Philadelphia National Bank: Bad Economics, Bad Law, Good Riddance

AuthorDouglas H. Ginsburg and Joshua D. Wright
PositionRespectively, Senior Circuit Judge, United States Court of Appeals for the District of Columbia Circuit, and Professor of Law, George Mason University; and Commissioner, Federal Trade Commission, and Professor of Law (on leave), George Mason University
Pages377-395
PHILADELPHIA NATIONAL BANK: BAD ECONOMICS,
BAD LAW, GOOD RIDDANCE
D
OUGLAS
H. G
INSBURG
J
OSHUA
D. W
RIGHT
*
In a series of five merger cases starting with Brown Shoe (1962),
1
running
through Philadelphia National Bank (1963) (PNB),
2
Continental Can (1964),
3
Von’s Grocery (1966),
4
and ending with General Dynamics (1974),
5
the Su-
preme Court turned the then-reigning paradigm in industrial organization eco-
nomics into the law of the land. In Brown Shoe, the Court adopted the market
share of the would-be merged firm as the best indicator of “the probable ef-
fects of the combination on effective competition in the relevant market.”
6
At
the same time, by pointing out that the company had “presented no mitigating
factors,”
7
the Court signaled its openness to facts that would diminish the
significance of market shares in the particular market(s) affected by the
merger.
Just one year later, in PNB, the Court considered a merger that would have
created a bank with 30 percent of the relevant market—commercial banking
in metropolitan Philadelphia—and would have raised the two-firm concentra-
* Respectively, Senior Circuit Judge, United States Court of Appeals for the District of Co-
lumbia Circuit, and Professor of Law, George Mason University; and Commissioner, Federal
Trade Commission, and Professor of Law (on leave), George Mason University. The views
expressed do not necessarily reflect those of the Commission or of any other Commissioner. The
authors thank Samantha Morelli for research assistance and Steven Salop for valuable comments
on an earlier draft.
1
Brown Shoe Co. v. United States, 370 U.S. 294 (1962).
2
United States v. Phila. Nat’l Bank, 374 U.S. 321 (1963).
3
United States v. Cont’l Can Co., 378 U.S. 441 (1964).
4
United States v. Von’s Grocery Co., 384 U.S. 270 (1966).
5
United States v. Gen. Dynamics Corp., 415 U.S. 486 (1974).
6
Brown Shoe Co., 370 U.S. at 343. The Court said market share was “one of the most
important factors to be considered” in this predictive exercise, id., but identified as “[o]ther
factors” only “the history of tendency toward concentration in the industry,” id. at 344–45—
which, unlike market shares, would not be a feature of every case—and the absence of mitigating
factors, id. at 346.
7
Id. at 346.
377
378
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NTITRUST
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AW
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OURNAL
[Vol. 80
tion ratio from 44 percent to 59 percent.
8
In reversing the judgment of the
district court, which had ruled in favor of the merger, the Court made the
following fateful statement: “Without attempting to specify the smallest mar-
ket share which would still be considered to threaten undue concentration, we
are clear that 30% presents that threat.”
9
By the standards then prevailing in the economics of industrial organiza-
tion, the Court was undoubtedly on solid ground, as it made clear in a footnote
appended to the sentence quoted above. Referring to the leading analysts of
the day, the Court noted:
Kaysen and Turner . . . suggest that 20% should be the line of prima facie
unlawfulness; Stigler suggests that any acquisition by a firm controlling 20%
of the market after the merger is presumptively unlawful; Markham men-
tions 25%. Bok’s principal test is increase in market concentration, and he
suggests a figure of 7% or 8%. . . . We intimate no view on the validity of
such tests for we have no need to consider percentages smaller than those in
the case at bar . . . .
10
One year after deciding PNB, the Court held unlawful the acquisition by
Continental Can, the second largest producer of metal containers with a 33
percent share of the market, of Hazel-Atlas Glass Co., the third largest pro-
ducer of glass containers with a 9.6 percent share.
11
The decision is best
known for the Court’s grouping of metal and glass containers in the same
relevant market and its focus upon “inter-industry” competition. Of more in-
terest here, however, is the Court’s extension of the recently created PNB
presumption. The merged company’s 25 percent of the combined glass and
metal bottle market, the Court noted, “approaches that held presumptively bad
in United States v. Philadelphia National Bank,” and as the Court had said in
that case, “Where concentration is already great, the importance of preventing
even slight increases in concentration and so preserving the possibility of
eventual deconcentration is correspondingly great.”
12
Curiously, however, the Court held unlawful the merger in its next case,
Von’s Grocery, without so much as mentioning either the 30 percent standard
set in PNB or the possibility of prohibiting a lesser merger that nonetheless
8
Philadelphia National Bank, 374 U.S. at 364–65.
9
Id. at 364. The Court went on to say “th[e] increase of more than 33% in concentration
must be regarded as significant,” id. at 365, but that aspect of the case has not been treated as
significant in the lower courts applying the PNB precedent.
10
Id. at 364 n.41 (citing C
ARL
K
AYSEN
& D
ONALD
F. T
URNER
, A
NTITRUST
P
OLICY
133
(1959); George J. Stigler, Mergers and Preventive Antitrust Policy, 104 U. P
A
. L. R
EV
. 176, 182
(1955); Jesse W. Markham, Merger Policy Under the New Section 7: A Six Year Appraisal, 43
V
A
. L. R
EV
489, 521–22 (1957); Derek C. Bok, Section 7 of the Clayton Act and the Merging of
Law and Economics, 74 H
ARV
. L. R
EV
. 226, 308–16, 328 (1960)).
11
United States v. Cont’l Can Co., 378 U.S. 443–45, 460 (1964).
12
Id. at 461–62 (quoting Philadelphia National Bank, 374 U.S. at 365 n.42).

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