Marking the 40th anniversary of the Federal Trade Commission’s July 1966 public hearing to obtain guidance on the development of policy relative to vertical integration in the cement and concrete industries, Concrete Products revisits highlights of the event. Providing context for the hearing is an excerpt from the FTC Annual Report released that year.

Sixteen witnesses, whose views crossed both sides of the vertical integration question, presented oral statements and were queried by the five-member Commission and its counsel during the three-day hearing. Those who appeared before the commission were: Joel Dean, economist, representing the Martin Marietta Corp.; W.J. Conway, executive vice president, Ideal Cement Co.; Merton J. Peck, economist, representing Lehigh Portland Cement Co.; Raymond S. Chase, vice president, Dundee Cement Co.; William J. Hicklin, Jr., president, Capitol Concrete Co.; Edward H. Bovich, director of cement marketing, Wyandotte Chemicals Corp.; George K. Schenck, Pennsylvania State University; William Simon, counsel, representing Alpha, Dixie, Medusa, General Portland, Missouri Portland and Louisville Cement companies.; J.A. Nicholson, president, Nicholson Concrete & Supply Co.; Wm. R. McDowell, counsel, representing River Cement Co.; John Breckinridge, counsel, representing W.T. Congleton Co.; Prof. Thomas A. Klein, University of Toledo; John Mathis, president, Lone Star Cement Co.; W.R. Brobston, senior vice president, Atlantic Cement Co.; C.S. Crawford, president, Whitehall Cement Co.; and, W.M. Avery, publisher, Ready Mixed Concrete magazine.

FTC HIGHLIGHTS
The cement industry’s rapidly growing trend toward consolidation, especially via vertical forward acquisitions, was noted in the Annual Report of the Federal Trade Commission for Fiscal Year ended June 30, 1966 (http://www.ftc.gov/os/annualreports/ar1966.pdf). It states:

Recent developments in the cement and ready-mixed concrete industries, in particular the movement toward mergers, have brought about a large degree of vertical integration between the two industries. The cement industry at the beginning of the 1960s was virtually free of such integration. Since 1960, however, approximately 40 ready-mixed and concrete products companies had been acquired by leading cement companies, while several large ready-mixed companies had entered into the manufacture of cement.

The cement industry has undergone a number of dramatic developments in recent years. In the immediate postwar years cement production responded to the sharp increase in construction demands, but capacity expanded slowly. Beginning in the mid-1950s, when the rate of cement capacity utilization reached an all-time peak of 94 percent, the industry began to expand capacity rapidly, so rapidly in fact that for the next decade capacity rose at about double the rate of production. Despite the growth in output and capacity, the number of cement companies decreased from 72 to 48 between 1946 and 1966. Since 1950, the number has declined by one-fourth, despite the entrance of 13 new companies. The reduction in the number of firms was the result of acquisitions made by the 12 largest companies in the industry.

As a result of these acquisitions, the industry’s 12 largest companies increased their share of industry capacity from 58.6 percent in 1950 to 61.5 percent in 1964. During the same period the share of industry capacity accounted for by the eight largest increased slightly and that of the four largest cement producers declined, but the share controlled by the 20 largest firms increased from 72.9 percent to 83 percent.

A number of important changes have occurred in cement distribution. At the end of World War II, cement was shipped primarily (71 percent) in bags, while currently most cement is shipped in bulk. The change from bag to bulk shipments has resulted in a reduction in packaging costs and handling charges through the introduction and use of mechanical loading and unloading equipment. A significant change in the method of transportation accompanied the increase in bulk cement shipments. For some years prior to 1950, 80 percent or more of all cement shipments were made by rail. Since 1950, there has been a substantial shift from rail to truck delivery; the share of cement shipped by truck has almost quadrupled, from about 17 percent to 64 percent. One of the most notable developments, particularly since 1960, has been the increased use of secondary distribution terminals. By 1964, there were 234 cement distribution terminals in operation, 70 percent of which were established after 1959.

Still another major change in the distribution of portland cement has been the appearance of an important new class of cement customers. Prior to World War II, cement was sold primarily to contractors directly or to building materials wholesalers who subsequently resold to contractors. Since the end of World War II, the use of specialized processors of concrete has become increasingly prevalent. Ready-mixed concrete and concrete products manufacturers accounted for about 73 percent of portland cement purchases in 1964.

