Full opinion text
MEMORANDUM OPINION H. FRANKLIN WATERS, Chief Judge. . This is a consolidated antitrust case in which the United States and private plaintiffs are challenging the purchase of a local daily newspaper, the Northwest Arkansas Times (“the Times ”), by NAT, L.C. Both the government and private plaintiffs contend that this purchase may substantially lessen competition, since NAT, L.C. (“NAT”), has significant shareholders in common with defendant D.R. Partners - d/b/a Donrey Media Group (“Donrey”), which owns a competing local daily newspaper, the Morning News of Northwest Arkansas (“Morning News ”). Private plaintiffs and the government both claim that the acquisition violates Section 1 of the Sherman Act, 15 U.S.C. § 1, and Section 7 of the Clayton Act, 15 U.S.C. § 18. Private plaintiffs seek injunctive relief under Section 16 of the Clayton Act, 15 U.S.C. § 26; while the government seeks such relief under Section 15 of the Clayton Act, 15 U.S.C. § 25. Private plaintiffs alone bring claims alleging that: (1) NAT’s acquisition of the Times violates Section 2 of the Sherman Act, 15 U.S.C. § 2, which prohibits monopolization and attempts to monopolize; (2) NAT and Donrey have interlocking directorates in violation of Section 8 of the Clayton Act, 15 U.S.C. § 19; (3) NAT and Donrey violated the notice provisions of the Hart-Scott-Rodi-no Act, Section 7A of the Clayton Act, 15 U.S.C. § 18a, which requires government notification of certain acquisitions, which was not done in this case. As will be explained below, the court will find that the challenged acquisition violates Section 7 of the Clayton Act, and it will be unnecessary to judge the transaction under Sections 1 and 2 of the Sherman Act. It will also be unnecessary to reach private plaintiffs’ claims arising under Section 7A of the Clayton Act concerning Hart-Scott-Rodino notification and Section 8 of the Clayton Act concerning interlocking boards and directorates. I. THE PARTIES AND OTHER INTERESTED BYSTANDERS Thomson Newspapers, Inc. (“Thomson”) owned the Northwest Arkansas Times (“the Times ”), a local daily newspaper that competes in the Northwest Arkansas market, until February 6, 1995, when it sold the property to NAT. NAT, L.C. (“NAT”) is a limited liability company formed to acquire the Times from Thomson. Various Stephens family trusts own ninety-five percent (95%) of NAT’s stock, and Jack Stephens is NAT’s chairman. The Stephens family business began with the partnership of two brothers, Jack Stephens and Witt Stephens, who went on to build the largest investment banking firm off Wall Street. Stephens family assets are now dispersed among Jack Stephens, his son (Warren Stephens), his brother Witt Stephen’s widow (Bess Stephens), and her three children (W.R. Stephens, Jr., Pamela Stephens Rose and Elizabeth Ann Stephens Campbell). D.R. Partners d/b/a Donrey Media Group (“Donrey”) is a general partnership which owns the Morning News of Northwest Arkansas (“the Morning News”), which competes in the same local daily newspaper market as the Times. Stephens Group, Inc. (“SGI”) owns ninety-nine percent (99%) of Donrey’s stock, and the additional one percent is held by Stephens Holding, Inc. SGI is owned entirely by Stephens family trusts. Jack Stephens is chairman of both Donrey and SGI. Community Publishers, Inc (“CPI”) publishes the Benton Comity Daily Record (“the Daily Record ”), which also competes in the local daily newspaper market of Northwest Arkansas. CPI is owned by Jim Walton, the son of Sam Walton, founder of Wal-Mart Stores, the country’s largest and most successful retailer. CPI also sought to purchase the Times from Thomson in partnership with WEHCO Media. WEHCO Media is owned by Walter Hussman, and it publishes the Arkansas Democrat-Gazette, a statewide newspaper out of Little Rock. It is the only Arkansas daily newspaper with statewide circulation. The Arkansas Democrat-Gazette is a merger of two formerly competing statewide newspapers, the Arkansas Democrat and the Arkansas Gazette, which conducted a newspaper war to the death in the 1980’s. At that time the Gazette was owned by Gannett, a large nationwide newspaper chain which publishes USA Today along with numerous other newspapers spread across the United States. Shearin, Inc. d/b/a Shearin & Company Realtors (“Shearin”) is a real estate brokerage firm with its principal office in Rogers and a branch office in B'entonville. It advertises regularly in both the Morning News and the Daily Record. II. NAT’s ACQUISITION OF THE TIMES The court will begin by outlining the events leading up to NAT’s acquisition of the Times, because it is useful in showing the noncompetitive manner in which the Stephens family does business together and the relationship between their companies, NAT and Donrey. The acquisition history is also useful in explaining the role of Thomson in closing the deal despite the existence of substantial antitrust questions, which will be relevant to the way the court shapes its remedy. Donrey had historically expressed interest in acquiring the Times. In September 1994, Emmett Jones, Donrey’s President and Chief Operating Officer, met with Robert Daleo, Thomson’s Chief Financial Officer, at the Dallas-Fort Worth Airport. Daleo asked Jones whether Donrey would sell the Morning News; while Jones asked Daleo whether Thomson would sell the Times. Both parties were ready to buy, , but neither party was willing to sell. Apparently each party wanted the operational synergies and obvious competitive advantages that would accompany owning all three daily local newspapers in Northwest Arkansas. In November 1994, Donrey was again involved in negotiations where it sought to acquire the Times from Thomson. The deal involved a three-way exchange, whereby Donrey would convey a certain media property to a third party, which would then convey other media properties to Thomson, which would then convey the Times to Don-rey. The deal fell through when the third party backed out. In January 1995, Donrey made its final attempt to acquire the Times. On January 19th, Thomson publicly announced its intention to sell the Times. Thomson also announced its intention to sell twenty-four other United States newspapers in a package deal. Thomson did not include the Times in the package of twenty-four newspapers as it felt that the Times was more valuable and because various entities had already expressed interest in it, including Donrey and CPI. Thomson stated bids for the Times. should be received by February 8, 1995, but Thomson reserved the right to sell the Times before that date. On January 19 or 20, 1995, Jones called Daleo to get the bid package and to set up a Donrey-Thomson meeting. With regard to the purchase price, Daleo told Jones that Thomson wanted approximately fifteen times earnings or twenty million dollars for the Times. The twenty million dollar figure was based on in-house financial analyses performed by Thomson which assumed that the purchaser would combine the Times with one or more newspapers and achieve “operational synergies.” A much lower purchase price resulted from Thomson’s “stand-alone” analysis, which projected the value of the paper as though it would be owned and operated as an independent entity. Jones, who likely presumed operational synergies for Donrey, testified that he would have valued the Times at between twenty and thirty million dollars. Soon after Thomson put the Times up for