livonia ............. Mount Morris ... Oak Park ......... Portage ............ Saginaw .......... Taylor .............. Westland ......... Wyoming ......... Minneapolis ..... Robbinsdale .... St. Paul ........... Jackson ........... Jennings .......... St. Louis .......... Omaha ............ Belmar ............. Brigantine ........ East Orange .... Elizabeth ......... Ewing .............. Glassboro ........ Hamilton Township. Irvington .......... Mount Holly ..... Newark ............ Paterson .......... Pleasantville .... Vineland .......... Albuquerque .... Las Cruces ...... Astoria ............. Bronx ............... Brooklyn .......... College Point ... East Aurora ..... Far Rockaway Glendale .......... Grand Island ... Greece ............ Jamaica ........... Johnstown ....... Lindenhurst ..... Mattydale ......... Mount Vernon Patchogue ....... Poughkeepsie Queens ............ Queens Village Ridgewood ...... Rochester ........ Rocky Point ..... Saranac Lake .. Selden ............. Shirley ............. Springfield Gardens. Staten Island ... Syracuse ......... Utica ................ Charlotte .......... Akron ............... Canton ............. Cincinnati ........ Cleveland ........ Columbus ........ Fmt 4703 Sfmt 4703 1 1 1 1 1 1 1 1 1 1 3 1 3 1 1 6 1 1 1 1 2 1 1 1 1 1 2 1 1 1 3 1 1 8 7 1 1 1 1 1 1 2 1 1 1 1 1 1 2 1 1 3 1 1 1 1 1 2 2 1 2 1 1 5 4 3 City Ohio ................. Ohio ................. Ohio ................. Ohio ................. Ohio ................. Oklahoma ........ Pennsylvania ... Pennsylvania ... Pennsylvania ... Pennsylvania ... Pennsylvania ... Pennsylvania ... Pennsylvania ... Pennsylvania ... Pennsylvania ... Pennsylvania ... Pennsylvania ... Pennsylvania ... Pennsylvania ... Pennsylvania ... Rhode Island ... Rhode Island ... Rhode Island ... Rhode Island ... Rhode Island ... Tennessee ...... Tennessee ...... Texas .............. Texas .............. Texas .............. Texas .............. Texas .............. Texas .............. Texas .............. Texas .............. Texas .............. Texas .............. Texas .............. Texas .............. Texas .............. Texas .............. Utah ................. Utah ................. Utah ................. Utah ................. Utah ................. Utah ................. Vermont ........... Vermont ........... Virginia ............ Virginia ............ Virginia ............ Virginia ............ Virginia ............ Virginia ............ Virginia ............ West Virginia ... Wisconsin ........ Wisconsin ........ Wisconsin ........ Wisconsin ........ East Cleveland Milford ............. St. Bernard ...... Toledo ............. Whitehall ......... Oklahoma City Allentown ......... East Liberty ..... Edwardsville .... Harrisburg ....... Lansdowne ...... Levittown ......... Mckeesport ...... Middletown ...... Morrisville ........ Philadelphia ..... Pittsburgh ........ Swissvale ........ Upper Darby .... Yeadon ............ Bristol .............. Central Falls .... Pawtucket ........ Providence ...... Rumford .......... Memphis .......... Nashville .......... Arlington .......... Balch Springs .. Beaumont ........ Brownsville ...... Corpus Christi Dallas .............. Eagle Pass ...... El Paso ............ Fort Worth ....... Houston ........... Lubbock ........... Odessa ............ Pasadena ........ San Antonio .... Midvale ............ Ogden ............. Provo ............... Salt Lake City .. St. George ....... West Valley City. Morrisville ........ Newport ........... Alexandria ....... Chesapeake .... Hampton .......... Lynchburg ....... Norfolk ............. Portsmouth ...... Richmond ........ Huntington ....... Appleton .......... Eau Claire ....... Milwaukee ....... St. Francis ....... By direction of the Commission, Commissioner Wright dissenting. Donald S. Clark, Secretary. E:\FR\FM\20JYN1.SGM 20JYN1 Number of stores divested 1 1 1 2 1 2 1 1 1 2 1 1 1 1 1 5 2 1 1 1 1 1 2 2 1 3 1 1 1 1 1 1 1 1 3 2 5 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 3 1 1 1 1 1 3 1 mstockstill on DSK4VPTVN1PROD with NOTICES 42814 Federal Register / Vol. 80, No. 138 / Monday, July 20, 2015 / Notices Statement of the Federal Trade Commission The Federal Trade Commission has accepted a proposed settlement to resolve the likely anticompetitive effects of Dollar Tree, Inc.’s proposed $9.2 billion acquisition of Family Dollar Stores, Inc.1 We have reason to believe that, absent a remedy, the proposed acquisition is likely to substantially lessen competition between Dollar Tree and Family Dollar in numerous local markets. Under the terms of the proposed consent order, Dollar Tree and Family Dollar are required to divest 330 stores to a Commission-approved buyer. As we explain below, we believe the proposed divestitures preserve competition in the markets adversely affected by the acquisition and are therefore in the public interest. Dollar Tree operates over 5,000 discount general merchandise retail stores across the United States under two banners which follow somewhat different business models. In its Dollar Tree banner stores, Dollar Tree sells a wide selection of everyday basic, seasonal, closeout, and promotional merchandise—all for $1 or less. At its Deals banner stores, Dollar Tree sells an expanded assortment of this merchandise at prices that may go above the $1 price point but are generally less than $10. Family Dollar operates over 8,000 discount general merchandise retail stores. Family Dollar sells an assortment of consumables, home products, apparel and accessories, seasonal items, and electronic merchandise at prices generally less than $10, including items priced at or under $1. Dollar Tree and Family Dollar compete head-to-head in numerous local markets across the United States. They are close competitors in terms of format, pricing, customer service, product offerings, and location. When making competitive decisions regarding pricing, product assortment, and other salient aspects of their businesses, Dollar Tree and Family Dollar focus most directly on the actions and responses of each other and other ‘‘dollar store’’ chains, while also paying close attention to Walmart. In many local markets, Dollar Tree and Family Dollar operate stores in close proximity to each other, often representing the only or the majority of conveniently located discount general merchandise retail stores in a neighborhood. To evaluate the likely competitive effects of this transaction and identify 1 This statement reflects the views of Chairwoman Ramirez and Commissioners Brill, Ohlhausen, and McSweeny. VerDate Sep<11>2014 16:30 Jul 17, 2015 Jkt 235001 the local markets where it may likely harm competition, the Commission considered multiple sources of quantitative and qualitative evidence. One component of the investigation involved a Gross Upward Pricing Pressure Index (‘‘GUPPI’’) analysis. As described in the 2010 Horizontal Merger Guidelines, this mode of analysis can serve as a useful indicator of whether a merger involving differentiated products is likely to result in unilateral anticompetitive effects.2 Such effects can arise ‘‘when the merger gives the merged entity an incentive to raise the price of a product previously sold by one merging firm’’ because the merged entity stands to profit from any sales that are then diverted to products that would have been ‘‘previously sold by the other merging firm.’’ 3 Using the value of diverted sales as an indicator of the upward pricing pressure resulting from the merger, a GUPPI is defined as the value of diverted sales that would be gained by the second firm measured in proportion to the revenues that would be lost by the first firm. If the ‘‘value of diverted sales is proportionately small, significant unilateral price effects are unlikely.’’ 4 The Commission’s investigation involved thousands of Dollar Tree and Family Dollar stores with overlapping geographic markets. A GUPPI analysis served as a useful initial screen to flag those markets where the transaction might likely harm competition and those where it might pose little or no risk to competition. As a general matter, Dollar Tree and Family Dollar stores with relatively low GUPPIs suggested that the transaction was unlikely to harm competition, unless the investigation uncovered specific reasons why the GUPPIs may have understated the potential for anticompetitive effects. Conversely, Dollar Tree and Family Dollar stores with relatively high GUPPIs suggested that the transaction was likely to harm competition, subject to evidence or analysis indicating that the GUPPIs may have overstated the potential for anticompetitive effects. While the GUPPI analysis was an important screen for the Commission’s inquiry, it was only a starting point. The Commission considered several other sources of evidence in assessing the transaction’s likely competitive effects, including additional detail regarding the geographic proximity of the merging parties’ stores relative to each other and 2 U.S. Dept. of Justice and Fed. Trade Comm’n, Horizontal Merger Guidelines § 6.1 (2010), available at https://www.ftc.gov/sites/default/files/ attachments/merger-review/100819hmg.pdf. 3 Id. 4 Id. PO 00000 Frm 00028 Fmt 4703 Sfmt 4703 to other retail stores, ordinary course of business documents and data supplied by Dollar Tree and Family Dollar, information from other market participants, and analyses conducted by various state attorneys general who were also investigating the transaction. After considering all of this evidence, the Commission identified specific local markets where the acquisition would be likely to harm competition and arrived at the list of 330 stores slated for divestiture. In his statement, Commissioner Wright criticizes the way that the Commission used the GUPPI analysis in this case and argues that GUPPIs below a certain threshold should be treated as a ‘‘safe harbor.’’ 5 We respectfully disagree. As an initial matter, Commissioner Wright mischaracterizes the way that the GUPPI analysis was used in this case. Contrary to his suggestion, GUPPIs were not used as a rigid presumption of harm. As explained above, they were used only as an initial screen to identify those markets where further investigation was warranted. The Commission then proceeded to consider the results of the GUPPI analysis in conjunction with numerous other sources of information.6 Based on this complete body of evidence, we have reason to believe that, without the proposed divestitures, the acquisition would substantially lessen competition in each of the relevant local markets. Our market-by-market review showed that the model of competition underlying the GUPPI analysis was largely consistent with other available evidence regarding the closeness of competition between the parties’ stores in each local market. For example, stores with high GUPPIs were generally found in markets in which there were few or no other conveniently located discount general merchandise retail stores. The GUPPI analysis did have some limitations, however. For example, there were Family Dollar stores with relatively low GUPPIs in markets that were nevertheless pricezoned to Dollar Tree stores, which meant that if Dollar Tree stores were 5 Statement of Commissioner Joshua D. Wright Dissenting in Part and Concurring in Part, Dollar Tree, Inc. and Family Dollar Stores, Inc., File No. 141–0207. 6 As Joseph Farrell and Carl Shapiro have noted, ‘‘[r]eal-world mergers are complex, and our proposed test, like the concentration-based test, is consciously oversimplified. . . . In the end, the evaluation of any merger that is thoroughly investigated or litigated may come down to the fullest feasible analysis of effects.’’ Joseph Farrell & Carl Shapiro, Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition, 10 B.E. J. Theoretical Econ. 1, 26 (2010). E:\FR\FM\20JYN1.SGM 20JYN1 Federal Register / Vol. 80, No. 138 / Monday, July 20, 2015 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES removed as competition, then the prices of certain items at those Family Dollar stores would likely go up. The GUPPI analysis also was not sufficiently sensitive to differentiate between Dollar Tree and Family Dollar stores that were in the same shopping plaza from those that were almost a mile away from each other. For these situations, we appropriately relied on other evidence to reach a judgment about the closeness of competition.7 More broadly, Commissioner Wright’s view that the Commission should identify and treat GUPPIs below a certain threshold as a ‘‘safe harbor’’ ignores the reality that merger analysis is inherently fact-specific. The manner in which GUPPI analysis is used will vary depending on the factual circumstances, the available data, and the other evidence gathered during an investigation. Moreover, whether the value of diverted sales is considered ‘‘proportionately small’’ compared to lost revenues will vary from industry to industry and firm to firm.8 For example, intense competition between merging firms may cause margins to be very low, which could produce a low GUPPI even in the presence of very high diversion ratios. Such conditions could produce a false negative implying that the merger is not likely to harm competition when in fact it is.9 Indeed, we agree with Commissioner Wright that ‘‘a GUPPI-based presumption of competitive harm is inappropriate at this stage of economic learning.’’ 10 We think that a GUPPIbased safe harbor is equally inappropriate. In antitrust law, brightline rules and presumptions rest on accumulated experience and economic learning that the transaction or conduct in question is likely or unlikely to harm competition.11 We do not believe there 7 Commissioner Wright cites the Albertson’s/ Safeway transaction as another recent case in which a GUPPI analysis was used. See Wright Statement at 2 n.6. To be precise, the Commission analyzed that transaction using diversion ratios, not GUPPI scores, but in any event, Commissioner Wright himself voted to accept the consent order in that case. 8 Marginal cost efficiencies, as well as passthrough rates, also will vary from industry to industry and from firm to firm. The pass-through rate will determine the magnitude of the postmerger unilateral price effects. 9 Joseph Farrell & Carl Shapiro, Upward Pricing Pressure and Critical Loss Analysis: Response, CPI Antitrust J. 1, 6–7 & n.15 (Feb. 2010); Farrell & Shapiro, Antitrust Evaluation of Horizontal Mergers, supra note 6, at 13–14. 10 Wright Statement, supra note 5, at 8 & nn.23 & 24 (citing commentators’ concerns and criticisms regarding the use of GUPPI analysis generally). Such concerns and criticisms, if valid, would apply equally to the wisdom of using GUPPIs to recognize a safe harbor. 11 See, e.g., Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 886–87 (2007) (‘‘As a VerDate Sep<11>2014 16:30 Jul 17, 2015 Jkt 235001 is a basis for the recognition of a GUPPI safe harbor. Accordingly, in any case where a GUPPI analysis is used, the Commission will consider the particular factual circumstances and evaluate other sources of quantitative and qualitative evidence.12 As with other quantitative evidence such as market shares and HHIs, we believe that GUPPIs should be considered in the context of all other reasonably available evidence. The 2010 Horizontal Merger Guidelines do not instruct otherwise.13 For all of these reasons, we believe it is appropriate to use GUPPIs flexibly and as merely one tool of analysis in the Commission’s assessment of unilateral anticompetitive effects. By direction of the Commission, Commissioner Wright not participating. consequence, the per se rule is appropriate only after courts have had considerable experience with the type of restraint at issue, . . . and only if courts can predict with confidence that it would be invalidated in all or almost all instances under the rule of reason, . . .’’); Cal. Dental Ass’n v. FTC, 526 U.S. 756, 781 (1999) (‘‘The object is to see whether the experience of the market has been so clear, or necessarily will be, that a confident conclusion about the principal tendency of a restriction will follow from a quick (or at least quicker) look, in place of a more sedulous one.’’); ProMedica Health Sys., Inc. v. FTC, 749 F.3d 559, 570, 571 (6th Cir. 2014) (noting that ‘‘the strong correlation between market share and price, and the degree to which this merger would further concentrate markets that are already highly concentrated—converge in a manner that fully supports the Commission’s application of a presumption of illegality’’ but also noting that ‘‘the Commission did not merely rest upon the presumption, but instead discussed a wide range of evidence that buttresses it’’). 12 See Carl Shapiro, The 2010 Horizontal Merger Guidelines: From Hedgehog to Fox in Forty Years, 77 Antitrust L.J. 701, 729 (2010) (‘‘The value of diverted sales is an excellent simple measure for diagnosing or scoring unilateral price effects, but it cannot capture the full richness of competition in real-world industries. Indeed, as stressed above, all of the quantitative methods discussed here must be used in conjunction with the broader set of qualitative evidence that the Agencies assemble during a merger investigation.’’); Farrell & Shapiro, Upward Pricing Pressure, supra note 8, at 6 (‘‘Whatever measure is used for screening purposes, it is important that the full analysis give proper weight to all the available evidence.’’). Notwithstanding Commissioner Wright’s suggestion to the contrary, we do not believe that the Commission’s use of GUPPIs as a tool for assessing unilateral effects differs materially from their use by the Department of Justice. 