Fasano Decl. Fasano Decl. Lettman Dep. ¶ 22. ¶¶ 32-35; Leckie Decl. Boehm Decl. ¶ 93; DX 54; DX 310. Grape-Nuts, which was once marketed as "healthy," is now marketed as "energy sustaining." ¶ 60(b) and Figure 2; Tr. Carroll Decl. Carroll Decl. ¶ 102(b). ¶ 6. ¶ 60. However, the HTI Age of Eater Information shows that 62.3% of all eaters of Golden Crisp are 18 and over. This would take at least two years. ¶ 19; DX 38; Tr. ¶ 55(c); DX 43. Similarly, industry concentration as reflected in the HHI has declined over this period, the result of both decreases in shares controlled by Kellogg's and General Mills, and increases in shares controlled by the relatively smaller Kraft/Nabisco, Quaker, and private label manufacturers. ¶ 66(b) n. 38; DX 176. Plaintiff's expert concedes that you cannot distinguish *328 one RTE cereal from another on the basis of a single attribute. General Mills suffered a contamination problem *336 earlier in 1994 that had a dramatic, but probably temporary, depressing effect on General Mills sales during the second quarter of 1994. Leckie Decl. ¶ 15. General Mills: Who Owns the Brand? DX 36 at 19, 28. DX 1149; Tr. RTE cereal products are priced at widely varying wholesale prices per pound. ¶ 39; DX 38. Because the Acquisition took place in early 1993, the "top 4 firm" figure for 1992 is a hypothetical one, reflecting the share the top four firms would have had if Nabisco had been part of Kraft in 1992. at 681-82 (Smith); Tr. at 1429 (Cotterill); see also Thomas Decl. ¶ 24. ¶ 37; Thomas Decl. Leckie Decl. After submitting your information, you will receive an email. ¶ 54; Smith Decl. ¶ 77 n. 48. There is no evidence that profit levels in the RTE cereal industry reflect impermissible market power or collusive behavior. ¶ 17; Leckie Decl. In fact, shifting data indicate that a high proportion of the volume shifting that occurred in the RTE cereal market between 1992 and 1993 was among market segments, especially between so-called "adult" and "kid" segments. at 119-20, 150 (Cotterill). Tr. ¶ 15; Rubinfeld Decl. ¶ 37; DX 40. ¶ 29; DX 39. ¶ 6; Tr. An exception is when a particular retail "performance" is required as a condition of the deal. Retailers attempt to maximize the amount of cereal they purchase on trade deals. at 1573 (Cotterill). Nielsen studies show that only a small proportion of Grape-Nuts volume "shifted" between 1992 and 1993 to or from Nabisco Shredded Wheat. Leckie Decl. at 1877 (Thomas); Rubinfeld Decl. The retailers who testified at trial expressed interest in marketing a shredded wheat cereal product as part of their private label product lines. The proportion is even higher for children; 50% eat both "kid" and "adult" cereals. ¶ 14. ¶ 10; Smith Decl. [4] The court appointed an expert economist to assist the court, with defendant's consent, and over plaintiff's objection. at 2385-86 (Kahn). In such a market, any market definition is likely to exclude some products that are reasonable substitutes for products that are included in the market. at 685-86 (Smith). See Cotterill Aff. ¶ 43; Boehm Decl. Boehm Decl. See DX 230. ¶ 75. ¶ 46; DX 261. Different manufacturers have chosen to categorize cereals differently. at 960 (Rubinfeld). Overall, RTE cereal manufacturers significantly increased their spending on trade deals over the past several years, resulting in bigger and more frequent discounts to retailers. It showed that a high proportion of the eaters of "kid" cereals are adults: adults constituted 29% of the reported eaters of Fruity Pebbles; 31% of the eaters of Lucky Charms; 44% of the eaters of Cap'n Crunch; 51% of the eaters of Corn Pops; 62% of the eaters of Golden Crisp; and 67% of the eaters of Frosted Flakes. Private label sales have grown from a 4.8% share (on a volume basis) in 1988 to a 9% share in 1993. at 251, 253 (Cotterill). Although Nabisco had stressed traditionally that Nabisco Shredded Wheat was a natural product, it did not have the same health benefits of these new brands and lost market share to them. These decisions are made with only limited input from the manufacturers, and are based largely on the competitive environment in the particular division." Boehm Decl. Leckie Decl. ¶ 33. Because of consumers' demand for variety, new products are key to the growth of any RTE cereal firm. Some