Mr. Justice Douglas
delivered the opinion of the Court.
This is a proceeding initiated by the Federal Trade Commission charging that respondent, Procter & Gamble Co., had acquired the assets of Clorox Chemical Co. in violation of § 7 of the Clayton Act, 38 Stat. 731, as amended by the Celler-Kefauver Act, 64 Stat. 1125, 15 U. S. C. § 18. The charge was that Procter's acquisition of Clorox might substantially lessen competition or tend to create a monopoly in the production and sale of household liquid bleaches.
Following evidentiary hearings, the hearing examiner rendered his decision in which he concluded that the acquisition was unlawful and ordered divestiture. On appeal, the Commission reversed, holding that the record as then constituted was inadequate, and remanded to the examiner for additional evidentiary hearings. 58 F. T. C. 1203. After the additional hearings, the examiner again held the acquisition unlawful and ordered divestiture. The Commission affirmed the examiner and' ordered divestiture. 63 F. T. C. —. The Court of Appeals for the Sixth" Circuit reversed and directed that the Commission's complaint be dismissed. 358 F. 2d 74. We find that the Commission's' findings were amply supported by the evidence, and that the Court of Appeals erred.
As indicated by the Commission in its painstaking and illuminating report, it does not particularly aid analysis to talk, of this merger in conventional terms, namely, horizontal or vertical or conglomerate. This merger may most appropriately be described as a "product-extension merger," as the Commission stated. The facts are not disputed, and a summary will demonstrate the correctness of the Commission's decision.
At the time of the merger, in 1957, Clorox was the leading manufacturer in the heavily concentrated house hold liquid bleach industry. It is agreed that household liquid bleach is the relevant line of commerce. The product is used in the home as a germicide and disinfectant, and, more importantly, as a whitening agent in washing clothes and fabrics. It is a distinctive product with no close substitutes. Liquid bleach is a low-price, high-turnover consumer product sold mainly through grocery stores and supermarkets. The relevant geographical market is the Nation and a series of regional markets. Because of high shipping costs and low sales price, it is not feasible to ship the product more than 300 miles from its point of manufacture. Most manufacturers are limited to competition within a single region since they have but one plant. Clorox is the only firm selling nationally; it has 13 plants distributed throughout the Nation. Purex, Clorox's closest competitor in size, does not distribute its bleach, in the northeast or mid-Atlantic States; in 1957, Purex's bleach was available in less than 50% of the national market.
At the time of the acquisition, Clorox was the leading manufacturer of household liquid bleach, with 48.8% of the national sales — annual sales of slightly less than $40,000,000. Its market share had been steadily increasing for the five years prior to the merger. Its nearest rival was Purex, which manufactures a number of products other than household liquid bleaches, including abrasive cleaners, toilet soap, and detergents. Purex accounted for 15.7% of the household liquid bleach market. The industry is highly concentrated; in 1957, Clorox and Purex accounted for almost 65% of the Nation's household liquid bleach sales, and, together with four other firms, for almost 80%. The remaining 20% was divided among over 200 small producers. Clorox had total assets of $12,000,000; only eight producers had assets in excess of $1,000,000 and very few had assets of more than $75,000.
In light of the territorial limitations on distribution, national figures do not give an accurate picture of Clorox's dominance in- the various regions. Thus, Clorox's seven principal competitors did no business in New England, the mid-Atlantic States, or metropolitan New' York. Clorox's share of the sales in those areas was 56%, 72%, and 64% respectively. Even in regions where its principal competitors were active, Clorox maintained a dominant position. Except in metropolitan Chicago and the west-central 'States- Clorox accounted for at least 39%, and often a much higher percentage, of liquid bleach sales. °
Since all liquid bleach is chemically identical, advertising and sales promotion are vital. In 1957 Clorox spent almost $3,700,000 on advertising, imprinting the value of its bleach in the mind of the consumer. In addition, it spent $1,700,000 for other promotional activities. The Commission found that these heavy expenditures went far to explain why Clorox maintained so high a market share despite the fact that its brand, though chemically indistinguishable from rival brands, retailed for a price equal to or, in -many instances, higher than its competitors.
Procter is a large, diversified manufacturer of low-price, high-turnover household products sold through grocery, drug, and department stores. Prior to its acquisition of Clorox, it did not produce household liquid bleach. Its 1957 sales were in excess of $1,100,000,000 from which it realized profits of more than $67,000,000; ' its assets were over $500,000,000. Procter has been marked by rapid growth and diversification. It has successfully developed and introduced a number of new products. Its primary activity is in the general area of soaps, detergents, and cleansers; in 1957, of total domestic sales, more than one-half (over $500,000,000) were in this field. Procter was the dominant factor in this area. It accounted for 54.4%' of all packaged detergent sales. The industry is heavily concentrated — Procter and its nearest competitors, Colgate-Palmolive and Lever Brothers, account for 80% of the market.
