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November 20, 1958

UNITED STATES of America, Plaintiff,
BETHLEHEM STEEL CORPORATION and The Youngstown Sheet and Tube Company, Defendants

The opinion of the court was delivered by: WEINFELD

The Government seeks to enjoin a proposed merger between the defendants, Bethlehem Steel Corporation and The Youngstown Sheet and Tube Company, on the ground that it would violate section 7 of the Clayton Act, as amended. *fn1"

Under the proposed merger Bethlehem is to acquire all the assets and properties of Youngstown pursuant to an agreement between them entered into on December 11, 1956. Prior to the execution of the agreement the defendants applied to the Department of Justice for clearance *fn2" and submitted in support of their request detailed data pertaining to themselves, to other companies in the iron and steel industry, and to the industry in general. The Department of Justice was of the opinion that the contemplated merger came within the ban of section 7 and refused clearance. When the defendants nonetheless executed the merger agreement the Government commenced this suit to block its consummation.

The Government, relying in large measure upon the data submitted by the defendants in support of their clearance application, supplemented by facts culled from governmental and steel industry reports, moved for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. The defendants in opposing the motion contended that the data relied upon by the Government did not give the complete factual picture necessary for a determination of the competitive consequences of the proposed merger. While most of the basic facts relevant to a decision of the ultimate issues were not in dispute, the Court was of the view that additional evidence, not in the summary judgment record, would, in view of the complex issues centering about a vast industry vital to the nation's economic welfare, be helpful in deciding the case. Accordingly, the Court, without disposing of the motion in classical summary judgment terms, decided that as a matter of sound judicial administration the case should proceed to trial in order to obtain a more comprehensive record. *fn3"

 On its summary judgment motion the Government confined its attack to the horizontal aspects of the proposed merger. Upon the trial the Government expanded its attack and urged as an additional ground the vertical aspects of the merger.

 At the trial the parties stipulated that the affidavits and exhibits submitted in support of and in opposition to the Government's motion for summary judgment be deemed part of the trial record, subject to the right of cross-examination. A number of the affiants were cross-examined at length. Other witnesses were called by the parties and testimony was given on both the horizontal and vertical aspects. The parties, at the Court's suggestion, further stipulated many additional basic facts with respect, among other matters, to capacity, production, and shipments for the iron and steel industry as a whole and for Bethlehem and Youngstown separately.

 Since a good deal of the evidence was of a technical nature requiring some understanding of the process of producing steel and steel products and the operations of steel plants, the Court with the consent of counsel and in their company, observed in operation two of the plants of one of the defendants.

 The record before the Court reveals that generally there is no dispute as to the basic facts. The essential differences between the parties are as to the inferences and conclusions to be drawn from those facts and the interpretation of section 7 of the Clayton Act.

 The Government's basic charge is that the proposed merger will substantially lessen competition in the iron and steel industry as a whole and in a variety of important products on a nationwide basis as well as in many areas of the country.

 The defendants, while conceding they are in competition with one another in certain areas of the country with respect to certain products, deny that such competition is substantial -- indeed, they urge that it is de minimis. Their essential position is not only a denial that the merger may substantially lessen competition, but on the contrary that it would have a beneficial competitive effect; that the expansion of steel capacity contemplated under the merger plan would stimulate competition both in the area of expansion and in other areas, and would enable Bethlehem to challenge the dominant position of United States Steel Corporation in the steel industry.

 At the outset it is well to emphasize that the case does not involve any claim of violation or threatened violation of any provision of the Sherman Act. We are not dealing with issues of restraint of trade, monopolization or attempt to monopolize. The Government's attack on the proposed merger is grounded solely on section 7 of the Clayton Act, as amended in 1950, which provides in pertinent part:

 'No corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no corporation subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another corporation engaged also in commerce, where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.' *fn4"

 We turn to the legislative history of the Clayton Act, to the circumstances which gave rise to its passage and to the 1950 amendment of section 7.