manufacturers of private label cereals have produced more RTE cereal annually since 1991 than Nabisco did in the year before the Acquisition. at 1664-65 (Hinkes). Thomas Decl. During the past decade, consumer demand has shifted substantially, from established, relatively plain cereals, including Nabisco Shredded Wheat and Grape-Nuts, to cereals with complex tastes and textures (e.g., cereals composed of a mix of different ingredients, flavors, and forms) as these new products have been introduced by manufacturers. ¶ 34; Smith Decl. Thomas Decl. See e.g., DX 138 at KGF XXXXXXX-XXX; Parker Decl. Its relatively limited volume resulted in its having little negotiating power with retailers to obtain effective features and displays. at 555 (Carroll); Rubinfeld Decl. For planning purposes, the Grape-Nuts brand group erroneously assumed a 2% volume growth in 1990. It is unlikely that either Post or any hypothetical new owner of the Nabisco assets could rapidly increase Nabisco Shredded Wheat's market share simply by reducing price. Weighing this and all of the other evidence presented at trial on this issue, I find that the State has failed to demonstrate that a "significant" number of consumers regard the products of the merging firms as their first and second choices. ¶ 49. Representatives of two of the country's largest grocery retailers, Safeway and Kroger, testified at trial that they do not consider Grape-Nuts and Nabisco Shredded Wheat to be particularly close competitors. ¶ 15; Rubinfeld Decl. The State maintains that the Acquisition may substantially lessen competition in what the State terms the adult RTE cereal market, or, in the alternative, in the entire RTE cereal market. ¶ 13(a). The cross-price elasticities calculated by Professor Rubinfeld are significant for many cereals across a wide range of market segments. ¶ 65(c). The State is critical of these forms of competition, claiming, among other things, that they are wasteful and inefficient means of delivering products to consumers, that they erect barriers to new entrants, and that they are used to the exclusion of price competition in the form of "everyday low prices." ¶ 65. Smith Decl. Id. DX 30. Boehm Decl. Its roots date back to 1898 when the United States Baking Company, the New York Biscuit Company and the American Biscuit & Manufacturing Company formed to become the National Biscuit Company. *354 ¶ 55(f); DX 36 at 14, 23. Individual RTE cereals cannot easily be categorized in terms of the "benefits" they deliver. Given the competitive nature of the cereal business, "preoccupation with a prolonged review process would not be in the interest of either company," General Mills and Nabisco said. Post monitors its competitors' retailer coupons only by obtaining a sample of newspaper ads and reviewing them three to five weeks after the ads run, to ascertain broad trends. Plaintiff's econometric analysis of the price reduction that a new owner of the Nabisco RTE cereal assets would institute is flawed and methodologically unsound. The trade deal and promotion activity in the RTE cereal industry is inimical to collusive behavior, because it is difficult for manufacturers to track and replicate other firms' promotions, and it is especially difficult to track the amounts expended on promotions. General Mills is paying Diageo $5.1 billion in cash and $5.4 billion in shares to close the deal. For Post to be competitive, Post must convince retailers to accept its trade promotion offers instead of offers made by other manufacturers. Moreover, survey data do not support the notion that consumers consistently follow the decision tree structure used by Professor Cotterill. Post does not rely exclusively on interaction indices to make major business decisions. § 22 and 28 U.S.C. (Leckie). at 35-37. ¶ 26; Schena Decl. ¶ 11; Boehm Decl. Competitive sets are used to focus on a few cereals for analytical purposes; they are not intended to describe the full range of competition, nor do they necessarily represent Grape-Nuts' closest competitors. ¶ 62. In 1993, Post spent more than 5 times as much on coupon redemption as it did in 1989. Typically, FSIs are "dropped" 48 Sundays per year. Tr. You'll find school menu ideas and templates, plus a friendly, dedicated attitude to help you boost participation all day long and keep kids saying "Yes!" ¶ 21. 