FTC Administrative Law Judge Rules that McWane Excluded Competitors but did not Fix Prices

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EI Vice President David D. Smith has dealt with antitrust issues in a wide range of industries. Before joining EI, he was an economist at the Antitrust Division of the U.S. Department of Justice.

The Chief Administrative Law Judge at the Federal Trade Commission (FTC) recently released his Initial Decision on In theMatter of McWane, Inc. and Star Pipe Products Ltd. He found that the FTC did not prove a conspiracy among the three Defendants to raise and stabilize prices or exchange sensitive competitive information, nor did the FTC prove that an “invitation to collude” had been issued. The Judge did find that two Defendants had committed exclusionary acts.

The relevant product market with regard to the collusion counts was ductile iron pipe fittings (fittings). The relevant product market with regard to the exclusion counts was fittings for projects that required domestically-produced products (domestic fittings). Ductile iron pipe is used for pressurized water distribution and treatment systems, and is generally sold to municipal buyers through a bidding process. The relevant geographic market for both products was the United States. Three companies – McWane, Sigma Corporation (Sigma), and Star Pipe Products, Ltd. (Star) – account for almost all U.S. sales of fittings. Only McWane supplies a full line of domestic fittings in the most commonly used size ranges. The Judge determined that both markets have high barriers to entry.

The Judge found that the Defendants’ parallel conduct with respect to pricing, discounting and participation in a trade association was no more than legal “oligopolistic conscious parallelism.” He found that McWane, Sigma and Star acted independently and competitively and did not discuss prices among themselves.

The Judge did find McWane and Sigma guilty of exclusionary conduct. He found that McWane had 95 percent of the domestic fittings market, and that it used its “Full Support Program” as an exclusive dealing policy to keep Star from entering the market. This program involved rebates to purchasers of McWane’s full line of domestic fittings. Star did not sell a full line, and the Judge found that the program induced most customers to make all their purchases from McWane.

Moreover, McWane’s Master Distribution Agreement (MDA) with Sigma was found to be anticompetitive. The MDA caused Sigma to drop its plans to enter the domestic fittings market. In addition, Sigma and McWane were found to have conspired to use the MDA to exclude Star from that market, because Sigma helped enforce McWane’s Full Support Program.

McWane argued that its Full Support Program enabled it to lower average costs by filling its foundry capacity. The Judge concluded that this supposed benefit did not justify a program with significant anticompetitive effects.