United States of America
Before the Federal Trade Commission

Hearings On Global and Innovation-Based Competition

Statement of Grocery Manufacturers of America, Inc.
William C. MacLeod

November 7, 1995

Statement of Grocery Manufacturers of America, Inc.

FTC Hearings on Global and
Innovation-Based Competition

William C. MacLeod

The Grocery Manufacturers of America appreciates the opportunity to participate in the Commission's Hearings on Global and Innovation-Based Competition. It is a privilege to be able to accept the Commission's invitation and explain the nature of competition for GMA members in light of the topics that the Commission is examining.

The Grocery Manufacturers of America, Inc. ("GMA") is an organization led by the CEOs of the companies that make and market the world's best known brands of food and consumer packaged products. Member companies' annual sales of nearly $360 billion represent eighty-five percent of all food and consumer packaged goods in the United States.

I. INTRODUCTION

There can be little question that innovation affects the competitive environment in which the antitrust and consumer protection laws operate and that the increasingly global scale of competition raises the importance of innovation to unprecedented levels. The members of GMA must address these influences daily. Given the changes that have occurred, it is an appropriate time, and certainly a useful effort, to evaluate whether modifications to traditional antitrust and consumer protection analysis is warranted. GMA applauds the Commission's decision to conduct these hearings and to examine how these broad-based changes in current markets fit within the framework of the laws that the Commission is charged with enforcing.

The antitrust and trade regulation policies that govern the affairs of grocery manufacturers have changed dramatically in the past twenty-five years, but the changes have left inconsistencies in the law that can impede effective competition. For grocery manufacturers and many other producers of consumer goods, significant competition takes place through new product introduction and other forms of nonprice competition. Such competition necessarily entails the "dynamic" efficiencies that have been identified and encouraged for so-called high-tech industries. The different dimensions of competition and the efficiencies that drive them, however, are treated differently by the antitrust enforcement agencies depending on the context in which they arise. On one end of the spectrum, the law against horizontal restraints accords nonprice competition almost equal status to price competition. Somewhere in the middle is merger analysis, where nonprice competition and efficiency receive grudging acknowledgement and accordingly little encouragement. At the other extreme, disharmony in consumer protection enforcement sometimes frustrates the ability of consumer goods manufacturers to engage in robust nonprice competition and thus impedes the diffusion of dynamic efficiency throughout the economy.

GMA recommends that the Commission unify the consideration of efficiencies and nonprice competition -- regardless of the context in which they arise -- and that the Commission advance policies promoting uniformity in consumer protection regulation that can affect innovation and competition.

II. DYNAMIC EFFICIENCIES ARE CRITICAL TO COMPETITION

Currently, only production-related efficiencies are readily recognized in antitrust enforcement. In many consumer goods industries, the source of significant efficiencies -- and consumer benefits -- extends beyond simple reductions in production costs. In the context of mergers, which has been the focus of the comments of many participants in the hearings, the enforcement agencies readily will recognize efficiencies arising from cost reductions in physical production. The 1992 Merger Guidelines state that efficiencies relating to "economies of scale, better integration of production facilities, plant specialization, lower transportation costs, and similar efficiencies relating to specific manufacturing, servicing, or distribution operations" will be recognized.[1] The Guidelines further state that other claimed efficiencies resulting from general selling, administrative, and overhead expenses may also be considered, but as a practical matter, will be difficult to demonstrate.[2] Furthermore, it has been stated that efficiencies unrelated to production costs are viewed as unlikely to be sufficiently large or demonstrable so as to justify inclusion in ordinary enforcement analysis.[3] Thus, the entire focus and measurement of efficiencies are reductions in cost, and whether the cost reduction will be passed on and have an effect on prices for consumers.

A. Competition Encompasses Many Dimensions Beyond Price

For consumer packaged-good manufacturers, however, competition among firms takes place on many dimensions, and price is only one. These other dimensions include product promotion and services, quality and durability, and diversity of the products. In consumer product industries, these nonprice dimensions are equally, and often more important, than price competition. Furthermore, the effectiveness of competition that takes place on nonprice dimensions is no less valuable to consumers than price competition.[4]

The development of new products that offer consumers diversity, enhanced quality, or unique, improved attributes that leads to changes in markets properly can be classified as an application of dynamic efficiency. Although we are not talking about R&D that creates the next-generation computer chip which leap-frogs existing technologies or the creation of a new process that will dramatically reduce production costs, the dynamic efficiencies that drive product innovation in grocery manufacturing are fundamentally the same as, and often more valuable than, the efficiencies recognized and admired in high-tech industries.