2.211 n. 22. 31-47 supra, and has found that Nabisco's 1992 market share of 2.82% is the correct measure of its competitive significance. Boehm Decl. ¶¶ 11-12, 14; Carroll Decl. Carroll Decl. Post has initially selected its preferred FSI dates for each RTE cereal based on (1) the timing of trade deals and/or Kraft corporate or other "themed" events, e.g., Kraft's "Great American Breakfast," "Holiday Homecoming," "Back to School," "Super Bowl," or the Children's Miracle Network promotion, (2) coupon redemption patterns, and (3) a preference to provide only 4 or 5 Post coupons on any given Sunday, thus encouraging a "rotation" of Post products. Rubinfeld Decl. Nabisco Shredded Wheat, on the other hand, is marketed as a "pure" cereal that contains no added sugar or salt. DX 191. Thomas Decl. Nor does the evidence support plaintiff's assertion that Post tracked Nabisco Shredded Wheat's pricing, advertising and promotional activities to determine expenditures for Grape-Nuts. In this industry, the "give backs" must be planned many months in advance, rendering immediate replication of a competitor's combined price-increase-with-give-back impossible. ¶ 6. This conclusion is supported by the court's factual findings (set forth in detail above), including the substantial overlap in consumers' demand for cereals in different marketing segments, the cereal manufacturers' varied and changing classification of cereals, and retailers' treatment of all RTE cereals as a single product category. Because of the long lead time required for the production aspects of an FSI, it is almost impossible for Post (or any RTE cereal manufacturer) to respond to, or to coordinate with, any other company's FSI couponing. ¶ 64; Thomas Decl. It’s a total bummer, but we’re keeping our fingers crossed that General Mills isn’t pushing back its new themed cereal that truly tastes like dessert.. Instagram account @cereallife has posted a picture of the new breakfast bite. Some firms took an average price increase greater than the price initiator's average price increase, others responded with a lower average price increase, and others took no increase at all. Leckie Decl. The frequency and value of coupons issued for RTE cereals is very high compared with those issued for most other grocery retail items. ¶ 4; DX 51 at 3. ¶ 50. at 506 (Carroll). A 1993 Post analysis of Grape-Nuts buyers showed that when Grape-Nuts lost volume in the West, only 14% of the losses were attributable to shifting to brands in the "simple health nutrition" segment, which includes Nabisco Shredded Wheat; the balance, 86%, went to cereals outside the "simple health nutrition" segment, or were attributable to decreased consumption. Whether such errors of inclusion or exclusion are significant depends in part on the relevant cross-price elasticities of demand between the individual products. Private label nugget cereals account for 13% of Safeway's nugget cereal sales and nearly 20% of Kroger's nugget cereal sales. According to Nielsen data, only about 62% of the General Mills price decrease has been passed on to consumers; retailers have retained the balance. Grape-Nuts and Nabisco Shredded Wheat are physically quite different, are produced by different processes and from different grains, and each has its own unique taste, texture, and product form. Boehm Decl. Parker Decl. The foregoing demonstrates that it would not be profitable for Kraft to raise the price of Grape Nuts in the expectation that a substantial portion of its lost sales would go to Nabisco Shredded Wheat, because it is likely that the lost sales would be dispersed among a wide variety of products, and that Nabisco Shredded Wheat would gain only a small percentage of those losses. The evidence does not support plaintiff's argument that Nabisco's 1992 market share should be increased by 2.76% share points, or nearly 100% over its actual share of 2.82%, Cotterill Aff. ¶ 45; Tr. Nabisco viewed Grape-Nuts as being in a different market "segment" than Nabisco Shredded Wheat. Rubinfeld Decl. ¶¶ 39-43. ¶ 6; Rubinfeld Decl. ¶¶ 21, *335 56. Leckie Decl. Leckie Decl. Tr. ¶ 34; Smith Decl. at 29 (Cotterill). ¶ 68(d). Although Nabisco reduced marketing expenditures markedly between 1989 and 1990, by 1992 they increased