sale, Jack Stephens and his executive assistant, Scott Ford, who is also a vice-president of Donrey, became directly involved. Oh January 23 and 24, 1995, there were meetings with attorneys in which they discussed legal aspects of purchasing the Times “a good bit,” to quote the testimony of Jack Stephens. Over the course of these meetings, Jack Stephens decided that he would purchase the Times through NAT rather than through Donrey. However, Donrey officials were not consulted or apprised of the decision when it was made. According to Jack Stephens, he decided on a NAT purchase of the Times primarily due to his interest in the Fayetteville community and his desire for a more hands-on opportunity for members of his family and high level SGI officers. He stated further that a Don-rey purchase would not have accomplished this goal, because Donrey’s management and operations structure was already in place when purchased by the Stephens family in August 1993. Thus, a Donrey purchase would not have allowed Stephens family members and personnel to be as involved in the daily operation of the Times as Jack Stephens wanted them to be. On January 24,1995, there was a luncheon meeting in Fort Smith, Arkansas, between Donrey’s senior management personnel and several SGI representatives. Present at the meeting were Jack Stephens, his son (Warren Stephens), Ford, Jones, Darrell Loften (Donrey’s Chief Financial Officer), and other Donrey personnel. In preparation for that meeting, Jones had told Loften, to perform additional price analysis on the Times. However, this additional analysis was never discussed at the January 24 meeting because Ford told Jones, upon disembarking from Jack Stephens’ plane, that the Stephens family was going to buy the Times directly and that there was no longer any need for Donrey to be involved. Jones was disappointed and Loften surprised, as Donrey had been trying to acquire the Times as part of its competitive strategy for a long time. Still, due to the ownership structure of the Stephens-Donrey organization, Donrey promptly gave up pursuit of the Times and did not compete with NAT to acquire it. As a general matter, the Hart-Scott-Rodi-no notice provisions of the antitrust law were not an infrequent topic of discussion. At the January 24 lunch in Fort Smith, Loften asked Ford if he needed any help with Hart-Scott-Rodino compliance, to which Ford said no. Jones also knew that any acquisition by Donrey would require a Hart-Scott-Rodino filing, a matter which he says he discussed with various people including Loften, Ford, .Jack Stephens and others. In fact, when Jones learned that NAT was going to purchase the Times, he admits that the thought passed through his mind that perhaps NAT was purchasing the Times to avoid the need to comply with Hart-Scott-Rodino. On January 26, 1995, Jack Stephens discussed the Times purchase over lunch with his sister-in-law (Bess Stephens), his nephew (W.R. Stephens, Jr.), and his niece (Elizabeth Ann Stephens Campbell). At the meeting, there was no determination of the percentages that would be owned by each family member as that would be determined later by the accountants. In general, the exact breakdown of ownership is not considered to be a matter of great importance to the Stephens family. On January 27, 1995, Jack Stephens and Ford met with Richard Harrington, Thomson’s President and Chief Executive Officer, and Robert Daleo, Thomson’s Chief Financial Officer, at Thomson’s headquarters in Stamford, Connecticut. The meeting had been arranged at Jack Stephens’ request by a friend or associate in the banking business who also did business with the Thomson chain. Jack Stephens started the meeting by immediately telling Harrington that he understood that Thomson wanted 15 times cash flow — that’s twenty million dollars and that he was there to pay it. Harrington asked to be excused and left with Daleo to discuss the offer. When they returned, Harrington asked for a 10% preemptive bid premium of two million dollars, to which Jack Stephens “gulped” and said “okay.” The twenty million dollar figure was the one that Thomson based on operational synergies, without any adjustment for the supposed stand-alone nature, of a NAT purchase.' In fact, there was not any indication in the negotiations that anyone at SGI, Donrey, or Thomson, ever took account of the recognized fact that the Times was worth less as a stand-alone venture. The fact that the party purchasing the property was NAT rather-than Donrey did not seem to make a difference. To finance the deal, SGI paid a dividend to the various family trusts that were investing in NAT. These trusts then transferred the dividend to NAT and received NAT stock in return. Jack Stephens and Bess Stephens also provided two bridge loans to NAT total-ling thirteen million dollars. The promissory notes reflecting these bridge loans were not only unsecured, but also apparently unsigned. The sale was consummated on February 6, 1995. According to defendants, the closing was originally scheduled for February 3rd, but it was delayed until February 6th because Daleo and Harrington were out of town and because there was some trouble calculating the value of the net current assets of the Times. Prior to consummating the sale, Thomson insisted that the asset purchase agreement include an indemnification provision, whereby NAT agreed to indemnify Thomson for the costs of defending any investigation, suit or proceeding in connection with any failure to comply with Hart-Scott-Rodino or any violation of the antitrust laws. The genesis of this indemnity provision was at the January 27, 1995, meeting between Harrington and Jack Stephens, when Thomson’s in-house attorney, a Mr. Harris, was called into the meeting. The indemnity provision continued to be discussed and negotiated by Thomson attorney Kenneth Carson and NAT attorney Rick Massey, who exchanged various drafts of the asset purchase agreement on January 30 and February 1. Thomson’s insistence on an indemnity provision was further cemented by a threatening phone call on February 2nd from Walter Hussman of WEHCO Media, in which Walter Hussman discussed the possibility of antitrust liability with a Donrey purchase. The February 5, 1995, filing of this lawsuit and the scheduling of a February 6, 1995, preliminary injunction hearing could only have reinforced Thomson’s desire for such an indemnity provision. According to Ford, the key people for Stephens had been all through the antitrust liability issue with three different law firms prior to consummating the sale, and they were convinced that competitor plaintiffs such as CPI, Walter Hussman and Jim Walton had no standing to bring such a lawsuit. Ford did not indicate whether the lawyers discussed the possibility of a government antitrust suit and the possible need to win the case on its merits rather than on standing. III. SECTION 7 OF THE CLAYTON ACT Section 7 forbids a stock or asset acquisition if it may substantially lessen competition in the relevant market. 15 U.S.C. § 18. Thus, the first step in Section 7 analysis is the definition of the relevant market. The burden of defining the market rests with the plaintiff. H.J., Inc. v. Internat’l Tel. & Tel. Corp., 867 F.2d 1531, 1537 (8th Cir.1989). (Section 2 of the Sherman Act) (citations omitted). Once the relevant market is established, plaintiff must then show that the acquisition may substantially lessen competition. Id. The court also notes that in order to have standing to bring this suit, private plaintiffs must demonstrate what is called antitrust injury. Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 110 S.Ct. 1884, 109 L.Ed.2d 333 (1990). Antitrust injury is a technical concept that requires knowledge of economies and the functioning of the relevant market. Therefore, the court -will discuss it after setting forth the nature of the relevant market, although antitrust injury is a prerequisite to bringing a private suit. IY. GENERAL PRINCIPLES OF MARKET DEFINITION The Supreme Court has stated that products belong in the same market when they are “reasonably interchangeable” for the same uses and thus exhibit a high “cross-elasticity of demand.” As the Eighth Circuit more simply put it, “[djefining a relevant product market is primarily ‘a process of describing those groups of producers which, because of the similarity of their products, have the ability — actual or potential — to take significant amounts of business away from each other.’ ” General Indus. Corp. v. Hartz Mountain Corp., 810 F.2d 795, 805 (8th Cir.1987) quoting SmithKline Corp. v. Eli Lilly & Co., 575 F.2d 1056, 1063 (3d Cir.), cert. denied, 439 U.S. 838, 99 S.Ct. 123, 58 L.Ed.2d 134 (1978). To say that two products are in the same market means that they constrain each other’s ability to exercise market power by raising prices and lowering quality for fear that consumers will switch to the competitor’s product. It is a primary purpose of Section 7 of the Clayton Act to preserve this constraining effect on the exercise of market power. Merger Guidelines § 0.1.. See also, United States v. Archer-Daniels-Midland Co., 866 F.2d 242, 246 (8th Cir.1988) (“The lawfulness of an acquisition turns' on the purchaser’s potential for creating, enhancing, or facilitating the exercise of market power— the ability of one or more firms to raise prices above competitive levels for a significant period of time.”) (citation omitted), cert. denied, 493 U.S. 809, 110 S.Ct. 51, 107 L.Ed.2d 20 (1989); Merger Guidelines § 0.1 (“the unifying theme ... is that mergers should not be permitted to create or enhance market' power or to facilitate its exercise”). In evaluating reasonable substitutability and measuring cross-elasticity of demand, the case law states that it is appropriate to consider a wide range of evidentiary sources. [The boundaries of an antitrust market] may be determined by examining such practical indicia as industry or public recognition of the submarket as a separate economic entity, the product’s peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors. Brown Shoe Co. v. United States, 370 U.S. 294, 325, 82 S.Ct. 1502, 1524, 8 L.Ed.2d 510 (1962) (footnote omitted). The Eighth Circuit simply treats the “practical indicia” identified by Brown Shoe as types of evidence that establish a relevant market for antitrust purposes. The “practical indicia” identified in Brown Shoe have been described as “evidentiary ' proxies for direct proof of substitutability.” Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 218 (D.C.Cir.1986). H.J., Inc., 867 F.2d at 1540. In the same vein, the Merger Guidelines state that the following evidence may be considered in defining the product market and evaluating cross-elasticity of demand and substitutability. In considering the likely reaction of buyers to a price increase, the Agency will take into account all relevant evidence, including, but not limited to, the following: (1) evidence that buyers have shifted or have considered shifting purchases between products in response to relative changes in price or other competitive variables; (2) evidence that sellers base business decisions on the prospect of buyer substitution between products in response to relative changes in price or other competitive variables. Merger Guidelines § 1.11. (emphasis added). The Merger Guidelines also note that evidence “may be derived from the documents and statements of both the merging firms and other sources.” Merger Guidelines § 0.1. Upon evaluating the evidence, the cases do not specify numerically how “high” the cross-elasticity of demand between two products must be before they can be included in the same market for antitrust purposes. In any case, it is usually impossible to reliably quantify cross-elásticity of demand, which is why the Supreme Court allows reliance on “practical indicia.” See e.g. U.S. Anchor Mfg. v. Rule Indus., 7 F.3d 986, 995 (11th Cir.1993), cert. denied, — U.S.-, 114 S.Ct. 2710, 129 L.Ed.2d 837 (1994). In a typically vague statement of the cross-elasticity threshold, the Eighth Circuit states that “the cross-elasticity of demand must be sufficiently high to statistically reflect consumers’ perception that the two products are reasonably interchangeable.” Archer-Daniels, 866 F.2d at 248. Under the Merger Guidelines, two products are in the same market if the seller of one product is constrained by the presence of the other, and thus, cannot profitably impose a “small but significant and nontransitory” increase in price without fear of significant consumer switching to a competing product. Merger Guidelines § 1.0. Cf. Archer-Daniels, 866 F.2d at 248 n. 1 (cross-elasticity to be measured with regard to “slight” price increases). With regard to defining the geographic market, the same basic principles apply, and the court need not discuss them in detail. Also, the geographic market is not. a significant issue in this case. Determination of the product market will for all.intents and purposes determine the geographic market, because the relevant product market consists of local daily newspapers. Thus, the product market has a built-in geographic component. If two daily newspapers are considered local by the consumers, then they belong in the same geographic market. Defendants’ own expert, Thomas Overstreet, testified that if the Times and the Morning News are in the same product market, then “as a matter of logic,” they are in the same geographic market. V. THE RELEVANT MARKET: LOCAL DAILY NEWSPAPERS In this case, the relevant product market for antitrust purposes is the local daily newspaper. This market is in fact two markets: one for readers and one for advertisers. As the Supreme Court stated in Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 610, 73 S.Ct. 872, 881, 97 L.Ed. 1277 (1953), “every .newspaper is a dual trader in separate though interdependent markets; it sells the paper’s news and advertising content to its readers; in effect that readership is in turn sold to the buyers of advertising space.” Each market will be analyzed in turn. a. The Readership Market The court will begin by describing, in a qualitative manner, the peculiar characteristics and uses of the daily newspaper. The court will then contrast these with the uses and characteristics of the most likely candidates for inclusion in the product market: television, radio, national and state newspapers, shoppers, and weekly newspapers. The local daily newspaper provides a unique package of information to its readers. Foremost, it provides national, state and local news. Many of the stories, such as those on high school'sports and city council meetings, are of purely local interest. Readers also value other features of a local nature, including calendars of local events and meetings, movie and TV listings, classified advertisements, other local advertising, legal notices, and