In the late 1950s, many portland cement producers began to move, through mergers, into the ready-mixed concrete industry. While this movement began slowly, it accelerated sharply in the early 1960s. Whereas in 1956 there were only two portland cement producers with ready-mixed and other concrete products production, today there are 19; included are three companies that have integrated backward into cement production through the construction of new portland cement producing facilities. The forward movement by cement producers into concrete manufacture is—with one exception—a product of merger activity, and about 80 percent of these acquisitions have occurred since 1960. Forward acquisitions have occurred in a relatively small number of metropolitan areas. However, the number of acquisitions (equal to about 1 percent of all ready-mixed companies) belies their economic importance. In 1964, shipments of portland cement to these integrated concrete facilities were equal to about 10 percent of grey portland cement shipments to all ready-mixed producers.

Vertical forward acquisitions of large ready-mixed manufacturers do more than merely temporarily disrupt access to cement markets by unintegrated suppliers. Such mergers tend to deprive other suppliers of economical access to the affected markets. A frequent response of disadvantaged firms is to engage in defensive mergers of their own, thereby triggering other mergers. In this context, unrestrained merger activity may freeze some suppliers out of a major segment of the market and shrink the size of the open market for cement. Several adverse competitive effects may flow from this: The number of effective competitors seeking to supply particular markets may be diminished, thereby reducing the intensity of competition. Moreover, the remaining smaller, unintegrated cement consumers may find suppliers less willing to engage in aggressive rivalry in serving their needs.

In dealing with the present trend toward vertical integration in the cement industry, the Commission accepted consent orders against Texas Industries, Inc. (D. 8656), Lone Star Cement Corp. (C-1075), and Ideal Cement Co. (D. 8678). The hearing examiner’s dismissal of cases against National Portland Cement Co. (D. 8654) and U.S. Steel Corp. (D. 8655) have been appealed to the Commission. An active enforcement policy continues, with an additional two complaints being issued against Lehigh Portland Cement Company (D. 8680) and Marquette Cement Manufacturing Co. (D. 8685).

HEARING HIGHLIGHTS
From Concrete Products, August 1966... The Federal Trade Commission’s long-awaited public hearing on vertical integration of cement companies into the ready-mix and concrete products industry was held last month in Washington, D.C., before the full Commission.

We have watched these vertical mergers take place from time to time for some years, and have approached many of them by issuing complaints on a case by case basis. We challenged one of the first of these vertical acquisitions six years ago when we issued our complaint in Permanente Cement Co. in June 1960. Count II of that complaint questioned the acquisition of a leading ready mixed concrete producer in Portland, Ore., a market in which Permanente was then selling cement. In ensuing years, we issued complaints challenging the legality of the acquisition of Southern Materials Co. in Norfolk, Richmond and Jacksonville, and of Pioneer Sand & Gravel Co. in Seattle by Lone Star; the acquisition of M. F. Hickey Co. Inc. in New York City by American Cement Corp; the acquisition of Ryan Ready Mixed Concrete Co. in New York City by National Portland Cement Co.; the acquisition of Certified Industries, Inc., also in New York City, by United States Steel through its Universal Atlas Cement Division; the acquisition of Fischer Lime & Cement Co., Inc., of Memphis by Texas Industries, Inc.; the acquisition by subsidiaries of Mississippi River Corp. of John A. Denie’s Sons Co., also of Memphis, Stewart Sand and Material Co. of Kansas City, Mo., and Richter Concrete Corp. of Cincinnati; and, the acquisition of Builders Supply Co. in Houston by Ideal. And, this is not all: We recently issued complaints attacking the acquisition of ready mixed companies in Miami and Orlando, Fla., Alexandria and Falls Church, Va., and Louisville, Frankfort and Lexington, Ky., by Lehigh Portland; and, of a ready mixed company in Westchester County, N.Y., by Marquette.

