Full opinion text
OPINION FERGUSON, District Judge. This civil antitrust action was commenced on July 13, 1966, when the government filed its complaint alleging that the purchase of the Western Manufacturing and Marketing Division of the defendant Tidewater Oil Company by the defendant Phillips Petroleum Company violates § 7 of the Clayton Act as amended, 15 U.S.C. § 18. At the time of the filing of the complaint, Phillips and Tidewater each engaged in the acquisition of oil and gas lands; the production of crude oil, natural gas and natural gas liquids; the manufacture of refined petroleum products; and the transportation and marketing of crude oil and products derived therefrom. Both were “corporations engaged in commerce” within the meaning of § 7 of the Clayton Act. The court holds that where' objective factors indicate that the market is highly concentrated with high barriers to entry, the acquisition of the seventh largest company in the market, with a 6-7% market share, by a likely potential entrant, which ranks tenth in the national market, is illegal under § 7 of the Clayton Act. The court finds that the acquisition produced a substantial lessening of competition through Phillips’ elimination as a potential competitor, both through the removal of the likelihood that it would enter the market unilaterally in the future and through the elimination of the procompetitive influence it exerted from its presence on the edge of the market. Product and Geographic Markets The parties have agreed that the relevant line of commerce under § 7 is the sale of motor gasoline, and that the relevant “section of the country” is the State of California. The term “market” shall be used to denote the sale of motor gasoline in California. The Government’s Contention The only respect in which the government contends that the acquisition may substantially lessen competition in violation of § 7 of the Clayton Act involves potential competition in the sale of motor gasoline in California. The government does not contend that actual competition, in the sense of existing competition between Phillips and Tidewater or between Phillips and other companies, was affected by the acquisition. The Acquisition The Tidewater assets acquired by Phillips for $366 million on July 14, 1966 consisted of a refinery at Avon, California, which had a rated operating capacity of 135,000 barrels per day and manufactured a full line of refined petroleum products; 13 product terminals; 219 bulk plants for local distribution of products; approximately 3,250 service stations displaying the Tidewater brand name (Flying A); the capital stock of Seaside Oil Company, a wholly owned subsidiary of Tidewater which marketed motor gasoline under its own brand name through some 400 service stations, primarily in California; transportation facilities related to the operations of Tidewater’s Western Marketing and Manufacturing Division, such as pipelines and five tankers; Tidewater’s office building in Los Angeles; and Tidewater’s inventory of crude oil, products, material and supplies on hand at the transfer date. In addition, Phillips acquired certain contractual rights to crude oil produced by Tidewater from its California oil fields. Although the 3,250 Tidewater brand service stations were scattered throughout California, Oregon, Washington, Hawaii, Idaho, Nevada and Arizona, the great majority were on the West Coast — in California and west of the Cascade Mountains in Oregon and Washington. This area accounted for 90% of Tidewater’s motor gasoline sales in the Western states, with California alone accounting for 79% of such Western sales. Approximately 2,200 of the 3,250 Tidewater brand stations were located in California. Of the approximately 3,650 combined Tidewater and Seaside service stations obtained by Phillips from Tidewater, about 2,100 were owned or leased by Tidewater or Seaside, while the others were “contract resellers” which sold motor gasoline under the Tidewater or Seaside brand name pursuant to contractual arrangements. About 1,600 of the approximately 2,550 Tidewater and Seaside stations in California were owned or leased by Tidewater or Seaside. Of these 1,600 stations, about 1,400 operated under the Tidewater brand and the remainder under the Seaside brand. The Acquiring Company Phillips is a corporation organized and existing under the laws of the State of Delaware, with its principal office located at Bartlesville, Oklahoma. Phillips began as a small Oklahoma crude oil producer in 1917, with assets of $3,000,000 and 27 employees. By the company’s own admission, it has “grown into a giant and assumed a place of leadership in both the petroleum and chemical industries.” At the time of the Tidewater acquisition, Phillips had assets of over $2,000,000,000, ranking among the eight largest domestic oil companies in the nation in assets. It ranked tenth among the domestic majors in gross sales ($1.46 billion in 1965) and ninth in net income ($127.7 million in 1965). In terms of operating indicators, Phillips ranked eleventh among the domestic majors in refining capacity, with about 3% of total domestic capacity. It ranked eighth in . liquid hydrocarbons production, with 2.7% of total domestic production. At the time of the Tidewater acquisition, Phillips had six domestic refineries with total operating capacity of approximately 293,000 barrels per day. The Acquired Company At the time of the filing of the complaint, Tidewater was a corporation organized and existing under the laws of the State of Delaware. Getty Oil Company owned over half the capital stock of Mission Development Company, which in turn owned over half the capital stock of Tidewater. On September 30, 1967, Tidewater and Mission Development Company were merged into Getty Oil Company. Tidewater marketed on both the East and West Coasts. It had total assets of approximately $1,000,000,000 at the end of 1965, ranking fifteenth among the domestic majors. It also ranked fifteenth in gross sales ($834 million), sixteenth in net income ($56 million), and fourteenth in both domestic refining capacity (260,000 barrels per day) and domestic net petroleum production (140,000 B/D). Its domestic motor gasoline sales totaled approximately 100,000 barrels per day. Tidewater’s share (including Seaside) of motor gasoline sales in California was 6.8% in 1965. This represented a decline from 9.9% in 1960 and 7.8% in 1963. The Tidewater brand accounted for about 5.7% of 1965 motor gasoline sales, and Tidewater’s Seaside outlets accounted for an additional 1% of the California market. Tidewater ranked seventh in motor gasoline sales in California in 1965 and had ranked fourth in 1960. It ranked fourth in refining capacity in California in 1965 and third among California refiners in California net petroleum production. At the end of 1965, Tidewater (including Seaside) owned or had a leasehold interest in 1,949 operating service stations. Of these, 1,454 were in California, representing a decline from 1,650 California stations in 1960. In addition, 891 other service stations in 1965 purchased Tidewater’s branded gasolines and resold them, representing a decrease from 1,019 in 1961. Between 1960 and 1965, the volume of Tidewater’s sales of branded motor gasoline in California (including Seaside) declined by a proportion of 13.2% while total sales of motor gasoline of all sellers in California increased by 26%. At the end of 1964, Tidewater had proved domestic