obituaries. The format of the newspaper allows its message to be timely and detailed. Moreover, a newspaper is portable and allows readers access to information at their own convenience. The peculiar characteristics and uses of other media outlets are completely different. National and state newspapers have a similar format to local papers, but they contain no local news or advertising, which is a critical factor in the acceptance and success of a local daily. For instance, even though the Demo-cratr-Gazette and the Tulsa World are quality papers, they have limited circulation in-Northwest Arkansas. On the other hand, weekly papers offer purely local news, and as weeklies, they offer virtually no time sensitivity. Radio news and television news are also poor substitutes for local papers. Television and radio are primarily dedicated to entertainment, and to the extent that they offer news and information, they lack breadth and depth of coverage. Also, they are not portable and convenient like newspapers. As for the perspective of the industry, it is clear that it sees local daily newspapers as a separate product from other media. Industry people gave direct testimony excluding various media outlets from the market occupied by local dailies. More compelling, however, were the contemporaneous, prelitigation records of the various newspaper organizations and personnel involved in the case. For instance, George Smith, Publisher of the Times, made frequent comparisons between the Times and the Morning News; but he did not. make comparisons between the Times and any other media outlet. By negative inference, Smith, Thomson, and the other industry people involved in this case did not perceive local daily newspapers to be in close competition with media outlets other than local daily newspapers. As for expert opinion, the two experts with the most experience in newspaper economics testified that a market limited to local daily newspapers was the proper one. One was the expert for the private plaintiffs, Robert Picard, a communications Ph.D. who may be one of the foremost experts on newspaper economics in the country. He has, among other things, published and edited numerous books and articles on the subject and has testified before the legislatures of various countries. The other expert, Kenneth Baseman, testified for the government. Baseman is an economist who has spent many years doing antitrust work for the government and private parties, including a stint at the antitrust division where he worked extensively on the agency’s challenge to the joint operating .agreement between the Detroit Free Press and the Detroit News. Even defendants’ own expert, Thomas Overstreet, limited the market to local daily newspapers. As such, defendants should not be heard to complain that the government and private plaintiffs have failed to' carry their burden of proof in excluding other media from the relevant market. b. The Advertising Market The local daily newspaper offers advertisers a unique set of opportunities. They are able to reach a broad cross-section of consumers in a specific geographic circulation. They also allow a detailed message to be delivered in a timely manner. The peculiar characteristics and uses of other advertising media are very different. National and state newspapers do not carry any local advertising. Given the limited circulation of such papers in Northwest Arkansas, and their high per reader advertising cost, local and regional advertisers do not see them as substitutes for local daily newspapers. As for weekly newspapers, the main problems are that advertising messages are not delivered in a timely manner and that weeklies do not reach the number of readers that dailies do. With regard to “shoppers,” they do not provide the high quality demographics that newspapers provide. They also do not meet the needs of advertisers who wish to convey an elite product message. They are also not timely. As for radio and television, the main problem with such media is that the advertising message conveyed is transitory. It is nearly impossible to provide price detail, and so newspapers are especially critical for grocery stores, department stores, furniture outlets, hardware stores, car dealers, etc. Television and radio do not provide a guaranteed audience and the expense of producing radio and television spots can be prohibitive. Many advertisers use radio and television to complement, but not replace, their use of print advertising, often for the purpose of “image advertising.” As for circulars and direct mail, these are often considered nuisances and junk mail and are often thrown away. While businesses do divide their advertising budget among various advertising media, the portion of the so-called “media mix” that is dedicated to any one particular media, such as local daily newspapers, tends to stay fixed over time. As a result, local daily newspapers compete against each other, not the other media, which are not reasonably interchangeable for the same purposes. This view of advertising competition is accepted by industry personnel, advertising consultants, newspaper economics experts and the advertisers themselves. Also, in making decisions, including pricing decisions, the contemporaneous, prelitigation records of the various newspaper organizations and personnel involved in the ease show a complete lack of interest in other advertising media, but a great deal of concern with other local daily newspapers, which by negative inference shows that other media are not part of the market. c. Case precedent on newspaper markets The weight of case authority confirms the court’s almost intuitively correct definition of the market. Times-Picayune Publishing Co. v. United States, 345 U.S. 594 73 S.Ct. 872, 97 L.Ed. 1277 (1953) (Sections 1 and 2 of the Sherman Act); Paschall v. Kansas City Star Co., 695 F.2d 322 (8th Cir.1982), different results reached on reh’g, 727 F.2d 692 (8th Cir.1984), cert. denied, 469 U.S. 872, 105 S.Ct. 222, 83 L.Ed.2d 152 (1984) (Section 2 of the Sherman Act); Morning Pioneer, Inc. v. Bismarck Tribune Co., 493 F.2d 383 (8th Cir.1974), cert. denied, 419 U.S. 836, 95 S.Ct. 64, 42 L.Ed.2d 63 (1974) (Section 2 of the Sherman Act); Buffalo Courier-Express, Inc. v. Buffalo Evening News, Inc. 441 F.Supp. 628 (W.D.N.Y.1977), rev’d on other grounds, 601 F.2d 48 (2nd Cir.1979) (Section 2 of the Sherman Act); United States v. Citizen Publishing Co., 280 F.Supp. 978 (D.Ariz.1968), aff'd, 394 U.S. 131, 89 S.Ct. 927, 22 L.Ed.2d 148 (1969) (Section 7 of the Clayton Act); United States v. Times Mirror Co., 274 F.Supp. 606 (C.D.Cal.1967), aff'd, 390 U.S. 712, 88 S.Ct. 1411, 20 L.Ed.2d 252 (1968) (Section 7 of the Clayton Act). Although this court has made its own findings of fact, it believes that the vast weight of authority and the method of analysis utilized in the cited cases supports the market definition in this ease. In Bowen v. New York News, Inc., 366 F.Supp. 651, 675 n. 56 (S.D.N.Y.1973), aff'd in part and rev’d in part, 522 F.2d 1242 (2d Cir.1975) cert. denied, 425 U.S. 936, 96 S.Ct. 1667, 48 L.Ed.2d 177 (1976), the court did not find it necessary to make its own findings of fact, since “[i]t is now well settled that the daily newspaper is a distinct line of commerce.” But in Knutson v. Daily Review, Inc., 383 F.Supp. 1346 (N.D.Cal.1974), aff'd in part and rev’d in part, 548 F.2d 795 (9th Cir.1976), cert. denied, 433 U.S. 910, 97 S.Ct. 2977, 