The importance of these dynamic efficiencies is evidenced by the products on grocery shelves today that were not available only a decade ago. Today, there are non-fat and reduced-fat varieties of hundreds of goods, from cookies to cereals to salad dressings. New flavors or combinations are now available -- there are new fruits in nonfat desserts and more fiber in low-fat, tasty cereals. New sport drinks once found only on professional training tables are now satisfying a demand previously unmet in the general population. Today we can buy concentrated detergents and cleansers in source-reduced packages and recycled containers.

The staples of prior generations that were once dominant for particular uses have been largely replaced as grocery manufacturers have developed new products that better serve consumer preferences. For instance, in the area of spreadable fats, consumers for decades purchased butter. As demand evolved, for different attributes, margarine became available, then spreads, and now even a butter-flavored spray. Similarly, for unflavored fats, initially, consumers purchased lard. Technological innovation led to vegetable shortening, later soybean oil, and now canola oil. These changes and new product offerings require innovation, technological evolution, and change. Indeed, the development of canola oil required that a new crop be introduced to farmers in the United States.

B. Dynamic Efficiencies Should be Recognized, Calculated and Protected

The drive to excel in this kind of competition, and the dynamic efficiency that makes it possible, is likely to be the motive that drives most mergers for consumer goods. Research and development for the introduction of new products, either the development, extension, or expansion of new products, is the likely inspiration for most of the mergers in consumer good industries. Thus, much like high-tech companies that must innovate or die, grocery manufacturers are looking for opportunities--internally and externally--to satisfy the demands of consumers in the year 2000. Companies that become acquisition candidates are companies whose current owners lose the ability or desire to invest the capital that could position the company for success down the road. Companies that invest the necessary capital are the companies that will be creating the greatest consumer welfare in the future. The transfer of assets from the former to the latter represents an efficient allocation of resources.

Unfortunately, such transactions confront a fundamental paradox. The efficiency that is most important in driving merger and acquisition decisions among grocery manufacturers is the very efficiency that has been given second-class status when the enforcement agencies are reviewing a transaction. GMA urges the Commission to consider the changes in antitrust analysis that could facilitate these efficiencies. The questions are: first, how to recognize the efficiencies; second, how to measure them; and third, how to protect the ability of consumer goods manufacturers to achieve these efficiencies. Difficulties addressing the second question, measurement, should not preclude the enforcement agencies from addressing the other questions -- the recognition and protection of these efficiencies.

1. Recognizing Dynamic Efficiencies

Presently, dynamic efficiency has been recognized in connection with merger analysis to support the notion of innovation markets.[5] The definition of innovation markets, however, has only been used to oppose particular transactions.[6] If the concentration of R&D, however it is measured, is recognized in a market in which competitive effects are evaluated, the possibility of beneficial effects must also be recognized. There should be symmetry to the analysis so that dynamic efficiencies are recognized for the benefits they create, and relied upon to justify a restraint, merger or acquisition. As discussed above, those benefits are frequently the driver for mergers and acquisitions in consumer product industries.

a. Dynamic Efficiencies and Nonprice Competition in Mergers

The recognition of efficiencies as the basis for the antitrust enforcement agencies to permit restraints on competition is not a new idea.[7] One of the early interpretations of the rule of reason could be called such a case.[8] Although only a recent factor in merger analysis,[9] efficiencies are gradually finding acceptance in the decisions. But there is an exception when the issue concerns dynamic efficiencies.

The recognition of "dynamic" efficiencies should be among the efficiencies that would justify a transaction. The combination of research, development, managerial, marketing or sales organizations in a merger can yield a "synergy" between complementary talents and efforts. For example, a merger may combine efficient research organization with superior development talents, enabling products to reach consumers more quickly. Similarly, one company's sales force may be far more efficient at marketing a new product.[10] The dynamic nature of such product development and introduction should be recognized for the additional consumer welfare that is created through more rapid diffusion of nonprice competition. GMA agrees with the observation of two scholars on the subject.

