[Federal Register Volume 62, Number 140 (Tuesday, July 22, 1997)]
[Notices]
[Pages 39258-39280]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-19164]
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DEPARTMENT OF JUSTICE
Antitrust Division
Public Comments and Plaintiff's Response
United States of America and the State of Colorado v. Vail Resorts,
Inc., Ralston Resorts, Inc., and Ralston Foods, Inc.
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. Sec. 16(b)-(h), that Public Comments and
Plaintiff's Response have been filed with the United States District
Court for the District of Colorado in United States and the State of
Colorado v. Vail Resorts, Inc., Ralston Resorts, Inc., and Ralston
Foods, Inc., Civ. Action No. 97-B-10.
On January 3, 1997, the United States and the State of Colorado
filed a Complaint seeking to enjoin a transaction in which Vail
Resorts, Inc. (``Vail'') agreed to acquire Ralston Resorts, Inc.
(``Ralston''). Vail and Ralston are the two largest owner/operators of
ski resorts in Colorado, and this transaction would have combined five
ski resorts in Colorado. The Complaint alleged that the proposed
acquisition would substantially lessen competition in providing skiing
to Front Range Colorado skiers in violation of Section 7 of the Clayton
Act, 15 U.S.C. Sec. 18.
Public comment was invited within the statutory 60-day comment
period. Such comments, and the responses thereto, are hereby published
in the Federal Register and filed with the Court. Brochures, newspaper
clippings and miscellaneous materials appended to the Public Comments
have not been reprinted here; however they may be inspected with copies
of the Complaint, Stipulation, proposed Final Judgment, Competitive
Impact Statement, Public Comments and Plaintiff's Response in Room 215
of the U.S. Department of Justice, Antitrust Division, 325 7th Street,
NW., Washington, DC 20530 (telephone (202) 514-2481) and at the office
of the Clerk of the United States District Court for the District of
Colorado, 1929 Stout Street, Room C-145, Denver, Colorado 80294.
Copies of any of these materials may be obtained upon request
and payment of a copying fee.
Constance K. Robinson,
Director of Operations, Antitrust Division.
United States District Court, District of Colorado, Lewis T. Babcock,
Judge
[Civil Action No. 97-B-10]
United States of America and the State of Colorado, Plaintiffs,
v. Vail Resorts, Inc., Ralston Resorts, Inc. and Ralston Foods,
Inc., Defendants.
United States' Response to Public Comments
Pursuant to the requirements of the Antitrust Procedures and
Penalties Act, 15 U.S.C. Sec. 16(b)-(h) (the ``Tunney Act''), the
United States responds to the public comments received regarding the
proposed Final Judgment in this case.
I. Background
The United States and the State of Colorado filed a civil antitrust
Complaint on January 3, 1997, alleging that the proposed acquisition of
Ralston Resorts, Inc. (``Ralston Resorts'') by Vail Resorts, Inc.
(``Vail Resorts'') would violate Section 7 of the Clayton Act, 15
U.S.C. Sec. 18. The Complaint alleged that Vail Resorts and Ralston
Resorts are the two largest owner/operators of ski resorts in Colorado,
and that the proposed transaction would combine under common ownership
several of the largest ski resorts in this region. In particular, the
acquisition would increase substantially the concentration among ski
resorts to which several hundred thousand skiers residing in Colorado's
``Front Range''--the major population areas along Interstate 25--can
practicably go for day or overnight ski trips. As a result, this
acquisition threatened to raise the price of, or reduce discounts for,
skiing to Front Range Colorado consumers in violation of Section 7 of
the Clayton Act, 15 U.S.C. Sec. 18.
At the same time the Complaint was filed, the United States and the
State of Colorado also filed a proposed settlement that would permit
Vail Resorts to complete its acquisition of Ralston Resorts, but
requires a divestiture that would preserve competition for skiers in
the Front Range. This settlement consists of a Stipulation and proposed
final judgment.
The proposed final judgment orders the parties to sell all of
Ralston Resorts' rights, titles, and interests in the Arapahoe Basin
ski area in Summit County, Colorado to a purchaser who has the
capability to compete effectively in the provision of skiing for Front
Range Colorado skiers. The parties must complete the divestiture of
this ski area and related assets within five (5) days after the entry
of the final judgment, in accordance with the procedures specified in
the proposed final judgment, unless an extension is granted pursuant to
the final judgment. The stipulation and proposed final judgment also
impose a hold separate agreement that requires defendants to ensure
that, until the divestiture mandated by the final judgment has been
accomplished, Ralston Resorts' Arapahoe Basin operations will be held
separate and apart from, and operated independently of, Vail Resorts'
and Ralston Resorts' other assets and businesses. Defendants must hire,
subject to the prior approval of the United States, a person to serve
as chief executive officer or Arapahoe Basin, who shall have complete
authority to operate Arapahoe Basin in the ordinary course of business
as a separate and independent business entity.
A Competitive Impact Statement (``CIS''), explaining the basis for
the complaint and proposed consent decree in settlement of the suit,
was filed on January 22, 1997 and subsequently published for comment,
along with the stipulation and proposed final judgment, in the Federal
Register on February 3, 1997 (62 FR 5037 through 5046), as required by
the Tunney Act. Notice was also published in the newspaper, as required
by the Tunney Act. The CIS explains in detail the provisions of the
proposed final judgment, the nature and purpose of these proceedings,
and the proposed acquisition alleged to be illegal.
The United States, the State of Colorado, Vail Resorts, and Ralston
Resorts have stipulated that the proposed final judgment may be entered
after compliance with the Tunney Act. The United States and defendants
have now, with the exception of publishing the comments and this
response in the Federal Register, completed the procedures the Tunney
Act requires before the proposed Final Judgment can be entered.\1\ The
United States received 14 public comments.
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\1\ The United States will publish the comments and this
response promptly in the Federal Register. It will provide the Court
with a certificate of compliance with the requirements of the Tunney
Act and file a motion for entry of final judgment once publication
takes place.
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The comments, which are collected in the appendix to this
Response,\2\ came from a variety of sources, such as representatives of
other ski areas and
[[Page 39259]]
individuals such as skiers, property owners, local business persons,
local officials, and others.
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\2\ The comments have been numbered, and a log prepared. See
Appendix. For ease of reference, the Untied States in this Response
refers to individual comments by the log number assigned to the
comment.
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II. Response to Comments
A. Overview
Most comments are not supportive of the proposed final judgment
principally for the reason that the commenters do not believe that the
divestiture of Arapahoe Basin ski area acts as a sufficient check on
the combined Vail Resorts and Ralston Resorts. Specifically, these
comments claim that:
1. The government did not define the market properly in analyzing
the acquisition;
2. Data used in analyzing this acquisition are flawed; and
3. Divestiture of Arapahoe Basin is an inadequate remedy.
The comments in opposition to the proposed final judgment are
addressed in the following sections of this response and are arranged
by the antitrust issues they raise.\3\ For each issue, we discuss
briefly the standard for merger analysis generally, what the analysis
was in this case, what the relevant comments were and the response to
them.
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\3\ This Response addresses all of the antitrust issues that are
raised in the comments related to the substance of the Compliant and
proposed Final Judgment. A number of comments raised issues that are
not related to standard merger analysis and do not raise issues
under the Tunney Act. For example, a comment expressed concern about
the ``Vail mentality'' taking over in Summit County. Whatever the
validity of such a concern, it is not one to which a Tunney Act
response can be made--such a ``mentality'' could have been adopted
by any owner for any ski resort at any time. Only changes that are
directly and uniquely the result of the merger would be cognizable
in an antitrust action. Also in this category are complaints about
the demise of multi-mountain tickets (Ski-the-Summit), which the
commenters claim occurred before the merger, and comments about the
atmosphere, premerger prices, or management style of Vail Resorts.
These views may be valid or not, but they are not antitrust issues
raised by this merger.
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As an initial matter, we note that some commenters (e.g. Comments 1
and 7) questioned the adequacy of the investigation. This investigation
was conducted like any full-scale merger investigation. The Department
and the State of Colorado reviewed thousands of documents, not only
from Vail and Ralston but also from other ski resorts; interviewed
numerous business people at other Colorado ski resorts; interviewed and
deposed Vail and Ralson officials; and contacted numerous groups and
individuals, including substantial numbers of skiers, government
officials, and others who might have insight into skiing in Colorado.
In addition, the Department evaluated substantial amounts of sales,
price, and survey data. The investigation lasted for several months.