53 L.Ed.2d 1094 (1977), the court expressly rejected Bowen’s approach on the grounds that determination of the relevant market is a factual, not a legal, determination. Although Knut-son is probably correct, the court notes that, in the future, it would probably make little sense for any party to relitigate this issue, given the amount of resources spent on an issue that has been resolved the same way by every court that has addressed it in any depth. VI. THE NORTHWEST ARKANSAS NEWSPAPER MARKET The court has discussed why the local daily newspaper is a separate product as a general matter. This still leaves the critical question of which daily newspapers are considered “local” by readers and advertisers in Northwest Arkansas. Perhaps, it is appropriate to define what the court means when it speaks of “Northwest Arkansas.” When one familiar with this area speaks of “Northwest Arkansas” it is not intended to merely describe a geographic location. Instead, that term has come to denote an increasingly integrated economic, social and political unit which just happens to be located in the northwest corner of the state. It is generally considered that “Northwest Arkansas” encompasses Washington and Benton Counties, and is an area that is not only blessed with beautiful Ozark mountain countryside, but also progressive and aggressive people with an outstanding work ethic. It is this area of the country where, among other things, the nation’s top poultry producer and one of its top food companies had its genesis and is located, and where Sam Walton started, barely 30 years ago, what became the nation’s top retailer and second largest private employer. The area is also the home of the University of Arkansas which exerts a tremendous economic and cultural influence on the area. There are numerous successful businesses in the area which provide jobs to a great number of employees. In recent years, the area has become increasingly multi-cultural and multi-lingual because of the influx of large numbers of Mexican nationals who have come to the area to take advantage of the extremely low unemployment rate in the area which regularly runs less than 3%, even in times when other areas of the country are experiencing high unemployment. The major cities in the two county area are Fayetteville, Springdale, Rogers, and Ben-tonville. Tremendous population increases over the last several years have resulted in the two-county area having a population, according to evidence at the trial, of an excess of 233,000 people, a large of portion of whom five in one of the cities listed above. Until the last few years, these cities were not only separate political entities, but separate and highly parochial social units. Now, with the increase in population, those cities have “grown together” and only imaginary boundary lines separate them. As one drives across the area, it is impossible for even natives in most cases to determine when they leave one of the towns and enter the next. Not only has the area “grown together” geographically and in respect to population, it has also increasingly become one economic and social unit. The area is presently engaged in the building of a large regional airport, and there are other examples of the citizens of the entire area working together for a common goal. Without exception, the “experts” who testified lauded the outstanding economic climate present in the entire area, and predicted a bright future. In short, it was not too many years ago that Fayetteville, Springdale, Rogers, and Bentonville were distinct and separate towns with distinct and separate citizens that viewed themselves as such. That has changed and is changing. That fact has been evidenced graphically by recent changes in the newspaper industry in the area. Until recently, each of the towns had “their own newspaper” but, in November 1994, Donrey Media, the common owner of the Springdale Morning News and the Northwest Arkansas Morning News based in Rogers, merged the papers, and named the combined newspaper The Morning News of Northwest Arkansas. That newspaper intends to be and has advertised itself to be the paper for all of Northwest Arkansas, a recognition that the area has become or is fast becoming a cohesive economic, social and cultural area. • The court will conclude that the Times and the Morning News strongly compete against each other for readers and advertisers in Washington County. The court will also conclude that the Daily Record and the Morning News compete against each other in Benton County. Finally, although the Times and the Daily Record do not currently appear to compete for readers and compete only weakly for advertisers, this court will conclude that they belong in the same market as well — the Northwest Arkansas market. a. Readership competition between the Times and the Morning News The record is absolutely replete with evidence that the Morning News and the Times compete in the same product market and that they both serve the same locale. Specifically, they are competing for readers in the Washington County area which is comprised mainly of the towns of Fayetteville and Springdale. Both papers offer products with very, similar characteristics. Both papers cover news of regional interest such as the proposed regional airport now under construction, the University of Arkansas, Washington County government and courts, meetings of the governing bodies of the area’s major hospitals, the federal courts, Fayetteville and Spring-dale city council, meetings, and high school sports, and provide classifieds and local merchant advertising. The Morning News has offices with customer service and editorial staffs in both Fayetteville and Springdale, the locations of which are listed in two separate parts of the paper every day. In its Fayetteville office, the Morning News has four reporters who cover county government, county court, federal court, the University of Arkansas, and • city affairs. Tom Stallbaumer, the publisher of the Morning News, does not feel that his paper yet matches the Times in its coverage of Fayetteville, but he admits that his paper aspires to do so. As for the Times, it also provides extensive coverage of newsworthy events in Fayetteville, and, to a somewhat lesser extent, in Springdale and Benton County. It is currently engaged in a news-sharing agreement with the Daily Record, so that the Times may better cover Benton County and better compete with the coverage of the Morning News. Not surprisingly, there is substantial circulation overlap, with the Times reaching 2,184 readers in Springdale and the Morning News reaching 4,424 daily readers and 4,821 Sunday readers in Fayetteville. In fact, with a switch of approximately 1,800 readers, the Morning News would overtake the Times as the circulation leader in Fayetteville. Currently, the Morning News and Times both sample readers, telemarket, have sales racks and home delivery routes throughout Washington County. The numerous business documents in this case also constitute a detailed contemporaneous record of the competitive actions and reactions that the papers have undertaken in direct response to each other. For instance, the Times was, until the last few years, an afternoon paper until the Springdale Morning News switched to a morning paper and made significant circulation gains in Fayette-ville, at which point the Times became a morning paper. At one time, the Morning News did not publish