Merger
Relevant Market
Product Market
Distinct Characteristics of Chloride TiO2 and Sulfate
TiO2
Reasonable Interchangeability
Price Differential
SSNIP
(…) Customers are not willing to substitute sulfate TiO2 for chloride
TiO2 in the vast majority of their products, notwithstanding the price
differential.
Respondents argue that sulfate TiO2 and chloride TiO2 are substitutes,
and therefore in the same product market, because it is possible for TiO2
customers to use either sulfate TiO2 or chloride TiO2 in approximately 80% of
TiO2 end-use products, provided the quality is the same, and that only 10% of
TiO2 end-use products must use chloride only. However, as shown above,
customers do not find the quality to be the same. Even if it is possible, as a
technical matter, for paint companies to make paint with either chloride TiO2
or sulfate TiO2, the fact is that they overwhelmingly choose not to do so. Furthermore, the proper antitrust
inquiry, as set forth in the Merger Guidelines, is not whether it is
theoretically possible for customers to substitute, but whether customers would
reasonably substitute sulfate TiO2 for chloride TiO2 in sufficient volumes to render a small but
significant non-transitory increase in price (“SSNIP”) (commonly 5%) unprofitable.
Merger Guidelines §§ 4.1.1, 4.1.2. As addressed in more detail in section
II.C.3. below, Dr. Hill conducted an empirical analysis and found that a
hypothetical monopolist of all chloride TiO2 sales to customers in North
America would find it profitable to impose a SSNIP.
(…) Respondents further argue that sulfate and chloride are in the same
product market because, according to Respondents’ proffered economic expert
witness, Dr. Ramsey Shehadeh, “there is a long-term relationship between
sulfate and chloride titanium dioxide prices” characterized by “statistically
and economically significant co-movement of prices.” RB at 53. This argument is
unconvincing. Even if the prices are
correlated, this does not show that the products are reasonably substitutable
for each other, especially in light of the proof that TiO2 customers do not
substitute. See also Preliminary Injunction Opinion, 2018 U.S. Dist.
LEXIS 155127, at *21 (stating that “the mere fact that the prices of two goods
move upward or downward together need not mean that they are substitutes”). As
Dr. Hill explained, “the prices of two
goods may be correlated, but they may not be in the same market. . . . One
example of this would be, hamburger buns
and hot dog buns are made from the same thing, and their demands highly correlated.
Their prices will be correlated over time, but they are not close substitutes
for one another.” Hill, Tr. 1707-08.
(…) The evidence proves that chloride TiO2 is a relevant product market.
(FTC, Office of Administrative Law
Judges, In the Matter of Tronox/Cristal USA, Dec. 7, 2018, Docket No. 9377)