B. Downhill Skiing Is the Relevant Product Market for Antitrust
Purposes
The Antitrust Division's review of mergers is governed by the
Clayton and Sherman Acts, judicial precedent, and the Horizontal Merger
Guidelines issued jointly by the Department and the Federal Trade
Commission in 1992 (and slightly revised in 1997). The first step is
defining a relevant product market. In this case the Complaint alleged
that downhill skiing is the relevant product market. The Department's
investigation showed that if prices at ski resorts went up a small but
significant amount after the merger (for example, by five percent
without inflation or any quality improvements), people would continue
to ski rather than switch to other recreational activities. Typical
downhill skiers would not switch to an activity such as ice skating,
for example, just because the price of a downhill ticket increases by a
small amount. No commenter disagreed with this relevant product market
analysis.
C. The Relevant Geographic Market Is for Front Range Day and Weekend
Skiers
The relevant standard for defining a relevant geographic market is
set forth below:
[I]f a hypothetical monopolist can identify and price
differently to buyers in certain areas (``targeted buyers'') who
would not defeat the targeted price increase by substituting to more
distant sellers in response to a ``small but significant and
nontransitory'' price increase for the relevant product, * * * then
a hypothetical monopolist would profitably impose a discriminatory
price increase. * * * The Agency will consider * * * geographic
markets consisting of particular locations of buyers for which a
hypothetical monopolist would profitably and separately impose at
least a ``small but significant and nontransitory'' increase in
price.
Horizontal Merger Guidelines Sec. 1.22; see also Brown Shoe v. United
States, 370 U.S. 294 (1962).
Ski resorts may compete in several geographic markets at the same
time. They may compete in local markets for day skiers, larger markets
for weekend skiers, and quite large markets for extended vacations of
destination skiers. The Department's investigation revealed that the
defendants' ski resorts are able to identify different groups of skiers
that ski at their resorts and to set prices differently for different
groups. In the Guidelines' terms, these are ``targeted buyers.''
``Destination'' skiers, or those that come from outside of Colorado
(and often outside of the United States), usually travel a significant
distance to arrive at the ski resort and then ski for extended periods
of time. Destination skiers usually are attracted to the resort by both
the skiing itself and the resort's amenities. The defendants market to
destination skiers by advertising outside of the Front Range area of
Colorado and emphasizing package pricing which typically includes one
or more of lift tickets, lodging, and airfare. Advertisements targeted
at destination skiers also tend to emphasize resort amenities. The
Complaint did not allege a violation in a market for destination
skiers.
Front Range skiers, in contrast, come from the geographic area
lying just east of the Rocky Mountains and usually take day or
overnight ski trips in Colorado. Front Range skiers are typically
interested in the mountain and skiing facilities more than resort
amenities. The defendants advertise to Front Range skiers in the Front
Range: For example, through direct mail within certain zip codes and
through local newspapers and billboards. Front Range advertising
emphasizes discount prices on lift tickets to Front Range skiers. Front
Range skiers usually drive to the ski resorts. Front Range skiers are
more constrained by distance than destination skiers in choosing among
resorts and are not willing to travel an unlimited distance to ski.
The defendants' resorts use different pricing strategies depending
on whether they are selling tickets to destination skiers or to Front
Range skiers. The resorts sell lift tickets to destination skiers
through ticket windows, as well as including tickets as part of
destination package deals. In selling tickets to Front Range skiers, in
contrast, the defendants' resorts use off-mountain retailers located
within the Front Range, where tickets are discounted below the ticket
window price. The ski resorts also offer discount coupons to Front
Range skiers and frequent skier cards that provide discounts off of the
window price and sometimes give a free day of skiing after a certain
number of paid days of skiing. The defendants attempt to limit the
availability to destination skiers of those promotions targeted at
Front Range skiers. Because the defendants can identify and use
different marketing and sales strategies for destination and Front
Range skiers, the average lift ticket prices that the defendants charge
to Front Range skiers are different from the prices that they charge to
destination skiers.
Because Vail Resorts and Ralston Resorts can offer different prices
in the different markets for destination and Front Range skiers, each
market is
[[Page 39260]]
appropriate for antitrust analysis. If Vail Resorts could impose a
``small but significant and nontransitory'' price increase on Front
Range skiers after the merger (for example, five percent) without
causing a sufficient number of Front Range skiers to switch to ski
resorts in other geographic areas and defeat the price increase, then
the appropriate geographic market includes these ski resorts.
It is in the market for Front Range skiing that the Department and
the State of Colorado alleged likely anticompetitive harm from the
proposed transaction in this case. Front Range skiers typically drive
to their ski resort and limit the resorts they use for day trips to
those which fall within a radius of about two-and-one-half-hour travel
time from where they live, and a somewhat larger radius for overnight
trips. The most popular of these resorts are located off Interstate 70
west of Denver. The Vail and Ralston resorts are located within this
radius. Front Range skiers would not turn to resorts that fall outside
of this two-and-one-half-hour radius in sufficient numbers to defeat a
small but significant, non-transitory price increase imposed by resorts
within this radius.
The investigation by the Department and the State of Colorado
revealed that Vail and Ralston resorts compete directly to provide
skiing to Front Range Colorado day and overnight skiers. During the
1995-96 ski season, Vail Resorts accounted for approximately 280,000
Front Range skiers days. (A ``skier day'' is one day or part of a day
of skiing for one skier.) This is about a 12 percent share of the Front
Range market. Overall, Vail's resorts had over 2.2 million skier days
and had revenues of over $140 million. In this same season Ralston
Resorts accounted for approximately 600,000 Front Range skiers days, or
over 26 percent of the Front Range market. Overall, Ralston's resorts
had more than 2.6 million skier days and had revenues of more than $135
million.
The provision of downhill skiing to Front Range residents is
therefore a relevant market within the meaning of Section 7 of the
Clayton Act, Vail and Ralston resorts compete directly in this market,
and as the Complaint alleges, the effect of Vail Resorts' acquisition
of Ralston Resorts would be to lessen competition substantially in the
provision of skiing to Front Range skiers.
Commenters 1 through 4 suggest that one of the relevant regional
geographic markets for purposes of analyzing this proposed acquisition
is a local Summit County skier market, and that the Department should
have alleged harm to local skiers. The United States and the State of
Colorado conducted a thorough investigation of the proposed merger and
ultimately filed a complaint that did not allege a violation of the
Clayton Act for skiers other than Front Range skiers. In evaluating
these comments, it is important first to note that the merger of the
Vail and Ralston resorts does not combine any competing ski resorts in
Summit County; Keystone, Breckenridge and Arapahoe Basin ski resorts
were already under single ownership before this proposed merger, and
the Vail resorts are not in Summit County.\4\ Indeed, the divestiture
relief in the proposed Final Judgment will deconcentrate ownership of
ski resorts located in Summit County. More important, however, as
discussed in more detail in Section III, the Tunney Act does not
contemplate judicial reevaluation of the wisdom of the government's
determination of which violations to allege in the Complaint. Thus, the
Court may not look beyond the Complaint ``to evaluate claims that the
government did not make and to inquire as to why they were not made.''
Microsoft, 56 F.3d at 1459 (emphasis in original); see also Associated
Milk Producers, 534 F.2d at 117-18.\5\ A possible violation in a Summit
County local skier market is a ``claim the government did not make.''
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\4\ Thus the merger could affect a possible Summit County market
only if significant numbers of such skiers use Vail resorts
frequently enough that they are a significant price constraint on
Summit County prices, but other out-of-county resorts are not a
comparable constraint. This possibility was considered in the
investigation, but not accepted, and the theory was not incorporated
in the Complaint. It is also worth noting that one commenter
(Comment 3 at p. 4) confirmed that most local skiers buy season
passes, which means that these skiers are committed to those resorts
at which they have bought such passes. For such skiers, competition
from Vail is not a significant constraint unless substantial numbers
of Summit County skiers are likely to choose a Vail season pass
instead of a Ralston season pass, which seems improbable.
\5\ In the same vein as the comments about a possible Summit
County market are comments about a ``Multi-Mountain Ticket market''
(Comment 3) (although multi-mountain tickets were considered
carefully in analysis of their use in competition among ski resorts
in the Front Range skier market); and a ``Colorado market'' (Comment
3) (although the investigation did consider, and reject, the
possibility of an anticompetitive effect in the market for
destination ski vacations). Similarly, concern that Vail may
dominate a labor market for ski resort employees (Comment 11) is
beyond the Complaint.