reserves of crude oil and field condensate estimated at more than 650,000,000 barrels. At the time of the filing of the complaint, Tidewater’s Delaware refinery had a crude oil operating capacity of 125,000 barrels per day, and its Avon, California, refinery had a capacity of 185,000 barrels per day. The Avon refinery accounted for about 10% of California refining capacity in 1966, and fqr 8.6% of West Coast capacity. The combined capacity of the two refineries amounted to approximately 2.6% of the total operating capacity of all domestic refineries. The Market The California market for motor gasoline sales was the largest and fastest-growing motor gasoline market in the United States at the time of the acquisition. For several years prior to the filing of the complaint, including 1965, there were more motor vehicle registrations and motor gasoline consumption in California than in any other state. In 1965 there were 9.9 million motor vehicle registrations in California, about 4 million more than in New York, which ranked second. The California figure constituted 11% of the total motor vehicle registrations in the United States. California ranks first among the states in population, total personal income, number of motor vehicles, number and sales of service stations, and gasoline consumption. California has experienced the largest absolute amount of increase in each of these categories during recent years and has been among the leading states in percentage increases. California motor gasoline sales contain the highest percentage of sales of premium grade gasoline of any state, amounting to 60.4% of California sales in 1970. Premium grade gasoline commands a higher selling price and a higher profit margin than regular grade. Moreover, the California motor gasoline market could not be characterized as saturated. On a per-service-station basis, California ranked first among six key states in 1967 in the number of registered motor vehicles (566), the dollar volume of yearly sales ($134,552), and the number of gallons sold (25,528 per year). Although it has a large number of stations, California can support the opening of new ones. Section 7 of the Clayton Act and Potential Competition In detailing and interpreting the legislative history of § 7 of the Clayton Act as amended, the Supreme Court in Brown Shoe Co. v. United States, 370 U.S. 294, 315, 82 S.Ct. 1502, 1518, 8 L.Ed.2d 510 (1962), stated: “The dominant theme pervading congressional consideration of the 1950 amendments was a fear of what was considered to be a rising tide of economic concentration in the American economy. . . . ” The greater the degree of market concentration, “the greater is the likelihood that parallel policies of mutual advantage, not competition, will emerge.” United States v. Aluminum Co. of America, 377 U.S. 271, 280, 84 S.Ct. 1283, 1289, 12 L.Ed.2d 314 (1964). See also United States v. Philadelphia National Bank, 374 U.S. 321, 363, 83 S.Ct. 1715, 10 L.Ed.2d 915 (1963). The Supreme Court has construed § 7 to be aimed at “preserving the possibility of eventual deconcentration,” Aluminum Co. of America, supra, 377 U.S. at 279, 84 S.Ct. at 1289; Philadelphia National Bank, supra, 374 U.S. at 365 n. 42, 83 S.Ct. at 1742. “It is the basic premise of [§ 7] that competition will be most vital ‘when there are many sellers, none of which has any significant market share.’ ” Aluminum Co. of America, supra, 377 U.S. at 280, 84 S.Ct. at 1289. The Supreme Court stated in Philadelphia National Bank, supra, 374 U.S. at 370, 83 S.Ct. at 1745, that “corporate growth by internal expansion is socially preferable to growth by acquisition.” Section 7 was designed not only to arrest monopolistic practices after they are in full swing but “to cope with monopolistic tendencies in their incipiency and well before they have attained such effects as would justify a Sherman Act proceeding.” S.Rep. No. 1775 and No. 2734, 81st Cong., 2d Sess., in 1950-52 U.S.Code Cong. & Admin.News 4295-98. As the Supreme Court pointed out in Brown Shoe, supra, 370 U.S. at 317, 82 S.Ct. at 1520, § 7’s “provision of authority for arresting mergers at a time when the trend to a lessening of competition in a line of commerce was still in its incipiency” was “a keystone in the erection of a barrier to what Congress saw was the rising tide of economic concentration.” And in United States v. Penn-Olin Chemical Co., 378 U.S. 158, 170-171, 84 S.Ct. 1710, 1717, 12 L.Ed.2d 775 (1964), the Court observed: “The grand design of the original § 7, as to stock acquisitions, as well as the Celler-Kefauver Amendment, as to the acquisition of assets, was to arrest incipient threats to competition which the Sherman Act did not ordinarily reach. It follows that actual restraints need not be proved.” Thus, § 7 prohibits the elimination of potential competition as well as of actual competition through an acquisition of stock or assets. The language of the statute prohibits acquisitions whose effect “may be” substantially to lessen competition; the government is not required to show either that it “would be” their effect or that they “have” that effect. Section 7 “look[s] not merely to the actual present effect of a merger but instead to its effect upon future competition,” United States v. Von’s Grocery Co., 384 U.S. 270, 277, 86 S.Ct. 1478, 1482, 16 L.Ed.2d 555 (1966). The beneficial effects upon competition exerted by a potential competitor outside the market may be of two kinds. These will be denoted the “entry effect” and the “edge effect.” The entry effect arises from the likelihood of actual market entry by the potential competitor at some time in the future. The potential competitor itself “may someday go in and set the stage for noticeable decon-centration,” United States v. Ford Motor Co., 286 F.Supp. 407 (E.D.Mich.1968), aff'd. 405 U.S. 562, 92 S.Ct. 1142, 31 L.Ed.2d 492 (1972). As Chief Justice Burger stated in his opinion concurring and dissenting (but only as to the relief ordered) in Ford, 405 U.S. at 587, 92 S. Ct. at 1156, the “ground typically present” in a potential competition case is that the acquisition “has deprived the market of the pro-competitive effect of an increase in the number of competitors.” The crux of the entry effect is that if the company which enters the market by acquisition had entered unilaterally, it would have supplied an additional competitive force without eliminating one already present in the market. An acquisition of a company in the market by a company which is likely to enter on its own thus has an anticompetitive effect on the market. The edge effect, sometimes termed the “waiting-in-the-wings” or the “on-the-fringe” effect, is the beneficial effect upon competition exerted when a company is poised on the edge of the market, threatening to enter if market conditions become sufficiently favorable. The importance of the edge effect derives from the realization that the competitive behavior of companies is not determined solely by the actions and intentions of those in the market, but also by the actions and perceived intentions of those outside the market who may come in. The presence of a potential entrant on the edge of the market exerts a moderating influence on those inside. If the firms inside raise prices beyond a certain level, for instance, a company on the edge may decide to enter because the profitability of entering would be enhanced by the higher prices. Its entry, in turn, would make conditions in the market more competitive. The importance of the edge effect was recognized in United States v. Penn-Olin Chemical Co., supra, in which the Supreme Court stated: “The existence of an aggressive, well equipped and well financed corporation engaged in the same or related lines of commerce waiting anxiously to enter an oligopolistic market would be a substantial incentive to competition which cannot be underestimated.” 