 It is stating a fact of history to say that Congress felt that the Sherman Act passed in 1890 *fn5" had proved quite ineffective in halting the growth of 'trusts' and monopolies. Huge consolidations and mergers continued to be effected through the purchase of stock and 'trusts' continued to flourish. The evils of corporate mergers and combines with their increasing concentration of power commanded the concerned attention of the nation. The 'rule of reason' enunciated by the Supreme Court in 1911 in Standard Oil Co. v. United States, *fn6" regarded by many as having weakened the Sherman Act, gave impetus to efforts to secure more effective means of preserving our free enterprise system. Political agitation for curbing the growing power of 'trusts' and the concentration of economic power followed the Supreme Court ruling. In the national campaign of 1912 all major political parties denounced the monopolistic trends and their platforms carried planks for remedial legislation. The leadership in the efforts to strengthen the antitrust laws was assumed by Woodrow Wilson, who thereafter in a series of messages to Congress urged further legislative action. *fn7" The Congress acted in 1914 by passing the Clayton Act. *fn8" Its essential purpose was preventative -- to check anticompetitive acts in their incipiency before they reached the dimensions of Sherman Act violations. In short, Congress contemplated a standard much less rigorous than that which had become required under the Sherman Act. As stated in the Senate Report on the bill:

 'Broadly stated, the bill, in its treatment of unlawful restraints and monopolies, seeks to prohibit and make unlawful certain trade practices which, as a rule, singly and in themselves, are not covered by (the Sherman Act), or other existing anti-trust acts, and thus, by making these practices illegal to arrest the creation of trusts, conspiracies, and monopolies in their incipiency and before consummation.' *fn9"

 This has been expressly recognized by the Supreme Court. *fn10"

 Despite the clear purpose of the original section 7 of the Clayton Act, its objectives were not fully realized. This frustration was generally attributed to a number of factors. First, the statute applied only to acquisitions of stock and did not apply to acquisitions of assets, and even as to stock acquisitions it was interpreted so as not to apply where the stock was used to acquire assets. *fn11" Second, it was generally assumed that original section 7 did not apply to vertical mergers. *fn12" The inadequacies of the section, whatever the reasons, were further highlighted by pronounced post war merger activity which resulted in the elimination by large corporations of independent companies in industries which had traditionally been considered small business fields. Congress showed increasing concern with the sharp rise in economic concentration and with the prospect of even greater concentration in the light of the continuing merger trend. *fn13" Further, the Columbia Steel case *fn14" brought home the limitations of the Sherman Act in merger cases. It was against this background that Congress amended section 7.

 The 1950 amendment to section 7 expanded its sweep so as: (1) to prohibit the acquisition of assets as well as stock; (2) to broaden the area in which competition may be adversely affected by eliminating the test of whether the effect of the acquisition may be substantially to lessen competition between the acquiring and the acquired corporation; (3) to eliminate the prior test of whether the acquisition might restrain commerce 'in any * * * community' and instead, to make the test whether 'in any line of commerce in any section of the country' the acquisition may substantially lessen competition, or tend to create a monopoly; and (4) to cover vertical as well as horizontal mergers.

 The Congressional reports illuminate the reasons which led to the amendment of section 7. A fair reading of both the Senate and House Committee Reports *fn15" leaves no doubt as to its major objectives. As stated in those Reports they were, in some instances in haec verba, (1) to limit future increases in the level of economic concentration resulting from corporate mergers and acquisitions; (2) to meet the threat posed by the merger movement to small business fields and thereby aid in preserving small business as an important competitive factor in the American economy; (3) to cope with monopolistic tendencies in their incipiency and before they attain Sherman Act proportions; and (4) to avoid a Sherman Act test in deciding the effects of a merger.

 Against the historical background of the Clayton Act and the 1950 amendment of section 7, we proceed to consider the issues.

 In broad outline, the essential issues which the Court is called upon to determine, and as to which the Government has the burden of proof, are: the line or lines of commerce and the section or sections of the country in which the effects of the merger may be felt -- in other words, the relevant market with respect to both products and geographic areas -- and whether there is a reasonable probability that the merger may substantially lessen competition or tend to create a monopoly within the relevant market.