In the marketing of soaps, detergents, and cleansers, as in the marketing of household liquid bleach, advertising and sales promotion are vital. In 1957, Procter was the Nation's largest advertiser, spending more than $80,000,000 on advertising and an additional $47,000,000 on sales promotion. Due to its tremendous volume, Procter receives substantial discounts from the media. As a multiproduct producer Procter enjoys substantial advantages in advertising and sales promotion. Thus, it can and does feature several products in its promotions, reducing the printing, mailing, and other costs for each product. It also purchases network programs on behalf of several products, enabling it to give each product network exposure at a fraction of the cost per product that a firm with only one product to advertise would incur.
Prior to the acquisition, Procter was in the course of diversifying into product lines related to its basic detergent-soap-cleanser business. Liquid bleach was a distinct possibility since packaged detergents — Procter's primary product line — and liquid bleach are used eom-plementarily in washing clothes and fabrics, and in general household cleaning. As noted by the Commission:
"Packaged detergents — Procter's most important product category — and household liquid bleach are used complementarily, not only in the washing of' clothes and fabrics, but also in general household cleaning, since liquid bleach'is a germicide and disinfectant as well as a whitener. From the consumer's viewpoint, then, packaged detergents' and liquid bleach are closely related products. Blit the area of relatedness between products of Procter and of Clorox is wider. Household cleansing agents in general, like household liquid bleach, are low-cost, high-turnover household consumer goods marketed chiefly through grocery stores and pre-sold to the consumer by the manufacturer through mass advertising and sales promotions. Since products of both parties to the merger are sold to the same customers, at the same stores, and by the. same merchandising methods, the possibility arises of significant integration at both the marketing and distribution levels." 63 F. T. C.-,-.
The decision to acquire Clorox was the result of a study conducted by Procter's promotion department designed to determine the advisability of entering the liquid bleach industry. The initial report noted the ascendancy of liquid bleach in the large and expanding household bleach market, and recommended that Procter purchase Clorox rather than enter independently. Since a large investment would be needed to obtain a satisfactory market share, acquisition of the industry's leading firm was attractive. "Taking over the Clorox business . . . could be a way of achieving a dominant position in the liquid bleach market quickly, which would pay out reasonably well." 63 F. T. C., at —. The initial report predicted that Procter's "sales, distribution and manufacturing setup" could increase • Clorox's share of the markets in areas where it was low. The final report confirmed the conclusions of the initial report and emphasized that Procter could make more effective use of Clorox's advertising budget and that the merger would facilitate advertising economies. A few months later, Procter acquired the assets of Clorox in the name of a wholly owned subsidiary, the Clorox Company, in exchange for Procter stock.
The Commission found that the acquisition might substantially lessen competition. The findings ánd reasoning of the Commission need be only briefly summarized. The Commission found that the' substitution of Procter with its huge assets and advertising advantages for the already dominant Clorox would dissuade new entrants and discourage active competition from the firms already in the industry due to fear of retaliation by Procter. The Commission thought it relevant that retailers might be induced to give Clorox preferred shelf space since it would be manufactured by Procter, which also produced a number of other products marketed by the retailers. There was also the danger that Procter might underprice Clorox in order to drive out competition, and subsidize the underpricing with revenue from other products. The Commission carefully reviewed the effect of the acquisition on the structure of the industry, noting that "[t]he practical tendency of the . . . merger . is to transform the liquid bleach industry into an arena of big business competition only, with the few small firms that have not disappeared through merger eventually falling by the wayside, unable .to compete with their giant rivals." 63 F. T. C., at —. Further, the merger would seriously diminish potential competition by eliminating Procter' as a potential entrant into the industry. Prior to the merger, the Commission found, Procter was the most likely prospective entrant, and absent the merger would have remained on the periphery, restraining Clorox from exercising its market power. If Procter had actually entered, Clorox's dominant position would have been eroded and the concentration of the industry.reduced. The Commission stated that it had not placed reliance on post-acquisition evidence in holding the merger unlawful. ,
The Court of Appeals said that the Commission's finding of illegality had been based on "treacherous conjecture," mere possibility and suspicion. 358 F. 2d 74, 83. It dismissed the fact that Clorox controlled almost 50% of the industry, that two firms controlled 65%, and that six firms controlled 80% with the observation that "[tjhe fact that in addition to *the six . . . producers sharing eighty per cent of the market, there were two hundred smaller producers . . . would not seem to indicate anything unhealthy about the market conditions." Id., at 80. It dismissed the finding that Procter, with its huge resources and prowess, would have more leverage than Clorox with the statement that it was. Clorox which had the "knowhow" in the industry, and that Clorox's finances were adequate for its purposes. Ibid. As for the possibility that Procter would use its tremendous advertising budget and volume discounts to push Clorox, the court found "it difficult to base a finding of illegality on discounts in advertising." 358 F. 2d, at 81. It rejected the Commission's finding that the merger eliminated the potential competition of Procter because "[tjhere was no reasonable probability that Procter would have entered the household liquid bleach market but for the merger." 358 F. 2d, at 83. "There was no evidence tending to prove that Procter ever intended to enter this field on its own." 358 F. 2d, at 82. Finally, "[tjhere was no evidence that Procter at any time in the past engaged in predatory practices, or that it intended to do. so in the future." Ibid.
