46.1 McWane, Inc. v. Federal Trade Commission 1. How did McWane’s Full Support P

Question

46.1 McWane, Inc. v. Federal Trade Commission

1. How did McWane’s Full Support Program harm competition? Explain.
2. What did the Federal Trade Commission conclude? What “factual and economic” evidence supported this conclusion?

3. Instead of imposing an exclusivity policy, what action might McWane have taken to benefit its customers and compete with Star?

882 UNIT NINE Government Regu Case Analysis 46.1 McWane, Inc. v. Federal Trade Commission Unaed States Cout of Appeah, Eleventh783 E3d 814 (2015). In the Language of the Court products for their domestic finting and more efficient means MARCUS CHouit dge accessory requirements," they may forgo of producing domes- thus, its tic firtings, icipation in any unpaid rebases they Pipe fittings join together pipes had accrued for domestic fittings and growth into a rival chat and help direct the flow of pressarised acessories or shipment of their donestic McWane's monopoly power was ardu waser in pipcline systems. Thcy are soldfitting and accessory orders of Mc Wane cially stunted primarily to manicipal warer auchorizies products for up to 12 weeks and their contractons. Although there are several thousand unique configuraThe FTC issued a"coman impact on price: a tions of Biings (diferent shapes, sincs. plaint charging . " that McWane's Support Program was implemented, owings, etc.), approximately 80% of Full Support Program constituted McWane rascd domestic fittings prices the demand is for about 100 commonly unlawful maintenance of a monopoly and increased its gross protits despte used fintings Moreover, the Commission found that . . . McWane's·.. conduct had after the Ful lat production costs, and it did across states, regardless of whether Star had entered the market as a over the domestic fittings market. Fittings are commodity products produced to American Water Work Association AWWA) standards, and The Commission found that the relevant market was the supply of any fitting that meets AWWA specifica domestically manufactured fistings for tions is interchangeable, regardless of the use in domestic-only waserworks proj- ects, because imported fintings are not competitor. The Commission issued an order directing McWane to stop requiring exclusivity from its customers.] McWane of origin. a substitute for domestic fittings for ·.. Certain municipal, state, and federal laws require Igowernment] water- such projects. The Commission condlusion was bolssered bying review of the Commissioner's order. Given the identification of per ects. The Commission also found that sistens price dsffenences berwen domestic the higher peices charged for domestic fittings. Domestic fixtings sold for use in peojects with domestic-only speci- fications command higher prices than imported fietings fittings usd in domestic-only proj- Mc Wane had monopoly power in that fittings and imported fitting, the distincz market, with 90-95% market share" . . astomers, andshe Luck orra enable sab- and [that there were] substantial barri- stitutn in shiae there suas su crs to entry in the form ofmajor capitaldence to support the Commi io outlays required to produce domestic ition. [Emphasis added.J fittings ·.. In late 2009. McWane [Inc., headquartered in Birming an. Ala- icient evi- marker hama) was the only supplier of domestic Looking to take advantage of the increased demand for domestic fit- tings promped by tthe passage of the .The evidence of Mc Wane's forecdlosed Star's access to distributors large capital outlays required to enter Commission falso found] that McWanc's Full Support Program·.. overwhel ming market share (90%), the fittings market, and McWane's ings prices amount to suf- Recovery and Reinvexment for domesticfitings and harmed.com-domestic Act of 2009 (ARRA), which peovided a peticion, thereby contributing signif undeniable large infusion of money for waterworks cantly to the maintenance of McWane's domestic fitt monopoly power continued power over projects that required domestic pipe fittings, Star Pipe Products) decided to thatthe country's two largest water- might accept as adequate to support the in the market. It noted ficient evidence that a reasonable mind enter che market foe domestic [fitting). works distributors (with a combined 60% market share), prohibited their Commission's conclusion (that McWane In response to Star's forthcoming entry into themarket, McWanebranches from purchasing domestic implemented its Full Support Program" fittings from Star after the Full Sup in order "to protect its domestic brands port Program was announced. and market position.". .McWane informed customers that if they did not "fully support Mc Wane branded possessed monopoly power in the rel- .We agree that [Mc Wanc's) con- Unable to attract [customers], Star was duct amounts to a violation of prevented from generating the revenue of the Federal Trade Com nceded to acquire its own foundry, a Accordingly, we AFFIRM.

Explanation / Answer

Ans 1. McWane holds a monopoly in the domestic fittings market, as he holds 90-95% of market share and there is no close substitute.

Another feature of monopoly is there is barrieries to entry and we also see (as per the case) that it is leaglly impossible as municipal, state and federal law require waterworks projects to use domestic-only fittings.

McWane full support program is a case of exclusive dealing (i.e. one party to a contract agrees to execute transactions of a certain type with only its counterparty - in the case 2 main distributors who hold 60% market supply domestic fittings produced by McWane )which harmed the competition imposing cost disadvantage that made Star less competitive and also posed entry threat for star.Star could not profitably plan to produce as it could not find buyers for its fittings too.

Ans 2. The federal Trade comminsion consluded that it was monopoly market where McWane was the dominant firm holding monopoly power i.e maximum market share of 90% close to having no substitute for domestic fitting supplies. there was entry barriers imposed to new entratnts evidenced from the hold of Mcwane on its distributors and who remained loyal to the company even when they increased the prices  

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