 The contending positions of the parties can be understood only against the background and general pattern of the iron and steel industry, the making and distribution of steel and steel products, the nature, size and location of the companies in the industry, the nature of competition in the industry generally, and the relative positions of Bethlehem and of Youngstown. The parties are in irreconcilable dispute on what are the relevant markets both as to products and areas. The difficulty recognized by the Supreme Court 'of laying down a rule as to what areas or products are competitive, one with another' *fn16" is highlighted in this case.


 The Iron and Steel Industry

 The iron and steel industry is one of the most important, if not the most important of all American industries. Indeed, in contemporary international terms, steel production is viewed as a basic measure of the strength and status of a country. The industry is commonly recognized as set apart and as a separate and distinct segment of American industry. Its activities extend from the mining of iron ore through the production and sale of pig iron, steel ingots and various finished steel products. It does not include the fabrication of steel by consuming industries. The fabrication of steel is carried on to a large extent by companies in other recognized segments of American industry. However, a number of companies, including the defendants, engaged primarily in the iron and steel industry, are also engaged in the fabrication of products from steel.

 In 1955 *fn17" the iron and steel industry produced 117 million tons of steel ingots. From this raw material, it shipped to steel consumers 85 million tons of finished steel products. The net billing value of these products and other services approximated $ 14 billion. Total property, plant and equipment of the industry in 1955 carried a depreciated valuation of over $ 5.5 billion, and the total assets were carried at more than $ 12 billion. The industry employed about 600,000 workers who put in a total of over one billion man hours and received wages and salaries of over $ 3.3 billion. Stockholders numbered more than 800,000 and had an equity of almost $ 8 billion.

 The Process of Making Steel and Steel Products

 The finished steel products sold to consuming industries by companies in the iron and steel industry have their origin in iron ore, coal and limestone. These raw materials, after preliminary processing, are combined in blast furnaces to produce molten pig iron. The iron is then combined with scrap steel in steel making furnaces, principally open hearth, to produce steel in a molten state. The molten steel is poured into moulds where it solidifies into ingots. The ingot is the first solid form in which most steel is made; it is the raw product from which all steel products except castings are made. Most ingots are not sold as such but are further processed by the steel producing company.

 The initial step in the processing of ingots into finished steel products is the rolling of heated ingots. The ingot, after heating and primary forming into blooms, billets or slabs, is conveyed to rolling mills where it is further shaped into various forms. This is known as the hot rolling process and the end products are called hot rolled products. Each category of hot rolled products is produced in a separate and distinct mill and the varieties of size and shape within each category are achieved by using different rolls or making other alterations in the particular mill. The various types of hot rolling mills include plate, sheet and strip, bar, rod and structural shape mills.

 The principal categories of hot rolled products are sheets, strip, bars, coils, wire rods, plates, skelp, pierced billets and structural shapes. Hot rolled sheets account for one-third of all hot rolled products. Bars represent nearly one-sixth of the total. Thus, hot rolled sheets and hot rolled bars account for about 50% of all hot rolled products.

 About half of the total tonnage of hot rolled products is shipped directly to steel fabricating consumers. The balance is retained for further processing into cold rolled or other finished steel products. Sheets, strip and bars are cold rolled or finished for the purpose of reducing thickness and otherwise changing the physical characteristics. Coils are cold rolled and then covered with tin to produce tin plate. Skelp is further processed into welded pipe, while pierced billets, through a different process, are made into seamless pipe. Wire rods are drawn through a die or a series of dies into wire. Each of the cold rolling or other finishing processes is carried on in a separate and distinct mill. Cold rolled sheets are the most significant of the products derived from the hot rolled products, constituting about one-third of the total.