Despite the issuance of complaints, new acquisitions have occurred. It is important, therefore, in the discharge of our statutory duties to examine whether our current approach to vertical mergers in this industry is correct and effective, whether it should be supplemented, whether there are alternative courses of action available to us, or whether no action is called for. It may be that much of the cement industry and much of the ready mixed concrete industry may not want to become involved in vertical merger activity. But, because of the nature of this type of merger, cement companies may take the position, right or wrong, that they have no alternative when confronted by mergers of competitors which capture customers or which provide internal access to a key raw material. A broad and general discussion of these mergers, their economic consequences, and the antitrust implications will afford the Commission at this stage a basis for determining what its enforcement policy should be.

We at the commission want to hear directly from the industries involved about the causes and business reasons underlying vertical acquisitions. We want to know if there are any economic or technical advantages or disadvantages to the public, or to the nation’s economy, resulting from the integration of cement manufacturing and ready mixed concrete production.

But, as we stated in the Notice originally announcing these public hearings, our purpose is to develop “legislative” facts to guide us in our enforcement of the law. In our Notice announcing these hearings, we said:

The basic purpose of this hearing is to provide an appropriate means for “organizing and appraising the general economic facts involving industry and market structure that are so important under Section 7”
…in relation to vertical mergers in the cement industry. The hearing is intended to elicit, not specific “adjudicative” facts relating to specific cases or parties, but general ”legislative” facts which will help the Commission decide questions of law, policy, and discretion. We are undertaking these public hearings in the discharge of the specific statutory objective which Congress had in contemplation in creating this Commission. The organic act of the Commission charges us with broad authorization to gather and compile information and to “investigate from time to time” the organization, business, conduct, and practices of corporations engaged in commerce. In the discharge of these duties, we are not limited to a case by case approach to an industry problem. Nor are we compelled to forego enforcement of Section 7 by individual cases simply because we have determined to study the problem of mergers in the cement industry on an industrywide basis. There is no conflict between this industrywide hearing, an “overview” if you will, of this entire matter involving, as it does, the very structure and character of the cement and concrete industries, and individual cases under investigation or now before a hearing examiner, or pending an appeal before the Commission. As the Supreme Court said in the Moog Industries case (355 U.S. 411 at 413): “…the Commission alone is empowered to develop that enforcement policy best calculated to achieve the ends contemplated by Congress.”

Statement by William Simon for Alpha, General, Louisville and Medusa Cement

We are opposed to vertical integration in the cement and concrete industries, and urge that it be prohibited by this Commission. However, this prohibition must be deemed inapplicable to markets already significantly integrated—whether by backward integration (namely New York City, Dallas-Fort Worth) or by forward integration such as has been approved by this Commission (Norfolk and Richmond, Va., and Jacksonville, Fla.)—and in markets which may hereafter become significantly integrated through means which the Federal Trade Commission is either unable or unwilling to prevent. It is not our position that some companies should be permitted to integrate unlawfully merely because others have done so lawfully. But Section 7 of the Clayton Act prohibits acquisitions or mergers only “where the effect may be substantially to lessen competition”; and, we do not believe there can be any substantial lessening of competition by a vertical acquisition in a market already significantly vertically integrated.

We urge that the cement and concrete industries be kept free from vertical integration; but, if one competitor in a particular market is to have the advantage of competing with “brass knuckles” (no matter how acquired) we think other competitors in the market should be free defensively to acquire “brass knuckles.” In such a situation, it is not in the public interest for other cement companies to be required to integrate internally while leaving the small ready-mix concerns which have been their customers economically stranded.

Moreover, such an announcement by the Commission would have a prophylactic effect on the industry. While the Commission may be unable or unwilling to prohibit a large ready-mix concern from vertically integrating backward through internal expansion, or a cement manufacturer from similarly integrating forward, if the Commission were to serve notice on those with a propensity to integrate that such conduct, in any market, would make that market open season for vertical acquisitions, the result, we believe, would be to deter such integration. We urge the Commission to adopt this position, and we ask that it be done as promptly as feasible.