13 Recognizing in the 2010 Horizontal Merger Guidelines that when the ‘‘value of diverted sales is proportionately small, significant unilateral price effects are unlikely’’ does not necessarily mean that ‘‘proportionately small’’ should be reduced to some numerical value that applies in all cases. See Merger Guidelines, supra note 2, § 1 (‘‘These Guidelines should be read with the awareness that merger analysis does not consist of uniform application of a single methodology.’’). PO 00000 Frm 00029 Fmt 4703 Sfmt 4703 42815 Statement of Commissioner Joshua D. Wright Dissenting in Part and Concurring in Part The Commission has voted to issue a Complaint and a Decision & Order against Dollar Tree, Inc. (‘‘Dollar Tree’’) and Family Dollar Stores, Inc. (‘‘Family Dollar’’) to remedy the allegedly anticompetitive effects of the proposed acquisition by Dollar Tree of Family Dollar. I dissent in part from and concur in part with the Commission’s decision. I dissent in part because in 27 markets I disagree with the Commission’s conclusion that there is reason to believe the proposed transaction violates the Clayton Act. The record evidence includes a quantitative measure of the value of diverted sales as well as various forms of qualitative evidence. The value of diverted sales is typically measured as the product of the diversion ratio between the merging parties’ products— the diversion ratio between two products is the percentage of unit sales lost by one product when its price rises, that are captured by the second product—and the profit margin of the second product. When the value of diverted sales is measured in proportion to ‘‘the lost revenues attributable to the reduction in unit sales resulting from the price increase,’’ 1 it is the ‘‘gross upward pricing pressure index,’’ or ‘‘GUPPI.’’ The GUPPI is an economic tool used to score or rank the incentives for potential unilateral price effects. In the markets where I depart from the Commission’s decision the GUPPI is below 5 percent, indicating insignificant upward pricing pressure even before efficiencies or entry are taken into account, and weak incentives for unilateral price increases. In my view, the available quantitative and qualitative evidence are insufficient to support a reason to believe the proposed transaction will harm competition in these markets. I write separately to explain more fully the basis for my dissent in these markets. I also write to address an important merger policy issue implicated by today’s decision—that is, whether the FTC should adopt a safe harbor in unilateral effects merger investigations by defining a GUPPI threshold below which it is presumed competitive harm is unlikely. The Merger Guidelines clearly contemplate such a safe harbor. The Merger Guidelines explain that ‘‘[i]f the value of diverted sales is proportionately small, significant 1 U.S. Dep’t of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines § 6.1 n.11 (2010) [hereinafter Merger Guidelines]. E:\FR\FM\20JYN1.SGM 20JYN1 42816 Federal Register / Vol. 80, No. 138 / Monday, July 20, 2015 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES unilateral price effects are unlikely.’’ 2 In other words, the Merger Guidelines recognize that if the GUPPI is small, significant unilateral price effects are unlikely. Without more, one might reasonably conclude it is unclear whether the Merger Guidelines merely offer a truism about the relationship between the GUPPI and likely unilateral price effects or invite the agencies to take on the task of identifying a safe harbor of general applicability across cases. But there is more. A principal drafter of the Merger Guidelines has explained the Merger Guidelines’ reference to a ‘‘proportionately small’’ value of diverted sales was intended to establish a GUPPI safe harbor. The Department of Justice’s Antitrust Division (‘‘Division’’), consistent with this interpretation of the Merger Guidelines, publicly announced precisely such a safe harbor when the GUPPI is less than 5 percent.3 Further, there is significant intellectual support for a GUPPI-based safe harbor among economists 4—once again including the principal drafters of the Merger Guidelines.5 The Commission, however, has rejected the safe harbor approach both in practice—indeed, the Commission has recently entered into another consent involving divestitures in markets with GUPPI scores below 5 percent 6—and as a matter of the policy 2 Id. § 6.1 (emphasis added); see Steven C. Salop, Serge X. Moresi & John Woodbury, CRA Competition Memo, Scoring Unilateral Effects with the GUPPI: The Approach of the New Horizontal Merger Guidelines 2 (Aug. 31, 2010), available at http://crai.com/sites/default/files/publications/ Commentary-on-the-GUPPI_0.pdf. 3 Carl Shapiro, Deputy Ass’t Att’y Gen. for Econ., Antitrust Div., U.S. Dep’t of Justice, Update from the Antitrust Division, Remarks as Prepared for the ABA Antitrust Law Fall Forum 24 (Nov. 18 2010). 4 See, e.g., Salop, Moresi & Woodbury, supra note 2, at 2 (explaining that ‘‘a GUPPI of less than 5% would be reasonably treated as evidence that ‘the value of diverted sales is proportionately small’ and hence that the proposed merger is unlikely to raise unilateral effects concerns’’). 5 See Joseph Farrell & Carl Shapiro, Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition, 10 B.E. J. Theoretical Econ. 1 (2010). 6 See Cerberus Institutional Partners V, L.P., FTC File No. 141–0108 (July 2, 2015). There, though one could not possibly infer this from the public-facing documents in the case, the Commission applied a diversion ratio threshold to identify stores for divestiture. To be accurate, a GUPPI threshold could be implied from the Commission’s analysis and, as algebraically mindful readers will note, setting a diversion ratio threshold given profit margin data and a predicted price increase is not analytically distinguishable from the analysis in this matter. The Commission rightly points out that I voted in favor of the consent in Cerberus. As to whether I am merely being inconsistent in my views on the role of GUPPIs in merger analysis or, alternatively, there is some other more reasonable explanation for my votes, I can provide the explanation and let readers decide. In Cerberus, I voted for the consent on the basis that the use of VerDate Sep<11>2014 16:30 Jul 17, 2015 Jkt 235001 announced in the Commission’s statement today.7 This is unfortunate. The legal, economic, and policy case for the GUPPI-based safe harbor contemplated by the Merger Guidelines is strong.8 There are a number of reasons why such a safe harbor might be desirable as a matter of antitrust policy if sufficiently supported by economic theory and evidence. Efficient resource allocation— expending agency resources on the transactions most likely to raise serious competitive concerns and quickly dispensing with those that do not—is one such goal. A second reason a safe harbor for proportionately small diversion might be desirable antitrust policy is to compensate for the sources of downward pricing pressure not measured by the GUPPI but expected with most transactions, including efficiencies, entry, or repositioning. Some have argued that—as a GUPPI diversion or GUPPI-based analysis was a step forward relative to relying exclusively upon structural analysis. The fact that there were stores identified for divestiture with implied GUPPIs less than 5 percent was unique. It is now a trend reinforced by a Commission decision to reject a GUPPI-based safe harbor—a decision I do not believe is in the public interest. Regarding Cerberus, it is worth pointing out further that even a careful reader of the public documents in that case would come away with the impression that the Commission’s analysis was largely structural, and concluded a number of sixto-five mergers were presumptively anticompetitive. See Analysis of Agreement Containing Consent Order to Aid Public Comment Exhibit A, id. An ancillary benefit of the transparency reluctantly generated by today’s Commission statement is that the antitrust community is now on notice that more sophisticated economic tools were used in that matter, how they were used, and that the potential structural policy change signaled by those public documents does not appear to describe accurately the Commission’s complete analysis in that case. 7 Statement of the Federal Trade Commission at 3, Dollar Tree, Inc., FTC File No. 141–0207 (July 13, 2015) [hereinafter Majority Statement] (‘‘[A] GUPPIbased safe harbor is . . . inappropriate.’’). 8 A second question is whether a presumption of competitive harm should follow, as a matter of economic theory and empirical evidence, from a demonstration of a GUPPI above a certain threshold value. There appears to be a consensus that the answer to this question, at this point, is no. I agree. See, e.g., Thomas A. Lambert, Respecting the Limits of Antitrust: The Roberts Court Versus the Enforcement Agencies 13 (Heritage Foundation Legal Memorandum No. 144, Jan. 28, 2015) (the GUPPI ‘‘has not been empirically verified as a means of identifying anticompetitive mergers’’); Steven C. Salop, The Evolution and Vitality of Merger Presumptions: A Decision-Theoretic Approach 40–41 (Georgetown Law Faculty Publications and Other Works, Working Paper No. 1304, 2014), available at http:// scholarship.law.georgetown.edu/facpub/1304/ (‘‘The 2010 Merger Guidelines do not adopt an anticompetitive enforcement presumption based on high values of the GUPPI score. This was a practical policy decision at this time because the use of the GUPPI was new to much of the defense bar and the courts.’’). PO 00000 Frm 00030 Fmt 4703 Sfmt 4703 attempts a rough measure of upward pricing pressure without a full blown analysis—a symmetrical approach would include a standard efficiencies deduction which would be applied to account for the downward pricing pressure from the marginal-cost efficiencies that can typically be expected to result from transactions.9 This approach would permit the identification of a gross-upward-pricingpressure threshold that triggers additional scrutiny.10 Yet a third reason a safe harbor might be desirable is to compensate the wellknown feature of GUPPI-based scoring methods to predict harm for any positive diversion ratio—that is, even for distant substitutes—by distinguishing de minimis GUPPI levels from those that warrant additional scrutiny.11 The Merger Guidelines contemplate a ‘‘safe harbor’’ because it ‘‘reflects that a small amount of upward pricing pressure is unlikely . . . to correspond to any actual post-merger price increase.’’ 12 Carl Shapiro explained shortly after adoption of the Merger Guidelines, on behalf of the Division, that ‘‘Current Division practice is to treat the value of diverted sales as proportionately small if it is no more than 5% of the lost revenues.’’ 13 Against these benefits of adopting a GUPPI-based safe harbor, the Commission must weigh the cost of reducing its own flexibility and prosecutorial discretion. This begs the question: How likely are mergers within the proposed safe harbor to be anticompetitive? The benefits of this flexibility are proportional to the probability that the Commission’s economic analysis leads them to conclude that mergers with a GUPPI of less than 5 percent are anticompetitive. I am not aware of any transactions since 9 Farrell & Shapiro, supra note 5, at 10–12. id. at 12. 11 James A. Keyte & Kenneth B. Schwartz, ‘‘TallyHo!’’: UPP and the 2010 Horizontal Merger Guidelines, 7 Antitrust L.J. 587, 628 (2010) (‘‘an uncalibrated tool cannot have predictive value as a screen if it always indicates postmerger price pressure’’). 12 Shapiro, supra note 3, at 24. Shapiro further cautioned that, although a GUPPI analysis ‘‘can be highly informative, the Agencies understand full well that measuring upward pricing pressure . . . typically is not the end of the story . . . . Repositioning, entry, innovation, and efficiencies must also be considered.’’ Id. at 26. 13 Id. at 24. Others have interpreted this speech as clearly announcing Division policy. See Salop, supra note 8, at 43 & n.105 (‘‘In a speech while he was Deputy AAG, Carl Shapiro also specified a GUPPI safe harbor of 5%. As a speech by the Deputy AAG, this statement appeared to reflect DOJ policy.’’ (citing Shapiro, supra note 3)). Other economists agree that a GUPPI safe harbor should apply. E.g., Farrell & Shapiro, supra note 5, at 10; Salop, Moresi & Woodbury, supra note 2, at 2. 10 See E:\FR\FM\20JYN1.SGM 20JYN1 Federal Register / Vol. 80, No. 138 / Monday, July 20, 2015 / Notices the Merger Guidelines were adopted other than the two already mentioned that meet these criteria. The domain in which flexibility would be reduced with adoption of a reasonable safe harbor is small and the costs of doing so correspondingly low. The Commission rejects a GUPPI safe harbor on the grounds that such an approach ‘‘ignores the reality that merger analysis is inherently factspecific.’’ 14 The Commission appears especially concerned that a GUPPIbased safe harbor might result in a false negative—that is, it is possible that a merger with a GUPPI less than 5 percent harms competition. This objection to safe harbors and bright-line rules and presumptions is both conceptually misguided and is in significant tension with antitrust doctrine and agency practice. Merger analysis is, of course, inherently fact specific. One can accept that reality, as well as the reality that evidence is both imperfect and can be costly to obtain, and yet still conclude that the optimal legal test from a consumer welfare perspective is a rule rather than a standard. This is a basic insight of decision theory, which provides a lens through which economists and legal scholars have long evaluated antitrust legal rules, burdens, and presumptions.15 The Commission’s assertion that the mere possibility of false negatives undermines in the slightest the case for a safe harbor reveals a misunderstanding of the economic analysis of legal rules. The relevant question is not which legal rule drives false positives or false negatives to zero, but rather which legal rule minimizes the sum of the welfare costs associated with false negatives, false positives, and the costs of obtaining evidence and otherwise administering the law. Existing antitrust law regularly embraces bright-line rules and presumptions—rejecting the flexibility of a case-by-case standard taking full account of facts that vary across industries and firms. A simple example 14 Majority Statement, supra note 7, at 3. e.g., C. Frederick Beckner III & Steven C. Salop, Decision Theory and Antitrust Rules, 67 Antitrust L.J. 41 (1999); James C. Cooper, Luke M. Froeb, Dan O’Brien & Michael G. Vita, Vertical Antitrust Policy as a Problem of Inference, 23 Int’l J. Indus. Org. 639 (2005); Frank H. Easterbrook, The Limits of Antitrust, 63 Tex. L. Rev. 1 (1984); Isaac Ehrlich & Richard A. Posner, An Economic Analysis of Legal Rulemaking, 3 J. Legal Stud. 257 (1974); David S. Evans & A. Jorge Padilla, Designing Antitrust Rules for Assessing Unilateral Practices: A Neo-Chicago Approach, 72 U. Chi. L. Rev. 27 (2005); Keith N. Hylton & Michael Salinger, Tying Law and Policy: A Decision Theoretic Approach, 69 Antitrust L.J. 469 (2001); Geoffrey A. Manne & Joshua D. Wright, Innovation and the Limits of Antitrust, 6 J. Comp. L. & Econ. 153 (2010). mstockstill on DSK4VPTVN1PROD with NOTICES 15 See, VerDate Sep<11>2014 16:30 Jul 17, 2015 Jkt 235001 is the application of per se rules in price-fixing cases.16 This presumption of illegality is not based upon a belief that it is impossible for a horizontal restraint among competitors to increase welfare. Rather, the per se prohibition on naked price fixing ‘‘reflects a judgment that the costs of identifying exceptions to the general rule so far outweigh the costs of occasionally condemning conduct that might upon further inspection prove to be acceptable, that it is preferable not to entertain defenses to the conduct at all.’’ 17 Similar decision-theoretic logic explains, for example, the presumption that above-cost prices are lawful.18 A GUPPI-based presumption would be based upon the same economic logic— not that small-GUPPI mergers can never result in anticompetitive effects, but rather that mergers involving small GUPPIs are sufficiently unlikely to result in unilateral price increases such that incurring the costs of identifying exceptions to the safe harbor is less efficient than simply allowing mergers 16 See Broad. Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1, 19–20 (1979) (‘‘More generally, in characterizing this conduct under the per se rule, our inquiry must focus on . . . whether the practice facially appears to be one that would always or almost always tend to restrict competition and decrease output.’’). 17 Andrew I. Gavil, William E. Kovacic & Jonathan B. Baker, Antitrust Law in Perspective: Cases, Concepts and Problems in Competition Policy 104– 05 (2d ed. 2008); see Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 234 (1st Cir. 1983) (‘‘Rules that seek to embody every economic complexity and qualification may well, through the vagaries of administration, prove counterproductive, undercutting the very economic ends they seek to serve. Thus, despite the theoretical possibility of finding instances in which horizontal price fixing, or vertical price fixing, are economically justified, the courts have held them unlawful per se, concluding the administrative virtues of simplicity outweigh the occasional ‘economic’ loss.’’); Herbert Hovenkamp, The Antitrust Enterprise: Principle and Execution 50 (2005) (‘‘[N]ot every anticompetitive practice can be condemned.’’); Thomas A. Lambert, Book Review, Tweaking Antitrust’s Business Model, 85 Tex. L. Rev. 153, 172 (2006) (‘‘Hovenkamp’s discussion of predatory and limit pricing reflects a key theme that runs throughout The Antitrust Enterprise: That antitrust rules should be easily administrable, even if that means they must permit some anticompetitive practices to go unpunished.’’). 18 See Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 226 (1993); see also Barry Wright Corp., 724 F.2d at 234 (‘‘Conversely, we must be concerned lest a rule or precedent that authorizes a search for a particular type of undesirable pricing behavior end up by discouraging legitimate price competition. . . . [A] price cut that ends up with a price exceeding total cost—in all likelihood a cut made by a firm with market power—is almost certainly moving price in the ‘right’ direction (towards the level that would be set in a competitive marketplace). The antitrust laws very rarely reject such ‘birds in hand’ for the sake of more speculative (future low-price) ‘birds in the bush.’ To do so opens the door to similar speculative claims that might seek to legitimate even the most settled unlawful practices.’’). PO 00000 Frm 00031 Fmt 4703 Sfmt 4703 42817 within the safe harbor to move forward.19 Whether the Commission should adopt a GUPPI-based safe harbor is particularly relevant in the instant matter, as the FTC had data sufficient to calculate GUPPIs for Dollar Tree, Deals,20 and Family Dollar stores. The sheer number of stores owned and operated by the parties rendered individualized, in-depth analysis of the competitive nuances of each and every market difficult, if not impossible, to conduct. GUPPI calculations provided an efficient and workable alternative to identifying the small fraction of markets in which the transaction may be anticompetitive. This was a tremendous amount of work and I want to commend staff on taking this approach. Staff identified a GUPPI threshold such that stores with GUPPIs greater than the threshold were identified for divestiture. About half of the 330 stores divested as part of the Commission’s Order were identified through this process. What about the other stores? The Commission asserts I ‘‘mischaracterize[]’’ its use of GUPPIs and that ‘‘GUPPIs were not used as a rigid presumption of harm.’’ 21 It claims that GUPPIs were used only as ‘‘an initial screen’’ to identify markets for further analysis, and that the Commission ‘‘proceeded to consider the results of the GUPPI analysis in conjunction with numerous other sources of information.’’ 22 The evidence suggests otherwise. One might reasonably hypothesize that further consideration and analysis of 19 The Commission asserts that a GUPPI safe harbor cannot be justified by economic theory and evidence unless a presumption of liability can also be supported. I appreciate the Commission clarifying its view, but I believe it to be based upon a false equivalence. The Commission appears to misunderstand the difference between evidence sufficient to conclude harm is likely and evidence sufficient to conclude harm is unlikely. These are two very different economic propositions and it should not be surprising that one might be substantiated while the other is not. For example, one might rationally be uncomfortable pointing to the economic literature for support that mergers above a certain level of concentration are sufficiently likely to harm competition to support a presumption of antitrust liability, but also recognize the same body of economic theory and evidence would indeed support a safe harbor for mergers involving markets with thousands of competitors. To the extent the Commission appeals to academics who have raised concerns with GUPPI-based merger screens, my view clearly differs from the Commission. The Commission’s more important dispute, in my view, is with the Merger Guidelines and its principal drafters, who clearly contemplated such a safe harbor. 20 Deals is a separate banner under which Dollar Tree operates. See Majority Statement, supra note 7, at 1. 21 Id. at 2. 22 Id. E:\FR\FM\20JYN1.SGM 20JYN1 42818 Federal Register / Vol. 80, No. 138 / Monday, July 20, 2015 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES ‘‘numerous sources of information’’ should result in both the identification of some stores above the GUPPI threshold that were ultimately determined unlikely to harm competition as well as some stores with GUPPIs below the threshold that nonetheless did create competitive problems—that is, further scrutiny might reveal both false negatives and false positives. The number of stores with GUPPIs exceeding the identified threshold that, after evaluation in conjunction with the qualitative and other evidence described by the Commission, were not slated for divestiture is nearly zero. This outcome is indistinguishable from the application of a presumption of competitive harm. The additional stores with GUPPIs below the threshold that were then identified for divestiture based upon additional qualitative factors included a significant number of stores with GUPPIs below 5 percent. The ratio of stores falling below the GUPPI threshold but deemed problematic after further qualitative evidence is taken into account to stores with GUPPIs above the threshold but deemed not to raise competitive problems after qualitative evidence is accounted for is unusual and remarkably high. It is difficult to conceive of a distribution of qualitative and other evidence occurring in realworld markets that would result in this ratio. Qualitative evidence should not be a one-way ratchet confirming the Commission’s conclusion of likely anticompetitive effects when GUPPIs are high and providing an independent basis for the same conclusion when GUPPIs are low. I applaud the FTC for taking important initial steps in applying more sophisticated economic tools in conducting merger analysis where the data are available to do so. Scoring metrics for evaluating incentives for unilateral price increases are no doubt a significant improvement over simply counting the number of firms in markets pre- and post-transaction. To be clear, it bears repeating that I agree that a GUPPI-based presumption of competitive harm is inappropriate at this stage of economic learning.23 There 23 Joseph J. Simons & Malcolm B. Coate, Upward Pressure on Price Analysis: Issues and Implications for Merger Policy, 6 Eur. Competition J. 377, 389 (2010) (the upward pricing pressure screen ‘‘identifies as potentially problematic far more mergers than would be challenged or even investigated under the enforcement standards that have existed for more than twenty years’’); Lambert, supra note 8, at 13 (‘‘In the end, the agencies’ reliance on the difficult-to-administer, empirically unverified, and inherently biased GUPPI is likely to VerDate Sep<11>2014 16:30 Jul 17, 2015 Jkt 235001 is no empirical evidence to support the use of GUPPI calculations in merger analysis on a standalone basis, let alone the use of a particular GUPPI threshold to predict whether a transaction is likely to substantially harm competition.24 I also agree that in the context of a fullscale evaluation of whether a proposed transaction is likely to harm competition, GUPPI-based analysis can and should be interpreted in conjunction with all other available quantitative and qualitative evidence. The relevant policy question is a narrow one: Whether there exists a GUPPI threshold below which the Commission should presumptively conclude a proposed transaction is unlikely to violate the antitrust laws. The FTC has not publicly endorsed a GUPPI-based safe harbor of 5 percent and disappointingly, has rejected the concept in its statement today. The Commission’s interpretation is that what is a ‘‘proportionately small’’ value of diverted sales should vary according to the industry—and even the individual firms—in a given investigation.25 As discussed, I believe this interpretation contradicts the letter and spirit of the Merger Guidelines.26 Moreover, the Commission’s apparent discomfort with safe harbors on the grounds that they are not sufficiently flexible to take into account the factintensive nature of antitrust analysis in any specific matter is difficult to reconcile with its ready acceptance of presumptions and bright-line rules that trigger liability.27 generate many false condemnations of mergers that are, on the whole, beneficial.’’). 24 See Dennis W. Carlton, Revising the Horizontal Merger Guidelines, 10 J. Competition L. & Econ. 1, 7 (2010) (‘‘Perhaps most importantly, UPP [as described in the 2010 Merger Guidelines] is new and little empirical analysis has been performed to validate its predictive value in assessing the competitive effects of mergers.’’); Keyte & Schwartz, supra note 11, at 590 (discussing the 2010 Merger Guidelines’ inclusion of the GUPPI and opining that ‘‘in light of the [its] extremely light judicial record, as well as the absence of demonstrated reliability in predicting real-world competitive effects, we think it is premature, at best, to embrace [it] as a screening tool for merger review’’); Simons & Coate, supra note 23 (‘‘Because screening mechanisms [such as the GUPPI] purport to highlight general results, they need empirical support to show the methodology actually predicts concerns relatively well. This empirical support is not available at this time.’’); Lambert, supra note 8, at 13 (the GUPPI ‘‘has not been empirically verified as a means of identifying anticompetitive mergers’’). 25 Majority Statement, supra note 7, at 3. 26 See supra text accompanying note 12. 27 For example, the Commission regularly applies such presumptions of liability involving the number of firms in a market, or presumptions based upon increased market concentration as articulated by the Merger Guidelines or the courts. See, e.g., Statement of the Federal Trade Commission, Holcim Ltd., FTC File No. 141–0129 (May 8, 2015) (finding liability based upon, alternatively, changes PO 00000 Frm 00032 Fmt 4703 Sfmt 4703 Once it is understood that a safe harbor should apply, it becomes obvious that, for the safe harbor to be effective, the threshold should not move. As the plane crash survivors in LOST can attest, a harbor on an island that cannot be found and that can be moved at will is hardly ‘‘safe.’’ 28 In my view, the Commission should adopt a GUPPI-based safe harbor in unilateral effects investigations where data are available. While reasonable minds can and should debate the optimal definition of a ‘‘small’’ GUPPI, my own view is that 5 percent is a reasonable starting point for discussion. Furthermore, failure to adopt a safe harbor could raise concerns about the potential for divergence between Commission and Division policy in unilateral effects merger investigations.29 What would be most problematic, however, is if, rather than moving toward a GUPPI-based safe harbor, the FTC were to use GUPPI thresholds to employ a presumption of competitive harm.30 in concentration and number of firms pre- and postmerger); Statement of the Federal Trade Commission, ZF Friedrichshafen AG, FTC File No. 141–0235 (May 8, 2015) (finding liability based upon number of firms pre- and post-merger); Mem. in Supp. of Pl. Federal Trade Commission’s Mot. for T.R.O. and Prelim. Inj. at 23, FTC, v. Sysco Corp., 2015 WL 1501608, No. 1:15–cv–00256 (D.D.C. 2015) (arguing that the proposed merger was presumptively unlawful based upon the holding of United States v. Phila. Nat’l Bank, 374 U.S. 321 (1963)). That the Commission’s tolerance of presumptions that that satisfy its own prima facie burden does not extend to safe harbors raises basic questions about the symmetry of the burdens applied in its antitrust analysis. See Dissenting Statement of Commissioner Joshua D. Wright 6, Ardagh Group S.A., FTC File No. 131–0087 (June 18, 2014) (‘‘[S]ymmetrical treatment in both theory and practice of evidence proffered to discharge the respective burdens of proof facing the agencies and merging parties is necessary for consumer-welfare based merger policy.’’). 28 Move the Island, LOST—Move the Island, YouTube (Nov. 17, 2008), https:// www.youtube.com/watch?v=Fa57rVkLal4. 29 I do not take a position as to how the Division currently uses the GUPPI analysis. But see Majority Statement, supra note 7, at 4 n.12. However, public statements by the Division and the Commission— the only sources upon which business firms and the antitrust bar can rely—suggest there are material differences. Compare id. at 3 (‘‘[W]hether the value of diverted sales is considered ‘proportionately small’ compared to lost revenues will vary from industry to industry and firm to firm.’’) with Shapiro, supra note 3, at 24 (‘‘Current Division practice is to treat the value of diverted sales as proportionately small if it is no more than 5% of the lost revenues.’’). 30 A GUPPI-based safe harbor of the type endorsed by the Merger Guidelines implies a GUPPI above the threshold is necessary but not sufficient for liability. A GUPPI-based presumption of harm implies a GUPPI above the threshold is sufficient but not necessary for liability. Unfortunately, the use of GUPPIs here is more consistent with the latter than the former. E:\FR\FM\20JYN1.SGM 20JYN1 Federal Register / Vol. 80, No. 138 / Monday, July 20, 2015 / Notices Flowers/IC 9000–0054, U.S. Flag Air Carriers Statement. Instructions: Please submit comments only and cite Information Collection 9000–0054, U.S. Flag Air Carriers Statement, in all correspondence related to this collection. All comments received will be posted without change to http://www.regulations.gov, including any personal and/or business confidential information provided. FOR FURTHER INFORMATION CONTACT: Mr. Curtis E. Glover, Sr. Procurement Analyst, Contract Policy Division, GSA 202–501–1448 or via email at curtis.glover@gsa.gov. SUPPLEMENTARY INFORMATION: For these reasons, I dissent in part from and concur in part with the Commission’s decision. [FR Doc. 2015–17767 Filed 7–17–15; 8:45 am] BILLING CODE 6750–01–P DEPARTMENT OF DEFENSE GENERAL SERVICES ADMINISTRATION NATIONAL AERONAUTICS AND SPACE ADMINISTRATION [OMB Control No. 9000–0054]; [Docket 2015–0053; Sequence 3] Submission to OMB for Review; Federal Acquisition Regulation; U.S.Flag Air Carriers Statement Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA). ACTION: Notice of request for public comments regarding an extension to an existing OMB clearance. AGENCY: Under the provisions of the Paperwork Reduction Act, the Regulatory Secretariat will be submitting to the Office of Management and Budget (OMB) a request to review and approve a previously approved information collection requirement concerning U.S. Flag Air Carriers Statement. A notice was published in the Federal Register at 80 FR 15789 on March 25, 2015. No comments were received. SUMMARY: Submit comments on or before August 19, 2015. ADDRESSES: Submit comments identified by Information Collection 9000–0054, U.S. Flag Air Carriers Statement by any of the following methods: • Regulations.gov: http:// www.regulations.gov. Submit comments via the Federal eRulemaking portal by searching the OMB control number 9000–0054. Select the link ‘‘Comment Now’’ that corresponds with ‘‘Information Collection ‘‘Information Collection 9000–0054, U.S. Flag Air Carriers Statement’’. Follow the instructions provided on the screen. Please include your name, company name (if any), and ‘‘Information Collection 9000–0054, U.S. Flag Air Carriers Statement’’ on your attached document. • Mail: General Services Administration, Regulatory Secretariat Division (MVCB), 1800 F Street NW., Washington, DC 20405. ATTN: Ms. mstockstill on DSK4VPTVN1PROD with NOTICES DATES: VerDate Sep<11>2014 16:30 Jul 17, 2015 Jkt 235001 A. Purpose Section 5 of the International Air Transportation Fair Competitive Practices Act of 1974 (49 U.S.C. 1517) (Fly America Act) requires that all Federal agencies and Government contractors and subcontractors at FAR 47.402, use U.S.-flag air carriers for U.S. Government-financed international air transportation of personnel (and their personal effects) or property, to the extent that service by those carriers is available. It requires the Comptroller General of the United States, in the absence of satisfactory proof of the necessity for foreign-flag air transportation, to disallow expenditures from funds, appropriated or otherwise established for the account of the United States, for international air transportation secured aboard a foreignflag air carrier if a U.S.-flag air carrier is available to provide such services. In the event that the contractor selects a carrier other than a U.S.-flag air carrier for international air transportation during performance of the contract, the contractor shall include per FAR clause 52.247–64 a statement on vouchers involving such transportation. The contracting officer uses the information furnished in the statement to determine whether adequate justification exists for the contractor’s use of other than a U.S.flag air carrier. B. Annual Reporting Burden Respondents: 150. Responses per Respondent: 2. Annual Responses: 300. Hours per Response: .25. Total Burden Hours: 75. C. Public Comments Public comments are particularly invited on: Whether this collection of information is necessary for the proper performance of functions of the FAR, and whether it will have practical utility; whether our estimate of the public burden of this collection of PO 00000 Frm 00033 Fmt 4703 Sfmt 4703 42819 information is accurate, and based on valid assumptions and methodology; ways to enhance the quality, utility, and clarity of the information to be collected; and ways in which we can minimize the burden of the collection of information on those who are to respond, through the use of appropriate technological collection techniques or other forms of information technology. Obtaining Copies of Proposals: Requesters may obtain a copy of the information collection documents from the General Services Administration, Regulatory Secretariat Division (MVCB), 1800 F Street NW., Washington, DC 20405, telephone 202–501–4755. Please cite OMB Control No. 9000–0054, Submission for OMB Review; U.S.-Flag Air Carriers Statement, in all correspondence. Dated: July 15, 2015. Edward Loeb, Director, Office of Government-wide Acquisition Policy, Office of Acquisition Policy, Office of Government-wide Policy. [FR Doc. 2015–17762 Filed 7–17–15; 8:45 am] BILLING CODE 6820–EP–P DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Disease Control and Prevention Multi-Agency Informational Meeting Concerning Compliance With the Federal Select Agent Program; Public Webcast Centers for Disease Control and Prevention (CDC), Department of Health and Human Services (HHS). ACTION: Notice of public webcast. AGENCY: The HHS Centers for Disease Control and Prevention’s Division of Select Agents and Toxins (DSAT) and the USDA Animal and Plant Health Inspection Service (APHIS), Agriculture Select Agent Services (AgSAS) are jointly charged with the oversight of the possession, use and transfer of biological agents and toxins that have the potential to pose a severe threat to public, animal or plant health or to animal or plant products (select agents and toxins). This joint effort constitutes the Federal Select Agent Program. The purpose of the webcast is to provide guidance related to the Federal Select Agent Program for interested individuals. SUMMARY: The webcast will be held on Thursday, November 19, 2015 from 12 p.m. to 4 p.m. EST. All who wish to join the webcast must register by October 23, DATES: E:\FR\FM\20JYN1.SGM 20JYN1