 The Steel Consumer

 The principal consumers of finished steel products include the automotive industry, warehouses and distributors, and the construction, container, oil and gas, rail transportation, electrical machinery and equipment and appliances industries. The largest single outlet is the automotive industry which consumes approximately 25% of all steel products. Warehouses and distributors channel about 17% of steel production to various small consumers. The construction industry absorbs approximately 9%, the container industry in excess of 8%, the oil and gas industry about 7% of total steel shipments, and the balance is scattered among other consumers.

 Size, Nature and Location of Companies in the Iron and Steel Industry

 The iron and steel industry is a highly concentrated one. It is an oligopoly. Twelve integrated companies control 83% of the industry capacity. In all, as of January 1, 1957, the iron and steel industry consisted of 247 companies engaged in one or more processes of making steel products. There were 23 integrated, 61 semi-integrated, and 140 nonintegrated companies. In addition there were 12 producers of ferroalloys and 11 operators of merchant blast furnaces.

 Integrated companies begin the manufacture of steel by mining the raw materials. They operate coke ovens, blast furnaces, steel making furnaces and rolling and finishing facilities. Semi-integrated companies do not operate blast furnaces which make pig iron. They purchase pig iron or steel scrap from which they manufacture steel. Nonintegrated companies purchase steel from integrated or semi-integrated companies and begin their manufacturing operations with the rolling of steel.

 The 23 integrated companies own approximately 90% of the industry capacity for coke, blast furnace products, ingots and hot rolled products. The semi-integrated companies own over 9% of the industry capacity for ingots and hot rolled products. The output of these companies is measured in millions of tons. Their gigantic size becomes graphic when it is noted that 39 of these companies are included in the 500 largest American industrial companies and that 16 of the 39 are not fully integrated. The twelve largest integrated companies and their percentage of the industry ingot capacity for 1957 are shown in the following table: Percent of Industry Company Capacity United States Steel Corp. 29.7 Bethlehem Steel Co. 15.4 Republic Steel Corp. 8.3 Jones & Laughlin Steel Corp. 4.9 Youngstown Sheet & Tube Co. 4.7 National Steel Corp. 4.6 Armco Steel Corp. 4.5 Inland Steel Corp. 4.1 Colorado Fuel & Iron Corp. 2.1 Wheeling Steel Corp. 1.6 Sharon Steel Corp. 1.4 Ford Motor Co. 1.4

 This table demonstrates the high degree of concentration in the iron and steel industry and within the class of the integrated companies. As already noted, these twelve largest integrated companies had almost 83% of the ingot capacity. The six largest had almost 68%. The two largest, United States Steel and Bethlehem, had 45.1%.

 The American Iron and Steel Institute, the acknowledged industry association, divides the country into six production districts for the purpose of reporting statistics of production and capacity. Four of these districts, *fn18" which coincide with the highly industrialized northeast quadrant of the United States, *fn19" contain about 89% of the industry's total ingot capacity, produce about 90% of the nation's ingots and consume approximately 83% of the national consumption of steel.

 Position of Bethlehem and Youngstown in the Iron and Steel Industry

 Bethlehem is the second largest company in the iron and steel industry; Youngstown is the sixth largest. *fn20" Bethlehem's steel ingot capacity as of January 1, 1958 was 23 million tons, representing 16.3% *fn21" of the total industry capacity. Youngstown's ingot capacity was 6.5 million tons, representing 4.6% of the industry total. The combined capacity of the two companies would amount to 29.5 million tons, representing 20.9% of the industry. Both companies rank among the largest corporations in the United States. In 1957 Bethlehem was the ninth, and Youngstown the fifty-third largest industrial corporation in terms of sales. Bethlehem at the end of 1957 had total assets of $ 2,260 million while Youngstown had total assets of $ 636 million. *fn22"

 Bethlehem and Youngstown are fully integrated from the mining of iron ore through the production of pig iron, steel ingots and various finished steel products. Both companies are further integrated vertically into the manufacture and sale of oil field equipment and other fabricated products. Both operate oil field supply stores in the oil producing regions of the country. Bethlehem has carried its integration into a number of fabricating fields not occupied by Youngstown. Youngstown is a source of supply for independent fabricators who compete with Bethlehem in the sale of certain fabricated products.

