Pool Corporation (PoolCorp), the largest distributor of swimming pool products in the United States, has agreed to stop anticompetitive tactics that it allegedly has been using to keep out new competitors in local markets around the nation, as part of a settlement that resolves charges by the Federal Trade Commission.
PoolCorp distributes products used in the construction, renovation, repair, service, and maintenance of residential and commercial swimming pools. The FTC charged that for the past eight years, PoolCorp, based in Covington, Louisiana, used its monopoly power to thwart entry by new competitors by blocking them from buying pool products directly from manufacturers. The strategy significantly raised the costs incurred by its rivals, thereby lowering sales, increasing prices, and reducing the number of choices available to consumers, the agency alleged.
Specifically, the FTC contends that PoolCorp threatened manufacturers of pool products that PoolCorp would not sell their products at any of its 200 distribution centers if manufacturers also sold their products to new distributor rivals. According to the complaint, PoolCorp's threats were significant because the loss of PoolCorp sales could be catastrophic to even the largest pool products manufacturer. As a result, the agency alleged, these threats were effective, and manufacturers representing more than 70 percent of all pool products sales refused to sell to new distributors. In order for a distributor to succeed, the FTC alleged, it must be able to buy pool products directly from manufacturers because there are no cost-effective alternatives.
The FTC alleges that PoolCorp's conduct impeded new distributors from entering the market, raised the costs of new distributors, and likely resulted in higher prices. The FTC alleged that the company's tactics constituted illegal exclusionary acts and practices. There allegedly was no pro-competitive rationale for PoolCorp's exclusionary conduct.
The proposed order settling the charges is intended to remedy PoolCorp's alleged anticompetitive conduct. It prohibits PoolCorp from:
The settlement order also requires PoolCorp to put in place an antitrust compliance program to ensure it does not violate the terms of the order in the future.
The Commission vote approving the complaint and proposed consent order was 3-1, with Commissioner J. Thomas Rosch voting no and issuing a separate dissenting statement. Chairman Jon Leibowitz, Commissioner Edith Ramirez, and Commissioner Julie Brill also issued a joint separate statement.
In their separate statement, Chairman Leibowitz, Commissioner Ramirez, and Commissioner Brill wrote that, "As alleged in the Complaint, PoolCorp's actions foreclosed new entrants from obtaining pool products from manufacturers representing more than 70 percent of sales . . . The harm to consumers that occurred as a result was substantial. In the end, consumers had fewer choices and were forced to pay higher prices for pool products."
Commissioner Rosch wrote that he would have closed the investigation because there is insufficient evidence that a violation had occurred. In his view, the evidence showed that manufacturers had legitimate reasons to withhold supply from the de novo entrants, that entry was not prevented because entrants had other sources of supply, and that consumers were not harmed. Accordingly, there was no "reason to believe" that a violation occurred or that accepting the proposed consent decree would be in the public interest, as required by Section 5(b) of the FTC Act.
The proposed order will be published in the Federal Register shortly, and will be subject to public comment for 30 days, until December 22, 2011, after which the Commission will decide whether to make it final.
NOTE: The Commission issues a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The issuance of a complaint is not a finding or ruling that the respondent has violated the law. A consent order is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000.
The FTC's Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an email to email@example.com, or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20580. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook and follow us on Twitter.