Agencies

[Federal Register Volume 80, Number 138 (Monday, July 20, 2015)]
[Notices]
[Pages 42810-42819]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-17767]


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FEDERAL TRADE COMMISSION

[File No. 141 0207]


Dollar Tree, Inc. and Family Dollar Stores, Inc.; Analysis of 
Proposed Consent Orders 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 methods of competition. 
The attached Analysis to Aid Public Comment describes both the 
allegations in the draft complaint and the terms of the consent 
orders--embodied in the consent agreement--that would settle these 
allegations.

DATES: Comments must be received on or before August 3, 2015.

ADDRESSES: Interested parties may file a comment at https://ftcpublic.commentworks.com/ftc/dollartreeconsent online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write ``Dollar Tree, Inc. and 
Family Dollar Stores, Inc.--Consent Agreement; File No. 141-0207'' on 
your comment and file your comment online at https://ftcpublic.commentworks.com/ftc/dollartreeconsent by following the 
instructions on the web-based form. If you prefer to file your comment 
on paper, write ``Dollar Tree, Inc. and Family Dollar Stores, Inc.--
Consent Agreement; File No. 141-0207'' on your comment and on the 
envelope, and mail your comment to the following address: Federal Trade 
Commission, Office of the Secretary, 600 Pennsylvania Avenue NW., Suite 
CC-5610 (Annex D), Washington, DC 20580, or deliver your comment to the 
following address: Federal Trade Commission, Office of the Secretary, 
Constitution Center, 400 7th Street SW., 5th Floor, Suite 5610 (Annex 
D), Washington, DC 20024.

FOR FURTHER INFORMATION CONTACT: Sean Pugh, Bureau of Competition, 
(202-326-3201), 600 Pennsylvania Avenue NW., Washington, DC 20580.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34, 
notice is hereby given that the above-captioned consent agreement 
containing consent orders 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 July 2, 2015), on the World Wide Web, at 
http://www.ftc.gov/os/actions.shtm.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before August 3, 2015. 
Write ``Dollar Tree, Inc. and Family Dollar Stores, Inc.--Consent 
Agreement; File No. 141-0207'' 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 http://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 privileged or confidential,'' as discussed in Section 
6(f) of the FTC Act, 15 U.S.C. Sec.  46(f), and FTC Rule 4.10(a)(2), 16 
CFR Sec.  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 Sec.  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 Sec.  4.9(c).
---------------------------------------------------------------------------

    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/dollartreeconsent by following the instructions on the web-based 
form. If this Notice appears at http://www.regulations.gov/#!home, you 
also may file a comment through that Web site.
    If you file your comment on paper, write ``Dollar Tree, Inc. and 
Family Dollar Stores, Inc.--Consent Agreement; File No. 141-0207'' on 
your comment and on the envelope, and mail your comment to the 
following address: Federal Trade Commission, Office of the Secretary, 
600 Pennsylvania Avenue NW., Suite CC-5610 (Annex D), Washington, DC 
20580, or deliver your comment to the following address: Federal Trade 
Commission, Office of the Secretary, Constitution Center, 400 7th 
Street SW., 5th Floor, Suite 5610 (Annex D), Washington, DC 20024. If 
possible, submit your paper comment to the Commission by courier or 
overnight service.
    Visit the Commission Web site at http://www.ftc.gov to read this 
Notice and the news release describing it. The FTC Act and other laws 
that the

[[Page 42811]]

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 August 3, 2015. For information on the Commission's privacy 
policy, including routine uses permitted by the Privacy Act, see http://www.ftc.gov/ftc/privacy.htm.

Analysis of Agreement Containing Consent Orders To Aid Public Comment

I. Introduction and Background

    The Federal Trade Commission (``Commission'') has accepted for 
public comment, subject to final approval, an Agreement Containing 
Consent Orders (``Consent Order'') from Dollar Tree, Inc. (``Dollar 
Tree'') and Family Dollar Stores, Inc. (``Family Dollar''), 
(collectively, the ``Respondents''). On July 27, 2014, Dollar Tree and 
Family Dollar entered into an agreement whereby Dollar Tree would 
acquire Family Dollar for approximately $9.2 billion (the 
``Acquisition''). The purpose of the proposed Consent Order is to 
remedy the anticompetitive effects that otherwise would result from 
Dollar Tree's acquisition of Family Dollar. Under the terms of the 
proposed Consent Order, Respondents are required to divest 330 stores 
in local geographic markets (collectively, the ``relevant markets'') in 
35 states to the Commission-approved buyer. The divestitures must be 
completed within 150 days from the date of the Acquisition. The 
Commission and Respondents have agreed to an Order to Maintain Assets 
to maintain the viability of Respondents' assets until they are 
transferred to the Commission-approved buyer.
    The proposed Consent Order has been placed on the public record for 
30 days to solicit comments from interested persons. Comments received 
during this period will become part of the public record. After 30 
days, the Commission again will review the proposed Consent Order and 
any comments received, and decide whether the Consent Order should be 
withdrawn, modified, or made final.
    The Commission's Complaint alleges that the Acquisition, if 
consummated, would violate Section 7 of the Clayton Act, as amended, 15 
U.S.C. Sec.  18, and Section 5 of the Federal Trade Commission Act, as 
amended, 15 U.S.C. Sec.  45, by removing an actual, direct, and 
substantial competitor in localized geographic markets in 222 cities 
nationwide.\2\ The elimination of this competition would result in 
significant competitive harm; specifically the Acquisition will allow 
the combined entity to increase prices unilaterally above competitive 
levels. Similarly, absent a remedy, there is significant risk that the 
merged firm may decrease the quality and service aspects of its stores. 
The proposed Consent Order would remedy the alleged violations by 
requiring divestitures to replace competition that otherwise would be 
lost in these markets because of the Acquisition.
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    \2\ The list of cities in which stores will be divested is 
attached as Appendix A. The list of stores to be divested is 
attached to the Decision and Order as Schedule A.
---------------------------------------------------------------------------

II. The Respondents

    As of January 31, 2015, Dollar Tree operated 5,157 discount general 
merchandise retail stores across the United States under the Dollar 
Tree and Deals banners. Presently, Dollar Tree banner stores are 
located in 48 states and the District of Columbia, while Deals banner 
stores are currently located in 18 states and the District of Columbia. 
In the Dollar Tree banner stores, Dollar Tree sells a wide selection of 
everyday basic, seasonal, closeout, and promotional merchandise for $1 
or less. At its Deals banner stores, Dollar Tree offers an expanded 
assortment of this merchandise at prices generally less than $10. 
Dollar Tree and Deals banner stores range in size from 8,000 to 12,000 
square feet of selling space and typically carry between 6,600 to 7,000 
stock keeping units (``SKUs'').
    As of February 28, 2015, Family Dollar operated approximately 8,184 
discount general merchandise retail stores nationwide. Family Dollar 
sells an assortment of consumables, home products, apparel and 
accessories, seasonal items, and electronic merchandise at prices 
generally less than $10. Currently, Family Dollar stores are located in 
46 states and the District of Columbia. Stores typically have 7,150 
square feet of selling space and carry approximately 6,500 to 7,000 
SKUs.