 Bethlehem and Youngstown both produce and sell the principal products of the iron and steel industry including coke oven byproduct chemicals, pig iron, steel ingots, strip mill plates, hot rolled bars, track spikes, sucker rods, concrete reinforcement bars, wire rods, wire, hot rolled sheets, cold rolled sheets, hot rolled strip, cold rolled strip, electrolytic tinplate, hot dipped tinplate, black plate, buttweld pipe and electricweld pipe. In addition Bethlehem produces some 35 classes of finished steel products that Youngstown does not make. Youngstown produces and sells seamless pipe, stampings and pressed steel parts which are not produced by Bethlehem. However, Bethlehem competes with Youngstown in the sale of seamless pipe which Bethlehem does not manufacture but obtains from United States Steel.

 About 75% of the combined capacity of Bethlehem and Youngstown for the production of finished steel products is represented by products which both companies produce and sell in common. In 1955 the combined sales of Bethlehem and Youngstown of these common products amounted to approximately $ 1.5 billion.

 Bethlehem's plants for the production of steel products are located at Bethlehem, Johnstown and Steelton, Pennsylvania; Sparrows Point, Maryland; Lackawanna, New York; Los Angeles and South San Francisco, California; and Seattle, Washington. Youngstown's plants are located at Youngstown, Ohio, and East Chicago, Indiana. From these plants both companies ship their products throughout the United States.

 Mergers and Acquisitions of Bethlehem and Youngstown

 Much of the growth of both Bethlehem and Youngstown is attributable to mergers and acquisitions. Bethlehem was incorporated in 1904 as a consolidation of ten companies. Since its formation, it has acquired the properties of more than thirty independent companies. Its initial entry into each new steel producing location in various parts of the country has been achieved through the acquisition of other companies. Indeed, Bethlehem has never built a new steel plant in a new location. In addition to acquiring various sizeable steel companies, Bethlehem in later years has also acquired a number of small companies in the steel fabrication field.

 Bethlehem, starting with an ingot capacity of 212,800 tons in 1905, has grown to an ingot capacity of 23,000,000 tons as of January 1, 1958. In 1920 Bethlehem held 6.3% of the industry ingot capacity. Following acquisitions in the 1920's Bethlehem by 1930 had reached 14.2%, and by 1958 had increased to 16.3% of the industry ingot capacity. Since its formation, 26% of the growth of Bethlehem has been due to acquisitions, 58% to enlargement of acquired facilities, and 16% to enlargement of Bethlehem's original facilities.

 Youngstown, starting with an ingot capacity of 806,400 tons, has grown to an ingot capacity of 6,500,000 tons as of January 1, 1958. A substantial portion of this growth is attributable to mergers and acquisitions. Since 1901, 20% of the growth of Youngstown has been due to acquisitions, 52% to enlargement of acquired facilities, and 28% to enlargement of Youngstown's original facilities.

 Competition in the Iron and Steel Industry

 There is no real price competition in the iron and steel industry. The record in this case establishes that United States Steel initiates the price changes for steel products and that its lead is followed by all other steel producers. With few exceptions, the mill price for each steel product does not vary significantly from company to company.

 A principal form of competition in the steel industry is the assurance to buyers of continuing sources of supply. Although from the buyer's standpoint the total delivered cost is an important factor in determining from which steel company he will buy, it is not controlling. There have been recurrent periods of short supply of steel generally. Particular steel products have chronically been in short supply. An assured source of supply is extremely important; it is so important to a steel consumer that he regards a stable and continuing relationship with a supplier of greater importance than price. *fn23" Equally important are multiple sources of supply. The consumer, to assure himself of a continuing supply in times of scarcity, will, in times of plenty, often forego buying from a nearby steel supplier and instead deal with a more distant supplier and willingly bear the freight differential.