on certain holidays, on which days the Times would sample (throw free papers) the readers of the Morning News along with a flyer that remarked on the Morning News not being an every day paper. The Morning News now publishes 365 days a year. Both papers exhibit an ongoing concern over who scoops whom which is largely motivated by circulation concerns. At one point, the Morning News reviewed its staff assignments and improved its police coverage because it was an area where the Times sometimes prevailed. Competition over local sports coverage was particularly intense, with the Times and the Morning News engaged in a public back and forth battle over the number of reporters covering events, the number of photos and stories, and the extent of coverage, including women’s volleyball and soccer. The Times began using color so that it could compete more effectively, and the Morning News responded in kind. The two papers also compete for readers by producing features and special interest sections. In one ease, the Morning News began a travel page soon after the Times started one. These are the equivalent of competitive responses to what the Merger Guidelines call “small but significant and nontransitory” increases in price or decreases in quality. In addition to these concrete actions and reactions, the internal memoranda of the Times and the Morning News show a consistent obsession with each other as “the competition.” These are too numerable to discuss further. b. Advertiser Competition between the Times and the Morning News In this case, there is only a small amount of evidence that the two local daily newspapers compete “directly” for advertisers. That is, no advertiser decides he will advertise either in the Times or in the Morning News, depending on who offers the better deal. Even the government’s own expert, Kenneth Baseman, did not find any evidence of this sort of competition. The primary reason that such direct competition is absent is that no regional advertiser who has customers throughout Northwest Arkansas, such as a ear dealer, can reach all of Washington County without using both newspapers. Also, no purely local advertiser, such as a grocery store, can reach the majority of reader households in Fayetteville without using the Times or reach the majority of households in Springdale without using the Morning News. Still, there is a great deal of evidence that these two papers compete “indirectly” for advertisers by means of what was called by some of the witnesses a “negative feedback loop,” for want of a better term. The competition, although “indirect,” is effective and pervasive. The “negative feedback loop” begins with the premise that local advertising is a critical part of what sells a local newspaper, just like the coverage of local sports or any other local news event. Apparently, many people buy newspapers to have access, to advertisements and advertiser’s promotions which they provide. If a paper is deficient in local advertising it will eventually lose readers. A loss of advertising revenue will also lead to a decline in the paper’s ability to maintain its quality, which will also lead to a loss of readership. With the loss of readers, the paper will lose more advertisers, and then more readers, and so on until its demise. This is a “negative feedback loop.” Therefore, both the Morning News and the Times have an incentive to keep the price of advertising low enough so that advertisers do not drop their ads, decrease their size, or decrease their frequency. Of course, this incentive would exist even in the absence of a competitive market, but the existence of a competitor means that a decline in advertising content due to high rates is much more likely to lead to a loss in readership to the competing paper. The loss of readership will then result in a further loss of advertising, and the negative feedback loop, which is often irreversible, has’begun. Another way in which competition exists between the Times and the Morning News is through the process of “benchmarking,” whereby local advertisers compare the relative advertising value provided by each paper. Thus, the papers try to provide equal value to some extent, since neither paper wants to lose the good will and business of their advertisers by looking like a “rip off’ in comparison to the other. The dynamic of benchmarking can exist between products that are not in the same market, but the high degree of benchmarking that clearly exists in this market results from the close competitive relationship between the Times and the Morning News, which is so universally recognized in the local community. There is one final avenue of advertising competition with respect to regional advertisers that merits discussion. While no regional advertisers can completely forego advertising in either the Times or the Morning News, they can place more of their limited advertising budget into the one newspaper that they feel gives them the better value. Thus, in 1992, the Times was very concerned about losing regional advertisers because its prices were not competitive with the Springdale/Rogers combo buy. The Times also displayed a continuous concern over losing automobile advertising, and even offered a lower auto rate in 1994 to try to entice dealers to use the Times rather than the Morning News. George Smith, the publisher of the Times, expressed concern to a fellow publisher that he had to win back his “rightful share” of advertising from one particular regional dealer, Lewis Auto. The owner of Lewis Auto, Tom Lewis, testified that he felt his dealership had benefitted from the advertising competition between the two papers. Although the dynamics just described are somewhat theoretical, they do not strike the court as being particularly controversial, at least not from the testimony provided by those familiar with the industry. Moreover, these theories explain the high degree of time and energy that the Times and the Morning News put into monitoring and responding to the advertising efforts of each other. For instaneé, the Times was concerned that it got less Springdale ads than the Morning News got Fayetteville ads. The Times routinely compared its advertising rates and revenue with those of the Morning News. The Morning News also monitored the number of national ads that the Times received to make sure it did not get “scooped” on any national ads. In 1993, when the Times learned that a Donrey paper in Fort Smith, Arkansas, was offering a coupon book of volume discounts for advertisers, it offered its own version in anticipation that the Morning News would follow suit. Two weeks later, when the Times perceived that advertisers preferred the coupons offered by the Morning News, it redesigned its own. In 1992, the Times had its advertising staff contact local businesses that had placed ads in the Morning News to offer them a special “pick-up” rate to run the same ad in the Times. In 1994, the Times considered using the same strategy with regard to classified ads run in the Morning News. If the “negative feedback loop,” “benchmarking,” and “rightful share” theories do not explain the above competitive conduct, then the alternative explanation would be that the Times and the Morning News were completely deluded about being in competition for advertising and that the efforts spent monitoring this nonexistent competition were the Mile and inefficient gestures of ignorant businessmen who did not