Full opinion text
WEINFELD, District Judge. 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. 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 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. 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.” 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 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, 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. The Congress acted in 1914 by passing the Clayton Act. 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 incipieney and before consummation.” This has been expressly recognized by the Supreme Court. 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. Second, it was generally assumed that original section 7 did not apply to vertical mergers. 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. Further, the Columbia Steel case 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 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 Aet 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” is highlighted in this ease. I 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 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. Non-integrated 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 caT pacity. 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, which coincide with the highly industrialized northeast quadrant of the United States, 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. Bethlehem’s steel ingot capacity as of January 1, 1958 was 23 million tons, representing 16.3% of the total industry capacity. Youngstown’s ingot capacity was 6.5 million tons, representing 4.0% 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. 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 10% 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. 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. II 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 antitrust 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 states “[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”. 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. 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.” 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. 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”. 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” — 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 the bar mill) and other products (by minor alterations in or additions to the bar mill). The defendants make a similar mill product line argument with respect to hot rolled sheets and cold rolled sheets each of which is advanced by the Government as a separate line of commerce. They contend that since they, and most steel companies with facilities for producing hot rolled sheets, also have facilities for producing cold rolled sheets, both should be included in one line of commerce — sheets and strip — encompassing all the products which have their origin in the basic sheet mill. The defendants, however, do not take the same position with respect to butt-weld, seamless and electricweld pipe, each of which is produced in a different type mill and each of which is advocated by the Government as a separate line of commerce. Here the defendants depart from their concept of production flexibility. With respect to buttweld, electricweld and seamless pipe the defendants argue that although each is produced in a different type of mill so that there is no flexibility at the finishing mill stage, they should, nevertheless, all be considered only one line of commerce on the ground that to a substantial extent each type of pipe can be and is used for the same purposes. In addition the defendants argue that non-ferrous metal pipe and plastic pipe are reasonably interchangeable with steel pipe and are competitive substitutes for some uses so that they too should be included within “pipe” as a single line of commerce. Analogously, the defendants urge that new and used oil field equipment are reasonably interchangeable and the line of commerce should embrace both. It is argued that the Government by ignoring used oil field equipment has failed to define properly this line of commerce. Accordingly, the defendants contend that each of the following constitutes a separate line of commerce: sheets and strip, bar mill products, tin mill products, pipe, and new and used oil field equipment. Thus the Government and the defendants each advocate first, broad lines of commerce and then, separate lines of commerce of certain of the products included within the comprehensive lines of commerce. At this point a recapitulation of the lines of commerce with respect to stee? products as advocated by the parties may be helpful to the ensuing discussion. Government’s Line of Commerce Defendants’ Line of Commerce Broad Line Broad Line Iron and steel industry Common finished steel products Separate Lines Separate Lines The definition of line of commerce in a section 7 case is formulated for the purpose of determining the impact of a merger on competition. Competition is not just rivalry among sellers. It is rivalry for the custom of buyers. Also in many instances, and particularly in the steel industry, it is, during periods of shortage, strongly present as rivalry among buyers for sources of supply. Thus competitive forces may move in a number of directions — buyer against buyer; seller against seller; buyer against seller. But however competition is defined and whatever its form or intensity, it always involves interplay among and between both buyers and sellers. Any definition of line of commerce which ignores the buyers and focuses on what the sellers do, or theoretically can do, is not meaningful. The evidence establishes that the defendants’ production flexibility or mill product line theory is indeed pure theory. In practice steel producers have not been quick to shift from product to product in response to demand. Moreover, the evidence establishes that the continuing relationships between buyers and sellers in the steel industry make such shifts unlikely. The inappropriateness of the defendants’ production flexibility or mill product line theory is further exposed by the inconsistent positions they have themselves taken. The Court is persuaded that the Government’s position for determining lines of commerce by the peculiar characteristics and uses standard is sound and should be adopted. Hot rolled sheets, cold rolled sheets, hot rolled bars, track spikes, tin plate, buttweld pipe, electricweld pipe, seamless pipe, oil field equipment and oil field equipment and supplies, each has unique physical characteristics, is