Assess R&D Efficiencies. The final step in the analysis of a merger or other combination that might affect investment in R&D is to evaluate the consequences for the efficiency of R&D. It is clearly not sufficient to end the evaluation with a determination only of the likelihood that the combination will reduce R&D effort. The relevant competitive concern is whether the combination will have an adverse impact on innovation, for which R&D is only an input. The analysis must consider whether the merger or other combination affords efficiency benefits that enhance the likelihood or value of innovation. This requires evaluating the potential for exploiting complementary R&D assets and scale economies in R&D as well as for eliminating redundant R&D programs.[11]

The enforcement agencies' reluctance to accept "dynamic" efficiencies, threatens to leave them behind the judicial developments in this concept. For instance, in the opinion from the State of New York's challenge of the acquisition of Nabisco's cereal assets by Kraft, which owns Post cereals,[12] U.S. District Court Judge Kimba Wood devoted significant attention to the dynamic nature of the ready-to-eat cereal market.

Because of consumers' demand for variety, new products are key to the growth of any RTE cereal firm. Over the past ten years, the main growth in the RTE cereal market has been in new products. Market shares of established products like Grape-Nuts and Nabisco Shredded Wheat have remained flat or have declined.

Because of the importance of new products, Post maintains an active new product development program, which tests about 100 new product concepts each year. From 1989 to 1993, Post introduced six new products--Honey Bunches of Oats, Marshmallow Alpha-Bits, Dino Pebbles, Great Grains, Banana Nut Crunch and Bran'nola. Post's market share growth over the last five years is attributable to these new products. Post's market share increased from 10.7% in 1989 to 12.1% in 1993. Without these new products, Post's share would have declined by about 1.5 share points, rather than increasing by 1.4 share points.

Other RTE cereal manufacturers also compete on the basis of new product introductions. Since 1989, 59 new RTE cereals have been introduced by the largest RTE manufacturers. Those cereals accounted for 12.42% of all RTE cereal sales in 1993. 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.[13]

Since there is judicial recognition of "dynamic" efficiencies as a basis of competition in merger analysis, it seems reasonable that such efficiencies should be equally recognized by antitrust enforcers in their analysis of transactions. Just as it cannot be seriously argued that computer users would be better off if chip manufacturers put more effort into cutting the prices of obsolete processors and less effort into introducing the next generation of products, it cannot be argued that consumers would be better off eating lower-cost versions of the cereals their parents consumed a generation ago.[14]

b. Efficiencies and Nonprice Competition in Other Horizontal Cases

In other horizontal contexts, the Commission has acknowledged the value of promotion as a means of competition. The Commission has challenged private restraints on advertising that have been contained in professional codes of conduct.[15] Similarly, in the 1970s, the Commission initiated a rulemaking to remove state restrictions on advertising prices of prescription drugs and promulgated the Trade Regulation Rule on Advertising of Ophthalmic Goods and Services. Recognizing that "restraints on truthful advertising 'are inherently likely to produce anticompetitive effects,'" the recent initial decision in California Dental Association is the most recent Commission action to challenge restrictions on advertising.[16] Furthermore, in these decisions, the Commission has not drawn a distinction between price and nonprice promotions, finding that an advertising ban that "deprives consumers of information concerning service rather then [sic] price in no way diminishes the inherently anticompetitive nature of the restraints."[17] The Commission's stance on this issue has been adopted by the Supreme Court in ruling that bans on disclosure of nonprice characteristics are impermissible restraints under the First Amendment, because the suppressed information would be procompetitive.[18] Given the Commission's position in nonmerger matters, it is both ironic and unfortunate that similar promotions are not allowed to be cited as an efficiency in support of a transaction.

Difficulty in the measurement of a particular efficiency should not preclude its recognition in enforcement decisions. Admittedly, it will be more difficult to compare the gains to consumers when the analysis involves more than comparing costs and price effects, both of which are measured in dollars. In this case, the measurement of dynamic efficiencies is likely to take place on a nonprice dimension. If antitrust analysis were simply to ignore those aspects of a transaction that are difficult to measure, market definition would be one of the first exercises to go. To be sure, recognition of efficiencies in merger or other antitrust analysis increases the complexity of the analysis, but the ultimate goal of the analysis should be the proper determination of the transaction's competitive effect, which cannot be done without assessing dynamic efficiencies.

