SECTION 7 VIOLATION
Section 7 of the Clayton Act prohibits a corporation engaged in commerce from acquiring "directly or indirectly, the whole or any part of the stock * * * of another corporation engaged also in commerce, where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or tend to create a monopoly." 15 U.S.C.A. § 18.
There is no dispute that the manufacture and sale of burial caskets constitute the relevant line of commerce in this case. The various types of caskets include cloth-covered, hardwood, steel, copper and bronze. Three types of firms manufacture caskets. Some perform all fabrication and manufacturing steps and sell completed units to funeral directors. Some fabricate shells or parts and sell them to the third type of firm which consists of manufacturers or jobbers who complete the units and sell them to funeral directors. Casket manufacturers are further differentiated in terms of the product line they handle and the size of the geographic area in which they distribute their product. Some manufacturers produce a full line of caskets (cloth-covered, wood and metal), while others concentrate on one or more types. Approximately 250 manufacturers distribute on a state or regional basis while many have only local distribution. A relatively few distribute their products over large areas or nationwide. Walco and Boyertown are the only full line manufacturers who distribute their products on a nationwide basis.
The size of the potential market for caskets is established by mortality. In 1970, there were approximately 1,930,000 deaths in the continental United States. In 1971, casket sales to funeral directors totaled approximately $325,000,000 per year.
The largest manufacturer of caskets in the United States is Batesville Casket Company ("Batesville"), Batesville, Indiana, a subsidiary of Hillenbrand Industries, Inc. Batesville manufactures only metal caskets and distributes them through warehouse locations across the country. Batesville's sales are approximately $35,000,000 or 11% of the national total.
Walco is the second largest manufacturer of caskets. Walco produces a full line of cloth-covered, wood and metal caskets which it distributes through 43 branches located in the northeast, midwest, south and southwest and through sales representatives in the Rocky Mountain and West Coast areas. Walco's branch offices consist of a warehouse for casket storage and generally include selection rooms in which caskets are displayed and to which local funeral directors bring their customers to select caskets. Since May, 1971, Walco has acquired five casket companies, and Walco's sales of caskets, including those of its acquisitions, total $22,800,000 or 7% of the national total.
Boyertown is the third largest manufacturer of caskets with sales of $15,800,000 or 5% of the national total. Boyertown produces a full line of caskets which it distributes through 23 branches located in the northeast, midwest and California. These branches are also composed of warehouses and selection rooms, and most of Boyertown's branches are located in the same metropolitan areas in which Walco has branch offices.
The fourth largest manufacturer is Simmons Company which has acquired Elgin Associates and York-Hoover. Elgin manufactures metal casket shells which it distributes through a jobber organization known as Elgin Associates. York-Hoover manufactures hardwood and metal caskets. Sales of Elgin Associates could not be estimated although the testimony indicates that the figure would exceed $8,000,000. York-Hoover has sales of approximately $6,000,000. A conservative estimate would place the sales of Simmons Company between $14,000,000 and $15,000,000 or 4% of the national total.
Although there are approximately 600 casket manufacturers in the United States, a small number of firms occupy a commanding position in the industry. The four largest manufacturers control 27% of the total sales of burial caskets in the nation. The next eight firms have sales of approximately $41,000,000 so that the top twelve firms in the industry (approximately 2% of the manufacturers) account for 40% of the total sales.
Relevant Geographical Market
Section 7 prohibits acquisitions which may substantially lessen competition in any line of commerce in any section of the country. Walco argues that the proper "section of the country" in which to measure the effect of an acquisition by Walco of the stock of Boyertown is the nation as a whole and the following three regional sub-markets: the Northeast and Central area, the South and Southwest area and the West and Rocky Mountain area. Boyertown contends that in addition to the national market, there are five metropolitan areas which should be regarded as sections of the country under § 7. They consist of the standard metropolitan statistical areas ("SMSA") of Albany, Schenectady, Troy, New York; New York, New York; Buffalo, New York; Cleveland, Ohio; and the composite area of Newark, Jersey City, Patterson, Clifton, and Passaic, New Jersey.
In United States v. Philadelphia National Bank, 374 U.S. 321, 10 L. Ed. 2d 915, 83 S. Ct. 1715 (1963), the Supreme Court set forth the following standard for determining the appropriate "section of the country" under § 7.
"* * * The proper question to be asked in this case is not where the parties to the merger do business or even where they compete, but where, within the area of competitive overlap, the effect of the merger on competition will be direct and immediate. * * * This depends upon 'the geographic structure of supplier-customer relations.'"
United States v. Philadelphia National Bank, supra, 374 U.S. at 357, 83 S. Ct. at 1738.