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D. The Proposed Divestiture Solves the Anticompetitive Problem Alleged
in the Complaint
The divestiture ordered in the proposed Final Judgment will resolve
the substantial increase in concentration that is likely to be brought
about by the proposed merger. In analyzing the proposed final judgment,
``the court's function is not to determine whether the resulting array
of rights and liabilities is one that will best serve society, but only
to confirm that the resulting settlement is within the reaches of the
public interest.'' United States v. Western Elec. Co., 993 F.2d 1572,
1576 (D.C. Cir.), cert. denied, 114 S. Ct. 487 (1993) (emphasis added,
internal quotation and citation omitted). The relief in the proposed
Final Judgment is sufficient to preserve competition for Front Range
Colorado skiers.
The Complaint alleges that the combination of Vail Resorts and
Ralston Resorts would substantially increase concentration in the Front
Range skier market, using the Herfindahl-Hirschman Index (``HHI'') \6\
as a measure of market concentration. The post-merger HHI, based on
Front Range skier days derived from surveys of skiers conducted in
1994, 1995, and 1996, would be approximately 2,228 with a change in the
HHI of about 643 points. During the 1995-96 skiing season, Vail Resorts
accounted for about 12 percent and Ralston Resorts over 26 percent of
Front Range skier days. If the proposed acquisition were consummated
without divestiture, the combined company would account for over 38
percent of skier days in the Front Range market. The Complaint also
alleges that successful entry or expansion in the skiing business is
extremely unlikely for the reason that entry is difficult, time
consuming and costly. Entry or expansion is unlikely to prevent any
harm to competition.
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\6\ The Herfindahl-Hirschman Index, or ``HHI,'' is a commonly
accepted measure of market concentration. It is calculated by
squaring the market share of each firm competing in the market and
then summing the resulting numbers. For example, for a market
consisting of four firms with shares of thirty, thirty, twenty, and
twenty percent, the HHI is 2600 (302 + 302 +
202 + 202 = 2600). The HHI takes into account
the relative size and distribution of the firms in a market and
approaches zero when a market consists of a large number of firms of
relatively equal size. The HHI increases both as the number of firms
in the market decreases and as the disparity in size between those
firms increases. Markets in which the HHI is between 1000 and 1800
are considered to be moderately concentrated, and those in which the
HHI is in excess of 1800 points are considered to be concentrated.
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Information about the Front Range Colorado skiing market permitted
estimates of the relevant range of likely price increases that could
result from the proposed merger without the divestiture of Arapahoe
Basin. If the merger were allowed to take place without any
divestiture, it was estimated there would be an overall
[[Page 39261]]
average increase in Front Range discounted lift ticket prices on the
order of 4%. This is an approximate average of about one dollar per
lift ticket for all Front Range customers (considering actual average
transaction prices for Front Range skiers, not list (ticket window)
prices). It was also estimated that there would be higher price
increases at the merging firms' resorts.
The divestiture ordered in the proposed Final Judgment is likely to
resolve the anticompetitive problems raised by the proposed merger.
Since Ralston Resorts has jointly owned Arapahoe Basin, Keystone, and
Breckenridge, these three resorts have not been competing against each
other for customers. Divesting Arapahoe Basin restores such competition
and, more generally, permits Arapahoe Basin to serve as an independent
competitor for Front Range skiers. The divestiture of the Arapahoe
Basin ski area decreases the post-merger HHI for the Colorado Front
Range skiing market to below 1800 and the defendants' post-merger
market share in the Front Range to less than 32%. Given the post-
divestiture HHI level, the combined firm's post-divestiture market
share, and the number and size of independent competing ski resorts
remaining in the affected markets, the proposed merger with divestiture
is not likely to have a significant anticompetitive impact through a
unilateral effect or through a higher probability of coordinated
behavior.
1. Market Share Calculations Were Accurate
Commenters 1-8, 11, and 12 all had comments on the market shares
and the predicted post-merger price increases calculated by the
Department. Commenter 1 pointed out that some destination skiers
purchase discount tickets at Front Range locations, which might skew
calculations of actual Front Range skiers. Commenter 5 commented that
the ticket systems at the resorts do not accurately record skier days.
Commenters 2 and 3 suggested that Arapahoe Basin's longer season may
have caused it to appear to have a higher market share than it actually
has.
Front Range skier days were calculated using a variety of documents
obtained not only from the merging parties, but also from other sources
involved in the Front Range skiing industry in Colorado. The shares
were calculated from these documents in several different ways to check
for accuracy. Adjustments were made to the calculations to account for
several different factors, including those identified by the
commenters, such as the purchase by destination skiers of tickets from
Front Range outlets, and the way in which the length of Arapahoe
Basin's ski season might affect the significance of the number of skier
days there. In addition, the availability of data from several
different sources allowed the Department to verify the accuracy of the
skier day numbers used to determine market shares. The Department
considered in its calculations all of the Colorado resorts that are
used by Front Range skiers. Thus the Department considered the issues
now raised by the commenters in calculating its market shares, and
adjusted for those variables.
Several commenters claimed that Vail Resorts would have anywhere
from 40% to 61.7% market share (Comments 6, 7, and 9) or contended that
the HHI figures calculated by the Department were incorrect. One of
these commenters said that the Arapahoe Basin divestiture does not have
meaning in the total skier market (Comment 7), and another stated that
Arapahoe Basin only has 4% of the skier-days in Colorado (Comment 9).
These commenters all seem to have been looking at statistics other than
those for Front Range skiers. These comments apparently consider a
``market'' for all skiing in Colorado--which ignores the important
distinction between destination and Front Range skiers. In the Front
Range market, the merged Vail/Ralston Resorts (other than Arapahoe
Basin) had under a 32% market share; Arapahoe Basin had approximately a
6-7% market share.\7\
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\7\ Two commenters (Comments 3 and 11) inquired about the post-
divestiture HHI. Using the same data as in the Complaint, the post-
divestiture HHI would be approximately 1800.
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2. Predictions of Price Increases Were Appropriate
A number of comments addressed the estimates made by the Department
and Colorado regarding likely post-merger price increases and
questioned whether the Department had considered certain issues that
might affect the integrity of its calculations. Commenter 1 questioned
the validity of the surveys used by the Department, stating that these
surveys were not valid because the commenter did not know of any skiers
who were surveyed and the surveys were probably supplied to the
Department by the merging companies. As stated above, the Department
used information from a variety of sources in calculating both market
shares and predicted price increases. Of course, the estimates made by
the Department of likely price increases necessarily are just that--
estimates--but they were based on a variety of surveys, including those
done by Vail and Ralston in the ordinary course of business before the
merger negotiations as well as those done by others. The Department
analyzed the data in as many different ways as possible. While
developing such estimates is inherently an imperfect process, the
process in this case was based on a standard methodology and prepared
with the detail and care associated with projects expected to be tested
in litigation.
One commenter (Comment 2) suggests that Copper Mountain and
Arapahoe Basin will simply follow any price increase of Vail. Each
competitor (in this or any market) sets a price considering whether a
different price would be more profitable. A higher price, for example,
may produce more revenue per customer but fewer customers, as some
customers shift to other ski resorts and some ski less frequently. Each
competitor must evaluate all these factors including other prices in
the market. Thus a competitor will not necessarily follow every price
increase, especially if it believes that it can increase revenues by
retaining a lower price and capturing skiers that leave another resort
in response to a price increase. For a general description of the
methodology used in the Department's price increase estimates, see Carl
Shapiro, Mergers with Differentiated Products, 10 Antitrust 23 (1996).
Some commenters (Comments 1, 2, 4, 8, 11, 12, and 13) felt that the
Department relied too heavily on market share and HHI numbers, and
opined that the Department used 35% market share as a benchmark market
share for making a decision regarding the transaction. While the
Department certainly uses market share numbers and HHIs as one way to
look at mergers, these are only two among numerous factors considered
when analyzing this, or any other, merger. As stated above, the
Department and the State of Colorado performed a complete and thorough
investigation that lasted several months, and analyzed all aspects of
the transaction.
3. The Divestiture Relief is Likely to be Sufficient to Constrain
Average Prices
Many commenters expressed the concern that the divestiture of
Arapahoe Basin would not be enough to resolve the likely
anticompetitive effects of the merger, and stated that if the
Department and the State of Colorado had concerns about the merger of
the Vail and Ralston resorts they should have required Vail and Ralston
to divest a larger resort than Arapahoe Basin,
[[Page 39262]]
such as Breckenridge or Keystone. Commenters stated that there are many
unique aspects of Arapahoe Basin that they felt would make Arapahoe
Basin insufficient to constrain any post merger price increase by Vail
Resorts. Commenters 2, 3, 5, 6, and 7 cited qualities of Arapahoe Basin
such as its terrain, altitude, ski lifts, extreme weather, and
remoteness as factors making Arapahoe Basin very different than Vail
Resorts, Keystone, and Breckenridge. These commenters cited in addition
other qualitative differences between Arapahoe Basin and other ski
resorts, such as lodging, dining, and other amenities, as reasons why
skiers who left Vail Resorts after the merger in response to a price
increase would not go to Arapahoe Basin. In addition, several of these
commenters noted that Arapahoe Basin has a high proportion of advanced
or expert skier slopes and therefore cannot cater to many of the skiers
that will ski at Vail Resorts after the merger. Some commenters
(Comments 2, 3, 5, 6, 10, and 11) focused on Arapahoe Basin's size as a
reason for which Arapahoe would not constrain any post-merger price
increase by Vail Resorts. These commenters pointed out that Arapahoe
Basin does not have the capacity to serve the skiers that would leave
Vail Resorts in response to a price increase.