378 U.S. at 174, 84 S.Ct. at 1719. The Court in Penn-Olin pointed out that “[p]otential competition as a substitute for [actual competition] may restrain producers from overcharging those to whom they sell or underpaying those from whom they buy,” and that “[p]otential competition may compensate in part for the imperfection characteristic of actual competition in the great majority of competitive markets.” Id. The Court was concerned that the potential entrant “might have remained at the edge of the market, continually threatening to enter,” or that it might have “remained aloof watching developments.” Id., at 173, 174, 84 S.Ct. at 1718. In FTC v. Procter & Gamble Co., 386 U.S. 568, 581, 87 S.Ct. 1224, 1231, 18 L.Ed.2d 303 (1967), the Court concluded that “[i]t is clear that the existence of Procter at the edge of the industry exerted considerable influence on the market,” due in part to the fact that “the market behavior of the liquid bleach industry was influenced by each firm’s predictions of the market behavior of its competitors, actual and potential.” In United States v. Falstaff Brewing Corp., 410 U.S. 526, 531-532, 93 S.Ct. 1096, 1100, 35 L.Ed.2d 475 (1973), the majority opinion stressed the importance of the edge effect in evaluating the consequences of an acquisition under § 7: “Suspect also [under § 7] is the acquisition by a company not competing in the market but so situated as to be a potential competitor and likely to exercise substantial influence on market behavior. Entry through merger by such a company, although its competitive conduct in the market may be the mirror image of that of the acquired company, may nevertheless violate § 7 because the entry eliminates a potential competitor exercising present influence on the market. FTC v. Procter & Gamble Co., 386 U.S. at 580-581, 87 S.Ct. 1224; United States v. Penn-Olin Chemical Co., 378 U.S. at 174, 84 S.Ct. 1710. . . .” In Falstaff, the district court dismissed the government’s complaint because it found that the acquisition did not eliminate a substantial procompeti-tive entry effect — that is, that the acquiring company would not have entered the market itself, and that therefore no substantial procompetitive effect arising from possible future entry was eliminated by Falstaff’s acquisition of Narragansett. The Supreme Court reversed and remanded the case primarily because the district court had neglected to consider the edge effect upon competition exerted by Falstaff as a potential competitor: “The District Court erred as a matter of law. The error lay in the assumption that because Falstaff as a matter of fact, would never have entered the market de novo, it could in no sense be considered a potential competitor. More specifically, the District Court failed to give separate consideration to whether Falstaff was a potential competitor in the sense that it was so positioned on the edge of the market that it exerted beneficial influence on competitive conditions in that market. “A similar error was committed by the Court of Appeals in FTC v. Procter & Gamble Co., supra, where one of the reasons for the Commission finding the acquisition in violation of § 7 was that the merger eliminated Procter as a potential entrant, not because Procter would have entered independently, but because the acquisition eliminated the procompetitive effect Procter exerted from the fringe of the market. Id., at 575, 87 S.Ct. 1224. The Court of Appeals struck down this finding because there was no evidence that Procter ever intended de novo entry, but we held the Commission’s finding was ‘amply supported by the evidence,’ id., at 581, 87 S. Ct. 1224, because the evidence ‘clearly show[ed] that Procter was the most likely entrant,’ id., at 580, 87 S.Ct. 1224, and it was ‘clear that the existence of Procter at the edge of the industry exerted considerable influence on the market,’ id., at 581, 87 S.Ct. 1224. Thus the fact that Falstaff and its management had no intent to enter de novo, and would not have done so, does not ipso facto dispose of the potential competition issue. “. . . The District Court should therefore have appraised whether in any realistic sense Falstaff could be said to be a potential competitor on the fringe of the market with likely influence on existing competition. . . .” 410 U.S. at 532-534, 93 S.Ct. at 1100. (Footnote omitted.) The Court in Falstaff held that the elimination through acquisition of a significant, objectively evidenced, on-the-fringe potential competitor is sufficient by itself to violate § 7 — even if it were assumed that the potential competitor would not actually have entered the market. Thus, the decision went beyond Penn-Olin and Procter & Gamble in recognizing the competitive significance of a company which might merely exercise a procompetitive effect on the edge of the market, regardless of whether it is likely to enter the market unilaterally at some future date. Therefore, if the acquisition of the Tidewater assets by Phillips either foreclosed a likely future actual entry by Phillips which would have had a substantial effect upon competition, or eliminated a substantial effect upon competition arising from Phillips’ position at the edge of the market, the acquisition violated § 7. The court finds that both a substantial entry effect and a substantial edge effect were eliminated by the acquisition. Either one of these anticompeti-tive effects alone would have been sufficient to make the acquisition illegal under § 7; their combination renders the anticompetitive consequences of the acquisition even greater. The Standards Used in Assessing the Effects on Competition of an Acquisition Under § 7 — Objective vs. Subjective Evidence The Supreme Court in evaluating the effect on competition of an acquisition has moved toward an increased reliance on objective rather than subjective evidence of management’s intent. In 1962 in Brown Shoe, supra, 370 U.S. at 342 n. 69, 82 S.Ct. at 1538, the Court recognized “that in eases of this type precision in detail is less important than the accuracy of the broad picture presented.” The Court held that a merger of two healthy, profitable horizontal competitors which jointly held 5% of the market violated § 7. The following year, in Philadelphia National Bank, supra, the Court stated: “Clearly, this is not the kind of question which is susceptive of a ready and precise answer in most cases. It requires not merely an appraisal of the immediate impact of the merger upon competition, but a prediction of its impact upon competitive conditions in the future; this is what is meant when it is said that the amended § 7 was intended to arrest anticompetitive tendencies in their ‘incipiency’ . . . yet the relevant economic data are both complex and elusive. ... So also, we must be alert to the danger of subverting congressional intent by permitting a too-broad economic investigation.” 