Wholesaling and Retailing
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CHAPTER IX
WHOLESALING AND RETAILING
A. Introduction
Market definition in wholesaling and retailing may raise a number of
issues not ordinarily encountered in dealing with mergers of
manufacturers. Market definition involving manufacturers typically
focuses primarily on the particular product(s) or service(s) being sold,
rather than on the specific environment in which they are offered to
consumers.1 In wholesaling or retailing, however, that approach may not
suffice.
Defining markets in wholesaling often raises the question of whether
the market is the actual product or service in question, or rather a
distribution service. Distributors typically resell manufactured products
but also may offer value-added services, such as direct store delivery,
promotional support, shelf-space management, stock rotation, and
inventory management.2 When an alleged restraint occurs at the
distribution level, the definition of the relevant market often must
consider the significance of these services.
In retail cases, enforcement agencies and plaintiffs have frequently—
and often successfully—argued that courts should define product markets
based not on the particular tangible goods being sold, but rather on the
collection of goods or services offered in a specific retail environment.
In these cases, defining a market limited to a specific product and its
reasonable substitutes may not capture the true nature of competition.
Courts and antitrust authorities therefore sometimes focus more on where
the products are purchased—and the overall “one-stop shopping”
1. See U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, HORIZONTAL
MERGER GUIDELINES § 4.1 (2010), reprinted in 4 Trade Reg. Rep. (CCH)
¶ 13,100, available a t http://www.justice.gov/atr/public/guidelines/hmg-
2010.html [hereinafter 2010 MERGER GUIDELINES].
2. For purposes of thi s chapter, the terms “wholesaler” and “distributor” are
used synonymously to describe intermediate sellers that receive input
from manufacturers and provide output to retailers.
358 Market Definition in Antitrust
experience that a consumer desires—than on the interchangeability of
specific items such as milk. For example, because of their size, service,
product selection, and other attributes, department stores, supermarkets,
and drug stores have been held to constitute separate relevant product
markets or submarkets.3 In FTC v. Whole F oods Market,4 the Federal
Trade Commission (FTC) alleged a product market for the operation of
“premium, natural, and organic supermarkets,” focusing on the
distinctive environment in which grocery items were offered to
consumers.5 Similarly, in F TC v. Staples, Inc.,6 the FTC focused on the
retail environment in which office supplies were sold. It argued—and
the court agreed—that the relevant product market was “the sale of
consumable office supplies through office supply superstores.”7
This approach is consistent with the language of Section 7 of the
Clayton Act, which is not limited to tangible products, but which makes
illegal any merger or acquisition that “may substantially lessen
competition” or “tend to create a monopoly” in “any line of commerce or
in any activity affecting commerce.”8
In wholesaling and retailing, the issue also often arises of the extent
of a market given product differentiation. Parties sometimes argue for
very narrow markets, even for markets that are limited to a single brand.
Such arguments often rely on the theory that purchasers are “locked-in”
by previous investments or other actions that make it extremely costly
for them to switch to a different brand.
3. There is no substantive difference between a narrowly drawn market and
a submarket. Cases often use these terms interchangeably. See, e.g., FTC
v. Staples, Inc., 9 70 F. Supp. 1066, 1080 n.11 (D.D.C. 1997) (“Whatever
term is used—market, submarket, relevant product market—the analysis
is the same.”); Brown Shoe Co. v. United States, 370 U.S. 294, 325
(1962) (“[W]ithin [ a] broad [product] market, well-defined submarkets
may exi st which, in themselves, constitute product markets for antitrust
purposes.”).
5. Id. at 1032. The district court concluded that the relevant pro duct market
was “at least all supermarkets.” Id. at 1035. The D.C. Circuit reversed,
disagreeing with the district court’s conclusion that the FTC would
“never be able to prove” a sub market for premium natural and organic
supermarkets. Id. at 1041. See part C.2.c. of this chapter for a more in-
depth discussion of the Whole Foods litigation.
6. 970 F. Supp. 1066 (D.D.C. 1997).
7. Id. at 1074.
8. 15 U.S.C. § 18 (emphasis added).
Wholesaling and Retailing 359
This chapter discusses market definition in wholesaling and then in
four retail sectors that involve substantial volumes of commerce and
have significant antitrust histories: supermarkets and drug stores,
department stores, specialty stores, and gas stations. A concluding
section focuses on the question of whether a single brand can be a
market.
B. Wholesaling
1. Specific Issues in Market Definition
As noted, an important issue in market definition at the wholesaling
level is whether the market is the product or service in question, or a
distribution service. One of the most prominent distribution level
antitrust cases, FTC v. Cardinal Health, Inc.,9 involved proposed
horizontal mergers among major distributors of prescription drugs.10 In
the case of this merger, the court determined the relevant product market
was not prescription drugs, but instead “the wholesale distribution of
prescription drugs.”11 In cases involving vertical agreements between
manufacturers and their distributors, the central issue typically is a
restraint on the sale of the product or service in question, and the courts
generally focus on markets for that product or service rather than its
distribution.12 For example, in an exclusionary practice case involving
9. 12 F. Supp. 2d 34 (D.D.C. 1998).
10. Id. at 37-39, 43-44.
11. Id. at 45-46.
12. See, e.g., United States v. Dentsply Int’l, Inc., 3 99 F.3d 181, 188 (3d Cir.
2005) (in case involving vertical exclusive dealing arrangement between
manufacturer and dealer s, the court held that t he “relevant market here is
the sale of artificial teeth in the United States both to laboratories and to
the dental dealers.”) ; State of New Yor k v. Anheuser-Busch, Inc., 811 F.
Supp. 848, 866 (E.D.N.Y. 1993) (in case involving challenge to vertical
exclusive territory provisions of manufacturer-distributor contracts in the
beer industry, the parties stipulated and the evidence supported a finding
that the “relevant product market for this case is all beer”); In re Super
Premium Ice Cream Distrib. Antitrust Litig., 691 F. Supp. 1262, 1268
(N.D. Cal. 1988), aff’d, 895 F.2d 1417 (9th Cir. 1990) (finding r elevant
product market to be “all grades of ice cream” in antitrust challenge to
supplier’s vertical exclusive distribution policy).
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