Retail Suppliers Wholesale Distribution

ATD is OK with the FTC

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ATD is OK with the FTC

Why doesn’t the Federal Trade Commission investigate American Tire Distributors? Isn’t ATD a monopoly?”

That question was posed to me after the parent company of American Tire Distributors Inc., ATD for short, purchased Hercules Tire & Rubber Co. The acquisition gave the huge Huntersville, N.C.-based wholesale distributor 15 Tire Dealer’s Warehouse (TDW) distribution centers — and an unprecedented 152 D/Cs overall, including 28 in Canada.

My answer at the time was no, because ATD, although the largest wholesale distributor in the country, wasn’t big enough to monopolize tire wholesaling. There are a number of other tire wholesalers with a national presence. In terms of the number of D/Cs alone, Tire Centers Inc. has 78 and Carroll Tire Co. has 46.

Goodyear Tire & Rubber Co. operates 50, which includes  those run by its Dapper Tire Co. subsidiary. They supply Goodyear’s company-owned stores as well as many of its independent tire dealers.  Bridgestone Americas Inc. and its 15  TWW (Tire Wholesale Warehouse) D/Cs espouses a similar philosophy. Dealer Tire LLC has 20 warehouses, although they only deliver to automobile dealerships.

ATD is the largest tire wholesaler in terms of sales as well. It represents approximately 10% of the market. In 2013, it sold an estimated $2.7 billion in tires in the United States alone.

Although it “only” has five warehouses, Tire Rack Inc. also is one of the largest wholesale tire distributors in the U.S. in terms of sales.

As you can see, ATD does not monopolize the wholesale landscape. Then it goes and acquires Terry’s Tire Town Holdings Inc., one of the largest domestic regional wholesale distributors with 10 D/Cs.

When the deal is completed, ATD will have 144 warehouses in the U.S. and 162 warehouses overall. Wow! Did my opinion change after the acquisition?

Before deciding, I checked out how the Federal Trade Commission (FTC) defines “monopoly” under Section 2 of the Sherman Antitrust Act. Because most Section 2 claims involve the conduct of a firm “with a leading  market position,” I believed ATD might qualify.

”The antitrust laws prohibit conduct by a single firm that unreasonably restrains competition by creating or maintaining monopoly power.”

The courts don’t define monopoly literally. Rather, they consider a monopoly a firm “with significant and durable market power — that is, the long-term ability to raise prices or exclude competitors.”

Defining “monopoly power” is more complex. In this case, it would take an in-depth study of not only the products sold by ATD, but also any alternative products consumers may have turned to if ATD attempted to raise prices.

Was ATD’s leading position gained or maintained through improper conduct — that is, “something other than merely having a better product, superior management or historic accident”? To the best of my knowledge, it has gained its leading position chiefly by getting bigger, and taking advantage of economies of scale.

Courts typically require the company in question to have a market share of at least 50%. Based on sales, ATD doesn’t meet that criteria. Based on number of D/Cs, it falls far short; there are some 3,600 D/Cs run by domestic independent tire dealers alone.  And that doesn’t even count the wholesaling done by predominantly retail tire dealers.

Another element associated with a potential monopolist is predatory or below-cost pricing. Prices can be considered too low, although they are not found too low very often because low prices tend to benefit the customer.

“Consumers are harmed only if below-cost pricing allows a dominant competitor to knock its rivals out of the market and then raise prices to above-market levels for a substantial time,” says the FTC. “A firm’s independent decision to reduce prices to a level below its own costs does not necessarily injure competition, and, in fact, may simply reflect particularly vigorous competition.”

That is why the courts, including the Supreme Court, have been and continue to be skeptical of such claims.

Nationwide wholesalers such as ATD also compete against large regional wholesalers like K&M Tire Inc., Dunlap & Kyle Tire Co., Max Finkelstein Inc. and Barron’s Wholesale Tire Inc., to name a few.

So the final answer to the question initially asked of me is no, ATD is not a monopoly.

I guess the next question is will ATD ever be considered a monopoly in the tire industry? Ask me again in two years.    ■

If you have any questions or comments, please email me at bob.ulrich@bobit.com.

For more of Bob Ulrich's editorials, see:

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