374 U.S. at 362, 83 S. Ct. at 1741. Because of concern with high levels of concentration in Philadelphia National Bank, the Supreme Court concluded that objective economic facts must be emphasized : “This intense congressional concern with the trend toward concentration warrants dispensing, in certain cases, with elaborate proof of market structure, market behavior, or probable anticompetitive effects. . . . Specifically, we think that a merger which produces a firm controlling an undue percentage share of the relevant market, and results in a significant increase in the concentration of firms in that market, is so inherently likely to lessen competition substantially that it must be enjoined in the absence of evidence clearly showing that the merger is not likely to have such anticompetitive effects.” 374 U. S. at 363, 83 S.Ct. at 1741. In Penn-Olin, supra, decided in 1964, the Court stated, “We reiterate that it is impossible to demonstrate the precise competitive effects of the elimination of either Pennsalt or Olin as a potential competitor.” 378 U.S. at 176, 84 S.Ct. at 1720. In 1966, in Von’s Grocery, supra, the Court found that while concentration levels in the market were still relatively low, there was a trend toward concentration, and the two merging firms, which were the third and sixth largest in the market, together accounted for 7.5% of the market. It held that “these facts alone are enough to cause us to conclude contrary to the District Court that the Von’s-Shopping Bag merger did violate § 7.” 384 U.S. at 274, 86 S.Ct. at 1480. Subjective evidence of the intentions of corporate management has never been accepted by the Supreme Court as a basis for concluding that a firm is not a potential entrant into a market. In Penn-Olin, supra, the Court, following a full review of objective evidence showing the capability and incentive of the joint venturers to enter the market independently, specifically rejected reliance upon subjective evidence: “Unless we are going to require subjective evidence, this array of probability certainly reaches the pri-ma facie stage. As we have indicated, to require more would be to read the statutory requirement of reasonable probability into a requirement of certainty. This we will not do.” 378 U. S. at 175, 84 S.Ct. at 1719. The Court stated flatly that “[potential competition cannot be put to a subjective test,” id., at 174, 84 S.Ct. at 1718, and outlined a group of objective factors which it' directed the district court to consider on remand, including “the number and power of the competitors in the relevant market,” “the background of their growth,” and “the power of the joint venturers.” Id. at 176-177, 84 S.Ct. at 1720. In Procter & Gamble, supra, the Court concluded that the acquisition of Clorox by Procter & Gamble eliminated a potential competitor, entrenched a market leader, and raised barriers to entry. The Court of Appeals had refused to accept a finding by the Federal Trade Commission that the conglomerate merger removed a potential competitor . . because there was no evidence that Procter’s management had ever intended to enter the industry independently and that Procter had never attempted to enter.” 386 U.S. at 580, 87 S.Ct. at 1231. The Supreme Court reversed the Court of Appeals and upheld the Commission’s finding on the basis of objective evidence: “The evidence . . . clearly shows that Procter was the most likely entrant. Procter had recently launched a new abrasive cleaner in an industry similar to the liquid bleach industry, and had wrested leadership from a brand that had enjoyed even a larger market share than had Clorox. Procter was engaged in a vigorous program of diversifying into product lines closely related to its basic products. Liquid bleach was a natural avenue of diversification since it is complementary to Procter’s products, is sold to the same customers through the same channels, and is advertised and merchandised in the same manner. Procter had substantial advantages in advertising and sales promotions. . . . Procter’s management was experienced in producing and marketing goods similar to liquid bleach. Procter had considered the possibility of independently entering but decided against it because the acquisition of Clorox would enable Procter to capture a more commanding share of the market.” 386 U.S. at 580-581, 87 S.Ct. at 1231. In United States v. Falstaff Brewing Corp., supra, the Court reaffirmed the determinative nature of objective economic facts in evaluating the effects upon competition. The district court held that Falstaff “had no intent to enter the New England market except through acquisition and . . . therefore could not be considered a potential competitor, . . . relying heavily on testimony of Falstaff officers,” 410 U.S. at 532, 93 S.Ct. at 1100. The Supreme Court reversed and remanded the case because the district court had only considered the effect arising from the possibility of a future entry by Falstaff but not the effect exerted by Falstaff at the fringe of the market. In doing so, the Court indicated that objective rather than subjective evidence should receive primary weight in evaluating an acquisition’s effect upon competition; and specifically stated subjective evidence, while relevant, could not be considered as determinative of a conclusion that an acquisition does not violate § 7: “The specific question ... is not what Falstaff’s internal company decisions were but whether, given its financial capabilities and conditions in the New England market, it would be reasonable to consider it a potential entrant into that market. Surely, it could not be said on this record that Falstaff’s general interest in the New England market was unknown; and if it would appear to rational beer merchants in New England that Falstaff might well build a new brewery to supply the northeastern market then its entry by merger becomes suspect under § 7. The District Court should therefore have appraised the economic facts about Falstaff and the New England market in order to determine whether in any realistic sense Falstaff could be said to be a potential competitor on the fringe of the market with likely influence on existing competition. This does not mean that the testimony of company officials about actual intentions of the company is irrelevant or is to be looked upon with suspicion; but it does mean that theirs is not necessarily the last word in arriving at a conclusion about how Falstaff should be considered in terms of its status as a potential entrant into the market in issue.” 410 U.S. at 533-536, 93 S.Ct. at 1101. (Footnotes omitted.) In a lengthy footnote, the Falstaff majority emphasized that the Court’s de-cisión in Procter & Gamble, supra, was grounded on objective factors: “In FTC v. Procter & Gamble Co., 386 U.S. 568, 581, 87 S.Ct. 1224, 18 L.Ed.2d 303 (1967), we found the acquiring company at the edge of the market exerted ‘considerable influence’ on the market because ‘market behavior . . . was influenced by each firm’s predictions of the market behavior of its competitors, actual and potential’; because ‘barriers to entry . . . were not significant’ as to the acquiring company; because ‘the number of potential entrants was not so large that the elimination of one would be insignificant’; and because the acquiring firm was the most likely entrant.” 