III. Competition in the Relevant Markets

    Dollar stores are small-format, deep-discount retailers that sell 
an assortment of consumables and non-consumables, including food, home 
products, apparel and accessories, and seasonal items, at prices 
typically under $10. Dollar stores differentiate themselves from other 
retailers on the basis of both convenience and value by offering a 
broad assortment but limited variety of general merchandise items at 
discounted prices in stores with small footprints (i.e., approximately 
7,000 to 10,000 square feet of selling space), located relatively close 
to consumers' homes or places of work.\3\ Customers often shop at 
dollar stores as part of a ``fill-in'' shopping trip. Dollar stores 
typically compete most closely with other dollar stores that provide 
the same kind of convenient shopping trip for discounted general 
merchandise.
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    \3\ The term ``dollar stores'' as used here includes stores 
operated by Respondents, Dollar General, 99 Cents Only, and Fred's 
Super Dollar. Independently-owned retailers that sell discounted 
merchandise at the $1 or multi-price point in substantially smaller 
stores are not included.
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    Walmart competes closely with dollar stores and offers a wide 
assortment of products at deeply-discounted prices. Although Walmart 
does not provide the same kind of convenience as that of dollar stores 
given its less-accessible locations, larger store footprints, and 
greater assortment of products, Walmart nevertheless competes closely 
with dollar stores by offering a comparable or better value to 
consumers in terms of pricing. For purposes of this matter, ``discount 
general merchandise retail stores'' refers to dollar stores and the 
retailer Walmart.
    Although other retail stores (i.e., supermarkets, pharmacies, mass 
merchandisers, and discount specialty merchandise retail stores) often 
sell discounted merchandise similar to that offered by dollar stores 
and Walmart, these other retailers generally are not as effective at 
constraining Respondents as are other discount general merchandise 
retail stores.\4\ These other retailers do not offer the same value as 
Walmart or the same combination of convenience and value offered by 
dollar stores, which tends to make them less effective substitutes for 
discount general merchandise retail stores. As a result, consumers 
shopping at discount general merchandise retail stores are unlikely to 
significantly increase purchases of discounted merchandise at other 
retailers in response to a small but significant price increase at 
discount general merchandise retail stores. However, in certain 
geographic markets, typically characterized by high population density, 
where the number and geographic proximity of these other retailers is 
substantial relative to the

[[Page 42812]]

competing discount general merchandise retail stores, the collective 
presence of these other retailers acts as a more significant price 
constraint on the discount general merchandise retail stores operating 
in the area.\5\
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    \4\ The term ``supermarkets'' as used here includes traditional 
supermarkets such as Kroger and Publix, as well as supermarkets 
included within hypermarkets such as SuperTarget or Kroger's Fred 
Meyer banner. The term ``pharmacies'' includes national retail drug 
stores such as CVS, Rite Aid, and Walgreens. The term ``mass 
merchandisers'' includes retailers such as Target and K-Mart. The 
term ``discount specialty merchandise retail stores'' includes 
retailers such as Big Lots and Aldi.
    \5\ Online retailers are not participants in the relevant 
product market. The primary appeal of dollar stores is the 
combination of value and convenience they offer consumers. Given the 
time required to process and ship items ordered online, Internet 
retailers are less convenient shopping options for consumers looking 
to make an immediate purchase on a fill-in trip.
---------------------------------------------------------------------------

    Thus, the relevant line of commerce in which to analyze the 
Acquisition is no narrower than discount general merchandise retail 
stores. In certain geographic markets, the relevant line of commerce 
may be as broad as the sale of discounted general merchandise in retail 
stores (i.e., discount general merchandise retail stores as well as 
supermarkets, pharmacies, mass merchandisers, and discount specialty 
merchandise retail stores). Whether the relevant line of commerce is 
discount general merchandise retail stores or discounted general 
merchandise in retail stores depends on the specifics of the geographic 
market at issue, such as population density and the density and 
proximity of the Respondents' stores and competing retailers.
    The relevant geographic market varies depending on the unique 
characteristics of each market, including the local road network, 
physical boundaries, and population density. A strong motivation of 
consumers shopping at discount general merchandise retail stores is 
convenience. As with grocery shopping, the vast majority of consumers 
who shop for discounted general merchandise do so at stores located 
very close to where they live or work. The draw area of a dollar store, 
which varies depending on whether it is located in an urban, suburban, 
or rural area, may range from a couple of city blocks to several miles. 
Other market participants, such as supermarkets and retail pharmacies, 
may have similar, although somewhat broader draw areas. Walmart's 
stores, particularly Walmart Supercenters, tend to have a considerably 
broader draw area. In highly urban areas, the geographic markets are 
generally no broader than a half-mile radius around a given store. In 
highly rural areas, the geographic market is generally no narrower than 
a three-mile radius around a given store. In areas neither highly urban 
nor highly rural, the geographic market is generally within a half-mile 
to three-mile radius around a given store.
    Respondents are close competitors in terms of format, customer 
service, product offerings, and location in the relevant geographic 
markets. With regard to pricing, product assortment, and a host of 
other competitive issues, Respondents typically focus most directly on 
the actions and responses of each other and other dollar stores, while 
also paying close attention to Walmart. In many of the relevant 
geographic markets, Dollar Tree and Family Dollar operate the only 
dollar stores in the area or the vast majority of conveniently-located 
discount general merchandise retail stores. Absent relief, the 
Acquisition would increase the incentive and ability of Dollar Tree to 
raise prices unilaterally post-Acquisition in the relevant geographic 
markets. The Acquisition would also decrease incentives to compete on 
non-price factors, including product selection, quality, and service.
    Entry into the relevant geographic markets that is timely and 
sufficient to prevent or counteract the expected anticompetitive 
effects of the Acquisition is unlikely. Entry barriers include the 
time, costs, and feasibility associated with identifying and 
potentially constructing an appropriate and available location for a 
discount general merchandise retail store, the resources required to 
support one or more new stores over a prolonged ramp-up period, and the 
sufficient scale to compete effectively. An entrant's ability to secure 
a viable competitive location may be hindered by restrictive-use 
commercial lease covenants, which can limit the products sold, or even 
the type of retailer that can be located, at a particular location.

IV. The Proposed Consent Order

    The proposed remedy, which requires the divestiture of 330 Family 
Dollar stores in the relevant markets to Sycamore Partners 
(``Sycamore''), will restore fully the competition that otherwise would 
be eliminated in these markets as a result of the Acquisition. Sycamore 
is a private equity firm specializing in consumer and retail 
investments. The proposed buyer appears to be a highly suitable 
purchaser and is well positioned to enter the relevant geographic 
markets and prevent the likely competitive harm that otherwise would 
result from the Acquisition. Sycamore's proposed executive team has 
extensive experience operating discount general merchandise retail 
stores.
    The proposed Consent Order requires Respondents to divest 330 
stores to Sycamore within 150 days from the date of the Acquisition. 
If, at any time before the proposed Consent Order is made final, the 
Commission determines that Sycamore is not an acceptable buyer, 
Respondents must immediately rescind the divestitures and divest the 
assets to a different buyer that receives the Commission's prior 
approval.
    The proposed Consent Order contains additional provisions to ensure 
the adequacy of the proposed relief. For example, Respondents have 
agreed to an Order to Maintain Assets that will be issued at the time 
the proposed Consent Order is accepted for public comment. The Order to 
Maintain Assets requires Family Dollar to operate and maintain each 
divestiture store in the normal course of business through the date the 
store is ultimately divested to Sycamore. Because the divestiture 
schedule runs for an extended period of time, the proposed Consent 
Order appoints Gary Smith as a Monitor to oversee Respondents' 
compliance with the requirements of the proposed Consent Order and 
Order to Maintain Assets. Mr. Smith has the experience and skills to be 
an effective Monitor, no identifiable conflicts, and sufficient time to 
dedicate to this matter through its conclusion.
* * * * *
    The sole purpose of this Analysis is to facilitate public comment 
on the proposed Consent Order. This Analysis does not constitute an 
official interpretation of the proposed Consent Order, nor does it 
modify its terms in any way.

Appendix A

------------------------------------------------------------------------
                                                                 Number
                                                City           of stores
                                                                divested
------------------------------------------------------------------------
Alabama.............................  Montgomery.............          1
Arizona.............................  Lake Havasu............          1
Arizona.............................  Tucson.................          1
California..........................  Farmersville...........          1
California..........................  Fresno.................          1
California..........................  Inglewood..............          1
California..........................  Lemoore................          1
California..........................  San Bernardino.........          1
Colorado............................  Aurora.................          1
Colorado............................  Colorado Springs.......          3
Colorado............................  Denver.................          1
Colorado............................  Federal Heights........          1
Colorado............................  Lakewood...............          1
Connecticut.........................  Bloomfield.............          1
Connecticut.........................  Bridgeport.............          1
Connecticut.........................  Groton.................          1
Connecticut.........................  Meriden................          1
Connecticut.........................  New Haven..............          1
Connecticut.........................  West Hartford..........          1
Delaware............................  Wilmington.............          1
Florida.............................  Dania..................          1
Florida.............................  Deltona................          2
Florida.............................  Hollywood..............          1
Florida.............................  Homestead..............          1
Florida.............................  Jacksonville...........          2
Florida.............................  Kissimmee..............          3
Florida.............................  Miami..................          3
Florida.............................  Miami Gardens..........          1
Florida.............................  Plantation.............          1

[[Page 42813]]

 
Florida.............................  Tampa..................          3
Georgia.............................  Atlanta................          7
Georgia.............................  Columbus...............          1
Georgia.............................  Decatur................          3
Georgia.............................  Lake City..............          1
Georgia.............................  Norcross...............          1
Georgia.............................  Stone Mountain.........          1
Idaho...............................  Emmett.................          1
Illinois............................  Aurora.................          1
Illinois............................  Berwyn.................          1
Illinois............................  Chicago................         13
Illinois............................  Elgin..................          1
Illinois............................  Harvey.................          1
Indiana.............................  Fort Wayne.............          1
Indiana.............................  Gary...................          2
Indiana.............................  Indianapolis...........          2
Kentucky............................  Covington..............          1
Kentucky............................  Louisville.............          2
Louisiana...........................  Baton Rouge............          1
Louisiana...........................  Lafayette..............          1
Louisiana...........................  New Orleans............          1
Maine...............................  Caribou................          1
Maine...............................  Gray...................          1
Maine...............................  Lewiston...............          1
Maine...............................  Livermore Falls........          1
Maine...............................  Old Town...............          1
Maine...............................  South Portland.........          1
Maine...............................  Waterville.............          1
Maryland............................  Baltimore..............          4
Maryland............................  Capitol Heights........          1
Maryland............................  Lanham.................          1
Maryland............................  Mount Rainier..........          1
Maryland............................  Oxon Hill..............          1
Maryland............................  Salisbury..............          1
Maryland............................  Silver Spring..........          1
Maryland............................  Temple Hills...........          1
Massachusetts.......................  Boston.................          1
Massachusetts.......................  Brockton...............          1
Massachusetts.......................  Cambridge..............          1
Massachusetts.......................  Chelsea................          1
Massachusetts.......................  Dorchester.............          1
Massachusetts.......................  Framingham.............          1
Massachusetts.......................  Gloucester.............          1
Massachusetts.......................  Greenfield.............          1
Massachusetts.......................  Holyoke................          1
Massachusetts.......................  Lowell.................          1
Massachusetts.......................  Medford................          1
Massachusetts.......................  New Bedford............          1
Massachusetts.......................  North Adams............          1
Massachusetts.......................  Randolph...............          1
Massachusetts.......................  Revere.................          1
Massachusetts.......................  South Yarmouth.........          1
Massachusetts.......................  Springfield............          2
Massachusetts.......................  Ware...................          1
Massachusetts.......................  West Springfield.......          1
Massachusetts.......................  Worcester..............          1
Michigan............................  Benton Harbor..........          1
Michigan............................  Burton.................          1
Michigan............................  Detroit................          5
Michigan............................  Eastpointe.............          1
Michigan............................  Ferndale...............          1
Michigan............................  Grand Rapids...........          2
Michigan............................  Hamtramck..............          1
Michigan............................  Hazel Park.............          1
Michigan............................  Highland Park..........          1
Michigan............................  Holland................          1
Michigan............................  Inkster................          1
Michigan............................  Lansing................          1
Michigan............................  Livonia................          1
Michigan............................  Mount Morris...........          1
Michigan............................  Oak Park...............          1
Michigan............................  Portage................          1
Michigan............................  Saginaw................          1
Michigan............................  Taylor.................          1
Michigan............................  Westland...............          1
Michigan............................  Wyoming................          1
Minnesota...........................  Minneapolis............          3
Minnesota...........................  Robbinsdale............          1
Minnesota...........................  St. Paul...............          3
Mississippi.........................  Jackson................          1
Missouri............................  Jennings...............          1
Missouri............................  St. Louis..............          6
Nebraska............................  Omaha..................          1
New Jersey..........................  Belmar.................          1
New Jersey..........................  Brigantine.............          1
New Jersey..........................  East Orange............          1
New Jersey..........................  Elizabeth..............          2
New Jersey..........................  Ewing..................          1
New Jersey..........................  Glassboro..............          1
New Jersey..........................  Hamilton Township......          1
New Jersey..........................  Irvington..............          1
New Jersey..........................  Mount Holly............          1
New Jersey..........................  Newark.................          2
New Jersey..........................  Paterson...............          1
New Jersey..........................  Pleasantville..........          1
New Jersey..........................  Vineland...............          1
New Mexico..........................  Albuquerque............          3
New Mexico..........................  Las Cruces.............          1
New York............................  Astoria................          1
New York............................  Bronx..................          8
New York............................  Brooklyn...............          7
New York............................  College Point..........          1
New York............................  East Aurora............          1
New York............................  Far Rockaway...........          1
New York............................  Glendale...............          1
New York............................  Grand Island...........          1
New York............................  Greece.................          1
New York............................  Jamaica................          2
New York............................  Johnstown..............          1
New York............................  Lindenhurst............          1
New York............................  Mattydale..............          1
New York............................  Mount Vernon...........          1
New York............................  Patchogue..............          1
New York............................  Poughkeepsie...........          1
New York............................  Queens.................          2
New York............................  Queens Village.........          1
New York............................  Ridgewood..............          1
New York............................  Rochester..............          3
New York............................  Rocky Point............          1
New York............................  Saranac Lake...........          1
New York............................  Selden.................          1
New York............................  Shirley................          1
New York............................  Springfield Gardens....          1
New York............................  Staten Island..........          2
New York............................  Syracuse...............          2
New York............................  Utica..................          1
North Carolina......................  Charlotte..............          2
Ohio................................  Akron..................          1
Ohio................................  Canton.................          1
Ohio................................  Cincinnati.............          5
Ohio................................  Cleveland..............          4
Ohio................................  Columbus...............          3
Ohio................................  East Cleveland.........          1
Ohio................................  Milford................          1
Ohio................................  St. Bernard............          1
Ohio................................  Toledo.................          2
Ohio................................  Whitehall..............          1
Oklahoma............................  Oklahoma City..........          2
Pennsylvania........................  Allentown..............          1
Pennsylvania........................  East Liberty...........          1
Pennsylvania........................  Edwardsville...........          1
Pennsylvania........................  Harrisburg.............          2
Pennsylvania........................  Lansdowne..............          1
Pennsylvania........................  Levittown..............          1
Pennsylvania........................  Mckeesport.............          1
Pennsylvania........................  Middletown.............          1
Pennsylvania........................  Morrisville............          1
Pennsylvania........................  Philadelphia...........          5
Pennsylvania........................  Pittsburgh.............          2
Pennsylvania........................  Swissvale..............          1
Pennsylvania........................  Upper Darby............          1
Pennsylvania........................  Yeadon.................          1
Rhode Island........................  Bristol................          1
Rhode Island........................  Central Falls..........          1
Rhode Island........................  Pawtucket..............          2
Rhode Island........................  Providence.............          2
Rhode Island........................  Rumford................          1
Tennessee...........................  Memphis................          3
Tennessee...........................  Nashville..............          1
Texas...............................  Arlington..............          1
Texas...............................  Balch Springs..........          1
Texas...............................  Beaumont...............          1
Texas...............................  Brownsville............          1
Texas...............................  Corpus Christi.........          1
Texas...............................  Dallas.................          1
Texas...............................  Eagle Pass.............          1
Texas...............................  El Paso................          3
Texas...............................  Fort Worth.............          2
Texas...............................  Houston................          5
Texas...............................  Lubbock................          1
Texas...............................  Odessa.................          1
Texas...............................  Pasadena...............          1
Texas...............................  San Antonio............          2
Utah................................  Midvale................          1
Utah................................  Ogden..................          1
Utah................................  Provo..................          1
Utah................................  Salt Lake City.........          1
Utah................................  St. George.............          1
Utah................................  West Valley City.......          1
Vermont.............................  Morrisville............          1
Vermont.............................  Newport................          1
Virginia............................  Alexandria.............          1
Virginia............................  Chesapeake.............          1
Virginia............................  Hampton................          1
Virginia............................  Lynchburg..............          1
Virginia............................  Norfolk................          3
Virginia............................  Portsmouth.............          1
Virginia............................  Richmond...............          1
West Virginia.......................  Huntington.............          1
Wisconsin...........................  Appleton...............          1
Wisconsin...........................  Eau Claire.............          1
Wisconsin...........................  Milwaukee..............          3
Wisconsin...........................  St. Francis............          1
------------------------------------------------------------------------