As these commenters note, Vail, Breckenridge, and Keystone each is
bigger than Arapahoe Basin. The relevant question, however, is not
absolute size but the resort's relative significance in the Front Range
skier market. While Arapahoe Basin is smaller than the other Ralston
resorts in acreage and in total skier days, it has a high proportion of
Front Range skiers. In this market, Breckenridge and Keystone together
account for about 20% of skier days, Vail Resorts about 12% and
Arapahoe Basin 6-7%. Arapahoe Basin accounted for approximately one-
quarter of Ralston Resorts' Front Range skier days during the 1995-96
ski season.\8\
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\8\ Of course it is true, as one commenter (Comment 6) notes,
that many Front Range skiers also value the many amenities that are
important to destination skiers; the relative significance of these
amenities is greater to the average destination skier than the
average Front Range skier, however.
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It is true, as commenters note, that Arapahoe Basin is more
oriented to the intermediate or advanced skier than are other ski
areas. Currently, approximately 7-10% of Arapahoe Basin's skiing
terrain is considered beginner level, compared to 13% of Keystone, 22%
of Copper Mountain, 22% of Winter Park and 17% of Breckenridge. In
addition, 50% of Arapahoe Basin's terrain is considered intermediate
level and 40% is advanced. This terrain does not mean that Arapahoe
Basin is not attractive to Front Range skiers, however. The very
characteristics that some commenters say detract from Arapahoe Basin's
competitiveness actually are appreciated by many Front Range skiers. A
very substantial portion of Front Range skiers are intermediate or
advanced skiers. Indeed, with a large percentage of its terrain
attracting intermediate and advanced skiers. Arapahoe Basin skiing
compares closely with the bowl and glade skiing experience offered at a
number of Vail Resorts' mountains. Skier surveys revealed that a
substantial number of skiers who ski Vail, Breckenridge or Keystone
also ski Arapahoe Basin, and vice versa. As commenters note, Arapahoe
Basin is not all things to all skiers. But the Department's
investigation revealed that a relatively small shift in skier days to
Arapahoe Basin, when taken together with the shift in skier days to
other independent resorts, would make any significant price increase by
the merged firm unprofitable. Therefore, Arapahoe Basin does not have
to be the ski resort to which every Front Range skier would go after
leaving Vail Resorts in response to a price increase. The Department
concluded that Arapahoe Basin is an appropriate divestiture because it
appears to be sufficiently attractive to enough Front Range skiers who
also use Vail, Breckenridge and Keystone that it can be a competitive
alternative in the market. Therefore, once Arapahoe Basin is divested,
any increase in average discounted prices to Front Range skiers is
likely to be negligible, according to the same analytical framework
that produced the estimates of post-merger price increases.
4. The Divested Assets Are Likely To Be Viable
Several commenters expressed concern that Arapahoe Basin cannot
survive except as part of a large ski resort company, or at least as
part of Keystone. A few of these commenters (Comments 1, 2, 5, 10, 13)
thought that Arapahoe Basin should be left with keystone rather than
being divested. Commenters 2 and 10 felt that Arapahoe Basin would
suffer if it did not receive the destination skier business that it
received through its affiliation with Ralston Resorts. They also noted
that Arapahoe Basin currently is the beneficiary of certain services
because it is affiliated with Keystone. Commenter 3 also mentioned that
Arapahoe Basin would no longer benefit from the advertising efforts of
Keystone and Breckenridge, which historically included all mountains
within the multi-mountain group. Commenter 1 felt that Arapahoe Basin
could not stand alone with 250,000 skiers per year and no town or
amenities.
These comments ignore, however, the fact that there are several
other ski areas of comparable or smaller size, such as Loveland and
Eldora, which have been able to survive as stand-alone entities. These
ski areas appeal particularly to Front Range skiers, the group that the
relief in this case is intended to protect. Furthermore, there are
other collaborative marketing arrangements that exist, such as ``Gems
of the Rockies.'' a joint marketing program of a number of Colorado ski
resorts, including Arapahoe Basin, so Arapahoe Basin need not be cut
off from all joint marketing activities. In addition, the divestiture
must be made to a new owner capable of operating a viable ski area
business, which includes the ability to advertise and market Arapahoe
Basin.
One commenter (Comment 6) observed that Arapahoe Basin is not
likely to be able to expand or to ``reposition'' itself in the market.
Another commenter (Comment 11) inquired whether the Department assumed
that certain permits would be granted to allow expansion at Arapahoe
Basin. While the Department fully investigated such relevant aspects
when considering Arapahoe Basin as a possible divestiture entity, the
Department did not assume that any expansion or repositioning would
take place. The analysis considered current facts.
5. Predictions of Other Anticompetitive Actions by Vail Either Are
Unfounded or Are Subject to Later Relief
Commenters 3, 6, and 11 suggest that Vail may engage in
anticompetitve conduct after the merger. For example, one commenter
(Comment 6) alleges that Vail Resorts either can engage in predatory
conduct or can be a price leader that discipline other ski resorts.
First, in predicting predation, this comment (from a competitor) claims
that the merger will result in prices that are too low--not too high,
as alleged in the complaint. Predation is a violation of the antitrust
laws, albeit one more often alleged than proved; an injured competitor
is not without remedy for true predation. Second, the allegations of
possible disciplining conduct in support of price leadership discuss a
risk that is part of the risk of anticompetitive outcomes considered in
the investigation. In the judgment of the
[[Page 39263]]
Department, considering the post-divestiture market shares in the
relevant (Front Range) market, the nature of the industry, the market
in which a violation was alleged, and the number of competitors in the
market, this risk did not warrant any additional remedy.
One commenter (Comment 3) addresses several possible post-merger
actions by Vail Resorts that it claims could affect competition.
Included are making package deals with airlines (which does not relate
to the Front Range market), affecting the placement of competitors'
radio, television, and print advertisements (which appears to be part
of the ordinary give-and-take of competition and media scheduling
practices (in the normal course of business, competitors'
advertisements are not placed close together)), and contracting with
retailers for exclusive distribution arrangements for ski tickets
(which appears to be either part of the ordinary give-and-take of
competition or, if it truly forecloses retail distribution, may itself
be an antitrust violation.\9\ In short, these additional concerns do
not amount to significant criticisms of the proposed Final Judgment and
the relief it contains.
---------------------------------------------------------------------------
\9\ One commenter (Comment 3) suggests Vail Resorts' possible
local transportation service may diminish the likelihood of the
continuation of a local tax that funds a local bus service running
to other ski areas. Such a change would have complicated effects,
and the likelihood of any such change flows primarily from the
previous Keystone-Breckenridge merger, not from this transaction.
---------------------------------------------------------------------------
One commenter claims that the government considered, but did not
discuss, other possible relief in the form of other divestitures
(Comment 6). The text of that comment itself, however, recognizes that
any other such option that the government could have considered would
have involved a full trial on the merits (with relief to be determined
by the court after trial). A full trial on the merits is the
alternative explicitly mentioned in Section VI of the Competitive
Impact Statement filed with this Court. As stated there, the Department
rejected that option because it was satisfied that the divestiture
contained in the proposed Final Judgment will preserve competition and
will there achieve the result that the government would have sought
through litigation, but without the time, expense, and uncertainty of
litigation.
The antitrust issues that commenters have raised were considered by
the Department and the State of Colorado during the course of a
thorough and extensive investigation into the proposed merger.
Ultimately, the Department and Colorado found that any likely
significant anticompetitive effect resulting from the merger would
involve Front Range skiers, and the Plaintiff accordingly alleged such
harm to Front Range skiers in their Complaint in this action. As
described in detail above in response to the specific concerns voiced
by commenters, the divestiture of Arapahoe Basin should resolve any
anticompetitive effect associated with the merger and should restore
significant competition to the Front Range market in Colorado.