even know their own market. The court considers this alternative unacceptable. Thus, the court is convinced that the two newspapers do compete for advertising even though it may be difficult to quantify the competition statistically. c. Numerical measurement of cross-elasticity of demand In the face of this evidence, defendants contend that they decisively proved there is no cross-elasticity of demand between the Times and the Morning News, and therefore, the products do not belong in the same market. They supposedly prove their point by having their expert, Thomas Overstreet, measure the amount of switching from one paper to another when one paper increases its rack prices or subscription rates. As the amount of the price increase was greater than five to ten percent, and as the degree of switching caused by the increase did not render the increase unprofitable, defendants conclude that there, is no cross-elasticity of demand under the Merger Guidelines. While defendants correctly contend that courts do not usually allow the government to take positions that are inconsistent with the Merger Guidelines, the court does not believe the government has done so in this case. Steven A. Newborn & Virginia L. Snider, The Growing Judicial Acceptance of the Merger Guidelines, 60 Antitrust L.J. 849, 852 (1992). As explained above, the court believes that the approaches to market definition endorsed by the Merger Guidelines and the ease law are essentially consistent. This approach acknowledges that cross-elasticity of demand is nearly impossible to measure numerically in all cases and relies on a broad array of evidence and “practical indi-cia” to establish cross-elasticity. See e.g. U.S. Anchor Mfg. v. Rule Indus., 7 F.3d 986, 995 (11th Cir.1993), cert. denied, — U.S. -, 114 S.Ct. 2710, 129 L.Ed.2d 837 (1994). The 1984 Merger Guidelines made the same point when they explained that the 5-10% test “is an analytical tool with which to analyze traditional types of probative evidence.” 4 Trade Reg.Rep. (CCH) ¶ 13,103 at 20,552 (June 14, 1984). That is, the 5-10% test is not a rigid requirement that cross-elasticity be measured numerically. Analyzing the independent probative value of Dr. Overstreet’s calculation of the relationship, or the lack thereof, between price and consumer switching, the court concludes that this calculation fails to controvert the overwhelming evidence that cross-elasticity of demand exists. United States v. Continental Can Co., 378 U.S. 441, 455, 84 S.Ct. 1738, 1746, 12 L.Ed.2d 953 (1964) (“that the demand for one [product] is not particularly or immediately responsive to changes in the price of the other are relevant matters but not determinative of the product market issue”). Dr. Overstreet’s approach was to attempt to apply the Merger Guidelines with blinders on which were designed to prevent him from seeing anything other than the reaction of the market to a slight price increase — if that didn’t show a shift in customers, then there was simply no competition present. His calculation only applied that part of the Merger Guidelines, and he failed, refused or neglected to control for all sorts of other important variables. He failed to measure or even consider the loss of advertising profits that will be caused by the loss of readership. He failed to measure the fact that price increases were offset by quality .increases. He failed to take into account the expert testimony that price, as long as it is in the range one expects to pay for newspapers, is an almost insignificant factor in one’s choice of newspaper. See Times Mirror, 274 F.Supp. at 615 (placing newspapers in same market although “differences between the price raises of the Times and the Sun did not produce a significant change in circulation”) (citing Continental Can, supra). Also, defendants’ expert has no special experience in the newspaper industry or in Northwest Arkansas. The court could just as easily have performed Dr. Over-street’s simplistic calculations. During questioning by the court, Dr. Over-street seemed to agree that if his approach had been used in the famous and infamous, in Arkansas at least, Democrat vs. Gazette newspaper war that destroyed the then Gan-nett owned Gazette which advertised that it was the oldest newspaper west of the Mississippi, it would have shown that these newspapers were not competitors, at least until some point- shortly before the Gazette was forced out of business. That was true because, until that time each paper had a loyal group of readers and advertisers who wouldn’t switch until the Democrat succeeded in driving the Gazette out of business. He seemed to agree with the court’s statement that, like the bumblebee that can’t fly, Walter Hussman didn’t know that he wasn’t a competitor so he kept competing until he was competing — and won. Finally, defendants’ theory leaves unexplained why everyone involved with these newspapers thought they were competing and made numerous business decisions and took innumerable competitive actions as if they were. d. Competition befween the Daily Record and the Morning News Much of the evidence that indicates active competition between the Times and the Morning News in Washington County shows the same active competition, perhaps to a slightly lesser degree, between the Daily Record and the Morning News in Benton County. The Daily Record’s daily circulation in Benton County is 9,696; while the Morning News has daily circulation in Benton County of 17,350. In the interest of brevity, the court will not detail the remaining evidence. e. The Times and the Daily Record belong in the same market The evidence clearly shows strong competition for readers and advertisers in Washington County between the Times and the Morning News, and also between the Daily Record and the Morning News in Benton County. However, this leaves the question of whether the Times and the Daily Record belong in the same market given the fact that they have scarce competition for readership and only limited competition for advertisers, as even Dr. Picard, private plaintiff's’ own expert, recognized. Still, the court concludes that the Times and the Daily Record belong in the Northwest Arkansas daily newspaper market, along with the Morning News. It may seem strange that the Times and the Daily Record are in the same market even though they do not vigorously compete, but the fact remains that, as a practical matter, the common ownership of the Times and the Morning News would greatly affect competitive forces over the entire two-county area. It must be remembered that the purpose of Section 7 of the Clayton Act is to prevent the undue aggregation of market power. Market definition is merely a tool in that quest, not the goal. It is initially important to keep in mind that “[mjarket definition is not a jurisdictional prerequisite, or an issue having its own significance under the statute; it is merely an aid for determining whether market power exists.” L. Sullivan, Antitrust 41 (1977). General Indus. Corp. v. Hartz Mountain Corp., 810 F.2d 795, 805 (8th Cir.1987); Merger Guidelines § 0.2. Equally important, “[t]he determination [of a relevant market] is essentially one of fact, turning on the unique market situation of each case.” H.J., Inc. v. International Telephone & Telegraph Corp., 867 F.2d 1531, 1537 (8th Cir.1989). (citations omitted). The notion that market definition is a pragmatic, factual exercise is a theme that runs throughout the cases. See e.g. Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451, 467, 112 S.Ct. 2072, 2082, 119 L.Ed.2d 265 (1992) (“In determining the existence of market power ..., this Court has examined closely the economic reality of the market at issue.”); Brown Shoe Co. v. United States, 370 U.S. 294, 336-37, 82 S.Ct. 1502, 1530, 8 L.Ed.2d 510 (1962) (courts should take a “pragmatic, factual approach to th.e definition of the relevant market and not a formal, legalistic one” so that the definition of the relevant market will ‘“correspond to the commercial realities’ of the industry and be economically significant”) (citations omitted); General Indus. Corp. v. Hartz Mountain Corp., 810 F.2d 795, 805 (8th Cir.1987) (“In defining the relevant part of commerce for any product, the reality of the marketplace must serve as the lodestar”) (citation omitted). Similarly, the Merger Guidelines provide that since “it is not possible to remove the exercise of judgment from the evaluation of mergers ... the Agency will apply the standards of the Merger Guidelines reasonably and flexibly to the particular facts and circumstances of each proposed merger.” Merger Guidelines § 0. The fact is that this acquisition would affect market power over the entire two-county area. As will be explained, it would effect the viability of the Daily Record. It would alter pricing and strategy decisions over the two-county area. It would deter one potential competitor from entering the market. These are practical realities involving market power and competition, no matter how one characterizes the current relationship between the Times and the Daily Record. It makes no sense to say, as a matter of law, that the market does not include both counties. The court begins with the indisputable fact that Northwest Arkansas is increasingly integrated — socially, politically and economically. More than any other product market, a local daily newspaper market reflects the underlying socioeconomic base of its geographic market. For this reason, the traditional indi-ces of a newspaper market include the Metropolitan Statistical Area (MSA), Audit Bureau of Circulations Retail Trading Zone, County, ABC City Zone, and Newspaper Designated Market Area. MSA’s, which are officially designated by the U.S. Office of Management and Budget, are economic and social regions in which a nucleus city or cities and adjacent communities have achieved a significant degree of economic and social integration. ABC Retail Trading Zones, which are determined jointly by local newspapers and by the Audit Bureau of Circulations, are the area over which businesses in the local commercial center draw customers from outlying areas. County lines are politically defined and only sometimes useful in defining the newspaper market. ABC City Zones, which are done by the Audit Bureau of Circulations, include the central portion of a city and its contiguous suburbs. Finally, the Newspaper Market Designated Area is the geographic market area defined by a newspaper when its market does not correspond to any of the traditional measures. It is defined as the primary commercial and residential region in which the newspaper operates. These measures may be more or less useful in a particular case, depending on the circumstances of the market. The court does not exclusively rely on any one of them. They are listed simply to make the point that the local daily newspaper market tends to reflect the underlying social, economic and political development of the locale. As such, it makes a great deal of sense to refer to a Northwest Arkansas market. Moreover, the fact is undisputed that the social, economic and political integration of the Northwest Arkansas region will continue apace. United States v. General Dynamics Corp., 415 U.S. 486, 498, 94 S.Ct. 1186, 1194, 39 L.Ed.2d 530 (1974), quoting, Brown Shoe, 370 U.S. at 322 n. 38, 82 S.Ct. at 1522 n. 38 (“only a further examination of the particular market — its structure, history and probable future — can provide the appropriate setting for judging the probable anticompetitive effect of the merger”) (emphasis supplied). The court now turns to the fact that every newspaper company involved in Northwest Arkansas viewed the local daily newspaper market as consisting of Washington and Benton Counties. Donrey and the Morning News clearly viewed the market that way and developed a product that vigorously competed for readership in every town in the two-county area. As is clear from the paper’s own masthead, it is the Morning News of Northwest Arkansas. The same goes for the Northwest Arkansas Times. Thomson viewed the two-county area as a single market that could be dominated by a single paper, which was its stated goal. To achieve that goal, Thomson considered purchasing the Morning News and the Daily Record. It also conceived a six month program to extend its circulation in Rogers, Arkansas, in Benton County. The plan was abandoned after a few weeks due to a lack of success, but a failure to succeed at competing does not mean that competition does not exist. CPI also recognizes that the Daily Record operates in a two-county market, although its main circulation appeal is in Benton- County, as reflected by its masthead, the Benton County Daily Record. CPI realized it operated in a two-county market and thus also coveted acquiring a second paper in that market, i.e., the Times. Finally, WEHCO and the Arkansas Democrat-Gazette, the state-wide paper published in Little Rock,- is strongly considering a zoned edition of the paper for twelve counties in Northwest Arkansas aimed primarily at the two-county market encompassed by Washington and Benton Counties. WEHCO clearly conceives of the market as primarily a two-county market, and has spent a great deal of time and money laying the groundwork for a possible zoned edition. The undisputed testimony is that, if NAT’s purchase of the Times is allowed to stand, WEHCO is much more unlikely to enter the market. In addition to the clear views of the market participants, the nature of the readership market is such that a local daily paper can be targeted to a single county (the Daily Record ) or to both counties (the Morning News), but the success of all three remaining local newspapers will be affected by their ability to provide regional coverage that satisfies the regional interests of a regional audience, no matter what section of that audience is targeted. In recognition of this fact, the Times and the Daily Record have a news and advertising sharing agreement, whereby the Times provides the Daily Record with Washington County news and advertising, and the Daily Record does the same for the Times with Benton County. This similarity of product is extremely important in defining the market, and thus the Times and the Daily Record should both be included in the product market because both papers are poised to become truly regional papers. Thus, there is a great deal of so-called “cross-elasticity of supply” among local daily newspapers in Northwest Arkansas. High cross-elasticity of supply exists when existing companies have the ability to alter their facilities to produce the defendant’s product in response to monopolistic price increases or quality reductions. 3 Julian 0. von Kalinowski, Antitrust Laws & Trade Regulation § 18.02[l](c) (1994). Using cross-elasticity of supply to enlarge the product market is accepted by the courts, the