Finally, we express doubt as to the feasibility of enacting any Trade Regulation Rule under Section 1.63 of the Commission’s Rules of Practice and Procedure. We note that the staff studiously avoided any reference to such a Rule, which we assume it did because it was unable to draft a meaningful Rule. Shortly after the Permanente decision, we asked counsel to try to draft such a proposed Rule. Counsel were wholly unable to do so. We do not think it is possible for you to draft a realistic and meaningful Rule in this area, assuming the Commission’s legal authority to do so, and thus, as a practical matter, we suggest the case-by-case approach.

Were the Commission to provide by Rule that any vertical acquisition involving more than a stated percentage of a market, in either cement or concrete, was presumed to be unlawful, it would necessarily imply that acquisitions of firms below that level of market share were lawful. This may not be desirable. Furthermore, we do not see how the Commission can define by Rule what the relevant “market” is.

We do not only think the case-by-case approach more desirable as a matter of both economics and procedure, but we also feel it will probably result in more expeditious proceedings. Were the Commission to adopt such a Rule, its legal authority to do so would no doubt be attacked and several years would be spent in litigating the Commission’s right to promulgate the Rule—time that it might better have spent attacking the acquisition. Moreover, such a Rule would presumably establish only a prima facie case, and thus, the respondent would be free to offer defense evidence over as wide a range as that covered in existing proceedings. Shifting the burden of going forward with the evidence would not save any appreciable time in the litigating process, and we think it would be more than offset by the delay resulting from litigating the Rule itself. Of course, once the validity of the Rule was established, this view would no longer be applicable; but, that is several years away, and we do not favor further delay in dealing with this important problem.

Statement by independent concrete producer J.A. Nicholson

Some time ago the Federal Trade Commission delegated to the Bureau of Economics the responsibility for making a study of vertical integration in the cement industry. The staff of the Federal Trade Commission given this responsibility has prepared an impartial, informative study of market structure and conduct of the cement industry. A limited study of the ready mixed concrete industry has also been made.

Making a comprehensive study of these two important industries is not an easy task. Ready mixed producers’ operations are generally confined to one market. There is limited communication within the ready mixed industry or between the two industries. Many concrete producers don’t know what’s going on in other markets. Most supplier contacts that independent producers have are with representatives of the cement industry and the PCA. Some independents appear to depend on cement company-supplied information as the basis for their thinking on industry problems.

In spite of its importance to them, I doubt that 10 percent of metropolitan area concrete producers have carefully read the staff report issued in April of this year. I also doubt that 10 percent of cement industry representatives who call on independent producers have carefully read this important staff report. I sincerely believe that any person who is planning his future in either the cement or concrete industries should study this important report from cover to cover.

In some markets, cement industry representatives say their companies are opposed to vertical integration while the recent conduct of their companies in other markets may be exactly in the opposite direction.

My own studies and investigations of the cement industry convince me that practically all of its leaders, both those who favor integration and those who prefer to stay out of the concrete business, don’t want federal government involvement of any kind. I would not anticipate any rush of leaders of either of the two industries to be voluntary witnesses at this July hearing before the Federal Trade Commission or at any other hearing that might be scheduled for later dates.

The threat of a cement company takeover of the concrete business is the first really important national problem that the ready mixed industry has faced in its short history. For this reason, and in some cases, other reasons, independent producers are reluctant to get involved. Some concrete producers, fearing cement company retaliation, are afraid to express their opinions.

I pointed out in a talk given last winter, “Apparently, leaders of the two industries have to date refused to cooperate with the Federal Trade Commission.” That statement was make in a talk given on February 8 at the Ohio Ready Mixed Concrete Association luncheon held in Chicago in the same building where the annual convention of the National Ready Mixed Concrete Association was being held. From recurrent rumors that I have heard since the convention, some industry leaders are determined to prevent any tie-in of that talk with the NRMCA convention.

The staff report, because of its careful preparation, effective analysis of industry problems and conclusions reached, is of vital importance to the future of independent concrete producers and the future of an independent ready mixed concrete industry. Even more important to strong, independent, concrete companies are awaited guidelines on vertical integration as the Federal Trade Commission promised.

Limited appraisal of the important cement and concrete industries indicate that public interference is needed including the development of guidelines for both industries. We believe that conduct and performance of business enterprises in the cement and concrete industries are important to our nation’s economy—locally, regionally as well as nationally.