2. Measuring Dynamic Efficiencies

When it comes to the measurement of dynamic efficiencies, one of the most vexing questions in the efficiency debate is actually much easier to resolve. Unlike cost reductions, which may or may not be passed on to consumers, new products, improved products and market extensions are by definition delivered to the market.

The current focus on cost and price to evaluate efficiency does not address the consumer benefits arising from nonprice competition in consumer product industries. For nonprice competition, by definition, an examination of prices is not informative. The additional diversity of products, enhanced quality, and additional services that are the basis of the competition are not necessarily reflected in price differences.

For nonprice competition, efficiency and consumer benefits are more accurately evidenced by expansions in output of the products intended to benefit from the efficiency.[19] Every merger that we see in consumer packaged goods industries is a merger in which the plan for the products involved is to grow the business. In our survey of antitrust counsel for grocery manufacturing clients, we have not found a transaction, and cannot remember a significant transaction, in which the plan was to shrink a business and recoup the lost revenue by charging higher prices.

Measurement of the welfare gains according to output is easily explained. Consumers will purchase additional quantities of product category if it satisfies them more. The economic analysis of voluntary trade indicates that consumers will not undertake any purchase that makes them worse off. Consumers' willingness to make additional purchases of the expanded product offerings is an indication that there is an increase in consumer welfare. The additional product attributes, which evidence the dynamic efficiency in the industry, produce additional consumer benefits when total purchases increase due to marginal consumers choosing to purchase an improved good.

One traditional critique of nonprice competition is that the additional services or products offered to the inframarginal consumer are less important because these consumers would already purchase the good. This critique, however, ignores the economic measure of the benefits to the consumer. Economic theory explains that allocative efficiency and consumer welfare are measured, in part, by consumer surplus, the valuation of the consumer's willingness to purchase the good in excess of the price that the consumer actually pays. If nonprice competition increases the consumer's desire for the good because the consumer values the new product more highly than the alternatives that would have been purchased otherwise, consumer welfare has increased. There has been an increase in consumer surplus, even if the consumer would have a purchased the same product before the improvement. Thus, even for the inframarginal consumers -- and even if all consumers are inframarginal -- there are additional benefits arising from nonprice competition. However, unlike the situation of an efficiency arising from a cost reduction, which requires a decrease in price to expand output, nonprice competition will expand output if price is constant.

That the additional consumer welfare may be more difficult to measure than a cost reduction does not make it any less relevant to the policy objectives of antitrust analysis, and the difficulty of measurement may be overstated. GMA believes that a proxy is readily apparent in the documents generated in most merger inquiries. If the evidence shows post acquisition plans for growth in output that exceeds the growth planned or predicted by the companies acting independently, then that growth can be translated into consumer welfare gains. Indeed, if the value of the assets increases in the acquiring firm's control, and the most plausible explanation for that increase is output expansion, then the transaction should benefit from a presumption of dynamic efficiencies.

3. Protecting the Efficiencies: Uniformity of Enforcement

In industries where nonprice competition is significant, realization of the consumer benefits requires informing consumers about the availability of the new product attributes. New products, better product quality, or other valuable attributes will not enhance consumer welfare unless consumers learn of them. Consequently, truthful information dissemination about product attributes fosters consumer welfare and more effective nonprice competition. The lack of uniformity of advertising regulation by different regulators hinders the effective dissemination of product information and reduces the ability of grocery and other consumer goods manufacturers from realizing the dynamic efficiencies that are created from new product introductions.

Better information about the options enables consumers to make choices that better serve their interests.[20] Beginning in the 1970s, the Commission recognized that advertising is an important element of effective competition.[21] Consumers need information about product alternatives if their choices are to reflect their true preferences for products and attributes. Advertising reduces consumers' costs of obtaining information and thereby enhances economic performance. Obtaining and using information always takes time and effort, to find the relevant information and understand its implications. Because information is costly, consumers seek to balance the potential gains (in the form of better choices) from additional information against the extra costs of obtaining it.