410 U.S. at 534 n. 13, 93 S.Ct. at 1101. In the same footnote, the majority specifically stated that the same objective evidence which might establish a company as a likely market entrant in the future (i. e., the entry effect) would also constitute circumstantial evidence of the firm’s on-the-fringe (edge) effect on the market. The majority opinion stated: “The Government did not produce direct evidence of how members of the New England market reacted to potential competition from Falstaff, but circumstantial evidence is the lifeblood of antitrust law [citations], especially for § 7 which is concerned ‘with probabilities, not certainties.’ Brown Shoe Co. v. United States, 370 U.S. 294, 323, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962). As was stated in United States v. Penn-Olin Chemical Co., 378 U.S. 158, 174, 84 S.Ct. 1710, 12 L.Ed.2d 775 (1964), ‘potential competition cannot be put to a subjective test. It is not “susceptible of a ready and precise answer.” ’ “Nor was there any lack of circumstantial evidence of Falstaff’s on-the-fringe competitive impact. As the record shows, Falstaff was in the relevant line of commerce, was admittedly interested in entering the Northeast, and had among other ways made its interest known by prior acquisition discussions. Moreover, there were, as my Brother Marshall would put it, objective economic facts as to Falstaff’s capability to enter the New England market; and the same facts which he would have the District Court judge look to in determining whether the particular theory of potential competition we do not reach has been violated, would be probative of violation of § 7 through loss of a procompetitive on-the-fringe influence. See FTC v. Procter & Gamble Co., 386 U.S. at 580-581, 87 S.Ct. 1224, 18 L.Ed.2d 303; United States v. Penn-Olin Chemical Co., 378 U.S. at 173-177, 84 S.Ct. 1710, 12 L.Ed.2d 775; United States v. El Paso Natural Gas Co., 376 U.S. 651, 660, 84 S.Ct. 1044, 12 L.Ed.2d 12 (1964).” 410 U.S. at 534-535, n. 13, 93 S.Ct. at 1101. The objective evidence that Falstaff was engaged in the beer industry, was interested in the New England market and had investigated market entry via acquisition, and had the economic capability to enter, was held by the Court to be probative, in the face of conflicting subjective evidence, or Falstaff’s on-the-fringe competitive impact when there were relatively few such potential entrants. The Court left open the question of whether § 7 bars a merger by a company whose entry into the market would leave competition in the marketplace exactly as it was before the merger — where there was both no preexisting procompetitive edge effect and where the entrant will not be “a dominant force” in the market. 410 U.S. at 537, 93 S.Ct. 1096. There are several reasons for preferring objective evidence to subjective evidence. To begin with, entry by acquisition is almost always more attractive to management than independent entry. An acquisition enables a company to quickly capture the acquired company’s share of the market. Risk is minimized. Moreover, the competitive force of the acquired company, which would be present if the acquiring company entered unilaterally, is eliminated. It will thus be in a company’s self-interest to present subjective evidence of a lack of any intent to enter the market unilaterally and of a lack of any effect on the competitive behavior of firms in the market arising from the company's presence on the edge of the market. As one commentator has noted: “The determination of what a large corporation acting through staff agencies, committees, officers and directors intends to do — not merely in the present, but at some future time as well, delves into vagaries of corporate decision-making and into a vast labyrinth of evidence. More importantly, once the legal issues are known to astute corporate counsel, future facts as to corporate intent can be expected to be shaped under careful legal guidance to negate any inference that a corporation intended to enter any particular market which it later enters by merger.” Brodley, Oligopoly Power Under the Sherman and Clayton Acts —-From Economic Theory to Legal Policy, 19 Stan.L.Rev. 285, 357-58 (1967). A second reason for preferring objective evidence to subjective evidence in antitrust cases is to provide certainty and predictability to business planning. Reliance upon subjective evidence of corporate intentions or preferences would make the antitrust consequences of an acquisition unpredictable to businessmen and government attorneys alike. As the Supreme Court noted in Philadelphia National Bank, supra, 374 U.S. at 362, 83 S.Ct. at 1741, “unless businessmen can assess the legal consequences of a merger with some confidence, sound business planning is retarded.” And in discussing the application of a per se rule involving § 1 of the Sherman Act, 15 U.S.C. § 1, the Court in United States v. Topco Associates, 405 U.S. 596, 609 n. 10, 92 S.Ct. 1126, 1134, 31 L.Ed. 2d 515 (1972), observed: “Without the per se rules, businessmen would be left with little to aid them in predicting in any particular case what courts will find to be legal and illegal under the Sherman Act. Should Congress ultimately determine that predictability is unimportant in this area of the law, it can, of course, make per se rules inapplicable in some or all cases, and leave the courts free to ramble through the wilds of economic theory in order to maintain a flexible approach.” While reliance on objective factors would not by any means provide complete certainty regarding the antitrust consequences of business decisions, it would provide greater predictability than reliance upon a judicial determination of management’s intent. There is another reason why identifying potential competitors on the basis of objectively evidenced capability, economic incentives and desires is preferable to reliance upon subjective evidence. The firms which are in the market and are likely to be influenced by the existence of a potential competitor on the edge of the market usually will not be aware of its subjective intentions and evaluations with any degree of precision. Firms in the market will react to firms on the edge which they see as likely to enter by virtue of obvious facts relating to the company’s capability, incentives and evidenced interests. Such objective factors constitute the primary component of the edge effect. The defendants in the instant case have stressed subjective evidence— primarily testimony by corporate officers — that Phillips never attempted a unilateral entry into the California motor gasoline market and that its management never intended or adopted a plan to do so. For the reasons discussed above, such subjective evidence, while relevant and entitled to consideration, cannot be determinative in evaluating the legality of the acquisition under § 7. If strong objective evidence points to a contrary conclusion, the objective evidence must prevail. The court has relied primarily upon objective evidence to determine whether either a procompetitive entry effect or a procompetitive edge effect was eliminated as a result of Phillips’ acquisition of Tidewater’s assets. Among the factors the court has considered are: (1) the fact that Phillips was in the relevant line of commerce, and the history of Phillips’ activities therein; (2) previously expressed indications of Phillips’ interest in entering the California market; (3) objective economic facta indicating Phillips’ capability to enter the California market unilaterally; (4) objective economic facts indicating Phillips’ incentives to enter the California market; (5) recognition by others in the industry of Phillips as a potential entrant into