III. The Legal Standard Governing the Court's Public Interest
Determination
Once the United States moves for entry of the proposed final
judgment, the Tunney Act directs the Court to determine whether entry
of the proposed final judgment ``is in the public interest.'' 15 U.S.C.
Sec. 16(e). In making that determination, ``the court's function is not
to determine whether the resulting array of rights and liabilities is
one that will best serve society, but only to confirm that the
resulting settlement is within the reaches of the public interest.''
United States versus Western Elec. Co., 993 F.2d 1572, 1576 (D.C. Cir.)
cert. denied, 114 S. Ct. 487 (1993) (emphasis added, internal quotation
and citation omitted).\10\ The Court should evaluate the relief set
forth in the proposed Final Judgment and should enter the Judgment if
it falls within the government's ``rather broad discretion to settle
with the defendant within the reaches of the public interest.'' United
States versus Microsoft Corp., 56 F.3d 1448, 1461 (D.C. Cir. 1995);
accord United States versus Associated Milk Producers, 534 F.2d 113,
117-18 (8th Cir.) cert. denied, 429 U.S. 940 (1976).
---------------------------------------------------------------------------
\10\ The Western Electric decision concerned a consensual
modification of an existing antitrust decree. The Court of Appeals
assumed that the Tunney Act was applicable.
---------------------------------------------------------------------------
The Court is not ``to make de novo determination of facts and
issues.'' Western Elec., 993 F.2d at 1577. Rather, ``[t]he balancing of
competing social and political interests affected by a proposed
antitrust decree must be left, in the first instance, to the discretion
of the Attorney General.'' Id. (internal quotation and citation omitted
throughout). In particular, the Court must defer to the Department's
assessment of likely competitive consequences, which it may reject
``only if it has exceptional confidence that adverse antitrust
consequences will result--perhaps akin to the confidence that would
justify a court in overturning the predictive judgments of an
administrative agency.'' Id.\11\
---------------------------------------------------------------------------
\11\ The Tunney Act does not give a court authority to impose
different terms on the parties. See, e.g., United States versus
American Tel. & Tel. Co., 552 F Supp. 131, 153 n.95 (D.D.C. 1982),
aff'd sub nom. Maryland versus United States, 460 U.S. 1001 (1983)
(Mem.); accord H.R. Rep. No. 1463, 93d Cong., 2d Sess. 8 (1974). A
court, of course, can condition entry of a decree on the parties'
agreement to a different bargain, see, e.g., AT&T, 552 F. Supp. at
225, but if the parties do not agree to such terms, the court's only
choices are to enter the decree the parties proposed or to leave the
parties to litigate.
---------------------------------------------------------------------------
The Court may not reject a decree simply ``because a third party
claims it could be better treated.'' Microsoft, 56 F.3d at 1461 n.9.
The Tunney Act does not empower the Court to reject the remedies in the
proposed Final Judgment based on the belief that ``other remedies were
preferable.'' Id. at 1460. As Judge Greene has observed:
If courts acting under the Tunney Act disapproved proposed
consent decrees merely because they did not contain the exact relief
which the court would have imposed after a finding of liability,
defendants would have no incentive to consent to judgment and this
element of compromise would be destroyed. The consent decree would
thus as a practical matter be eliminated as an antitrust enforcement
tool, despite Congress' directive that it be preserved.
United States v. American Tel. & Tel. Co., 552 F. Supp. 131, 151
(D.D.C. 1982), aff'd sub nom. Maryland v. United States, 460 U.S. 1001
(1983) (Mem.).
Moreover, the entry of a governmental antitrust decree forecloses
no private party from seeking and obtaining appropriate antitrust
remedies. Defendants will remain liable for any illegal acts, and any
private party may challenge such conduct if and when appropriate. The
issue before the Court in this case is limited to whether entry of this
particular proposed final judgment, agreed to by the parties as
settlement of this case, is in the public interest.
Furthermore, the Tunney Act does not contemplate judicial
reevaluation of the wisdom of the government's determination of which
violations to allege in the Complaint. The government's decision not to
bring a particular case on the facts and law before it at a particular
time, like any other decision not to prosecute, ``involves a
complicated balancing of a number of factors which are peculiarly
within (the government's) expertise.'' Hecklen v. Chaney, 470 U.S. 821,
831 (1985). Thus, the Court may not look beyond the Complaint ``to
evaluate claims that the government did not make and to inquire as to
why they were not made.'' Microsoft, 56 F.3d at 1459 (emphasis in
original); see also Associated Milk Producers, 534 F.2d at 117-18.
[[Page 39264]]
Finally, the government has wide discretion within the reaches of
the public interest to resolve potential litigation. E.g., Western
Elec. Co., 993 F.2d 1572; AT&T, 552 F. Supp. at 151. The Supreme Court
has recognized that a government antitrust consent decree is a contract
between the parties to settle their disputes and differences, United
States v. ITT Continental Baking Co., 420 U.S. 223, 235-38 (1975);
United States v. Armour & Co., 402 U.S. 673, 681-82 (1971), and
``normally embodies a compromise; in exchange for the saving of cost
and elimination of risk, the parties each give up something they might
have won had they proceeded with the litigation.'' Armour, 402 U.S. at
681. This judgment has the virtue of bringing the public certain
benefits and protection without the uncertainty and expense of
protracted litigation. Armour, 402 U.S. at 681; Microsoft, 56 F.3d at
1459.
IV. Conclusion
After careful consideration of these comments, the United States
concludes that entry of the proposed final judgment will provide an
effective and appropriate remedy for the antitrust violation alleged in
the complaint and is in the public interest. The United States will
therefore move the Court to enter the proposed final judgment after the
public comments and this response have been published in the Federal
Register, as 15 U.S.C. Sec. 16(d) requires.
Dated: July 10, 1997.
Respectfully submitted,
Craig W. Conrath,
Chief
Reid B. Horwitz,
Assistant Chief
Susan Wittenberg,
Trial Attorney*
John M. Lynch,
Trial Attorney, U.S. Department of Justice, Antitrust Division, Merger
Task Force, 1401 H Street, NW, Suite 4000, Washington, DC 20530, (202)
307-0001.
*Counsel of Record.
In the United States District Court for the District of Colorado
[Case No. 97-B-10]
United States of America and the State of Colorado Plaintiffs, v.
Vail Resorts, Inc., Ralston Resorts, Inc., and Ralston foods, Inc.
Defendants
Certificate of Service
I hereby certify that on this 10 day of July 1997 a true and
correct copy of the foregoing United States' Response to Public
Comments and Appendix was delivered by overnight mail to the following
persons:
Bruce F. Black,
Holme, Roberts & Owen, LLP, 1700 Lincoln, Suite 4100, Denver, Colorado
80203
and
Robert S. Schlossberg, Peter E. Halle,
Morgan, Lewis & Bockius, LLP, 1800 M Street, N.W., Washington, D.C.
20036.
Counsel for Vail Resorts, Inc.
Jan Michael Zavislan,
First Assistant Attorney General, 1525 Sherman Street, 5th Floor,
Denver, Colorado 80203.
Paul C. Daw,
Sherman & Howard, LLC, 633 17th Street, Suite 3000, Denver, Colorado
80202
and
E. Perry Johnson,
Bryan Cave, LLP, One Metropolitan Square, 211 No. Broadway, Suite 3600,
St. Louis, Missouri 63102
and
J. Michael Cooper, Daniel C. Schwartz,
Bryan Cave, LLP, 700 13th Street, N.W., Washington, D.C. 20005.
Counsel for Ralston Resorts, Inc. and Ralston Foods, Inc.
Susan Wittenberg
In the United States District Court for the District of Colorado
Lewis T. Babcock, Judge
[Civil Action No. 97-B-10]
United States of America and the State of Colorado Plaintiff, V.
Vail Resorts, Inc., Ralston Resorts, Inc. and Ralston Foods, Inc.,
Defendants
Appendix: Public Comments
Craig W. Conrath,
Chief, Merger Task Force, Antitrust Division, United States
Department of Justice, 1401 H Street, N.W., Suite 4000, Washington,
D.C. 20530
Dear Sirs: We are writing this letter to you regarding the
proposed merger between Vail Resorts and Ralston Resorts. We do not
think the decision that was made, to allow Vail to purchase Keystone
and Breckenridge, while merely spinning off Arapahoe Basin in the
name of Competition, is a good one, NOR IS IT IN THE PUBLIC
INTEREST!
It's a pretty well-accepted fact that only about four percent of
people complain or write about issues for which they have a
legitimate complaint. Since we have talked to many people here about
this issue, unlike the Department of Justice, let this letter
represent the feelings of a lot more skiers and residents than just
the two of us. We know there are business/real estate people here
who see the merger favorably, but they are concerned ONLY about
increased dollars for themselves.