distinet one from another, has different end uses, and is recognized by steel producers and consumers as a distinct product. Each has its own competitive standards and markets. Finally, there are no effective substitutes for any of them. Since there are no effective substitutes which compete with the various lines of commerce as found by the Court, it is not necessary to discuss the defendants’ contention that the reasonable interchangeability test of the Cellophane case is applicable here. The only other line of commerce which requires consideration is the iron and steel industry, The products of the iron and steel industry as a group are generally standardized, are not subject to the vagaries of style appeal, and have peculiar characteristics and uses for which there are no effective substitutes. The manufacture of such products requires special know-how and experience, huge capital investment and a trained labor force. The products of the iron and steel industry are generally distinct one from the other and as a group distinct from the products of other industries. They are sold in a recognized market with its own competitive standards. The iron and steel industry is commonly recognized by its members as well as the community at large as a separate industry. It has its own trade association, treating the industry as separate and distinct. In the light of these facts the conclusion is warranted that the sum of all the products of the iron and steel industry constitute a line of commerce. Since Bethlehem and Youngstown both produce and sell the principal products of the iron and steel industry, it is an appropriate line of commerce for analyzing the effect of this merger. With respect to the iron and steel industry, four sets of statistics serve as guides in considering the impact of the proposed merger on competition— (1) blast furnace capacity and production, (2) ingot capacity and production, (8) shipments of all finished steel products and (4) shipments of “common finished steel products”. Ingot capacity is the basic measure of size and rank in the iron and steel industry and reflects productive potential for the various items which make up the finished steel products which are sold in commerce. “Common finished steel products” is a valid guide on two grounds — (1) on a tonnage basis it represents over 79% of all steel products and (2) it includes virtually all the products that both Bethlehem and Youngstown produce in common. It may be well to note that all four guides as a practical matter coincide with or reflect virtually the same percentages as the defendants’ “common finished steel products” line of commerce. As a matter of statistical convenience, shares of industry shipments of steel products, where such shares are considered on the questions of geographic markets and impact on competition with respect to the iron and steel industry line of commerce, will hereafter be stated primarily in terms of “common finished steel products”. In terms of end result there is in fact no significant difference whether the iron and steel industry, the broadest line advocated by the Government, or “common finished steel products,” the broadest line advocated by the defendants, is accepted as the appropriate line of commerce for considering the competitive consequences of this merger. With regard to either line, the Government’s iron and steel industry, or the defendants’ “common finished steel products,” the proportionate share of each defendant’s industry shipments and production remains virtually the same. Upon all the evidence the Court finds that the following are the appropriate lines of commerce: (1) the iron and steel industry as a whole; (2) hot rolled sheets; (3) cold rolled sheets; (4) hot rolled bars; (5) track spikes; (6) tin plate; (7) buttweld pipe; (8) electric-weld pipe; (9) seamless pipe; (10) oil field equipment and (11) oil field equipment and supplies. It is not necessary to analyze separately and in detail each line of commerce as found by the Court, since a merger violates section 7 if the proscribed effect occurs in any line of commerce “whether or not that line of commerce is a large part of the business of any of the corporations involved” or “where the specified effect may appear on [an] * * * industry-wide scale. The purpose of [section 7] is to protect competition in each line of commerce in each section of the country.” Having found the lines of commerce, the next issue to be considered is the relevant section or sections of the country for each line. Section of the Country The parties also differ on the appropriate relevant sections of the country for appraising the effects of the merger on competition. However they appear to agree with the view expressed by the Senate Committee that “section of the country” is not capable of rigid definition and that in application a section of the country will vary according to the particular facts of each case. The Senate Committee Report states: “Although it is, of course, impossible to define rigidly what constitutes a ‘section of the country’, certain broad standards reflecting the general intent of Congress can be set forth to guide the Commission and the courts in their interpretation. “What constitutes a section will vary with the nature of the product. Owing to the differences in the size and character of markets, it would be meaningless, from an economic point of view, to attempt to apply for all products a uniform definition of section, whether such a definition were based upon miles, population, income, or any other unit of measurement. A section which would be economically significant for a heavy, durable product, such as large machine tools, might well be meaningless for a light product, such as milk. “As the Supreme Court stated in Standard Oil Co. v. U. S. (337 U.S. 293 [69 S.Ct. 1051, 93 L.Ed. 1371]), ‘Since it is the preservation of competition which is at stake, the significant proportion of coverage is that within the area of effective competition.’ “In determining the area of effective competition for a given product, it will be necessary to decide what comprises an appreciable segment of the market. An appreciable segment of the market may not only be a segment which covers an appreciable segment of the trade, but it may also be a segment which is largely segregated from, independent of, or not affected by the trade in that product in other parts of the country. “It should be noted that although the section of the country in which there may be a lessening of competition will normally be one in which the acquired company or the acquiring company may do business, the bill is broad enough to cope with a substantial lessening of competition in any other section of the country as well.” The Government’s basic position is that for the iron and steel industry as a whole and for the various component lines of commerce included therein the appropriate geographic market is the nation as a whole. In addition it proposes several alternative sections, from the single states of Michigan and Ohio to several groupings of states, the largest of which coincides with the northeast quadrant of the United States. These separate areas which the Government proposes as alternatives to the nation as a whole are predicated on the fact that they are areas into which Bethlehem and Youngstown each ships substantial percentages of its total shipments and are the areas which are the most substantial and significant consuming centers for the industry as a whole —appreciable segments of the market. The defendants reject all the sections of the country advanced by the Government. They divide the country into three parts, Eastern, Mid-Continent and Western which they urge as the relevant sections of the country. The defendants’ basic position is that the geographic market is the area in which a company is an “effective competitor” in the sense of being a strong factor in competition. Based on this definition of geographic market the defendants maintain that there is not a nationwide market for steel products and for the same reasons they challenge the Government’s alternative sections. They urge that the location of their plants and the location of the plants of other steel companies, particularly in the area of Pittsburgh, Pennsylvania, which is east of Youngstown’s plants and west of Bethlehem’s eastern plants, together with the high cost of transporting steel products, results in the two companies operating in separate markets. Thus the defendants have drawn a line north and south along the western border of Pennsylvania and north and south through the Rockies and advanced a tri-partite division of the country into the Eastern, Mid-Continent and Western Areas as reflecting the geographic markets for the purposes of this case. The effect of the defendants’ tri-partite division is that the productive capacity of each defendant is separated from the other — that in no section do both companies have steel producing capacity. Thus all the Bethlehem plants are confined to the Eastern and Western Areas and all of Youngstown’s to the Mid-Continent Area. The substance of the defendants’ argument is: that within each of the three areas there are natural or regional markets adjacent to the locations of the steel plants; that steel consumers prefer to purchase from steel plants which are located nearby in order to avoid excess freight charges; that steel producers prefer customers located nearby in order to reduce freight absorption when that is necessary; that the greater the distance between the customer and the steel plant, the less effective is the steel plant in the competition for the customer’s business; that the competitive force of a steel plant’s shipments decreases as sales are made further away from the so-called natural market. Accordingly the defendants maintain that Bethlehem is an “effective competitor” only in the Eastern and Western Areas where its plants are located and that Youngstown is an “effective competitor” only in the Mid-Continent Area where its plants are located. Conversely they classify themselves as marginal suppliers in those areas where they do not have plants and contend that their competitive positions in their non-plant areas are minor and subordinate to steel producers with plants located there. Assuming arguendo that the defendants’ standard for determining sections of the country is proper, although this is disputed by the Government, the facts do not support their tri-partite division of the country. In 1955 Bethlehem shipped into the Mid-Continent Area 2,034,-783 tons of “common finished steel products,” or 4.9'% of total industry shipments. Youngstown in the same year shipped into that area 2,823,992 tons or 6.7% of total industry shipments. Youngstown’s total capacity is within the Mid-Continent Area. Bethlehem is without capacity there. Bethlehem’s shipments of more than 2 million tons into the area demonstrate beyond challenge that in fact it is an “effective competitor” in that area. Although Bethlehem is without capacity there, the 2 million ton shipment of “common finished steel products” exceeded the ingot capacity of such large steel companies as Granite City, McLouth, Ford, Detroit, Laclede, Northwestern and International Harvester whose plants are located in the Mid-Continent Area. Two million tons is greater than the ingot capacity of 74 of the 84 companies with ingot capacity on January 1, 1957. The 2 million tons of Bethlehem shipments to the Mid-Continent Area had a value of approximately $260,000,000. Its shipments of “common finished steel products” into that area have been steady and persistent. Over a period of years Bethlehem has accounted for from 3.4% to 4.9% of total industry shipments of “common finished steel products”, representing very substantial tonnages, to the Mid-Continent Area. These tonnages ranged from 1,025,410 to 2,034,783 tons. In addition, Bethlehem, over a period of years, has shipped substantial tonnages of “non-common” products to that area; in 1955 these shipments amounted to approximately 700,000 tons. The picture is even clearer in the two states of Michigan and Ohio, which in 1955 received almost 50% of the total industry shipments of “common finished steel products” made to the Mid-Continent Area and over 30% of nationwide shipments of such products. The industry total of these shipments to Ohio and Michigan was 19,930,000 tons. Bethlehem alone accounted for 1,805,893 tons representing 9.1%, and Youngstown accounted for 1,142,617 tons representing 5.71% of the total industry shipments. Thus Bethlehem’s shipments of common finished steel products there exceeded those of Youngstown by almost 700,000 tons. The conclusion is compelled that in the two most important steel consuming states in the Mid-Continent Area, as well as in the nation as a whole, Bethlehem was a very substantial and important competitor. Into the State of Ohio, where half of Youngstown’s over 6 million tons of ingot capacity is located, Bethlehem shipped 436,679 tons while Youngstown shipped 782,616 tons, or 5.2% and 9.4% respectively of total industry shipments of 8,326,000 tons of “common finished steel products”. Here, too, it is not open to serious question