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

[[Page 42814]]

Statement of the Federal Trade Commission

    The Federal Trade Commission has accepted a proposed settlement to 
resolve the likely anticompetitive effects of Dollar Tree, Inc.'s 
proposed $9.2 billion acquisition of Family Dollar Stores, Inc.\1\ We 
have reason to believe that, absent a remedy, the proposed acquisition 
is likely to substantially lessen competition between Dollar Tree and 
Family Dollar in numerous local markets. Under the terms of the 
proposed consent order, Dollar Tree and Family Dollar are required to 
divest 330 stores to a Commission-approved buyer. As we explain below, 
we believe the proposed divestitures preserve competition in the 
markets adversely affected by the acquisition and are therefore in the 
public interest.
---------------------------------------------------------------------------

    \1\ This statement reflects the views of Chairwoman Ramirez and 
Commissioners Brill, Ohlhausen, and McSweeny.
---------------------------------------------------------------------------

    Dollar Tree operates over 5,000 discount general merchandise retail 
stores across the United States under two banners which follow somewhat 
different business models. In its Dollar Tree banner stores, Dollar 
Tree sells a wide selection of everyday basic, seasonal, closeout, and 
promotional merchandise--all for $1 or less. At its Deals banner 
stores, Dollar Tree sells an expanded assortment of this merchandise at 
prices that may go above the $1 price point but are generally less than 
$10. Family Dollar operates over 8,000 discount general merchandise 
retail stores. Family Dollar sells an assortment of consumables, home 
products, apparel and accessories, seasonal items, and electronic 
merchandise at prices generally less than $10, including items priced 
at or under $1.
    Dollar Tree and Family Dollar compete head-to-head in numerous 
local markets across the United States. They are close competitors in 
terms of format, pricing, customer service, product offerings, and 
location. When making competitive decisions regarding pricing, product 
assortment, and other salient aspects of their businesses, Dollar Tree 
and Family Dollar focus most directly on the actions and responses of 
each other and other ``dollar store'' chains, while also paying close 
attention to Walmart. In many local markets, Dollar Tree and Family 
Dollar operate stores in close proximity to each other, often 
representing the only or the majority of conveniently located discount 
general merchandise retail stores in a neighborhood.
    To evaluate the likely competitive effects of this transaction and 
identify the local markets where it may likely harm competition, the 
Commission considered multiple sources of quantitative and qualitative 
evidence. One component of the investigation involved a Gross Upward 
Pricing Pressure Index (``GUPPI'') analysis. As described in the 2010 
Horizontal Merger Guidelines, this mode of analysis can serve as a 
useful indicator of whether a merger involving differentiated products 
is likely to result in unilateral anticompetitive effects.\2\ Such 
effects can arise ``when the merger gives the merged entity an 
incentive to raise the price of a product previously sold by one 
merging firm'' because the merged entity stands to profit from any 
sales that are then diverted to products that would have been 
``previously sold by the other merging firm.'' \3\ Using the value of 
diverted sales as an indicator of the upward pricing pressure resulting 
from the merger, a GUPPI is defined as the value of diverted sales that 
would be gained by the second firm measured in proportion to the 
revenues that would be lost by the first firm. If the ``value of 
diverted sales is proportionately small, significant unilateral price 
effects are unlikely.'' \4\
---------------------------------------------------------------------------

    \2\ U.S. Dept. of Justice and Fed. Trade Comm'n, Horizontal 
Merger Guidelines Sec.  6.1 (2010), available at https://www.ftc.gov/sites/default/files/attachments/merger-review/100819hmg.pdf.
    \3\ Id.
    \4\ Id.
---------------------------------------------------------------------------

    The Commission's investigation involved thousands of Dollar Tree 
and Family Dollar stores with overlapping geographic markets. A GUPPI 
analysis served as a useful initial screen to flag those markets where 
the transaction might likely harm competition and those where it might 
pose little or no risk to competition. As a general matter, Dollar Tree 
and Family Dollar stores with relatively low GUPPIs suggested that the 
transaction was unlikely to harm competition, unless the investigation 
uncovered specific reasons why the GUPPIs may have understated the 
potential for anticompetitive effects. Conversely, Dollar Tree and 
Family Dollar stores with relatively high GUPPIs suggested that the 
transaction was likely to harm competition, subject to evidence or 
analysis indicating that the GUPPIs may have overstated the potential 
for anticompetitive effects.
    While the GUPPI analysis was an important screen for the 
Commission's inquiry, it was only a starting point. The Commission 
considered several other sources of evidence in assessing the 
transaction's likely competitive effects, including additional detail 
regarding the geographic proximity of the merging parties' stores 
relative to each other and to other retail stores, ordinary course of 
business documents and data supplied by Dollar Tree and Family Dollar, 
information from other market participants, and analyses conducted by 
various state attorneys general who were also investigating the 
transaction. After considering all of this evidence, the Commission 
identified specific local markets where the acquisition would be likely 
to harm competition and arrived at the list of 330 stores slated for 
divestiture.
    In his statement, Commissioner Wright criticizes the way that the 
Commission used the GUPPI analysis in this case and argues that GUPPIs 
below a certain threshold should be treated as a ``safe harbor.'' \5\ 
We respectfully disagree.
---------------------------------------------------------------------------

    \5\ Statement of Commissioner Joshua D. Wright Dissenting in 
Part and Concurring in Part, Dollar Tree, Inc. and Family Dollar 
Stores, Inc., File No. 141-0207.
---------------------------------------------------------------------------

    As an initial matter, Commissioner Wright mischaracterizes the way 
that the GUPPI analysis was used in this case. Contrary to his 
suggestion, GUPPIs were not used as a rigid presumption of harm. As 
explained above, they were used only as an initial screen to identify 
those markets where further investigation was warranted. The Commission 
then proceeded to consider the results of the GUPPI analysis in 
conjunction with numerous other sources of information.\6\ Based on 
this complete body of evidence, we have reason to believe that, without 
the proposed divestitures, the acquisition would substantially lessen 
competition in each of the relevant local markets.
---------------------------------------------------------------------------

    \6\ As Joseph Farrell and Carl Shapiro have noted, ``[r]eal-
world mergers are complex, and our proposed test, like the 
concentration-based test, is consciously oversimplified. . . . In 
the end, the evaluation of any merger that is thoroughly 
investigated or litigated may come down to the fullest feasible 
analysis of effects.'' Joseph Farrell & Carl Shapiro, Antitrust 
Evaluation of Horizontal Mergers: An Economic Alternative to Market 
Definition, 10 B.E. J. Theoretical Econ. 1, 26 (2010).
---------------------------------------------------------------------------

    Our market-by-market review showed that the model of competition 
underlying the GUPPI analysis was largely consistent with other 
available evidence regarding the closeness of competition between the 
parties' stores in each local market. For example, stores with high 
GUPPIs were generally found in markets in which there were few or no 
other conveniently located discount general merchandise retail stores. 
The GUPPI analysis did have some limitations, however. For example, 
there were Family Dollar stores with relatively low GUPPIs in markets 
that were nevertheless price-zoned to Dollar Tree stores, which meant 
that if Dollar Tree stores were

[[Page 42815]]

removed as competition, then the prices of certain items at those 
Family Dollar stores would likely go up. The GUPPI analysis also was 
not sufficiently sensitive to differentiate between Dollar Tree and 
Family Dollar stores that were in the same shopping plaza from those 
that were almost a mile away from each other. For these situations, we 
appropriately relied on other evidence to reach a judgment about the 
closeness of competition.\7\
---------------------------------------------------------------------------

    \7\ Commissioner Wright cites the Albertson's/Safeway 
transaction as another recent case in which a GUPPI analysis was 
used. See Wright Statement at 2 n.6. To be precise, the Commission 
analyzed that transaction using diversion ratios, not GUPPI scores, 
but in any event, Commissioner Wright himself voted to accept the 
consent order in that case.
---------------------------------------------------------------------------

    More broadly, Commissioner Wright's view that the Commission should 
identify and treat GUPPIs below a certain threshold as a ``safe 
harbor'' ignores the reality that merger analysis is inherently fact-
specific. The manner in which GUPPI analysis is used will vary 
depending on the factual circumstances, the available data, and the 
other evidence gathered during an investigation. Moreover, whether the 
value of diverted sales is considered ``proportionately small'' 
compared to lost revenues will vary from industry to industry and firm 
to firm.\8\ For example, intense competition between merging firms may 
cause margins to be very low, which could produce a low GUPPI even in 
the presence of very high diversion ratios. Such conditions could 
produce a false negative implying that the merger is not likely to harm 
competition when in fact it is.\9\
---------------------------------------------------------------------------

    \8\ Marginal cost efficiencies, as well as pass-through rates, 
also will vary from industry to industry and from firm to firm. The 
pass-through rate will determine the magnitude of the post-merger 
unilateral price effects.
    \9\ Joseph Farrell & Carl Shapiro, Upward Pricing Pressure and 
Critical Loss Analysis: Response, CPI Antitrust J. 1, 6-7 & n.15 
(Feb. 2010); Farrell & Shapiro, Antitrust Evaluation of Horizontal 
Mergers, supra note 6, at 13-14.
---------------------------------------------------------------------------

    Indeed, we agree with Commissioner Wright that ``a GUPPI-based 
presumption of competitive harm is inappropriate at this stage of 
economic learning.'' \10\ We think that a GUPPI-based safe harbor is 
equally inappropriate. In antitrust law, bright-line rules and 
presumptions rest on accumulated experience and economic learning that 
the transaction or conduct in question is likely or unlikely to harm 
competition.\11\ We do not believe there is a basis for the recognition 
of a GUPPI safe harbor.
---------------------------------------------------------------------------

    \10\ Wright Statement, supra note 5, at 8 & nn.23 & 24 (citing 
commentators' concerns and criticisms regarding the use of GUPPI 
analysis generally). Such concerns and criticisms, if valid, would 
apply equally to the wisdom of using GUPPIs to recognize a safe 
harbor.
    \11\ See, e.g., Leegin Creative Leather Prods., Inc. v. PSKS, 
Inc., 551 U.S. 877, 886-87 (2007) (``As a consequence, the per se 
rule is appropriate only after courts have had considerable 
experience with the type of restraint at issue, . . . and only if 
courts can predict with confidence that it would be invalidated in 
all or almost all instances under the rule of reason, . . .''); Cal. 
Dental Ass'n v. FTC, 526 U.S. 756, 781 (1999) (``The object is to 
see whether the experience of the market has been so clear, or 
necessarily will be, that a confident conclusion about the principal 
tendency of a restriction will follow from a quick (or at least 
quicker) look, in place of a more sedulous one.''); ProMedica Health 
Sys., Inc. v. FTC, 749 F.3d 559, 570, 571 (6th Cir. 2014) (noting 
that ``the strong correlation between market share and price, and 
the degree to which this merger would further concentrate markets 
that are already highly concentrated--converge in a manner that 
fully supports the Commission's application of a presumption of 
illegality'' but also noting that ``the Commission did not merely 
rest upon the presumption, but instead discussed a wide range of 
evidence that buttresses it'').
---------------------------------------------------------------------------

    Accordingly, in any case where a GUPPI analysis is used, the 
Commission will consider the particular factual circumstances and 
evaluate other sources of quantitative and qualitative evidence.\12\ As 
with other quantitative evidence such as market shares and HHIs, we 
believe that GUPPIs should be considered in the context of all other 
reasonably available evidence. The 2010 Horizontal Merger Guidelines do 
not instruct otherwise.\13\ For all of these reasons, we believe it is 
appropriate to use GUPPIs flexibly and as merely one tool of analysis 
in the Commission's assessment of unilateral anticompetitive effects.
---------------------------------------------------------------------------

    \12\ See Carl Shapiro, The 2010 Horizontal Merger Guidelines: 
From Hedgehog to Fox in Forty Years, 77 Antitrust L.J. 701, 729 
(2010) (``The value of diverted sales is an excellent simple measure 
for diagnosing or scoring unilateral price effects, but it cannot 
capture the full richness of competition in real-world industries. 
Indeed, as stressed above, all of the quantitative methods discussed 
here must be used in conjunction with the broader set of qualitative 
evidence that the Agencies assemble during a merger 
investigation.''); Farrell & Shapiro, Upward Pricing Pressure, supra 
note 8, at 6 (``Whatever measure is used for screening purposes, it 
is important that the full analysis give proper weight to all the 
available evidence.''). Notwithstanding Commissioner Wright's 
suggestion to the contrary, we do not believe that the Commission's 
use of GUPPIs as a tool for assessing unilateral effects differs 
materially from their use by the Department of Justice.
    \13\ Recognizing in the 2010 Horizontal Merger Guidelines that 
when the ``value of diverted sales is proportionately small, 
significant unilateral price effects are unlikely'' does not 
necessarily mean that ``proportionately small'' should be reduced to 
some numerical value that applies in all cases. See Merger 
Guidelines, supra note 2, Sec.  1 (``These Guidelines should be read 
with the awareness that merger analysis does not consist of uniform 
application of a single methodology.'').
---------------------------------------------------------------------------

    By direction of the Commission, Commissioner Wright not 
participating.