What must be a bigger JOKE than the sixty day appeal period is
the decision itself! We realize that appealing this decision is
probably useless, as everything we see and hear about the merger
points to it being a ``done deal.'' This includes the IPO already
done this past week by the parent company of Vail; how could they
even do that before the sixty day appeal period ended, and a
``final'' decision is made??? Other things that point to a done deal
are employee pass interchange, KAB pass interchange with additional
dollars, special buses put on, and insufficient publicity that there
is a sixty day appeal period before a final decision. The Denver
Post says Vail now owns Keystone and Breck.
Nevertheless, we have the time to write, as we are retired.
Being retired, we are watching our funds closely, and it is a
foregone conclusion by everyone here we talked to that prices for
EVERYTHING will be going up substantially with Vail involved in our
valley. Haven't we learned from Aspen, Vail and Telluride that
present locals here will be driven from our area. Many people here
in Summit County have two or three jobs to make ends meet, and it
will be much worse for them after Vail exerts their influence. It
doesn't take a genius to know that prices, not only for lift
tickets, but everything else, will rise steadily once Vail exerts
their power and money. They will destroy the economy for middle
level fixed-income and lower income residents/workers. Just look at
the Vail area NOW!
This decision is the worst scenario of all possibilities the DOJ
could have come up with. The best decision would have been as we
requested in our original letter to the DOJ, a copy of which is
attached. Barring that as an answer, if only Brechenridge would have
gone with Vail, it may not have been too bad. Or, if Keystone went
with Vail, and not Breckenridge, then A-Basin could have stayed with
Keystone. Or, if you really thought Breckenridge and Keystone should
go with Vail (which we'll never understand), then you should have
left A-Basin with the other areas.
You have sounded the death knell of Arapahoe Basin. There is not
a local we have talked to yet who thinks it will survive on its own.
It will not survive in today's economy with the decision you
allowed. To spin off only A-Basin is absurd! It has approximately
250,000 skiers in a season, no base area and no town. The other two
areas have about 1,000,000 skiers each and have a ``town'' and all
the other amenities for year round activities and recreation. THEY
CAN STAND ALONE.
Furthermore, the comparison of A-Basin to Vail and Copper
because of glade and bowl skiing is completely invalid. For skiing,
it compares more closely to Loveland. Has anyone involved in making
this decision ever skied at A-Basin, or anywhere in Summit County?
Also, on many days Loveland Pass on the Denver side to A-Basin is
closed for various reasons, mostly avalanche work. Thus, the Front
Range skiers go some place else. Their numbers will not support the
area, and it is popular with destination skiers--and many of the
locals who use it--only because it is part of another package.
Why such emphasis on Front Range skiers? Your release dated Jan
3 state. ``Justice Department set conditions that will preserve
lower prices for hundreds of thousands of
[[Page 39265]]
skiers''. The locals and the destination skiers are going to be
GREATLY affected by your decision. According to your documents the
locals aren't even considered. Destination skiers we've talked to
are already upset that they no longer have Ski-The-Summit ticket
available to them to provide good rates to all four Summit County
areas; it's one of the things that brought us here in the first
place. We have a four-areas STS season pass that's available for
early-season-buyers, locals or others. but the number is limited.
We're certain that this wonderful Ski-The-Summit opportunity will be
gone after this season.
We feel the surveys that were used as the basis for your Front
Range skier numbers are not valid. We ski often, and we know of no
surveys taken, nor do we know of others who ski often that were
surveyed. Furthermore, we know many destination skiers, including
family and friends from back East, who always pick up discount
tickets or ``Colorado Cards'' at FRONT RANGE locations before they
come up here. I am a retired engineer, and I know that numbers can
be juggled to obtain desired results. To have used those numbers to
arrive at a decision this monumental, looking at only a few
percentage points difference, is ludicrous.
The numbers were supplied to you by the ski corporations who
want this merger and will profit greatly from it. This decision will
not benefit the average citizen. Your people did not contact our
county commissioners, Summit County's town officials, the Forest
Service here, the large senior population, or average families to
question what effects Vail may have in our valley.
The ski companies are their own worst enemies! They complain
that skier numbers are flat. But, the companies are constantly
raising prices, including parking. Families are especially hard-hit
by these increases. In the last few years, many destination skiers
are skiing less days in their ski week, like four instead of six,
and they are finding other things on which to spend their time and
money. The number one reason why skiers--destination, Front Range
and locals--are skiing less is the HIGH PRICE OF LIFT TICKETS!
This decision is NOT IN THE PUBLIC INTEREST. It is in the
interest of big corporations only. Adam Aron, the CEO at Vail, has
arrived on the Vail scene only as of July, 1996 after three years as
president of NCL, where mergers were being effected, too. Before
that it was UAL. Do you really think he cares about the real people
here, or is he thinking of his career, his name and his big
dollars--already guaranteed $250,000 bonus alone?
As an aide to this decision, maybe the DOJ should be looking at
better Bankruptcy Laws. Ironically, George Gillett who filed two
bankruptcies at Vail only four years ago, is not only receiving
$2,500,000 annual salary from Vail, but has been named prominately
as a possible buyer for our very own Arapahoe Basin. How many people
got hurt in those bankruptcies? He and his two sons have already
bought into about nine other ski areas around the country. Vail may
even ignore an agreement they had with Gillett not to own a Colorado
ski resort until 1998! How does this compute? Wheeling and dealing
as usual!!!
Please give this merger a closer, second look because of its
far-reaching ramifications.
Sincerely,
Joel R. Bitler,
Mern V. Bitler
cc:
Senator Ben Campbell
Representative Scott McInnis
Colorado Attorney General Gail Norton
U.S. Department of Justice, 10th and Constitution Avenues, Room
3304, Washington, DC 20530
Attn: Ms. Juthymas Harntha
Dear Ms. Harntha: We are writing to you regarding the possible
merger whereby Vail would take over most of the Ralcorp ski
properties of Breckenridge, Keystone and Arapaho Basin in Summit
County, Colorado. We are adamantly opposed to this merger.
I, Joel, am a retiree of AT&T, and in 1984, as I'm sure you are
aware, AT&T was torn apart by the Federal Government in the name of
competition. We won't debate that case. But, it and the more recent
case of ski areas in the East set examples for competition. Let's
not allow this merger so that we may continue to have competition
here.
Furthermore, we moved to Summit County because we like the
``atmosphere'' here. We don't like the Vail area for many reasons,
including its high costs. We don't want that kind of thinking
transferred here to Summit County. We won't be able to live here.
We are retired and don't want to see costs continuing to
escalate as they have. With Vail involved it can only get worse. The
only ones to really benefit from this will be ``big money'' people,
not your average consumer. You can tell how important it is to the
money people, as no sooner was the plan announced and a famous, and
no-doubt high-priced lobbyist, was assigned to push for it in
Washington.
Please do everything in your power to halt the merger. We were
dissatisfied, along with many other consumers and workers, when
Ralcorp was allowed to buy Breckenridge, which then formed quite a
monopoly here in Summit County. There will be six resorts owned by
the new group between Eagle and Summit Counties, leaving only Copper
Mountain to try to survive the ``big guys''.
Thank you.
Sincerely,
Joel R. Bitler,
Mern V. Bitler
cc: Representative Scott McInnis
Jeffrey S. Bork,
914 Ruby Road, P.O. Box 23169, Silverthorne, CO 80498-3169
February 18, 1997.
Via Facsimile and First Class Mail
Mr. Craig W. Conrath,
Chief, Merger Task Force, Antitrust Division, U.S. Department of
Justice, 1401 H Street, N.W., Room 4000, Washington, D.C. 20530
Re: United States and State of Colorado v. Vail Resorts, Inc.,
Ralston Resorts, Inc., and Ralston Foods, Inc., No. 97B-10 (D. Co.)
Dear Mr. Conrath: I submit this letter to share with you my
preliminary observations about Vail Resorts' proposed acquisition of
the ski areas owned by Ralston Resorts. As a full-time resident of
Summit County, Colorado, I can offer an unique and important
perspective on this proposed business transaction.
I am troubled by two of the conclusions in your Division's
Competitive Impact Statement, 62 Fed. Reg. 5037 (Feb. 3,
1997)(``CIS''). First, I cannot agree with your unexplained
conclusion that local skiers like myself would not be adversely
impacted by the merger. Second, I cannot agree with your conclusion
that Vail Resorts' acquisition of Breckenridge and Keystone without
Araphoe Basin would ``resolve the anticompetitive problems raised by
the proposed transaction.'' CIS at 15. Based on the facts available
to me, your Division's ``partial'' merger proposal would not resolve
the problems raised by the proposed transaction. To the contrary, as
explained below, the ``partial'' merger alternative appears to have
more flaws than the defendants' original proposal.
