## Facts

- Falstaff Brewing Corporation, a large brewer seeking national status, agreed to acquire Narragansett Brewing Company, the leading seller of beer in the New England market.
- The United States sued under § 7 of the Clayton Act to enjoin the acquisition, alleging it may substantially lessen competition or tend to create a monopoly in the New England beer market.
- The government’s theory was “potential competition”: Falstaff, though outside New England, might otherwise enter and/or exert competitive pressure on incumbent brewers; acquisition would eliminate that influence.
- The District Court found the New England market “highly competitive” and concluded the acquisition would not substantially lessen competition.
- The District Court also found Falstaff had decided against entering New England de novo and that acquisition was the only means by which it intended to enter the market.

## Issues

1. Whether a court may reject “potential competitor” status under § 7 solely because the acquiring firm lacked intent to enter the market de novo.
2. Whether § 7 requires consideration of a firm’s potential-competition effect based on its “position on the edge of the market” and any resulting influence on incumbent competitive conduct.

## Decision

- The Supreme Court reversed and remanded.
- The Court held the District Court applied an incorrect legal standard by assuming Falstaff could not be a potential competitor because it would not have entered de novo.
- The Court directed reconsideration of whether Falstaff was a potential competitor in the sense that its fringe position exerted a “beneficial influence on the market’s competitive conditions,” and whether the acquisition might remove that influence in a way that may substantially lessen competition.

## Legal Principles

- Under § 7, potential-competition analysis is not limited to firms shown likely to enter de novo; lack of de novo entry intent is not dispositive.
- A firm outside a concentrated market may qualify as a potential competitor if its presence at the market’s edge constrains incumbents’ behavior (e.g., pricing or coordination) by the perceived threat of entry.
- Courts assessing potential-competition claims must apply a forward-looking, effects-based inquiry into whether the acquisition may substantially lessen competition, including the loss of any disciplining effect attributable to the acquiring firm’s perceived entry capability.

## Conclusion

The Court required a broader § 7 inquiry into potential competition, holding that a firm’s stated unwillingness to enter de novo does not foreclose findings that its fringe-market presence benefits competition and that an acquisition may unlawfully eliminate that benefit.


United States v. Falstaff Brewing Corp., 410 U.S. 526 (1973)