the California market; and (6) objective economic facts relating to the structure and degree of concentration of the market and barriers to entry therein. The court adopts the standard that where credible objective evidence shows the basic economic facts of the acquiring company’s overall size, resources, capability, and motivation with respect to entry into an adjacent attractive market involving a line of commerce in which the firm is already heavily engaged, that firm must be considered to be a significant potential entrant unless it is objectively demonstrated that some unique feature of the market precludes such entry. Moreover, where the market is concentrated and there are few such likely entrants, whether due to the existence of high barriers to entry or for other reasons, no further inquiry is required as to the anticompetitive effect of the acquisition, and that effect must be considered to be substantial within the meaning of § 7. On the basis of the objective evidence set forth below, the court finds that (1) Phillips was a likely potential unilateral entrant into the California motor gasoline market, and in fact was the most likely potential entrant; and (2) Phillips exerted, prior to the Tidewater acquisition, a substantial procompetitive effect on the behavior of those in the market from its position on the edge of the market. Both Phillips’ status as the most likely potential entrant and the procompetitive effect exerted by Phillips on the fringe were eliminated when Phillips acquired the Tidewater assets. The anticompetitive effects of the elimination of Phillips as a possible future entrant and of the procompetitive edge effect it exerted were both substantial. Either of these anticompetitive effects alone, as well as both in conjunction, cause the acquisition to be illegal under § 7 of the Clayton Act. Phillips’ Capability of Entry Objective factors make it clear that Phillips possessed the capability to make a unilateral entry into the California motor gasoline market in 1965-66 had it chosen to do so. Phillips at the time of the Tidewater acquisition was one of the leading domestic oil companies, ranking eighth in assets, ninth in net income, tenth in gross sales, and eleventh in refining capacity. During the first 10 years of its existence, Phillips steadily expanded its production of crude oil and natural gas liquids and inaugurated its program of assembling large reserves of raw materials. Beginning in 1927 with the opening of several service stations in Oklahoma and Kansas, Phillips entered into the marketing and then the refining and transportation phases of the oil industry. Phillips’ management envisioned the need for refineries and retail outlets as a vehicle for establishing a continuing market for raw materials. Phillips experienced a dramatic expansion in both marketing and refining capacity. By 1965, it had about 19,500 branded service stations located in 48 states and the District of Columbia, including one at Needles, California. This California outlet was closed during the latter part of 1965. At the time of the Tidewater acquisition, Phillips had approximately 19,700 branded service stations located in all states except California, Alaska and Hawaii. It also had approximately 4,000 marketing outlets other than branded service stations. It ranked among the top 10 companies in motor gasoline sales in 30 states and marketed in every region of the continental United States except • California. At no time prior to the Tidewater acquisition did Phillips ever enter a new marketing area by acquiring a major company in that market. Its prior marketing expansion was accomplished through unilateral entry, except for its entry into the northern Rocky Mountain region. That move was accomplished by acquiring several small companies that were not among the leaders in their respective markets. Phillips’ unilateral expansion in all areas of its operation, including marketing, was particularly rapid following World War II. During the first decade after the war, Phillips grew at a faster rate than any of the 20 largest oil companies, spurred by a dynamic sales force. Between 1947 and 1966, Phillips began marketing branded gasoline and other refined products in 27 new states, including the Southeast, the East Coast and most of the West. The Tidewater acquisition in 1966 and Phillips’ subsequent entry into Alaska has put Phillips in the select category of companies marketing through branded service stations in all 50 states. In addition, Phillips has become one of the leading marketers in Canada through its 45% interest in Pacific Petroleums Ltd., one of the five largest Canadian oil companies. Phillips’ refining and marketing expansion has been supported by the building of a huge pipeline complex to transport crude oil and refined products. The company’s pipeline system consists of more than 3,000 miles of wholly owned common carrier products lines, more than 3,000 miles of common carrier crude oil lines, and thousands of additional miles of jointly owned lines. Phillips constructed the first long-distance multi-product pipeline in the United States from its Borger, Texas refinery to East St. Louis, Illinois. Phillips’ record of dynamic internal growth has made it a leading international company with substantial interests in many parts of the world. It has petroleum exploration interests in 22 nations, oil and gas reserves in 14, petroleum refining interests in seven, petrochemical manufacturing or fabrication interests in 20, and product sales in more than 70. In addition to its extensive domestic interests in crude oil reserves and production (including Alaska’s North Slope and Cook Inlet and areas offshore California), Phillips produces petroleum in such areas as Egypt, Venezuela, Libya and Kuwait. It has a prominent position in developing production areas in the North Sea, offshore New Guinea, offshore Iran and Nigeria. At the time of the Tidewater acquisition, Phillips’ foreign crude oil production almost equaled its domestic production. One indication of Phillips’ strength in research and development and technology is the fact that for many years, it' has ranked first or second among domestic oil companies in the number of United States patents issued. Phillips’ dramatic record of growth is in large part attributable to its management’s conscious search for balance and diversification in order to protect the company’s long-range interests. In a speech to a group of San Francisco security analysts on February 10, 1966, while he was negotiating the Tidewater acquisition, Phillips’ executive vice president, John M. Houchin, explained the company’s policy as follows: “Phillips is among the most highly diversified of all oil companies. Our objective is balanced diversification, both as to variety of activities and as to geography, because we are confident the resulting financial stability benefits stockholders and employees over the long pull. We are constantly forking to achieve optimum balance.” Phillips was active in California even before it entered the California motor gasoline market by means of the Tidewater acquisition. As Houchin told the security analysts: “Phillips is more active in this state than many realize. We have production and exploration interests here, although the exploration is largely confined to offshore areas and the Sacramento basin. And, both directly and through subsidiaries, we are engaged in the manufacture and