Here is the principal problem I face: your Division did not
disclose in its CIS the key facts and assumptions it used in
arriving at its conclusions. Thus, I (or any other member of the
public, for that matter) have no basis to assess the validity of the
Department's conclusions.
I would like to exercise my right under the Antitrust Procedures
and Penalty Act, 15 U.S.C. Sec. 16(b)-(h), to submit informed
comments. Both of the transactions now on the table--the original,
``acquire-all-three-resort'' proposal, or your partial, ``acquire-
only-the-big-two'' alternative--will negatively impact me, my
family, and my neighbors.
However, I cannot meaningfully exercise this right unless I have
access to the material facts and assumptions your Division used in
its analysis. So I have time to prepare informed comments before the
close of the current filing deadline. I ask that you submit to me by
Tuesday, March 4, 1997 the data identified below. I would, of
course, be willing to execute any reasonable confidentiality
agreement which you may deem appropriate.
I have two final requests. First, I would appreciate your
notifying me immediately if your Division, or any other party, makes
a filing with the District Court in this matter. Second, please
identify and explain in your response any statements in this letter
which you believe are erroneous or irrelevant. The public interest
obviously is not advanced if anyone makes representations
inconsistent with known facts.
I. Factual Background
In July 1996 Vail Resorts, Inc. announced it had reached it had
reached an agreement to acquire the ski resort business of Ralston
Resorts, Inc. for approximately $310 million. Vail Resorts is the
largest owner of ski resorts in Colorado, owning all three resorts
in Eagle County: Vail, Beaver Creek, and Arrowhead
[[Page 39266]]
Mountain.\1\ Ralston Resorts is the second largest owner of ski
resorts in Colorado, owning three of the four ski resorts in
adjacent Summit County: Arapahoe Basin, Breckenridge, and
Keystone.\2\ A Vail Resort press release has claimed that, with its
acquisition of the Ralston Resorts ski properties, it will become
the largest ski resort operator in the world.\3\
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\1\ As you know, Arrowhead Mountain is small, and Vail Resorts
operates Arrowhead as part of Beaver Creek. Consequently, in this
letter I will refer to Beaver Creek to include both Beaver Creek and
Arrowhead.
\2\ Ralston acquired Keystone during the 1970s and Arapahoe
Basin in 1978. It did not acquire Breckenridge, which had been
operated independently, until 1994 or 1995. Please identify in your
response the date Ralston acquired Breckenridge and the name of the
person or firm which sold Breckenridge to Ralston.
\3\ Other state that Vail Resorts would ``only'' become the
second largest operator, with the French Compagnie des Alpes
retaining the top spot. In your response to this letter, please
identify how big the merged Vail Resorts would become (with or
without A-Basin) vis-a-vis other ski resort owner/operators in the
world.
---------------------------------------------------------------------------
On January 3, 1997, the State of Colorado and your Department,
on behalf of the United States, filed a civil antitrust complaint
against the two resorts alleging that their merger would violate
Section 7 of the Clayton Act, 15 U.S.C. Sec. 18. The complaint
alleged that the combination of the two largest ski resort owner/
operators in Colorado would end the current ``aggressive''
competition between them and would, as a result, ``increase
substantially the concentration among ski resorts'' in Colorado.
Complaint at Paras. 1, 3, and 4. More specifically, the complaint
alleged:
This merger would eliminate the price constraining impact each
has on the other. In particular, the combined Vail and Ralston
resorts would be likely to raise prices or reduce the level of
discounts offered to skiers from the Colorado Front Ridge. In
addition, the transaction would give other ski resorts serving the
Front Range the incentive to raise their lift ticket prices to Front
Range skiers following a price increase at the combined Vail and
Ralston resorts. Id. at para. 21.
The Complaint asked that this proposed acquisition ``be adjudged
to violate Section 7 of the Clayton Act'' and that ``the defendants
be permanently enjoined from carrying out the Stock Purchase
Agreement . . . or from entering into or carrying out any agreement,
understanding or plan, the effect of which would be to combine the
businesses or assets of Vail Resorts and Ralston Resorts.'' Id. at
11 Paras. 1 and 2.
Also on January 3, 1997 the plaintiffs moved for entry of a
stipulation and order in which all the parties agreed to entry of a
proposed Final Judgment. In the proposed Final Judgment, Vail
Resorts agrees to divest Arapahoe Basin within 150 days or within
five business days after notice of entry of the Final Judgment,
whichever is later. Proposed Final Judgment at 4-5 para. A. In
return, the plaintiffs agree to drop their antitrust lawsuit and to
permit Vail Resorts to acquire Breckenridge and Keystone.
In a press release also issued on January 3, 1997, your
Department stated that, notwithstanding its acquisition of the large
Breckenridge and Keystone resorts, Vail Resort's divestiture of
Arapahoe Basin would ``keep prices lower for skiers'':
[T]he Justice Department set conditions that will preserve lower
prices for hundreds of thousands of skiers. * * * Without the
divestiture, the deal likely would have resulted in higher prices to
skiers who live in Colorado's Front Range. * * * The proposed
settlement requires the sale of Ralston's Arapahoe Basin ski resort
to an entity capable of operating the resort as a long-term, viable
competitors in the market. The divestiture will prevent Front Range
skiers from paying higher lift ticket prices.
Three weeks later, on January 22, 1997, your Department filed
its Competitive Impact Statement (``CIS'') in compliance with the
requirements of the Antitrust Procedures and Penalties Act. In this
CIS, the Department repeated in position that Vail Resorts'
acquisition of the Ralston Resort ski properties would ``violate
Section 7 of the Clayton Act.'' CIS at 2. The Department further
explained that the provision of downhill skiing is a relevant market
and that customers of the defendants' ski resorts ``include two type
of skiers; destination skiers and Front Range skiers,'' the later
defined as skiers residing in ``the geographic area lying just east
of the Rocky Mountains.'' CIS at 5-6, Complaint at para. 11.
According to the Department, the proposed acquisition would have no
impact on ``destination skiers [who] come from outside Colorado,''
but would negatively impact ``Front Range skiers [who] are day or
overnight skiers'' and who drive to resort and ``limit the resorts
they use for day trips to those which fall within a radius of about
two-and-one-half hour travel time from where they live.'' \4\ CIS at
6.
---------------------------------------------------------------------------
\4\ The definition appears over broad; I know few people who are
willing to sit in a car five hours in one day to ski that same day.
Please produce all facts which you considered in developing this
definition, and identify by name all the resorts which the Division
believes are viable alternatives for Front Range skiers wanting to
ski a single day. I can think of only five resorts other than those
at issue here: Copper Mountain, Eldora, Loveland, Ski Cooper, and
Winter Park.
---------------------------------------------------------------------------
Ignored altogether in the complaint, and without explanation in
the CIS, the Department stated that the merger would have no impact
on ``the local skier market.'' Id. at 6 n.2.
In its CIS, the Department repeated its views that the merger of
Vail Resorts and Ralston Resorts ``would reduce competition
significantly in the market for Colorado Front Range skiers,'' and
it identified four separate adverse impacts from such a merger:
1. Competition generally in providing skiing to Front Range
skiers would be lessened substantially;
2. Actual competition between Vail and Ralston in providing
skiing to Front Range skiers would be eliminated;
3. Discounting to Front Range skiers by Vail and Ralston would
likely be reduced; [and]
4. Prices for skiing to Front Range Colorado skiers would likely
be increased. CIS at 10.
The Department further observed that the merger would have
negative impacts beyond the specific ski resorts at issue:
``Moreover, once Vail and Ralston resorts charge higher prices,
other resorts in the market have an incentive to raise their prices
somewhat in response to less intense price competition for Front
Range customers.'' \5\ Id. at 13-14.
---------------------------------------------------------------------------
\5\ The Department has estimated that the merger would likely
raise lift ticket prices ``on the order of 4%, or about $1 per lift
ticket.'' CIS at 14. However, it nowhere explains how it computed
this 4%/$1 figure. A 4% increase in the amount of $1.00 would
suggest that current ticket prices are $25.00 per day, but daily
passes at Breckenridge and Keystone are currently $45.00. In your
response, please include the data you used to compute this ``4%/$1''
figure. Also please share the assumptions you used in arriving at
this estimate (e.g., how you determined the likely impact would be
4%/$1 as, for example, 8%/$2--or 12%/$3)?