The Court of Appeals also heavily relied on post-acquisition "evidence . to the effect that the other producers subsequent to the merger were selling more .bleach for more money than ever before" (358 F. 2d, at 80), and that "[tjhere [had] been no significant change in Clorox's market share in the' four years subsequent to the merger" (ibid.), and concluded that "[tjhis evidence certainly does not prove anti-competitive effects of the merger." Id., at 82. The Court of Appeals, in our view, misapprehended the standards for its review .and the standards applicable in a § 7 proceeding.
Section 7 of the Clayton Act was intended to arrest the anticompetitive effects of market power in their incipiency. The core question is whether a merger may substantially lessen competition, and necessarily requires a prediction of the merger's impact on competition, present and future. See Brown Shoe Co. v. United States, 370 U. S. 294; United States v. Philadelphia National Bank, 374 U. S. 321. The section can deal only with probabilities, not with certainties. Brown Shoe Co. v. United States, supra, at 323; United States v. Penn-Olin Chemical Co., 378 U. S. 158. And there is certainly no requirement that the anticompetitive power manifest itself in anticompetitive action before § 7 can be called into play. If the enforcement of § 7 turned on the existence of actual anticompetitive practices, the congressional policy of thwarting such practices in théir incipiency would be frustrated.
All merjrers are within the reach of § 7, and all must be tested by the same standard, whether they are classified as horizontal, vertical, conglomerate or other. As noted by the Commission, this merger is neither horizontal, vertical, nor conglomerate. _ Since the products of the acquired company are complementary to those of the acquiring company and may be produced with similar facilities, marketed through the same channels and in the same manner, and advertised by the same media, the Commission aptly called this acquisition a "produet-extension merger":
"By this acquisition . . . Procter has not diversified its interests in the sense of expanding into a substantially different, unfamiliar market or industry. Rather, it has entered a market which adjoins, as it were, those markets in which it is already established, and which is virtually indistinguishable from them insofar as the problems and techniques of marketing the product to thé ultimate consumer are concérned. As a high official of Procter put it, commenting on the acquisition of Clorox, 'While this is a completely new business for us, taking us for the first time into the marketing of a household bleach and disinfectant, we are thoroughly at home in the field of manufacturing and marketing low . priced, rapid turn-over consumer products.' " . 63 F. T. C. —, —.
The anticompetitive effects with which this product-extension merger is fraught can easily be seén: (1) the substitution of. the powerful acquiring firm for the smaller, but already dominant, firm, may substantially reduce the competitive structure of the industry by raising entry barriers and by dissuading the smaller firms from aggressively competing; (2) the acquisition eliminates the potential competition of. the acquiring firm.
The liquid bleach industry was already oligopolistic before the acquisition, and price competition was certainly not as vigorous as it would have been if the industry were competitive. Clorox enjoyed a dominant position nationally, and its position approached monopoly proportions in certain areas. The existence of some 200 fringe firms certainly does not belie that fact. Nor does the fact, relied upon by the court below, that, after the merger, producers other than Clorox "were selling more bleach for more money than ever before." 358 F. 2d, at 80. In the same period, Clorox increased its share from 48.8% to 52%. The interjection of Procter into the market considerably changed the. situation. There is every reason to assume that the smaller firms would become more cautious in competing due to their fear of retaliation by Procter. It is. probable that Procter would -'tyecome the price leader and that oligopoly would become ^fnore rigid.