marketing of many plastic items and packaging, and the marketing of fertilizers, our full lines of rubber carbon black, high-purity hydrocarbons, and many specialty chemicals.” Houchin also pointed out that Phillips was the second largest industrial firm headquartered west of the Mississippi River — surpassed only by Standard Oil Company of California. A further indication that Phillips had the financial strength to enter the California motor gasoline market unilaterally is the relative ease with which the company was able to finance the $366 million Tidewater acquisition and absorb substantial post-acquisition losses totaling well over $100 million. First Boston Corporation, the underwriter of the issue by Phillips of $200 million in long-term notes in connection with the Tidewater acquisition, was not concerned with Phillips’ ability to finance the acquisition or with the rate of return which Phillips anticipated from the investment. The advisability of the acquisition was “simply not a factor” in First Boston’s decision to act as Phillips’ agent for the direct placement of the $200 million in notes. First Boston did not consider the Tidewater acquisition to be a particularly large one for a company of Phillips’ size, and determined that superimposing the acquired Tidewater assets upon Phillips’ balance sheet and earnings statement “did not have a great effect.” Unlike Phillips’ prior history of largely incremental marketing expansion from existing refineries and supply points, a unilateral entry into California on a substantial scale would have involved the eventual acquisition or construction of a refinery on the West Coast. The need for a permanent, substantial entrant into the California market to have a West Coast refinery is due primarily to the fact that the West Coast, unlike the East Coast, has a substantial amount of local crude production. A major marketer on the West Coast with no local refining facilities would have to transport product a considerable distance, purchase it on the West Coast, or exchange product elsewhere for product on the West Coast. Although these methods of obtaining West Coast product supplies are quite feasible while an entrant is building its marketing volume to the point where a West Coast refinery can be operated at an economical level of capacity, and as a supplemental source of supply thereafter, unlimited reliance upon them on a permanent basis would place the marketer at a disadvantage with respect to those West Coast majors having local refining facilities. On the East Coast, by contrast, the absence of local crude production largely rules out any cost advantage of an East Coast refinery over a Gulf Coast refinery due to transportation savings. The cost of product on the East Coast will be about the same whether crude is transported from the Gulf Coast to an East Coast refinery or product is transported from a Gulf Coast refinery to the East Coast. The high degree of competence and initiative shown by Phillips’ management when Phillips expanded into other areas, combined with Humble Oil’s prior unilateral entry into the California market through construction of its own refinery, point to the conclusion that Phillips would have been able to successfully build its own West Coast refinery. The court has analyzed Phillips’ capability to make a unilateral entry into the California motor gasoline market on the basis.of such objective criteria as the company’s financial strength as indicated by its assets, its income, it debt ratio and its production and capacity levels; and its experience in organization, marketing, and managerial performance. On the basis of these objective factors, the court has determined that such a unilateral entry was clearly possible. Phillips’ Motivation for and Expressed Interest in Entering the California Market Motivation, like capability, must be assessed primarily on the basis of objective evidence. The relevant objective factors are corporate actions which demonstrate a strong desire for market entry, and economic facts or conditions which indicate that it would be in the company’s interest to participate in the market. Objective evidence of desire is particularly important. A company with" capability and an intense desire for market entry would have to be regarded as a potential unilateral entrant even if it were impossible to explain this desire in conventional economic terms. If a company clearly has a strong desire to enter a given market, for whatever reason or even in the absence of a discernible reason, it is sufficient by itself to establish motivation. There is abundant objective evidence that Phillips had an intense desire to enter the California motor gasoline market. Starting with a well-defined company goal of nationwide marketing, Phillips explored every possible means of entering California — a large acquisition, a joint venture, a foothold acquisition, and unilateral entry. Not surprisingly, its preferred method of entry was through a large acquisition. By stepping into the shoes of an established major factor in the market, a new entrant attains immediate market-wide recognition, even though it must still gain public acceptance of its distinctive brand, avoids much of the effort and inconvenience which would be involved in the selective duplication of the acquired facilities attendant upon a unilateral entry, avoids a great deal of risk, and enjoys the prospect of modest growth within the limits of the acquired company’s market share without serious challenge from rivals. This method of entry is, however, inconsistent with the objectives of the antitrust laws precisely because of these features. An entrant by large acquisition who could have entered unilaterally has been lost as an aggressive new competitive force in the market. Phillips had a clearly evidenced desire to become a nationwide marketer prior to its acquisition of Tidewater. The advantages of marketing nationwide were detailed by the Supreme Court in United States v. Falstaff Brewing Corp., supra. The Court’s observations about the beer industry apply equally well to the sale of motor gasoline:- National brewers possess competitive advantages since they are able to advertise on a nationwide basis, their beers have greater prestige than regional or local beers, and they are less affected by the weather or labor problems in a particular region. Thus Falstaff concluded that it must convert from ‘regional’ to ‘national’ status, if it was to compete effectively with the top four producers . . . .” 