We believe that structure, conduct and performance of individual companies and of the two industries are and should be of important concern to the Federal Trade Commission, which has already shown its interest through the project study and report of its staff.

Some concrete producers believe that (1) the cement industry invasion of the ready mixed business has gone too far to be stopped; (2) complete takeover by the cement companies is inevitable; and, (3) their only hope of saving their investments is through a sell-out to an interested cement company. As previously pointed out, a number of concrete producers for one reason or another are afraid to do anything that might offend cement companies. Other independent producers depended on action and leadership by their associations that to date have not been forthcoming.

A number of strong independent concrete producers from all sections of the United States are participating today in our presentation. These industry leaders believe that independent concrete companies can do a better job producing and marketing concrete than cement companies can in their respective markets; they believe that time has run out for effective independent cooperation in stopping the merger trend and that only action by the Federal Trade Commission and the establishment of guidelines for the cement industry will save their business; they further believe it to be in the best interest of all parties including the general public that the ready mixed industry be maintained relatively free from integration by the cement companies.

A number of cement industry leaders have stated and will state during this hearing that their respective companies are opposed to vertical integration—backward and forward. Some of these leaders advise inquiring concrete producers that there will be a great future for an independent ready mixed concrete industry; they forecast that the vertical merger trend will materially slacken in pace and will come to a complete halt in a year or two. They further express the conviction that the Federal Trade Commission will attack with probable success any acquisition of a concrete company by a cement company that occurs in any market where vertical integration has not been established.

We accept the sincerity and integrity of the several statements by cement industry leaders. We hope they are right. We realize that the cement industry has largely covered the waterfront as to the possibility of large outside companies entering the cement and concrete business on an extensive regional basis.

We are concerned by the lack of any encouragement or assistance given by cement companies to any cooperative efforts by independent concrete producers to strengthen or save an independent ready mixed concrete industry. We are told that all cooperative action by the industry must be undertaken by the Portland Cement Association and that the vertical integration problem is beyond the province of the Portland Cement Association. We strongly believe that nonintegrating cement companies should take carefully considered, aggressive action to keep good independent concrete companies on an equal competitive basis, whenever and wherever the threat of vertical integration shows its ugly head.

Apparently, these cement leaders are willing to accept vertical integration to date as a “fait accompli.” We say, “No.” Our group of concrete producers and many observers of the critical conditions prevailing in the ready mixed concrete business believe that an independent concrete industry can only be preserved by a Federal Trade Commission ruling ordering divestiture by cement companies of all ready mixed concrete investments made through acquisitions of going ready mixed concrete companies.

While cement industry representatives may not bring up the matter at this hearing, we are especially concerned about (what we believe is) the contention of a large segment of the cement industry that the Federal Trade Commission does not have the legal right to set up guideline controls for the cement and concrete industries.

To independent concrete producers, FTC action including the establishment of guidelines means their big chance for survival; to cement company leaders who are directing vertical merger programs for their companies, FTC activities might be considered as simply obstacles that might slow down, but not stop, cement companies’ takeover of the ready mixed concrete industry.

We see enforced delays of putting the commission’s decisions into effect while cement industry attorneys take two to five years of time getting final decisions on Federal Trade Commission action in United States courts. During this interim period, the fighting backs of a great many independent concrete producers will literally have been broken and the will to resist substantially lessened.

On top of this contemplated period of delay, outside observers have stated that considerable additional time is required for proper study of the problems of both industries. The extension time can only be of value provided there is greatly improved cooperation on the part of cement and concrete industry leaders in factually facing up to industry problems. We think the FTC staff already knows that volunteer participation has been on a very limited basis.

We suggest it is in the best interest of both industries that the status quo be maintained during any important delay period involving time received for additional study or for courts’ adjudication of the Federal Trade Commission’s legal right to set up guidelines. We are simply suggesting that during this delay period, presidents commit their cement companies to avoid acquisition of going ready mixed concrete companies.