While advertising is important for competition because of its tendency to reduce prices,[22] advertising is also critical because it informs consumers about the availability of new products, new features, or new information about existing products. When even a minority of consumers is better informed about the options available, competition among sellers for the business of such consumers is more effective for all consumers.[23] Furthermore, without the ability to inform consumers about a new or different alternative, the incentive to introduce new alternatives is reduced. The Bureau of Economics path-breaking studies of information dissemination in the cereal industry provides strong confirmation of this principle.[24]

National advertisers have learned to apply the standards of the Commission with respect to deception and substantiation. State enforcement activities, however, have produced a multiplicity of advertising regulators and standards.[25] The multitude of regulatory voices creates serious problems because even responsible regulators using identical standards may disagree in close cases. In their efforts to comply with differing interpretations of numerous regulators, companies that attempt to advertise across numerous jurisdictions are effectively governed by the most restrictive view that any regulator decides to take.

Further complicating matters is the fact that not all state regulators apply the same legal standards to evaluate advertising. At the federal level, there is a consensus about the standards that are applied. The Commission has long held that regulators should not pursue advertising claims that are not material to consumers or that are only deceptive when subject to bizarre or idiosyncratic interpretations.[26] Indeed, the Commission has forcefully advocated consistent policies to other enforcement agencies.[27] When regulators act against advertising that truthfully informs the overwhelming majority of the audience because a small and unrepresentative minority might misinterpret the message, they deny valuable information to the majority. Some policies at the state level, however, remain resistant to these standards and continue to follow discredited views. Some state actions are based on the standard that advertising is prohibited even if only "wayfaring men, though fools," might be misled.[28] The resulting substantive differences between the standards used by federal and state can mean that the vast majority of consumers are denied the benefit of nonprice competition altogether.

Perhaps the best example of the costs of inconsistent regulations, the benefits of harmony, and the role of the Commission in achieving the latter, can be found in the area of environmental claims. State statutes in place prior to the adoption of the Commission's Environmental Marketing Claims Guides often were inconsistent, requiring marketers to choose between customizing environmental claims to meet various local requirements or abandoning environmental claims altogether. Neither option served consumers who desired the valuable information provided by such claims. Evidence continues to mount, however, that the Guides have promoted national consistency thereby easing the burden on those marketers choosing to provide valuable environmental information to consumers.

Several state initiatives in the past several months have continued the trend toward harmonizing the spirit and the letter of state laws and regulations with the Guides:

• In Rhode Island, an environmental marketing claims bill became law effective July 9, 1995 (95-PL326), bringing the state's environmental marketing claims law into accordance with the Guides.
• The Minnesota legislature recently amended the state's environmental labeling law to require that all environmental claims for products or packages comply with the Guides. (The law unfortunately still requires that recycled-content claims carry a confusing disclosure of post-consumer content.)
• In California, the site of First Amendment litigation over the suppression of environmental claims the legislature passed and the governor signed legislation (S.B. 426) that repealed California's existing onerous labeling law and instead required environmental marketing claims to conform with the Guides.
• The New York Department of Environmental Conservation revised rules governing the use of recycling claims to incorporate the Guides. Previously mandatory regulations concerning the use of recycling terms are now voluntary and definitions of such terms comply with the Guides.

In the international arena, the consequences of such inconsistency are well recognized.

Technical regulations are essential in modern society. They are adopted to protect human and animal life and health; to ensure that products offered to the consumer meet the necessary levels of quality, purity, technical efficiency and adequacy to perform the function for which they are intended; to protect the environment; and for reasons connected with safety; national security; and the prevention of deceptive practices.

However, international trade can be complicated and inhibited by disparities between regulations, adopted at local, State, national or regional levels; by insufficient information on the often complex and detailed requirements; by the introduction of regulations without allowing time for producers, especially foreign ones, to adjust their production; by frequent changes to regulations which create uncertainty; by the drawing up of regulations in terms of design rather than performance in order to suit the production methods of domestic suppliers, thus causing difficulties to suppliers using different techniques; by exacting testing requirements; by the denial of access to certification systems; and finally by the manipulation of regulations, testing or certification to discriminate against imports. The problem has been to strike a balance between the essential needs referred to in the preceding paragraph and the demand of exporters that their goods should not unreasonably or unfairly be excluded from the market.[29]