 Another consideration influencing the buyer's choice is the desire to purchase from a steel company which does not manufacture the same products to avoid dependency on a competitor for his raw material. The buyer also takes into account the services offered by the steel supplier, such as engineering assistance and delivery schedules.

 Competition in the steel industry is sometimes reflected in the absorption of freight. When steel is plentiful, steel mills tend to reach out to distant markets and, in times of shortage, they tend to fall back from distant markets. When the supply of steel exceeds the demand a steel company will absorb more freight than it would otherwise absorb in order to reach a distant market. The following is a general illustration of how freight absorption works.

 Steel products are sold f.o.b. the mill. When steel or a particular steel product is in short supply the customer pays the freight cost. When steel is plentiful the steel company may absorb the freight differential so that the total delivered cost to the customer is no greater than the amount he would have to pay to a steel company located closer to his plant.

 This is the general picture of competition in the steel industry. We now proceed to consider the issue of relevant market and the impact of the proposed merger in that market.


 The Relevant Market

 Section 7 of the Clayton Act proscribes those mergers which may substantially lessen competition or tend to create a monopoly 'in any line of commerce in any section of the country'. The ultimate question of whether a merger comes within the ban of section 7 requires a consideration of the relevant market. Like other sections of our anti-trust laws, section 7 does not contain the word 'market'. It is clear, however, that 'line of commerce' signifies a product market and 'section of the country' refers to a geographic market. Equating the language of section 7 to the concept of market does not, however, mean that the section 7 market is the same as the market for purposes of other sections of the antitrust laws. Nor is the section 7 market necessarily the same as the economist's concept of market. Whatever difference there may be between legal scholars and economists in their respective definition of terms used in the antitrust laws, obviously the Congressional standard is controlling upon, and serves as the guide to, the Court.

 The section 7 market can only be defined in the light of its overall objectives and with particular recognition that it is being defined for the purpose of determining the reasonable probability of a substantial lessening of competition and not for the purpose of determining whether monopoly power will exist as a result of the merger. As the House Committee Report state '(Section 7) is intended (to apply) when the effect of an acquisition may be a significant reduction in the vigor of competition, even though its effect may not be so far-reaching as to amount to a combination in restraint of trade, create a monopoly, or constitute an attempt to monopolize'. *fn24"

 A horizontal merger can affect competition in at least two ways. It can have an impact not only on the competitors of the merged companies but also on the buyers who must rely upon the merged companies and their competitors as sources of supply. *fn25" The purpose of section 7 is to guard against either or both effects of a merger -- if the likely consequence is substantially to lessen competition or to tend to create a monopoly. The section 7 market must therefore be considered with reference to the two groups -- (1) the competitors of the merged companies and (2) the buyers who would be dependent upon the merged companies and their competitors as sources of supply. While both impacts of a merger are interrelated and in an ultimate sense feed on each other, the major impact in some cases will be on the buyers and in other cases on the competitors of the merged companies. As the House Committee Report states:

 '(The proscribed) effect may arise in various ways: (1) such as elimination in whole or in material part of the competitive activity of an enterprise which has been a substantial factor in competition, (2) increase in the relative size of the enterprise making the acquisition to such a point that its advantage over its competitors threatens to be decisive, (3) undue reduction in the number of competing enterprises, or (4) establishment of relationships between buyers and sellers which deprive their rivals of a fair opportunity to compete.' *fn26"

 Where, as in this case, the companies proposing to merge sell numerous products from several plants which are not in the same immediate area, it is to be expected that there would be a difference of opinion on the question of relevant market. The defendants urge market delineations which the Government charges have been arbitrarily defined for the purpose of minimizing the true competitive picture and to distort the availability of each as an alternative source of supply. The Government instead advances its own markets which in turn the defendants charge exaggerate the true competitive relationship of the defendants to one another and in the industry.