that Bethlehem was an “effective competitor”. Into the State of Michigan, where neither Bethlehem nor Youngstown has a plant, they shipped 1,369,214 tons and 360,001 tons respectively, representing 11.8% and 3.H% of total industry shipments of 11,604,000 tons of “common finished steel products”. The Lackawanna, New York plant of Bethlehem, which the defendants place in their Eastern Area, has an ingot capacity of 5,720,000 tons, is the third largest steel plant in the nation, and represents about one-fourth of Bethlehem’s total ingot capacity. Significantly, about 50% of this plant’s shipments goes into the Mid-Continent Area, principally into the State of Michigan. The substantial shipments by Bethlehem into Michigan, the largest steel consuming state in the nation, forced the defendants’ own witnesses at the trial to concede that Bethlehem is an “effective competitor” in Michigan and that Michigan is an area of effective competition for the principal products of the iron and steel industry. The defendants seek to mitigate the force of their shipments into Michigan and other areas distant from their plants by contending that such shipments are unique because they are made to so-called deficit areas. However, the imbalance between local supply and local demand is a normal condition of this industry. The sites of many of the nation’s steel mills were originally selected with primary emphasis on sources of raw materials. In large measure this explains the concentration of one-sixth of the nation’s capacity in the Pittsburgh area. While steel consumers originally tended to locate their plants close to the steel plants, industrial growth and development in other areas, over a period of years, have resulted in an imbalance between local supply and local demand. Thus the Pittsburgh mills produce far more than the local demand and must seek an outlet elsewhere. The same is true of Bethlehem’s Lackawanna, New York plant. On the other hand the mills in the Detroit area are unable to satisfy the heavy demand of the automobile and other industries located there. Steel flows to the Detroit area from all producers. So, too, in other areas where there is greater local demand than local supply the gap is met by distant suppliers. Thus only when the iron and steel industry is viewed microeosmically does one find natural markets. These disappear when the macrocosmic view is taken. The imbalance between local supply and local demand makes freight costs only a marginal factor. The steel companies in order to keep their plants at as close to capacity as costs dictate must ship into shortage areas, and freight costs and absorption are simply incidents of doing business. So, too, is the freight burden an incident of the steel consumer doing business when his demands cannot be met by local supply, or when to assure himself of continuing sources of supply or multiple sources of supply, he disregards freight rates to deal with a distant steel company. Many theoretical concepts were advanced to support the defendants’ claim that neither is an “effective competitor” of the other and that as to each submarket that may exist in the Mid-Continent Area, Bethlehem is a relatively minor factor; that as to each submarket that may exist in the Eastern and Western Areas, Youngstown is a relatively minor factor. But these theoretical concepts must yield to the facts which have persisted in this industry through the years and reflect an industry pattern. A producer of steel has sold, and a purchaser has bought, its products far removed from the mill. Each defendant has shipped substantial tonnages of steel, representing substantial percentages of total industry shipments, to steel consuming centers far removed from its plants. Thus the obstacles claimed by the defendants, whether they be called natural barriers, freight barriers, or whatever the burden, have been successfully hurdled. In times of shortage the consumer has absorbed the freight. In times of plenty, although not always, the steel producer has carried the load. But whoever has borne the burden, the fact remains that shipments by these defendants have gone much beyond their so-called natural or regional markets. The persistent and substantial shipments by Bethlehem indicate that it does overcome freight barriers and competes effectively with Youngstown and the other steel companies whose plants are located in the Mid-Continent Area. The fact that some other steel companies may be more favorably located in relation to consuming centers in the Mid-Continent Area does not establish that Bethlehem is not an “effective competitor”. At most it suggests that the more favorably located companies may make more profit on their sales than Bethlehem makes on its sales. But even that may be influenced by Bethlehem’s ability to maintain its more distant plants at closer to full capacity. The defendants’ tri-partite division of the country is an obvious gerrymandering of the country to meet the exigencies of this case. Neither the industry nor any industry publication has ever recognized this empiric division. The substantial shipments, over a long period of time by Bethlehem into the Mid-Continent Area, representing substantial shares of the total industry shipments, compel rejection of its claim that it is not an “effective competitor” in that area. The defendants have also overlooked several other very significant matters which must be taken into account in defining section of the country for purposes of section 7. As noted previously, section 7 is intended to protect buyers as well as competing sellers. Therefore, section of the country must be determined with respect to both buyers and sellers. The determination must be made on the basis of not only where the companies have in the past made sales, but also on the basis of where potentially they could make sales and where buyers could reasonably turn to them as alternative substantial sources of supply. Thus the Senate Committee Report on section 7 states: “It should be noted that although the section of the country in which there may be a lessening of competition will normally be one in which the acquired company or the acquiring company may do business, [§ 7] is broad enough to cope with a substantial lessening of competition in any other section of the country as well.” (Emphasis supplied.) In addition, the geographic market for the purposes of determining the impact of a merger can include all areas where the trade in a product is affected by, and is not independent of, the trade in that product in other areas —for example, if a change in price in one area ha