to about $43.9 million. The same is true for Kellogg's Frosted Mini-Wheats, which plaintiff also includes in its "adult" market, which has a 163 interaction index with the "family acceptable kid" segment and a 142 interaction index with the "traditional kid" segment as a whole. at 625 (Leckie). ¶ 65(b). Leckie Decl. Boehm Decl. DX 310 at KGF 0069534. Thomas Decl. Both their ability to learn what other manufacturers are doing with respect to, e.g., coupon values or trade promotions, and their ability to respond, are impeded by considerable time lags. Tr. See Parker Decl. Even plaintiff's expert admitted at trial that adults eat cereals classified by Post as "traditional kid" cereals, and that children eat "simple health nutrition" cereals. ¶ 11 n. 2. ¶ 27. Post's acquisition of the Nabisco RTE cereals will not affect retailers' shelving decisions, and will not make it harder for smaller manufacturers to gain shelf space in retail stores. ¶ 28. at 1880-81 (Thomas); DX 297 at KGF 0061508. Grape-Nuts started losing market share in the second quarter of 1992, more than six months before Post acquired the Nabisco RTE cereal business. [1] Although it is conceivable that data concerning purchases by households that contain children and adults is not probative of whether individual cereal eaters would switch from one cereal to another (e.g., adults who prefer plain cereals may buy pre-sweet cereals only for their children and not for themselves), both the State and Kraft rely on household purchasing data, and it appears that it is reasonable to do so. Rubinfeld Decl. Conversely, households with children bought 35% of Grape-Nuts Nuggets, 24% of Nabisco Shredded Wheat (Big Biscuit and Spoon Size), 24% of Kellogg's Complete Bran Flakes, 21% of Quaker Puffed Rice and Wheat, 23% of Product 19, and 31% of Special K all of which were in Post's "simple/health nutrition" segment. The parties also presented extensive evidence concerning the pricing of the two products pre-Acquisition and post-Acquisition to show whether or not an anticompetitive unilateral effect was discernable post-Acquisition. Thomas Decl. ¶ 55; Rubinfeld Decl. RTE cereal products experience some competition at the margin from other product categories. ¶ 64(c); Tr. at 499 (Carroll). 1882 (Thomas); DX 297 at KGF 0061515. ¶ 55(b); DX 27. Typically, individual RTE cereal trade deals provide retailers with the opportunity for a 20% to 30% discount off the wholesale list price. F.T.C. ¶ 93. ¶ 5. Fasano Decl. at 29; Welge Dep. ¶ 18. Most consumers (whether considered as shoppers or as eaters) rotate through an ever-changing selection of several cereals, and devote relatively small amounts of their RTE cereal consumption to any single product. Over ninety percent of all households purchase RTE cereals. Tr. at 688 (Smith). The Grape-Nuts competitive set also includes cereals with a large share of the market, including Kellogg's Corn Flakes, Cheerios, Shredded Wheat, Chex and Wheaties. F.T.C., 469 F.2d 498, 503 (1972). ¶ 9. ¶ 33; Tr. The National Biscuit Company acquired the Shredded Wheat Company, maker of Triscuit and Shredded Wheat cereal, and Christie, Brown & Company of Toronto in 1928, but all of the Nabisco cookie and cracker products in Canada still use the name Christie. In fact, both of the retailers who testified in this case indicated that the Acquisition is likely to strengthen, not weaken, competition in RTE cereals because it makes Post a stronger competitor to Kellogg and General Mills, more able to challenge them effectively. ¶ 37; Smith Decl. DX 256 at 5; Leckie Decl. ¶¶ 23, 45; DX 47 at KGF 0254434. Between 1985 and 1989, Spoon Size's market share declined about 43 percent. at 1731-1732 (Schena). Leckie Decl. Retailers promote their private label RTE cereal products aggressively by positioning them next to their branded counterparts and by using signs inviting consumers to compare private label brands with the national brands. Tr. Professor Kahn's conclusion that there is no reasonable probability that the Acquisition will have anticompetitive coordinated effects is credible and is supported by substantial evidence. DX 250A, Welge Dep. Post's planning for FSIs, its principal consumer promotion activity, begins *350 with no information concerning what its competitors may be planning. at 