 Line of Commerce

 The Government contends that a line of commerce is any product or group of products that has peculiar characteristics and uses, which make it distinguishable from all other products. It predicates its position upon the definition of line of commerce by the Supreme Court in the du Pont-General Motors case. *fn27" There the Supreme Court held that 'automotive finishes and fabrics have sufficient peculiar characteristics and uses to constitute them products sufficiently distinct from all other finishes and fabrics to make them a 'line of commerce' within the meaning of the Clayton Act'. *fn28"

 The Government urges broad lines of commerce on an industrywide basis and also narrow lines based on individual products. The Government contends that the entire iron and steel industry is a line of commerce; that the products of the iron and steel industry in general have sufficient peculiar characteristics and uses to make them, as a totality, a separate line of commerce from the products of other industries.

 It advances a similar industrywide line of commerce with respect to the manufacture and sale of oil field equipment. This group includes the separate products: drawworks, rotaries, traveling blocks, swivels, slush pumps and pumping units. So, too, it urges another line of commerce -- the sale of oil field equipment and supplies by oil field supply stores -- here it includes the totality of various items sold by such stores.

 As noted, the Government does not confine its contentions to the broad industrywide lines of commerce. It urges that encompassed within the broad iron and steel industry line there are various steel products each of which constitutes a separate line of commerce. These additional separate lines of commerce advocated by the Government are: hot rolled sheets, cold rolled sheets, hot rolled bars, track spikes, tin plate, buttweld pipe, electricweld pipe and seamless pipe. The Government's position is that even though each of these products originates in the ingot and some of these products are made in mills which are capable of turning out other products, each is a separate line of commerce because each is physically distinct from the other, is used for different purposes, has different prices and markets, and is recognized as a different product by practice, understanding and usage in the trade.

 The defendants reject all the lines of commerce advanced by the Government. While they do not deny that a number of these products have peculiar characteristics and uses, they challenge the standard of peculiar characteristics and uses as appropriate for determining the lines of commerce in the steel industry and for assessing the competitive consequences of the merger. Their position is that lines of commerce must be defined with primary emphasis on the process of producing steel products and also with emphasis on the availability of substitute products. They refer to (1) the production flexibility concept and (2) the substitute products concept. The former relates to the capacity of a steel producer to shift from product to product; the latter to competition offered by substitute products.

 The defendants' position in large measure is based upon an imbalance between ingot capacity and productive capacity of finishing mills. They argue that since the larger integrated steel companies have greater capacity for production of finished steel products than capacity to produce ingots, each company has the ability to allocate its ingots among its various finishing facilities in response to changes in demand for finished products. Since the availability of ingots limits the ultimate output of finished products, the defendants would regard ingots as the basic line of commerce because ingot capacity best reflects the competitive potential of each company; however, they do not urge it because ingots are not ordinarily sold as such. Instead, since the ingot is further processed into finished steel products, the defendants contend that the finished steel products produced by both Bethlehem and Youngstown -- 'common finished steel products' *fn29" -- constitute a line of commerce. They urge that this is the appropriate line of commerce because it comprises the products that are actually sold by both companies and takes into account the ability of each to allocate ingots among such products.

 In addition to the broad line of commerce of 'common finished steel products' the defendants urge several narrower lines of commerce which they have denominated as mill product lines. As defined by the defendants, a mill product line is a 'complex of all the end products that can properly be produced on one of the industry's basic types of finishing mill -- either without any alteration in the mill or with only relatively minor alterations, in, or additions to, it'. They say that a producer who has such a mill can, at will, and with little extra expense, shift from one product to another and therefore the competitive potential of a steel producer should be considered in terms of the entire range of products that can be produced upon any basic type of mill. The essence of their position here is that the totality of all products rolled, or which can be rolled, in a particular type of mill should be treated as a single line of commerce. Thus if a score of products are, or can be, rolled in a particular type of mill they, in sum, constitute a single line of commerce even though they have completely different end uses.

 Consequently, the defendants reject, under their mill product line theory, the Government's selection of hot rolled bars and track spikes as separate lines of commerce on the ground that a steel company with a basic bar mill can, with relatively small capital cost, produce not only hot rolled bars, but also track spikes (by adding a track spike machine to ...

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