Statement of Commissioner Joshua D. Wright Dissenting in Part and 
Concurring in Part

    The Commission has voted to issue a Complaint and a Decision & 
Order against Dollar Tree, Inc. (``Dollar Tree'') and Family Dollar 
Stores, Inc. (``Family Dollar'') to remedy the allegedly 
anticompetitive effects of the proposed acquisition by Dollar Tree of 
Family Dollar. I dissent in part from and concur in part with the 
Commission's decision. I dissent in part because in 27 markets I 
disagree with the Commission's conclusion that there is reason to 
believe the proposed transaction violates the Clayton Act.
    The record evidence includes a quantitative measure of the value of 
diverted sales as well as various forms of qualitative evidence. The 
value of diverted sales is typically measured as the product of the 
diversion ratio between the merging parties' products--the diversion 
ratio between two products is the percentage of unit sales lost by one 
product when its price rises, that are captured by the second product--
and the profit margin of the second product. When the value of diverted 
sales is measured in proportion to ``the lost revenues attributable to 
the reduction in unit sales resulting from the price increase,'' \1\ it 
is the ``gross upward pricing pressure index,'' or ``GUPPI.'' The GUPPI 
is an economic tool used to score or rank the incentives for potential 
unilateral price effects. In the markets where I depart from the 
Commission's decision the GUPPI is below 5 percent, indicating 
insignificant upward pricing pressure even before efficiencies or entry 
are taken into account, and weak incentives for unilateral price 
increases. In my view, the available quantitative and qualitative 
evidence are insufficient to support a reason to believe the proposed 
transaction will harm competition in these markets. I write separately 
to explain more fully the basis for my dissent in these markets.
---------------------------------------------------------------------------

    \1\ U.S. Dep't of Justice & Fed. Trade Comm'n, Horizontal Merger 
Guidelines Sec.  6.1 n.11 (2010) [hereinafter Merger Guidelines].
---------------------------------------------------------------------------

    I also write to address an important merger policy issue implicated 
by today's decision--that is, whether the FTC should adopt a safe 
harbor in unilateral effects merger investigations by defining a GUPPI 
threshold below which it is presumed competitive harm is unlikely. The 
Merger Guidelines clearly contemplate such a safe harbor. The Merger 
Guidelines explain that ``[i]f the value of diverted sales is 
proportionately small, significant

[[Page 42816]]

unilateral price effects are unlikely.'' \2\ In other words, the Merger 
Guidelines recognize that if the GUPPI is small, significant unilateral 
price effects are unlikely.
---------------------------------------------------------------------------

    \2\ Id. Sec.  6.1 (emphasis added); see Steven C. Salop, Serge 
X. Moresi & John Woodbury, CRA Competition Memo, Scoring Unilateral 
Effects with the GUPPI: The Approach of the New Horizontal Merger 
Guidelines 2 (Aug. 31, 2010), available at http://crai.com/sites/default/files/publications/Commentary-on-the-GUPPI_0.pdf.
---------------------------------------------------------------------------

    Without more, one might reasonably conclude it is unclear whether 
the Merger Guidelines merely offer a truism about the relationship 
between the GUPPI and likely unilateral price effects or invite the 
agencies to take on the task of identifying a safe harbor of general 
applicability across cases. But there is more. A principal drafter of 
the Merger Guidelines has explained the Merger Guidelines' reference to 
a ``proportionately small'' value of diverted sales was intended to 
establish a GUPPI safe harbor. The Department of Justice's Antitrust 
Division (``Division''), consistent with this interpretation of the 
Merger Guidelines, publicly announced precisely such a safe harbor when 
the GUPPI is less than 5 percent.\3\ Further, there is significant 
intellectual support for a GUPPI-based safe harbor among economists 
\4\--once again including the principal drafters of the Merger 
Guidelines.\5\ The Commission, however, has rejected the safe harbor 
approach both in practice--indeed, the Commission has recently entered 
into another consent involving divestitures in markets with GUPPI 
scores below 5 percent \6\--and as a matter of the policy announced in 
the Commission's statement today.\7\
---------------------------------------------------------------------------

    \3\ Carl Shapiro, Deputy Ass't Att'y Gen. for Econ., Antitrust 
Div., U.S. Dep't of Justice, Update from the Antitrust Division, 
Remarks as Prepared for the ABA Antitrust Law Fall Forum 24 (Nov. 18 
2010).
    \4\ See, e.g., Salop, Moresi & Woodbury, supra note 2, at 2 
(explaining that ``a GUPPI of less than 5% would be reasonably 
treated as evidence that `the value of diverted sales is 
proportionately small' and hence that the proposed merger is 
unlikely to raise unilateral effects concerns'').
    \5\ See Joseph Farrell & Carl Shapiro, Antitrust Evaluation of 
Horizontal Mergers: An Economic Alternative to Market Definition, 10 
B.E. J. Theoretical Econ. 1 (2010).
    \6\ See Cerberus Institutional Partners V, L.P., FTC File No. 
141-0108 (July 2, 2015). There, though one could not possibly infer 
this from the public-facing documents in the case, the Commission 
applied a diversion ratio threshold to identify stores for 
divestiture. To be accurate, a GUPPI threshold could be implied from 
the Commission's analysis and, as algebraically mindful readers will 
note, setting a diversion ratio threshold given profit margin data 
and a predicted price increase is not analytically distinguishable 
from the analysis in this matter. The Commission rightly points out 
that I voted in favor of the consent in Cerberus. As to whether I am 
merely being inconsistent in my views on the role of GUPPIs in 
merger analysis or, alternatively, there is some other more 
reasonable explanation for my votes, I can provide the explanation 
and let readers decide. In Cerberus, I voted for the consent on the 
basis that the use of diversion or GUPPI-based analysis was a step 
forward relative to relying exclusively upon structural analysis. 
The fact that there were stores identified for divestiture with 
implied GUPPIs less than 5 percent was unique. It is now a trend 
reinforced by a Commission decision to reject a GUPPI-based safe 
harbor--a decision I do not believe is in the public interest.
    Regarding Cerberus, it is worth pointing out further that even a 
careful reader of the public documents in that case would come away 
with the impression that the Commission's analysis was largely 
structural, and concluded a number of six-to-five mergers were 
presumptively anticompetitive. See Analysis of Agreement Containing 
Consent Order to Aid Public Comment Exhibit A, id. An ancillary 
benefit of the transparency reluctantly generated by today's 
Commission statement is that the antitrust community is now on 
notice that more sophisticated economic tools were used in that 
matter, how they were used, and that the potential structural policy 
change signaled by those public documents does not appear to 
describe accurately the Commission's complete analysis in that case.
    \7\ Statement of the Federal Trade Commission at 3, Dollar Tree, 
Inc., FTC File No. 141-0207 (July 13, 2015) [hereinafter Majority 
Statement] (``[A] GUPPI-based safe harbor is . . . 
inappropriate.'').
---------------------------------------------------------------------------

    This is unfortunate. The legal, economic, and policy case for the 
GUPPI-based safe harbor contemplated by the Merger Guidelines is 
strong.\8\ There are a number of reasons why such a safe harbor might 
be desirable as a matter of antitrust policy if sufficiently supported 
by economic theory and evidence. Efficient resource allocation--
expending agency resources on the transactions most likely to raise 
serious competitive concerns and quickly dispensing with those that do 
not--is one such goal.
---------------------------------------------------------------------------

    \8\ A second question is whether a presumption of competitive 
harm should follow, as a matter of economic theory and empirical 
evidence, from a demonstration of a GUPPI above a certain threshold 
value. There appears to be a consensus that the answer to this 
question, at this point, is no. I agree. See, e.g., Thomas A. 
Lambert, Respecting the Limits of Antitrust: The Roberts Court 
Versus the Enforcement Agencies 13 (Heritage Foundation Legal 
Memorandum No. 144, Jan. 28, 2015) (the GUPPI ``has not been 
empirically verified as a means of identifying anticompetitive 
mergers''); Steven C. Salop, The Evolution and Vitality of Merger 
Presumptions: A Decision-Theoretic Approach 40-41 (Georgetown Law 
Faculty Publications and Other Works, Working Paper No. 1304, 2014), 
available at http://scholarship.law.georgetown.edu/facpub/1304/ 
(``The 2010 Merger Guidelines do not adopt an anticompetitive 
enforcement presumption based on high values of the GUPPI score. 
This was a practical policy decision at this time because the use of 
the GUPPI was new to much of the defense bar and the courts.'').
---------------------------------------------------------------------------

    A second reason a safe harbor for proportionately small diversion 
might be desirable antitrust policy is to compensate for the sources of 
downward pricing pressure not measured by the GUPPI but expected with 
most transactions, including efficiencies, entry, or repositioning. 
Some have argued that--as a GUPPI attempts a rough measure of upward 
pricing pressure without a full blown analysis--a symmetrical approach 
would include a standard efficiencies deduction which would be applied 
to account for the downward pricing pressure from the marginal-cost 
efficiencies that can typically be expected to result from 
transactions.\9\ This approach would permit the identification of a 
gross-upward-pricing-pressure threshold that triggers additional 
scrutiny.\10\
---------------------------------------------------------------------------

    \9\ Farrell & Shapiro, supra note 5, at 10-12.
    \10\ See id. at 12.
---------------------------------------------------------------------------

    Yet a third reason a safe harbor might be desirable is to 
compensate the well-known feature of GUPPI-based scoring methods to 
predict harm for any positive diversion ratio--that is, even for 
distant substitutes--by distinguishing de minimis GUPPI levels from 
those that warrant additional scrutiny.\11\ The Merger Guidelines 
contemplate a ``safe harbor'' because it ``reflects that a small amount 
of upward pricing pressure is unlikely . . . to correspond to any 
actual post-merger price increase.'' \12\ Carl Shapiro explained 
shortly after adoption of the Merger Guidelines, on behalf of the 
Division, that ``Current Division practice is to treat the value of 
diverted sales as proportionately small if it is no more than 5% of the 
lost revenues.'' \13\
---------------------------------------------------------------------------

    \11\ James A. Keyte & Kenneth B. Schwartz, ``Tally-Ho!'': UPP 
and the 2010 Horizontal Merger Guidelines, 7 Antitrust L.J. 587, 628 
(2010) (``an uncalibrated tool cannot have predictive value as a 
screen if it always indicates postmerger price pressure'').
    \12\ Shapiro, supra note 3, at 24. Shapiro further cautioned 
that, although a GUPPI analysis ``can be highly informative, the 
Agencies understand full well that measuring upward pricing pressure 
. . . typically is not the end of the story . . . . Repositioning, 
entry, innovation, and efficiencies must also be considered.'' Id. 
at 26.
    \13\ Id. at 24. Others have interpreted this speech as clearly 
announcing Division policy. See Salop, supra note 8, at 43 & n.105 
(``In a speech while he was Deputy AAG, Carl Shapiro also specified 
a GUPPI safe harbor of 5%. As a speech by the Deputy AAG, this 
statement appeared to reflect DOJ policy.'' (citing Shapiro, supra 
note 3)). Other economists agree that a GUPPI safe harbor should 
apply. E.g., Farrell & Shapiro, supra note 5, at 10; Salop, Moresi & 
Woodbury, supra note 2, at 2.
---------------------------------------------------------------------------

    Against these benefits of adopting a GUPPI-based safe harbor, the 
Commission must weigh the cost of reducing its own flexibility and 
prosecutorial discretion. This begs the question: How likely are 
mergers within the proposed safe harbor to be anticompetitive? The 
benefits of this flexibility are proportional to the probability that 
the Commission's economic analysis leads them to conclude that mergers 
with a GUPPI of less than 5 percent are anticompetitive. I am not aware 
of any transactions since

[[Page 42817]]

the Merger Guidelines were adopted other than the two already mentioned 
that meet these criteria. The domain in which flexibility would be 
reduced with adoption of a reasonable safe harbor is small and the 
costs of doing so correspondingly low.
    The Commission rejects a GUPPI safe harbor on the grounds that such 
an approach ``ignores the reality that merger analysis is inherently 
fact-specific.'' \14\ The Commission appears especially concerned that 
a GUPPI-based safe harbor might result in a false negative--that is, it 
is possible that a merger with a GUPPI less than 5 percent harms 
competition. This objection to safe harbors and bright-line rules and 
presumptions is both conceptually misguided and is in significant 
tension with antitrust doctrine and agency practice. Merger analysis 
is, of course, inherently fact specific. One can accept that reality, 
as well as the reality that evidence is both imperfect and can be 
costly to obtain, and yet still conclude that the optimal legal test 
from a consumer welfare perspective is a rule rather than a standard. 
This is a basic insight of decision theory, which provides a lens 
through which economists and legal scholars have long evaluated 
antitrust legal rules, burdens, and presumptions.\15\ The Commission's 
assertion that the mere possibility of false negatives undermines in 
the slightest the case for a safe harbor reveals a misunderstanding of 
the economic analysis of legal rules. The relevant question is not 
which legal rule drives false positives or false negatives to zero, but 
rather which legal rule minimizes the sum of the welfare costs 
associated with false negatives, false positives, and the costs of 
obtaining evidence and otherwise administering the law.
---------------------------------------------------------------------------

    \14\ Majority Statement, supra note 7, at 3.
    \15\ See, e.g., C. Frederick Beckner III & Steven C. Salop, 
Decision Theory and Antitrust Rules, 67 Antitrust L.J. 41 (1999); 
James C. Cooper, Luke M. Froeb, Dan O'Brien & Michael G. Vita, 
Vertical Antitrust Policy as a Problem of Inference, 23 Int'l J. 
Indus. Org. 639 (2005); Frank H. Easterbrook, The Limits of 
Antitrust, 63 Tex. L. Rev. 1 (1984); Isaac Ehrlich & Richard A. 
Posner, An Economic Analysis of Legal Rulemaking, 3 J. Legal Stud. 
257 (1974); David S. Evans & A. Jorge Padilla, Designing Antitrust 
Rules for Assessing Unilateral Practices: A Neo-Chicago Approach, 72 
U. Chi. L. Rev. 27 (2005); Keith N. Hylton & Michael Salinger, Tying 
Law and Policy: A Decision Theoretic Approach, 69 Antitrust L.J. 469 
(2001); Geoffrey A. Manne & Joshua D. Wright, Innovation and the 
Limits of Antitrust, 6 J. Comp. L. & Econ. 153 (2010).
---------------------------------------------------------------------------