The differences in standards or interpretations adopted by various regulators is most likely to affect advertising claims that relate to new products or attributes of products. It is when manufacturers use advertising to inform consumers about the new attributes that the advertising claims will be regulated because the claims are considered material to consumers. The advertising that fosters nonprice competition is the advertising that is subject to most regulatory scrutiny. Thus, the existence of nonuniform regulation will impose limitations on precisely the information that is most beneficial to consumers because it provides substantive information rather than simply convey a product image. Nonuniform regulation that forces advertisers to limit the dissemination of information to that which complies with the most stringent standard will have its greatest effect on information that fosters nonprice competition. Manufacturers who choose to advertise to inform consumers about the new product attributes that will enable consumers to make more informed choices face the greatest risk of prosecution when the manufacturer informs the consumers about relevant product attributes. The nonuniform regulation of advertising provides a significant disincentive for the advertiser to disseminate product information and even to undertake the beneficial product introduction that will yield consumer benefits through "dynamic" efficiencies.

III. RECOMMENDATIONS

With regard to the measurement of efficiencies and nonprice competition, GMA recommends that evidence of intended new product introduction, market expansion, or product improvement give rise to a presumption that consumer welfare would be enhanced by a transaction, and that this presumption be weighed against any inference stemming from evidence pertaining to possible harm to static competition.

With regard to protecting the efficiencies, most of the foundation has already been laid to build consistency into advertising standards. The Commission's policy statements on unfairness, deception and substantiation have proven their value in federal enforcement policy, but they remain largely neglected at the state level, and nearly unknown internationally. GMA recommends that the Commission mount an initiative, similar to the efforts of twenty-five years ago that brought an end to unjustified restrictions on comparative advertising, to raise recognition and application of the Commission's experience regulating advertising.

GMA also recommends that the Commission develop a fourth policy statement, one dealing with the policy and practice of claim interpretation. As long as there will be multiple referees calling fouls in the advertising arena, it is critical that the rules be as well defined as possible. By far, the most amorphous aspect of advertising regulation is the interpretation of claims and the proper use of extrinsic evidence bearing on the issue. A claim interpretation policy statement by the FTC would fill this important gap.

IV. CONCLUSION

The dilemma that grocery manufacturers face is that the efficiencies most important for many transactions are efficiencies that the antitrust enforcement agencies have chosen to accord second class treatment in merger analysis. The same efficiencies may heavily influence other antitrust analysis, but they are affirmatively threatened by nonuniform enforcement of the antitrust and consumer protection laws by state regulators. Even if the Commission recognizes such dynamic efficiencies, the failure of state regulators to recognize the welfare effects of nonprice competition threatens to block beneficial transactions. Furthermore, nonuniform legal standards applied to evaluate advertising prevents consumers from learning of the product attributes that the dynamic efficiency offers to the marketplace as advertisers must restrict their advertising to conform to the most strict standard that any jurisdiction might apply.

With these hearings, the Commission is in a unique position to rationalize the treatment of dynamic efficiencies and nonprice competition. Using the leadership that the Commission has shown advancing the cause for comparative advertising in the 1970s and quelling the chaos over environmental regulations in the 1990s, the Commission can become a powerful force for regulatory harmony that fosters and protects the gains from dynamic competition in the decades to come.

Footnotes:

[1] Antitrust Div., U.S. Dep't of Justice and Federal Trade Comm'n, Horizontal Merger Guidelines, 57 Fed. Reg. 41,552 (Sept. 10, 1992) (reprinted in 4 Trade Reg. Rep. (CCH) para. 13,104) sec. 4.

[2] Id.

[3] Robert Pitofsky, Proposals for Revised United States Merger Enforcement in a Global Economy, 81 Geo. L.J. 195, 217-18 (1992).

[4] George J. Stigler, Price and Nonprice Competition, 72 J. Pol. Econ. (1968).

[5] Richard J. Gilbert and Steven C. Sunshine, Incorporating Dynamic Efficiency Concerns in Merger Analysis: The Use of Innovation Markets, 63 Antitrust L.J. 569 (1995).

[6] It should be recognized, however, that changes in the composition of markets is reflected in merger analysis in other ways. For instance, courts have found that certain market conditions may make current market shares a poor indicator of industry structure in the future. See United States v. General Dynamics Corp., 415 U.S. 486 (1974); see also 1992 Horizontal Merger Guidelines, supra note 1, at sec. 1.521. Although the courts have not addressed the issue as an efficiency, the courts recognize dynamic and changing market conditions when evaluating a particular transaction.