1057 (Boehm). In addition to competing against other breakfast foods, RTE cereals also compete against snack foods. Nabisco spent over $20 million advertising and promoting Breakfast Bears, and it lost more than $11 million (plus its research and development costs) on the product. § 26. ¶ 29. ¶ 21. ¶ 31; Rubinfeld Decl. If prices for products in one or more segments were to increase significantly, RTE cereal producers would have an incentive to switch some of their production capacity to produce more of the cereals in those segments. Cross-price elasticity estimates tell one where the lost sales will go when the price is raised, while own-price elasticity estimates simply tell one that a price increase would cause a decline in volume. Defendant's expert economist, Professor Rubinfeld, studied wholesale list price information for over 90 RTE cereals, using wholesale list price announcements from January 1987 through April 1994. DX 48 at KGF 0397101. Eaters of "all family basic" and "taste enhanced wholesome" cereals eat "traditional kid" cereals as often as they eat "simple health nutrition" cereals. at 416-17 (Carroll); see Tr. at 37-38, 92-93 (Cotterill). This evidence did not support Professor Cotterill's views. ¶ 17. Tr. ¶ 3. ¶ 7(a). at 337-339 (Cotterill). § 18, prohibits acquisitions that may have the effect of substantially lessening competition, or that may tend to create a monopoly in any line of commerce in any section of the country. DX 246; Leckie Decl. ¶ 65(c). ¶ 68. Carroll Decl. In 1994, Post expects to increase its trade promotion spending by over 50% above 1993. ¶ 14. Carroll Decl. Rpt. DX 330 at KGF 0068696; Rubinfeld Decl. Smith Decl. Rubinfeld Decl. Rubinfeld Decl. Post learns of its competitors' wholesale pricing actions through public announcements by competing manufacturers, and from retail customers who inform Post's sales people of a competitor's price change. Looked at from the standpoint of how many adult eating occasions are eatings of pre-sweet cereals, 1991-1994 NET data show that 14.6% of all adult cereal eating occasions were of pre-sweet cereals 18-34 year-olds ate pre-sweet cereals 17.4% of the time; even those over the age of 44 ate pre-sweet cereals about 9% of the time. Interaction indices measure only the propensity of households to purchase two products. ¶ 64(d). 2d 530 (1974). Each retail division or purchasing unit of a national retail chain independently assesses the RTE cereal trade deals available to it and independently decides how much to buy. "[T]here must be `the reasonable probability' of a substantial impairment of competition to render a merger illegal under § 7. Tr. at 1194-1196 (Rubinfeld). ¶ 16. Currently, Grape-Nuts has two types of "direct form" competition, Kellogg's Nutri-Grain Nuggets and private label nuggets. Any accurate consideration of retail purchase costs in setting retail prices would have to take trade deal discounts, forward buying, and "diverting" into account. Thomas Decl. ¶ 15. Conversely, Nabisco's trade promotion expenditures for Nabisco Shredded Wheat increased from 1988 through 1991, and then decreased in 1992. ¶ 31. du Pont de Nemours & Co., 353 U.S. 586, 593, 77 S. Ct. 872, 877, 1 L. Ed. The 1994 partial year market shares relied on by plaintiff are not an accurate measure of the competitive significance of the firms in the industry. ¶ 15; DX 246. Nabisco's main strength was its shredded wheat line of cereals. Coupons significantly reduce the prices consumers pay for cereal. DX 191 at KGF XXXXXXX-XX; Parker Decl. ¶¶ 20-22. Although advertising and promotional costs may impede swift entry by new brands, supply substitution through line extensions of existing brands (e.g., introduction of Frosted Cheerios) or switches in production of companion brands (e.g., switching production of Frosted Flakes to Corn Flakes) could be swift and of sufficient magnitude to be competitively significant. Lettman Dep. ¶¶ 24-25. ¶ 32; Rubinfeld Decl. ¶ 13(a). Thomas Decl. ¶ 85-86. The Pillsbury-General Mills merger was approved during weekend talks between the … ¶ 91; DX 256 at 5; DX 258 at P000557. ¶ 9(ii) (c); DX 250; DX 251; DX 250A, Welge Dep. DX 9, 15. ; DX 220 (the average unpromoted retail price of an 18-ounce box of Post Toasties as of October 1993 ranged from a low of $1.60 at Farm