    Existing antitrust law regularly embraces bright-line rules and 
presumptions--rejecting the flexibility of a case-by-case standard 
taking full account of facts that vary across industries and firms. A 
simple example is the application of per se rules in price-fixing 
cases.\16\ This presumption of illegality is not based upon a belief 
that it is impossible for a horizontal restraint among competitors to 
increase welfare. Rather, the per se prohibition on naked price fixing 
``reflects a judgment that the costs of identifying exceptions to the 
general rule so far outweigh the costs of occasionally condemning 
conduct that might upon further inspection prove to be acceptable, that 
it is preferable not to entertain defenses to the conduct at all.'' 
\17\ Similar decision-theoretic logic explains, for example, the 
presumption that above-cost prices are lawful.\18\ A GUPPI-based 
presumption would be based upon the same economic logic--not that 
small-GUPPI mergers can never result in anticompetitive effects, but 
rather that mergers involving small GUPPIs are sufficiently unlikely to 
result in unilateral price increases such that incurring the costs of 
identifying exceptions to the safe harbor is less efficient than simply 
allowing mergers within the safe harbor to move forward.\19\
---------------------------------------------------------------------------

    \16\ See Broad. Music, Inc. v. Columbia Broad. Sys., Inc., 441 
U.S. 1, 19-20 (1979) (``More generally, in characterizing this 
conduct under the per se rule, our inquiry must focus on . . . 
whether the practice facially appears to be one that would always or 
almost always tend to restrict competition and decrease output.'').
    \17\ Andrew I. Gavil, William E. Kovacic & Jonathan B. Baker, 
Antitrust Law in Perspective: Cases, Concepts and Problems in 
Competition Policy 104-05 (2d ed. 2008); see Barry Wright Corp. v. 
ITT Grinnell Corp., 724 F.2d 227, 234 (1st Cir. 1983) (``Rules that 
seek to embody every economic complexity and qualification may well, 
through the vagaries of administration, prove counter-productive, 
undercutting the very economic ends they seek to serve. Thus, 
despite the theoretical possibility of finding instances in which 
horizontal price fixing, or vertical price fixing, are economically 
justified, the courts have held them unlawful per se, concluding the 
administrative virtues of simplicity outweigh the occasional 
`economic' loss.''); Herbert Hovenkamp, The Antitrust Enterprise: 
Principle and Execution 50 (2005) (``[N]ot every anticompetitive 
practice can be condemned.''); Thomas A. Lambert, Book Review, 
Tweaking Antitrust's Business Model, 85 Tex. L. Rev. 153, 172 (2006) 
(``Hovenkamp's discussion of predatory and limit pricing reflects a 
key theme that runs throughout The Antitrust Enterprise: That 
antitrust rules should be easily administrable, even if that means 
they must permit some anticompetitive practices to go 
unpunished.'').
    \18\ See Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 
509 U.S. 209, 226 (1993); see also Barry Wright Corp., 724 F.2d at 
234 (``Conversely, we must be concerned lest a rule or precedent 
that authorizes a search for a particular type of undesirable 
pricing behavior end up by discouraging legitimate price 
competition. . . . [A] price cut that ends up with a price exceeding 
total cost--in all likelihood a cut made by a firm with market 
power--is almost certainly moving price in the `right' direction 
(towards the level that would be set in a competitive marketplace). 
The antitrust laws very rarely reject such `birds in hand' for the 
sake of more speculative (future low-price) `birds in the bush.' To 
do so opens the door to similar speculative claims that might seek 
to legitimate even the most settled unlawful practices.'').
    \19\ The Commission asserts that a GUPPI safe harbor cannot be 
justified by economic theory and evidence unless a presumption of 
liability can also be supported. I appreciate the Commission 
clarifying its view, but I believe it to be based upon a false 
equivalence. The Commission appears to misunderstand the difference 
between evidence sufficient to conclude harm is likely and evidence 
sufficient to conclude harm is unlikely. These are two very 
different economic propositions and it should not be surprising that 
one might be substantiated while the other is not. For example, one 
might rationally be uncomfortable pointing to the economic 
literature for support that mergers above a certain level of 
concentration are sufficiently likely to harm competition to support 
a presumption of antitrust liability, but also recognize the same 
body of economic theory and evidence would indeed support a safe 
harbor for mergers involving markets with thousands of competitors. 
To the extent the Commission appeals to academics who have raised 
concerns with GUPPI-based merger screens, my view clearly differs 
from the Commission. The Commission's more important dispute, in my 
view, is with the Merger Guidelines and its principal drafters, who 
clearly contemplated such a safe harbor.
---------------------------------------------------------------------------

    Whether the Commission should adopt a GUPPI-based safe harbor is 
particularly relevant in the instant matter, as the FTC had data 
sufficient to calculate GUPPIs for Dollar Tree, Deals,\20\ and Family 
Dollar stores. The sheer number of stores owned and operated by the 
parties rendered individualized, in-depth analysis of the competitive 
nuances of each and every market difficult, if not impossible, to 
conduct. GUPPI calculations provided an efficient and workable 
alternative to identifying the small fraction of markets in which the 
transaction may be anticompetitive. This was a tremendous amount of 
work and I want to commend staff on taking this approach. Staff 
identified a GUPPI threshold such that stores with GUPPIs greater than 
the threshold were identified for divestiture. About half of the 330 
stores divested as part of the Commission's Order were identified 
through this process.
---------------------------------------------------------------------------

    \20\ Deals is a separate banner under which Dollar Tree 
operates. See Majority Statement, supra note 7, at 1.
---------------------------------------------------------------------------

    What about the other stores? The Commission asserts I 
``mischaracterize[]'' its use of GUPPIs and that ``GUPPIs were not used 
as a rigid presumption of harm.'' \21\ It claims that GUPPIs were used 
only as ``an initial screen'' to identify markets for further analysis, 
and that the Commission ``proceeded to consider the results of the 
GUPPI analysis in conjunction with numerous other sources of 
information.'' \22\ The evidence suggests otherwise. One might 
reasonably hypothesize that further consideration and analysis of

[[Page 42818]]

``numerous sources of information'' should result in both the 
identification of some stores above the GUPPI threshold that were 
ultimately determined unlikely to harm competition as well as some 
stores with GUPPIs below the threshold that nonetheless did create 
competitive problems--that is, further scrutiny might reveal both false 
negatives and false positives.
---------------------------------------------------------------------------

    \21\ Id. at 2.
    \22\ Id.
---------------------------------------------------------------------------

    The number of stores with GUPPIs exceeding the identified threshold 
that, after evaluation in conjunction with the qualitative and other 
evidence described by the Commission, were not slated for divestiture 
is nearly zero. This outcome is indistinguishable from the application 
of a presumption of competitive harm. The additional stores with GUPPIs 
below the threshold that were then identified for divestiture based 
upon additional qualitative factors included a significant number of 
stores with GUPPIs below 5 percent. The ratio of stores falling below 
the GUPPI threshold but deemed problematic after further qualitative 
evidence is taken into account to stores with GUPPIs above the 
threshold but deemed not to raise competitive problems after 
qualitative evidence is accounted for is unusual and remarkably high. 
It is difficult to conceive of a distribution of qualitative and other 
evidence occurring in real-world markets that would result in this 
ratio. Qualitative evidence should not be a one-way ratchet confirming 
the Commission's conclusion of likely anticompetitive effects when 
GUPPIs are high and providing an independent basis for the same 
conclusion when GUPPIs are low.
    I applaud the FTC for taking important initial steps in applying 
more sophisticated economic tools in conducting merger analysis where 
the data are available to do so. Scoring metrics for evaluating 
incentives for unilateral price increases are no doubt a significant 
improvement over simply counting the number of firms in markets pre- 
and post-transaction. To be clear, it bears repeating that I agree that 
a GUPPI-based presumption of competitive harm is inappropriate at this 
stage of economic learning.\23\ There is no empirical evidence to 
support the use of GUPPI calculations in merger analysis on a 
standalone basis, let alone the use of a particular GUPPI threshold to 
predict whether a transaction is likely to substantially harm 
competition.\24\ I also agree that in the context of a full-scale 
evaluation of whether a proposed transaction is likely to harm 
competition, GUPPI-based analysis can and should be interpreted in 
conjunction with all other available quantitative and qualitative 
evidence. The relevant policy question is a narrow one: Whether there 
exists a GUPPI threshold below which the Commission should 
presumptively conclude a proposed transaction is unlikely to violate 
the antitrust laws.
---------------------------------------------------------------------------

    \23\ Joseph J. Simons & Malcolm B. Coate, Upward Pressure on 
Price Analysis: Issues and Implications for Merger Policy, 6 Eur. 
Competition J. 377, 389 (2010) (the upward pricing pressure screen 
``identifies as potentially problematic far more mergers than would 
be challenged or even investigated under the enforcement standards 
that have existed for more than twenty years''); Lambert, supra note 
8, at 13 (``In the end, the agencies' reliance on the difficult-to-
administer, empirically unverified, and inherently biased GUPPI is 
likely to generate many false condemnations of mergers that are, on 
the whole, beneficial.'').
    \24\ See Dennis W. Carlton, Revising the Horizontal Merger 
Guidelines, 10 J. Competition L. & Econ. 1, 7 (2010) (``Perhaps most 
importantly, UPP [as described in the 2010 Merger Guidelines] is new 
and little empirical analysis has been performed to validate its 
predictive value in assessing the competitive effects of 
mergers.''); Keyte & Schwartz, supra note 11, at 590 (discussing the 
2010 Merger Guidelines' inclusion of the GUPPI and opining that ``in 
light of the [its] extremely light judicial record, as well as the 
absence of demonstrated reliability in predicting real-world 
competitive effects, we think it is premature, at best, to embrace 
[it] as a screening tool for merger review''); Simons & Coate, supra 
note 23 (``Because screening mechanisms [such as the GUPPI] purport 
to highlight general results, they need empirical support to show 
the methodology actually predicts concerns relatively well. This 
empirical support is not available at this time.''); Lambert, supra 
note 8, at 13 (the GUPPI ``has not been empirically verified as a 
means of identifying anticompetitive mergers'').
---------------------------------------------------------------------------

    The FTC has not publicly endorsed a GUPPI-based safe harbor of 5 
percent and disappointingly, has rejected the concept in its statement 
today. The Commission's interpretation is that what is a 
``proportionately small'' value of diverted sales should vary according 
to the industry--and even the individual firms--in a given 
investigation.\25\ As discussed, I believe this interpretation 
contradicts the letter and spirit of the Merger Guidelines.\26\ 
Moreover, the Commission's apparent discomfort with safe harbors on the 
grounds that they are not sufficiently flexible to take into account 
the fact-intensive nature of antitrust analysis in any specific matter 
is difficult to reconcile with its ready acceptance of presumptions and 
bright-line rules that trigger liability.\27\
---------------------------------------------------------------------------

    \25\ Majority Statement, supra note 7, at 3.
    \26\ See supra text accompanying note 12.
    \27\ For example, the Commission regularly applies such 
presumptions of liability involving the number of firms in a market, 
or presumptions based upon increased market concentration as 
articulated by the Merger Guidelines or the courts. See, e.g., 
Statement of the Federal Trade Commission, Holcim Ltd., FTC File No. 
141-0129 (May 8, 2015) (finding liability based upon, alternatively, 
changes in concentration and number of firms pre- and post-merger); 
Statement of the Federal Trade Commission, ZF Friedrichshafen AG, 
FTC File No. 141-0235 (May 8, 2015) (finding liability based upon 
number of firms pre- and post-merger); Mem. in Supp. of Pl. Federal 
Trade Commission's Mot. for T.R.O. and Prelim. Inj. at 23, FTC, v. 
Sysco Corp., 2015 WL 1501608, No. 1:15-cv-00256 (D.D.C. 2015) 
(arguing that the proposed merger was presumptively unlawful based 
upon the holding of United States v. Phila. Nat'l Bank, 374 U.S. 321 
(1963)). That the Commission's tolerance of presumptions that that 
satisfy its own prima facie burden does not extend to safe harbors 
raises basic questions about the symmetry of the burdens applied in 
its antitrust analysis. See Dissenting Statement of Commissioner 
Joshua D. Wright 6, Ardagh Group S.A., FTC File No. 131-0087 (June 
18, 2014) (``[S]ymmetrical treatment in both theory and practice of 
evidence proffered to discharge the respective burdens of proof 
facing the agencies and merging parties is necessary for consumer-
welfare based merger policy.'').
---------------------------------------------------------------------------

    Once it is understood that a safe harbor should apply, it becomes 
obvious that, for the safe harbor to be effective, the threshold should 
not move. As the plane crash survivors in LOST can attest, a harbor on 
an island that cannot be found and that can be moved at will is hardly 
``safe.'' \28\
---------------------------------------------------------------------------

    \28\ Move the Island, LOST--Move the Island, YouTube (Nov. 17, 
2008), https://www.youtube.com/watch?v=Fa57rVkLal4.
---------------------------------------------------------------------------

    In my view, the Commission should adopt a GUPPI-based safe harbor 
in unilateral effects investigations where data are available. While 
reasonable minds can and should debate the optimal definition of a 
``small'' GUPPI, my own view is that 5 percent is a reasonable starting 
point for discussion. Furthermore, failure to adopt a safe harbor could 
raise concerns about the potential for divergence between Commission 
and Division policy in unilateral effects merger investigations.\29\ 
What would be most problematic, however, is if, rather than moving 
toward a GUPPI-based safe harbor, the FTC were to use GUPPI thresholds 
to employ a presumption of competitive harm.\30\
---------------------------------------------------------------------------

    \29\ I do not take a position as to how the Division currently 
uses the GUPPI analysis. But see Majority Statement, supra note 7, 
at 4 n.12. However, public statements by the Division and the 
Commission--the only sources upon which business firms and the 
antitrust bar can rely--suggest there are material differences. 
Compare id. at 3 (``[W]hether the value of diverted sales is 
considered `proportionately small' compared to lost revenues will 
vary from industry to industry and firm to firm.'') with Shapiro, 
supra note 3, at 24 (``Current Division practice is to treat the 
value of diverted sales as proportionately small if it is no more 
than 5% of the lost revenues.'').
    \30\ A GUPPI-based safe harbor of the type endorsed by the 
Merger Guidelines implies a GUPPI above the threshold is necessary 
but not sufficient for liability. A GUPPI-based presumption of harm 
implies a GUPPI above the threshold is sufficient but not necessary 
for liability. Unfortunately, the use of GUPPIs here is more 
consistent with the latter than the former.

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[[Page 42819]]

    For these reasons, I dissent in part from and concur in part with 
---------------------------------------------------------------------------
the Commission's decision.

[FR Doc. 2015-17767 Filed 7-17-15; 8:45 am]
 BILLING CODE 6750-01-P