[7] E.g., Pitofsky, Proposals for Revised United States Merger Enforcement in a Global Economy, supra note 3, at 218-21; Timothy J. Muris, The Efficiency Defense Under Section 7 of the Clayton Act, 30 Case W. Res. L. Rev. 381 (1990).

[8] Chicago Bd. of Trade v. United States, 246 U.S. 231 (1918).

[9] See Pitofsky, Proposals for Revised United States Merger Enforcement in a Global Economy, supra note 3, at 206-08.

[10] Chairman Pitofsky correctly observes that market research is little different from technical R&D. Id. at 243. GMA believes that both deserve recognition as potential efficiencies in merger analysis.

[11] Gilbert and Sunshine, supra note 5, at 597.

[12] State of New York v. Kraft General Foods, Inc., 1995-1 Trade Cas. (CCH) sec. 70,911 (S.D.N.Y. 1995).

[13] Id. at 74,054-55 (citations omitted).

[14] In fact, as the judge found in Kraft, competition gives cereal consumers both options -- innovation from branded manufacturers and price pressure from both branded and private-label producers -- much like the brands and clones in the computer industry.

[15] American Medical Ass'n, 94 F.T.C. 701 (1979); American Dental Ass'n, 94 F.T.C. 403 (1979).

[16] California Dental Ass'n, Dkt. No. 9259, slip op. at 73 (FTC July 17, 1995) (Initial Decision) (quoting Massachusetts Bd. of Registration in Optometry, 110 F.T.C. 549, 605 (1988); American Medical Ass'n, 94 F.T.C. 701, 1005 (1979)).

[17] Massachusetts Bd. of Registration in Optometry, 110 F.T.C. at 607.

[18] Peel v. Attorney Registration & Disciplinary Comm'n, 496 U.S. 91, 110-111 (1990) (statement on letterhead that lawyer is certified is not misleading and state cannot prohibit such disclosure).

[19] It has long been recognized by basic economic texts and antitrust analysts that an increase in output is a natural consequence of efficiencies that reduce costs. Precisely the same is true for efficiencies that increase demand, other conditions such as cost held constant. This approach is consistent with evaluations of vertical restraints. See, e.g., F.M. Scherer, The Economics of Vertical Restraints, 52 Antitrust L.J. 687, 691-94 (1983).

[20] George J. Stigler, The Economics of Information, 64 J. Pol. Econ. 213, 220 (1961).

[21] Policy Statement in Regard to Comparative Advertising, 16 C.F.R. 14.15 (1995).

[22] Numerous studies indicate that advertising restrictions result in increased prices. See, e.g., John R. Schroeter et al., Advertising and Competition in Routine Legal Service Markets: An Empirical Investigation, 35 J. Indus. Econ. 49 (1987); J.F. Cady, Restricted Advertising and Competition: The Case of Retail Drugs (1976).

[23] See J. Howard Beales et al., The Efficient Regulation of Consumer Information, 24 J.L. & Econ. 491 (1981).

[24] Pauline M. Ippolito and Alan D. Mathios, Health Claims in Advertising and Labeling: A Study of the Cereal Market, FTC Bureau of Economics Staff Report (Aug. 1989).

[25] J. Howard Beales and Timothy J. Muris, State and Federal Regulation of National Advertising 117-19 (1993).

[26] Hearings Before the Subcomm. on Consumers, Senate Comm. on Commerce, Science and Transportation, 98th Cong. 1st Sess., 65 (1983).

[27] E.g., Comments of the Bureaus of Competition, Consumer Protection and Economics of the Federal Trade Commission, on Health Messages on Food Labels and Labeling, at 10 (1988) (Commission approved comments on the 1988 FDA proposals regarding food labeling, two commissioners dissenting).

[28] Charles of the Ritz Distribs. Corp. v. FTC, 143 F.2d 676, 680 (2d Cir. 1944).

[29] Report by the Director-General of GATT, The Tokyo Round of Multilateral Trade Negotiations 62-63 (1979) (discussing the Agreement on Technical Barriers to Trade).