Timely action on issuance of guidelines will be the greatest shot in the arm for strong independent concrete producers who want to stay in the concrete business but realize they cannot successfully compete against certain tough competitive practices of questionable legality used by integrated companies in their efforts to take over controlling shares of important markets…

Unquestionably, the ready mixed concrete industry needs strengthening. The industry needs to face up to many important problems. Many independent concrete producers expected help and still expect help from the cement industry in facing up to these important problems. After all, in a relatively few years, ready mixed concrete had become the most important customer of the cement industry. It was natural for concrete producers to turn to cement leaders for guidance, counseling and leadership.

Independent concrete producers’ operations are generally confined to one important market. Many are not acquainted with conditions in other markets—regionally or nationally. Cement companies operate in a number of important markets. Their leaders are better equipped to analyze industry conditions and trends. Undoubtedly, on the problem of vertical integration, many concrete producers have received questionable information and advice form their cement industry friends and confidants. A number of concrete producers have depended on associations’ participation and leadership in the handling of important problems of the industry.

The help on industry matters that was expected from cement and association leaders did not materialize when the threat of cement companies’ takeover of the concrete business came rather abruptly into the picture—locally, regionally, and nationally.

Pressures have been building up in the cement industry—entries of new companies into the business, the questionable use of obsolete plants, overproduction, terminal construction and other transportation improvements, increasing competition of other construction materials, breakdown of controlled marketing relations, and the weakening position of cement company stock—these and other problems combined together to cause an explosion in the cement industry.

Within a few years, integrated cement and concrete companies had become relatively important members of the national and other ready mixed concrete associations. Almost overnight, vertical integration had become a problem of such fearful consequences that “it was too hot to handle.”

The lack of effective communications within the concrete industry and with real friends in the cement industry has paralyzed efforts to make concrete producers who want to stay in the concrete business realize that they are in a fight for their very existence.

Only last week, the president of a large Midwest concrete company called me on the phone and expressed doubt that the threat of cement companies’ takeover of the concrete business really existed, except in isolated areas where a few concrete companies had gone broke. This concrete industry leader wanted no federal government involvement until told that I believe the survival of both our companies depended on Federal Trade Commission actions, including rulings, guideline controls, and divestiture orders.

Too many concrete producers have failed to realize that an increasing number of cement industry leaders don’t want an independent concrete industry, feel that strong independent producers are in their way, and are determined to somehow eliminate them from the industry picture.

Stated reasons for cement companies going into the concrete business include: need to compete more effectively against other construction materials; necessity of quality improvement; improved management efficiency; and, greater flexibility in the operation and use of plant and equipment.

Cement company presidents who are leading the push into the concrete business have made statements to the effect—their company’s need to diversify—integration of cement and concrete industries is a natural development—the public and the construction industry stand to gain on reasonably equal contests between manufacturers of construction material, capable of presenting a comparable package of research, quality supervision and corporate responsibility—the ready mixed concrete business is an investment opportunity (a chance to improve the profits of the parent organization)—and that integration into ready mixed concrete is part of an aggressive, marketing strategy by individual cement firms.

On the other hand, a number of cement company presidents have made statements to the effect:
> Their companies are opposed to integration of the cement and concrete industries.
> Integration is basically unsound because of the extension of services and the tendencies to eliminate profitably at every step except in the manufacturing of cement.
> Functions of the cement producer and the ready mixed producer are sufficiently different as to render them incompatible.
> Company doesn’t want to compete with its customers.
> Traditional separation between cement producers and concrete companies is sound and should be kept.
> Transportation costs limit the size of markets for concrete producers. The small local markets are best served by locally based companies.
> Vertical integration by some cement companies will make it impossible for the remaining nonintegrated cement companies to compete on reasonably equal terms—a normal share of market will be cut off to nonintegrated cement companies.
> The advantage of acquisition is to assure a certain share of the market without traditional competition effort.
> If vertical integration is not stopped, large cement companies in the end will dominate both industries.

Only a few cement company presidents flatly state that their companies definitely are going into the concrete business to stay—that vertical integration is best for both the cement and concrete industries—that their acquisitions of going ready mixed companies represent an orderly method of entering the concrete business—and that the ready mixed concrete industry lacks the financial and managerial capacity to adequately serve and expand their markets.