410 U.S. at 529, 93 S.Ct. at 1099. (Footnote omitted.) Phillips’ goal of becoming a nationwide marketer was confirmed by the testimony of a former official of its supply and transportation department, John L. Kyser. Kyser was involved in supply and transportation matters relating to Phillips’ marketing expansion into the southeastern United States in the 1950’s. He testified that during this southeastern expansion, it was common knowledge around the company that Phillips wanted to become a national marketer, and characterized nationwide marketing as “a target or goal” of Phillips’ management. He specifically recalled that this goal included market entry into the West Coast as well as the East Coast— the only two regions which Phillips had not then penetrated. Several possibilities for unilateral entry were investigated by Phillips personnel, including: (1) obtaining a steadily increasing supply of gasoline on the West Coast by exchange with a West Coast major for Gulf Coast or Mid-Continent gasoline; (2) building a products pipeline from Phillips’ Borger, Texas refinery to the West Coast; (3) extending an existing jointly owned products pipeline from Albuquerque, New Mexico to the West Coast; (4) transporting gasoline by barge down the Columbia River from a pipeline terminal at Pasco, Washington, which could be served from Phillips’ refinery at Woods Cross, Utah; and (5) shipping gasoline by tanker from Phillips’ Gulf Coast refinery to a West Coast terminal. Phillips personnel also discussed building a West Coast refinery in connection with entry into the market. Advance planning was done on the West Coast by representatives of the Phillips marketing department, just as had been done prior to Phillips’ entry into the Southeast. Phillips contacted virtually every refiner on the West Coast about obtaining gasoline supplies there in sufficient volumes to support a marketing entry. Kyser testified: “[L]ater on in time when there was more of a desire to expand on the West Coast and into California, we canvassed, talked to, visited with nearly all, if not all, of the refineries in the area in an attempt to obtain exchange gasoline that would permit marketing over the entire area.” Kyser also testified as to advance work performed by the Phillips sales department: “Sales representatives spent considerable time out here reviewing the marketing activities of the other companies, reviewing the prospects for obtaining jobbers or unbranded sales outlets where Phillips could sell motor fuel, refined products, without having to build their own service stations.” Kyser testified that neither he nor other Phillips personnel were encouraged at the time by their investigations,, and that no formal reports were submitted to the Phillips Operating Committee or to the company’s top management with respect to either individual investigations or the overall feasibility of unilateral entry. Phillips never made the kind of rigorous, full-scale analysis of unilateral entry which Humble Oil & Refining Company later made, and which led Humble to launch a unilateral entry after being denied the Tidewater acquisition. It is clear from the evidence as a whole that Phillips’ management was not interested in giving serious consideration to unilateral entry as long as there remained the possibility of entering the California market by means of a large acquisition. The investigations of possibilities for unilateral entry do, however, show Phillips’ interest in entering the California market and awareness of the various possibilities for entry on the part of the company’s operating personnel. Cf. Procter & Gamble, supra, 386 U.S. at 580-581, 87 S.Ct. 1224. The desire of Phillips’ management to enter the California market through a large acquisition or joint venture is indicated by its somewhat complicated dealings with Union Oil Company of California beginning in 1959. W. W. Keeler, then Phillips’ executive vice president, broached the subject of a Phillips-Union merger with Union’s president, A. C. Rubel, in February 1959. Rubel advised him that Union had no interest in a merger with Phillips. Keeler subsequently discussed with K. S. Adams, Phillips’ president, the possibility of seeking some type of cooperation from Union, and Adams decided that Phillips should acquire a substantial amount of Union stock. The Phillips Board of Directors approved a $50 million stock purchase in April 1959, and Phillips then acquired more than 10% of Union’s outstanding stock. Keeler testified that, in his view, Adams decided upon the stock purchase in order to place Phillips in a better position to discuss merger possibilities or other forms of cooperation with Union’s management. Following a government antitrust suit against Phillips and Union challenging the stock acquisition, Phillips sold the stock. Phillips executives also considered the possibility of suggesting to Union that the two companies establish a joint venture which would own and operate Union’s West Coast manufacturing, terminal and transportation facilities. In addition, Phillips’ vice president in charge of marketing at the time, E. H. Lyon, discussed the possibility of acquiring certain Union service stations with Fred Hartley, then Union’s vice president of marketing. Phillips executives also considered a plan developed in the refining department to construct a refinery in the Puget Sound area. The alternative of making a small foothold refining-marketing acquisition on the West Coast was also investigated. In June 1963, Phillips sent representatives of its refining and marketing departments to the West Coast to inspect and evaluate the assets of Fletcher Oil Company, which had a refinery at Wilmington, California, and 105 service stations in California, Oregon and Washington. Phillips was interested in the Fletcher properties as a possible means of entry into the California market. Phillips’ management later rejected the idea of acquiring Fletcher, primarily because the refinery site was so small that it did not allow space for future refinery expansion. In 1964 and 1965, Phillips’ top management engaged in several discussions with the president of Richfield Oil Corporation, Charles Jones, concerning the possibility of Phillips acquiring Rich-field’s stock. Phillips was initially unwilling to pay the price demanded by Richfield on the basis of the limited information it had, and was still seeking more information about Richfield’s operations when Richfield was acquired by Atlantic Refining Company. The analy-ses of the Richfield assets made by Phillips personnel emphasized its West Coast refining and marketing operations. One such analysis stated that the primary advantage to Phillips of acquiring Rich-field would be “[a] large product outlet (158 thousand B/D) in a fast growing market area not now served by Phillips.” The acquisition of Richfield would have accomplished much the same result that the Tidewater acquisition one year later accomplished — it would have enabled Phillips to step into the shoes of one of the established West Coast major oil companies. The acquisition of the Tidewater assets for $366 million was accomplished after a relatively casual examination of the Tidewater assets. Only sketchy information was provided by Tidewater, and there was good reason to believe that substantial additional expenditures would have to be made to renovate and upgrade deteriorated facilities. One Phillips official, Senior Vice President Charles Kittrell, testified that Phillips’ management at the time regarded the Tidewater acquisition as the last chance for Phillips to enter the West Coast market by means of a large acquisition. The only inspection of the Tidewater assets made by Phillips was a trip made by Houchin and various other personnel early in the negotiations. Houchin testified that they were virtually “flying blind” because they could get no factual information from Tidewater’s files except for bits and pieces at night, due to Tidewater’s fear that employee morale might be adversely affected. Houchin’s team had to appraise the Tidewater service stations from the street and make estimates of the volume of traffic going in and out, since they could not obtain asset figures and actual station sales figures. C. C. Tate of Phillips’ refining department testified that he inspected the Avon, California, refinery by driving around the refinery in a car for several