of the relevant market was fact-intensive, and set forth the general principle that "no more definite rule can be declared than that commodities reasonably interchangeable by consumers for the same purposes make up [the relevant product market]." As the court analyzed the particular facts of the market, it held that "in determining the market under the Sherman Act, it is the use or uses to which the commodity is put that control." Id., 351 U.S. at 395, 76 S. Ct. at 1008. The Court held that "cellophane's interchangeability with the other materials mentioned suffices to make it a part of this flexible packaging material market." Id., 351 U.S. at 400, 76 S. Ct. at 1010.
The evidence demonstrates that the product market for photofinishing includes mail-order photofinishers, macrolabs, and minilabs. The photofinishing from each is "reasonably interchangeable," in part because the end product -- a finished print with quality acceptable to the average consumer -- is the same in each case. Herbert Keppler, the publishing director of Popular Photography magazine, compared the quality of various photofinishing options. He noted that print quality varies across the spectrum of photofinishing (for example, two prints from the same Qualex wholesale lab were vastly different in print quality), but his testimony did not indicate that there was any significant overall quality difference between the various photofinishing options. He testified that the highest quality print in Kodak Exhibit 18, a series of similar photographs processed by different photofinishers, was produced by a mini lab, outshining even a print processed by hand by a custom photofinisher. Tr. at 268-275.
Similarly, although minor price gradations among mail-order, wholesale macrolabs, and minilabs exist, even this price continuum has limits and points of overlap. For example, Scott Sims testified that his price for "normal processing" of film was $ 10.19 for a 24-exposure roll on same-day service, and one dollar more for one-hour service. He also pointed out, however, that he issues coupons for $ 2 off his processing, many of which are redeemed. This promotion lowers his effective price to even below $ 10.19. This price was comparable to the prices that the Government offered on various retail outlets for macrolab photofinishers in proximity to Scott's Photo, which ranged between $ 6.49 and $ 8.49 for overnight service.
The relevant product market, therefore, encompasses all photofinishing because each photofinishing option is an acceptable substitute for another. The differences among the options -- which amount principally to the time required to turn around processed film for processing -- do not prevent each from competing with one another.
Each option provides a check on the others. If a macro lab finisher attempted to raise prices above the monopoly level in a particular area, the retail consumers would still have the option of taking their film to a mini lab, which could (in order to accept the increased business) provide same-day or overnight service for a lower price than their one-hour service. Even if there were no minilabs in that area at that time, an entrepreneur or mini lab chain could have a mini lab installed in a short time for a minimal capital investment. On the wholesale level, the increased price could attract a competing macrolab to build a plant in that area within six to nine months. Finally, the consumer would always have the option of sending prints to a mail-order finisher and receiving them in a week or so.
Similarly, if the only mini lab in a particular area decided to raise its prices for one-hour service, macrolabs serving that area would gain more overnight business from customers who had time-sensitive photographs, but were unwilling to pay an excessive premium for one-hour service.
Macrolabs also compete on two levels. Thomas Fitzgerald, the CEO of Qualex, testified that Qualex competed on a wholesale level for accounts with retail stores, and that Qualex also indirectly competed on a retail level with outlets that are serviced by other labs. Qualex, therefore, must not only outbid competing macrolabs for retail accounts, but remains under pressure from those retail outlets to keep its wholesale prices down so that the retail accounts can remain competitive. Fitzgerald testified that whether a roll of film is lost at the wholesale level or the retail level does not matter from the perspective of Qualex. That business is simply lost. Tr. at 294.
Because all segments of the photofinishing market have the potential to take business away from one another and do, in fact, compete, I find that the relevant product market consists of all photofinishing.
2. The Relevant Geographic Market
The Supreme Court, in Brown Shoe Co. v. United States, 370 U.S. 294, 336-37, 82 S. Ct. 1502, 1530, 8 L. Ed. 2d 510 (1962), set forth the considerations necessary to determine the relevant geographic market in the context of a Clayton Act § 7 case:
Moreover, just as a product submarket may have § 7 significance as the proper "line of commerce," so may a geographic submarket be considered the appropriate "section of the country". . . . Congress prescribed a pragmatic, factual approach to the definition of the relevant market and not a formal, legalistic one. The geographic market selected must, therefore, both "correspond to the commercial realities" of the industry and be economically significant. Thus, although the geographic market in some instances may encompass the entire Nation, under other circumstances it may be as small as a single metropolitan area.
Id. Although Brown Shoe involved Clayton § 7 merger analysis, its principles apply no less forcefully to Sherman Act cases. See United States v. Grinnell Corp., 384 U.S. 563, 572, 86 S. Ct. 1698, 1704, 16 L. Ed. 2d 778 (1966).
For reasons discussed above, the "commercial realities" of the photofinishing market establish that the market is the United States. Although a particular macrolab might conduct business within a particular geographic region involving one to several states, and minilabs generally conduct business within a particular region, the overall market is national in scope. Both Fuji TruColor and Qualex labs conduct business on a national level, and promote themselves as national photofinishers. Konica Quality Photo Labs have a strong regional presence in the northeast, west coast, and midwest regions and have demonstrated the capacity to enter new markets within the United States, having opened new labs in Honolulu, Hawaii, Richmond, Virginia, and Maryville, Indiana since 1992. Minilab chains, such as MotoPhoto and Ritz Camera, also have a broad national presence through their franchising agreements and national promotion and advertising. Finally, mail-order photofinishers, such as Clark Photo and District Color Labs, have a national presence due to the nature of their business and have customers in all 50 states. Independent minilabs and macrolabs are also a component of the market. While these independent labs are local and regional, rather than national, they serve as local competitors to a primarily national business.
Moreover, macrolab operators, such as Fuji and Qualex, compete for accounts with national chains of retailers on a regional or national basis. The three main providers of such services are businesses of national scope. They compete not only among themselves, but with actual and potential competition from "captive" macrolabs. Wal Mart, for example, operates five macrolabs which service Wal Mart stores in a given geographic area. In other areas, Wal Mart contracts with a wholesale photofinisher. The three wholesale labs, therefore, demonstrate Wal Mart's ability to build and provide its own photofinishing services.
In United States v. Grinnell Corp., the Supreme Court upheld the District Court's finding that the geographic market for central-station security alarm services is national, stating:
As the District Court found, the relevant market for determining whether the defendants have monopoly power is not the several local areas which the individual stations serve, but the broader national market that reflects the reality of the way in which they built and conduct their business.