Appeal from a final judgment of the United States District Court for the Southern District of New York (Thomas P. Griesa, Judge), following a court trial, holding that Waste Management, Inc.'s acquisition of EMW Ventures Incorporated violated § 7 of the Clayton Act, as amended, and ordering Waste Management to divest a former EMW subsidiary.
Van Graafeiland, Winter and Pratt, Circuit Judges.
Appellants Waste Management, Inc. ("WMI") and EMW Ventures Incorporated ("EMW") appeal from Judge Griesa's decision, 598 F. Supp. 498 (1983), after a bench trial, that WMI's acquisition of EMW violated section 7 of the Clayton Act, as amended, 15 U.S.C. § 18, and from the resultant order that WMI divest Texas Industrial Disposal, Inc. ("TIDI"), a former EMW subsidiary.
This government antitrust action challenges WMI's acquisition of EMW's common stock. After the district court denied the government's motion for a temporary restraining order, the acquisition was consummated, and the case proceeded to trial before Judge Griesa sitting without a jury.
We summarize those facts that are not in dispute. WMI is in the solid waste disposal business. It provides services in twenty-seven states and had revenues of approximately $442 million in 1980. At the time of the acquisition, EMW was a diversified holding company that owned a subsidiary by the name of Waste Resources, which was in the waste disposal business in ten states and had revenues of $54 million in 1980.
WMI and Waste Resources each had subsidiaries that operated in or near Dallas.*fn1 WMI has one subsidiary, American Container Service ("ACS") in Dallas, and another, Texas Waste Management, in the Dallas suburb of Lewisville. Waste Resources had a Dallas subsidiary called Texas Industrial Disposal, Inc. ("TIDI"). WMI now operates TIDI as a WMI sub.
Waste collection involves several different types of equipment and serves the needs of various types of customers. For present purposes, it is important to distinguish between "non-containerized" and "containerized" equipment. "Non-containerized" refers to trucks with compactors into which trash cans and bags are loaded by hand. "Containerized" equipment consists of two types of receptacles, "dumpsters" and "roll off," each emptied by different kinds of trucks. Dumpsters typically have a volume of one to eight cubic yards and are emptied by "front-load" trucks that pick the dumpsters up with clamps and empty them into a hopper. Roll-off containers range up to 50 cubic yards in volume and are carried to a dump, emptied and then returned. Trucks that transport roll-off containers are known, not surprisingly, as roll-off trucks. If the customer desires containerized service, the waste hauler provides the dumpster or roll-off container.
There are various relevant classes of customers: (i) single or multiple dwelling residential customers; (ii) apartment complexes of varying size, (iii) "business" customers -- stores, restaurants, etc., and (iv) "industrial" customers -- construction sites, factories, etc. Customers choose among the kinds of services according to their individual needs, the quantity of trash produced being a critical factor.
The parties strenuously disagree over the proper definition of the relevant product and geographic markets. The government contended in the district court that the product market should be defined in terms of equipment type and that front-load and roll-off waste collection service each constitutes a separate product market. WMI argued that the market includes all forms of waste collection. The district court adopted a definition of the relevant product market that differed from the positions of both parties. Judge Griesa concluded that the product market included all trash collection, except for collection at single-family or at multiple family residences or small apartment complexes. Rejecting WMI's contentions as to the relevant geographic market, the district court excluded Tarrant County, which includes Fort Worth, thus limiting the market to Dallas County plus a small fringe area.
Based on revenue data, Judge Griesa found that the combined market share of TIDI and ACS was 48.8%.*fn2 He viewed that market share as prima facie illegal under United States v. Philadelphia National Bank, 374 U.S. 321, 364-66, 10 L. Ed. 2d 915, 83 S. Ct. 1715 (1963). Agreeing with appellants that entry into the product market is easy -- indeed, individuals operating out of their homes can compete successfully "with any other company" -- Judge Griesa nevertheless held that proof of ease of entry did not rebut the prima facie showing of illegality. The district court therefore ordered WMI to divest itself of TIDI. Because we conclude that potential entry into the relevant Dallas market by new firms or by firms now operating in Fort Worth is so easy as to constrain the prices charged by WMI's subs, we reverse on the grounds that the merged firm does not substantially lessen competition.
WMI raises the following claims which we treat seriatim : (1) the district court's definition of the relevant geographic and product markets and its determination of WMI's post-merger market share are erroneous; and (2) the district court erred in rejecting WMI's rebuttal of the prima facie case.
A. Market Definition and Determination of Market Share
In determining the relevant product and geographic market, Judge Griesa considered only firms that presently collect waste in competition with WMI's subs TIDI and ACS. He thus did not consider the effect of potential competition by new entrants upon the market power of the merged firm but rather treated this as part of the rebuttal to the prima facie case. Although potential competition resulting from easy entry can as logically be appraised as part of market definition, see R. Posner, ...