The acquisition may also have the tendency of raising the barriers to new entry. The major competitive weapon in the successful marketing of bleach is advertising. Clorox was limited in this area by its relatively , small budget and its inability to obtain substantial discounts. By contrast, Procter's budget was much larger; and, although it would not devote its entire budget to advertising Clorox, it could divert a large portion to meet the short-term threat of a new entrant. Procter would be able to use its volume discounts to advantage in advertising Clorox. Thus, a new entrant would be much more reluctant to face the giant Procter than it would have been to face the smaller Clorox.
Possible economies cannot be used as a' defense to illegality. Congress was aware that some mergers which lessen competition may also result in economies but it struck the balance in favor of protecting competition. See Brown Shoe Co. v. United States, supra, at 344.
The Commission also found that the acquisition of Clorox by Procter eliminated Procter as a potential competitor. The Court of Appeals declared that this finding was not supported by evidence because there was no evidence that Procter's management had ever intended to enter the industry independently and that Procter had never attempted to enter. The evidence, however, clearly shows that Procter was the most likely entrant. Procter had recently launched a new abrasive cleaner in' an industry similar to the liquid bleach industry, and had wrested leadership from a brand that had enjoyed even a larger market share than had Clorox. Procter was engaged in a vigorous program of diversifying into product lines closely related to its basic products. Liquid bleach was a natural avenue of diversification since it is •complementary to Procter's products, is sold to the same customers through the same channels, and is advertised and merchandised in the same manner. Procter had sub- ' stantial advantages in advertising and sales promotion, which, as we have seen, are vital to the success of liquid bleach. No manufacturer had a patent on the product or its manufacture, necessary information relating to manufacturing methods and processes was readily available, there was no shortage of raw material, and the . machinery.and equipment required for a plant of efficient capacity were available at reasonable cost. Procter's management was experienced in producing and marketing-goods similar to- liquid bleach. Procter had considered the possibility of independently entering but decided against it because the acquisition of Clorox would en able Procter to capture a more commanding share of the market.
It is clear that the existence of Procter at the edge of the industry exerted considerable influence on the market. First, the market behavior of the liquid bleach industry was influenced by each firm's predictions. of the market behavior of its competitors, actual and potential. Second, the barriers to entry by a firm of Procter's size and with its advantages were not significant. • There is no indication that the barriers were so high that the price Procter would have to charge would be above the price that would maximize the profits of the existing firms. Third, the number of potential entrants was not so large that the elimination of one would be insignificant. Few firms would have the temerity to challenge a firm as solidly entrenched as Clorox. Fourth, Procter was found by the Commission to be the most likely entrant. These findings of the Commission were amply supported by the evidence.
The judgment of the Court of Appeals is reversed and remanded with instructions to affirm and enforce the
Commission's order.
r. . , , It is so ordered.
Mb. Justice Stewart and Mr. Justice Fortas took no part in the consideration or decision of this case.
"No corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and ho corporation subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another corporation engaged also in commerce, where in any line of commerce in any section of. the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly."
A pure conglomerate merger is one in which there are no economic relationships between the acquiring and the acquired firm.
The barriers to entry have been raised both for entry by new firms and for entry into, new geographical markets by established firms. The latter aspect is demonstrated by Purex's lesson in Erie, Pennsylvania. In October 1957, Purex selected Erie, Pennsylvania— where it had not sold previously — as an area in which to test the salability, under competitive conditions, of a new bleach. The leading brands in Erie were Clorox, with 52%, and the "101" brand, sold by Gardner Manufacturing Company, with 29% of the market. Purex launched an advertising and promotional campaign to obtain a broad distribution in a short time, and in five months captured 33% of the Erie market. Clorox's share dropped to 35% and 101 ⅛ to 17%. Clorox responded by offering its bleach at reduced prices, and then added an offer of a $l-value ironing board cover for 500 with each purchase of Clorox at the reduced price. It also • increased its advertising with television spots. The result was to restore Clorox's lost market share and, indeed, to increase it slightly. Purex's share fell to 7%.
Since the merger Purex has acquired the fourth largest producer of bleach, John Puhl Products Company, which owned and marketed "Fleecy White" brand in geographic .markets which Purex was anxious to enter. One of the reasons for this acquisition, according to Purex's president, was that:
"Purex had been unsuccessful in expanding its market position geographically on Purex liquid bleach. The economics of the bleach business, and the strong competitive factors as illustrated by our experience in Erie, Pennsylvania, make it impossible, in our judgment, for us to expand our market on liquid bleach."