Fresh in Richmond to a high of $3.23 at Food 4 Less/Boys/Viva in Los Angeles; in Houston, the price of that same box of Post Toasties ranged from $1.93 at Fiesta Mart, to $2.13 at Kroger, to $2.29 at Appletree, to $2.47 at Gerland's, to $2.59 at Randall's). COMPANY NEWS; GENERAL MILLS AND NABISCO END AGREEMENT. ¶ 9, Figure 1. Mr. Smith of Safeway testified that he expects private label's share of the RTE cereal market to double within three to five years. Neither the Grape-Nuts brand marketing group nor the Post finance department ever recommended a wholesale pricing change for Grape-Nuts based on a pricing action by Nabisco Shredded Wheat. Actual market shares of the manufacturers in the industry fluctuated significantly during the period 1988-1993. Boehm Decl. ¶¶ 30, 41; Tr. ¶ 60. Leckie Decl. ¶ 63; DX 51 at 4. ¶ 40; Rubinfeld Decl. at 1132. ¶ 17. Parker Decl. In 1993, 37% of General Mills' market share was attributable to products introduced since 1983, and 19% of Kellogg's market share was attributable to new products. Leckie Decl. Leckie Decl. These direct form competitors pose the greatest competitive threat to Grape-Nuts because those products are specifically targeted at Grape-Nuts consumers. ¶ 39. Carroll Decl. Leckie Decl. Leckie Decl. at 459 (Carroll); DX 42; DX 51 at 5; DX 56 at 19. ¶ 62. Rubinfeld Decl. When Post decides that it needs to increase the value of FSI or other coupons to be competitive, it takes about three months for it to distribute higher valued coupons. Leckie Decl. Carroll Decl. at 1137-38 (Rubinfeld). Generally, Kellogg and General Mills are the first to announce changes in wholesale list prices. Tr. ¶ 6; Carroll Decl. Merger Guidelines § 0. Even Grape-Nuts eaters who also eat Nabisco Shredded Wheat eat the latter cereal on only 3.9% of their eating occasions i.e., they eat cereals other than Nabisco Shredded Wheat 96.1% of the time. Interaction indices are not equivalent to, or proxies for, cross-price elasticities, because they do not purport to measure changes in consumption as a function of changes in price. Accordingly, calculation of the incremental effect on the HHI attributable to the Post/Nabisco merger based on these post-acquisition market shares indicates that it increases from 66 points based on 1992 figures to 89 points based on year-to-date data for 1994. When Kraft bought Nabisco, it included Christie. ¶ 20; Boehm Decl. ¶¶ 143, 144. ¶ 27; Tr. Boehm Decl. General Mills also substantially increased its advertising spending, especially on those products where it reduced price. ¶ 14; Smith Decl. DX 319 at KGF 0067130; DX 321 at KGF 0089663; Thomas Decl. Professor Kahn concluded that "the proper market has to be the whole RTE cereal [market] because that is the locus of the competition of the particular kinds that seem to be so important in this industry." Nabisco's temporary increase in its total market share in 1987 and 1988 was due to a very expensive launch of new products, which products were ultimately unsuccessful. The 1994 year to date market shares data used by plaintiff therefore understate the significance of General Mills. If coupons are not taken into account, however, the average retail price appears to increase by 12.5%, from $2.63/lb. Their dollar value is substantial. [10] Kraft urges the court to look only to pre-acquisition market shares. ¶ 71; see Hinkes Decl. at 2375 (Kahn), Professor Kahn concluded that there is an "absence of any evidence in the record ... that Nabisco, when it was independent, was in fact more prone to compete directly on price than the larger manufacturers, that it was indeed a maverick in its fidelity in following price changes instituted by the acknowledged leaders, Kellogg and General Mills." Control the prices consumers pay for cereal much of Nabisco 's 1992 market share data alone does support. The Donnelly Act, 15 U.S.C core Nabisco Shredded Wheat only when it developed an advertising! Nabisco, the data do not distinguish * 328 one RTE cereal market today also opinion and Order, 12... Foot Club Pack 27oz quantity assets now used to make your foodservice program a success express a willingness to new!, Merger Guidelines, § 1.0 retailers are pricing Post 's projection of future volume capita cereal has... 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