Inadequacy of the independent ready mixed concrete industry has been pointed out by several outside observers who urge that the Federal Trade Commission allow time for a more careful study before arriving at a decision; this they urge even though they themselves have already concluded that vertical mergers should strengthen a natural and desirable combination of the two industries.

Most cement industry leaders seem to explain their company’s entry into the ready mixed concrete business in a number of markets as defensive measures or defensive moves, e.g., forced to take over a concrete company because it was going broke or because a cement competitor had already gone into the concrete business in that market. During the past several years, I’ve heard so much of defensive moves from cement company people and have been so strongly impressed that I’ve become a defensive driver on the road, and when I get into the car I draw the seat belt around me most carefully…

On big construction jobs, an integrated company engaged in production of prestressed units and ready mixed concrete will probably be trying to get both materials specified and line up a package deal in order to put independent concrete producers out of competition from the start.

However you cut it, cement companies’ entries into the concrete business have the major objective of controlling markets, moving cement, and putting a sales package together that will assure higher profits for an integrated cement and concrete industry.

The cement industry and its educational, promotional organization—the Portland Cement Association—have and will confine their major efforts to developing volume business in roads, streets and large building construction. In the residential field, there has been very limited activity in trying to expand the use of ready mixed concrete. The recently completed Horizon Home Program may not have been a complete flop, but it certainly was not an outstanding success.

Home construction is of vital importance to an independent ready mixed concrete industry. Home construction importance to an integrated industry will be greatly reduced. By integrated companies’ standards, home construction will be peanut-type business—let someone else handle it! I hope members of the Federal Trade Commission and its staff will have an opportunity to read the Concrete and Housing comments of Dr. Ralph J. Johnson, director of the Research Foundation of the National Association of Home Builders that appeared recently in a concrete industry magazine (Concrete Products, June 1966).

Continuation of vertical mergers will definitely limit workable competition in both industries and will seriously diminish the number of potential entries into both the cement and concrete industries. Foreclosure of cement markets will stop new developments such as Dundee’s, Atlantic’s and a few other new operations that raised the level of competition in the cement industry. Inability to compete will stop new entries into the ready mixed concrete business in metropolitan areas everywhere.

The acquisition of one concrete company in a market will set up an inevitable chain reaction with a competitive cement producer in a defensive measure purchasing another concrete company in that market or in a nearby market. Integrated companies will put independent concrete producers out of business by selling cement, but practically giving away aggregate and concrete. A relatively few big cement companies will not only take over concrete companies in their marketing areas, but will also consume important cement companies that in the past have held important shares in a number of key markets. When one cement company factually goes national (has a competitive sales position in 48 continental states) the merger trend will really sizzle!

This will be the pattern in newly integrated markets—integrated companies will use lower cement costs to price independent concrete companies out of the business; then raise concrete prices substantially higher than those which prevailed previously in open markets.

If cement company takeover of concrete producers is allowed to continue, the independent ready mixed concrete industry is doomed, and no independent concrete producer has a future in important metropolitan markets anywhere. Unless the Federal Trade Commission promptly takes positive action against vertical integration, divestiture orders will come too late to save a large number of independent concrete companies.

Here are a few predictions for the future, which I hope will be given the serious consideration of the Federal Trade Commission:
a. On big jobs in metropolitan markets everywhere, I see the day when contractors will be forced to take one or two bids only for concrete in place, thus eliminating or barring competition between concrete contractors, between general contractors, and between concrete and other construction products.
b. A relatively few cement companies are going to completely take over the cement and concrete industries through market extension mergers, entrance into aggregate production, and foreclosing markets to competition by either taking over going ready mixed concrete companies or establishing their own ready mixed concrete facilities in all important markets.
c. Integrating cement companies will use market extension mergers to minimize cement competition regionally; they will use the combination of horizontal and vertical mergers to minimize or eliminate competition on big construction jobs the country over in both industries.
d. Finally, I predict that unless vertical merger activities are stopped, cement companies to all intents and purposes will in a period of five years control the hundred most important concrete markets of the United States; within 10 years, they will control all metropolitan markets of 100,000 or more in both cement and concrete; within a 10-year period, a relatively few cement companies will have garbled up all important cement and concrete markets throughout the United States.