---------------------------------------------------------------------------
The Department stated, however, that a partial merger--that is,
Vail Resorts' acquisition of Breckenridge and Keystone, but not
Arapahoe Basin--``would preserve competition'' and ``resolve the
anticompetitive problems raised by the proposed transaction'';
Divesting Arapahoe Basin restores significant competition among
these mountains and, more generally, permits Arapahoe Basin to serve
as an independent competitor for skiers throughout the Front Range.
While Arapahoe Basin is smaller than the other Ralston resorts in
absolute size, it has a high proportion of Front Range skiers . . .
and is thus relatively more competitively significant in the Front
Range skiing market than its overall number of skier days might
suggest. Id. at 14-15.
According to the Department, ``[a] relatively small shift in
skier days to Arapahoe Basin would make any significant price
increase by the merged firm unprofitable.'' Ibid. The Department
further stated that, without Arapahoe Basin, the defendants' market
share of Front Range skiers ``will be less than 32%.'' Id. at 16.
II. The Department's Conclusion That Local Skiers Would Not Be
Adversely Impacted by the Merger Is Unexplained
The Department has stated that its ``investigation did not
reveal any likely anticompetitive effect from the proposed merger .
. . in other relevant markets such as the local skier market,'' CIS
at 6 n.2. The Department did not explain this conclusion in the CIS.
Because I believe local Summit County residents would be impacted
more negatively by the merger than any other category of skier, I
ask you to produce all the evidence you relied upon in reaching this
conclusion.
The residents of Summit County are relatively small in number; I
estimate the number of full-time residents approximates 18,000.
However, Summit county residents are very avid skiers (in part
explaining why they willingly suffer through a long mountain winter,
with snow from October to June or July). We locals ski often--far
more often than either destination or Front Range skiers.\6\ While
locals are perhaps small in number, we generate a considerable
number
[[Page 39267]]
of skier days and represent a sizable market for skiing in Summit
and Eagle Counties.
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\6\ As but one small example, my 12-year-old son skis each
weekend day. During his Christmas break, he skied on 16 of 18
available days.
---------------------------------------------------------------------------
Local skiers have two basic choices today: we can ski (1) at
Copper Mountain, or (2) at one of the three Ralston Resorts:
Breckenridge, Keystone, and Arapahoe Basin. Few locals ski A-Basin
until the spring; the other three resorts are so much larger and
offer so much more diverse terrain.\7\ Simply put, A-Basin is simply
not large enough for most people to ski an entire day.
---------------------------------------------------------------------------
\7\ This difference in size among the four resorts is reflected
in their lift ticket prices. A one-day lift ticket honored at any of
the three Ralston ski areas is $45. A one-day ticket limited to
Arapahoe Basin is $39.
---------------------------------------------------------------------------
Because of distance (25+ miles including Vail Pass), locals do
not ski regularly at the Vail Resorts in adjacent Eagle County,
perhaps one or two visits per season. Nevertheless, Vail Resorts has
an enormous, positive impact on Summit county residents. Based on my
past experience, none of the big three local resorts--Copper,
Breckenridge, and Keystone--will charge lift ticket prices higher
than that charged by Vail Resorts.\8\
---------------------------------------------------------------------------
\8\ Please produce the one-day ticket prices charged by all
Summit and Eagle County resorts over a period of time (e.g., 5
years) so I can verify the accuracy of the statement.
---------------------------------------------------------------------------
At first blush, local skiers would appear to have three choices
under the partial merger alternative advocated by the Department: we
could ski (1) at Copper Mountain, (2) at an independently-owned
Arapahoe Basin, or (3) at Breckenridge or Keystone, both of which
would be owned by Vail Resorts. The reality is that, before the
spring, A-Basin is not a meaningful alternative; as explained above,
it is simply too small to accommodate a full day of robust skiing.
As a practical matter, then, before the spring when other resorts
are closing down, local Summit county skiers will continue to have
the same two alternatives they have today: (1) Copper, or (2)
Breckenridge/Keystone.
The difference in this new scenario is that Breckenridge and
Keystone would now be owned by Vail Resorts, and the competitive
pricing pressures Vail Resorts had once imposed on the Summit county
resorts will have vanished. Given its massive size, it is reasonable
to assume that, if the District Court ultimately approves Vail
Resort's acquisition of Breckenridge and Keystone, Vail Resorts will
increase the lift ticket prices at these two resorts to match that
charged at its ski areas in Eagle County. Indeed, given that Vail
Resorts (even excluding A-Basin) would be nearly five times larger
than any other ski resort in Colorado, Vail Resorts could easily
increase the prices of all of its lift tickets once the consummation
of the merger becomes final.\9\
---------------------------------------------------------------------------
\9\ It is for this reason I need all the data you considered and
assumptions you made in determining the likely impact on pricing
that would occur if the defendants' original (all three) merger
proposal were consummated. See note 5 supra.
---------------------------------------------------------------------------
The competitive alternatives for locals in this situation would
be to ski instead at either Copper Mountain or Arapahoe Basin--
assuming these two resorts did not increase their prices as well in
response to a price increase by Vail Resorts. A responsive price
increase by these two areas would appear likely. For example, Copper
has been enjoying substantial growth; during the 1995-96 season, it
enjoyed a total of 967,074 skier days--a 25% increase over the
previous year (1994-95: 770,973). If I managed Copper Mountain in
these growth circumstances and my major competitor raised its
prices, I would find the more attractive business alternative to
raise Copper's prices as well.\10\ After all, each one dollar
increase in a lift ticket would generate nearly $1 million for
Copper.
---------------------------------------------------------------------------
\10\ Historically, Copper Mountain has set its lift ticket
prices lower than that charged at the Ralston Resort areas, the
other ski resorts in Summit County. If Vail Resorts were to increase
the prices at the former Ralston Resorts, Copper Mountain could
easily increase its prices as well--and still be somewhat cheaper
than the competition.
---------------------------------------------------------------------------
Thus, the most likely outcome of the Department's proposed
partial merger on local Summit County skiers would be that we would
(1) pay higher prices at Breckenridge, Copper, and Keystone; or (2)
ski half days at Arapahoe Basin (assuming it can survive as
discussed in Part IV below). Consequently, I cannot agree with your
unexplained conclusion that local skiers would not be negatively
impacted by either the defendant's proposed complete merger or the
Department's alternative, the partial merger. At least for locals,
neither alternative ``will preserve lower prices'' as the Department
represented in its January 3, 1997 press release.
It is precisely for this reason that I ask you to produce all
facts in your possession (whether you considered them or not) which
relate to the size of the local skier market and the impact of the
proposed merger on local skiers. In addition, your CIS limits its
analysis to future pricing behavior to the five resorts that would
be owned by enlarged Vail Resorts. What analysis have you performed
about Copper's likely response to a price increase by an enlarged
Vail Resorts? What analysis have you performed about the likely
response an independent Arapahoe Basin would make to a price
increase by an enlarged Vail Resorts? Please produce this data as
well in your response to this letter.
III. Available Facts Suggest There Is a Substantial Question Whether an
Independent Arapahoe Basin Would Restrain the Pricing Behavior of a
Combined Vail Resorts/Breckenridge/Keystone Operations
According to the Department, while a complete merger would
violate Section 7 of the Clayton Act, a partial merger--acquisition
of Breckenridge and Keystone without Arapahoe Basin--would be lawful
and pro-competitive. In the Department's view, the divestiture of A-
Basin would ``restore significant competition among these mountains
and, more generally, [would] permit Arapahoe Basin to serve as an
independent competitor for skiers throughout the Front Range.'' CIS
at 15. This divestiture, the Department states, ``will prevent Front
Range skiers from paying higher lift ticket prices'' and ``will
preserve lower prices for hundreds of thousands of skiers in one of
America's most popular winter sports areas.'' DoJ News Release at 1
and 2 (Jan. 3, 1997).
The Department's assertion that an independent Arapahoe Basin
will provide ``significant'' competition to a combined Vail Resorts/
Breckenridge/Keystone operations and would, as a result, restrain
the pricing behavior of this new giant does not appear to be
credible. Consider the facts when an independent Arapahoe Basin is
compared with the combined Vail Resorts/Breckenridge/Keystone
operations:
------------------------------------------------------------------------
Combined Vail
resorts/
Arapahoe Breckenridge/
Basin Keystone
operations
------------------------------------------------------------------------
Total Skiable Acres...................... 490 9,421
Acres of Snowmaking...................... None 2,284
Total Number of Trials................... 61 441
Longest Run (in miles)................... 1.5 4.5
Total Lifts.............................. 5 79
Total No. of Gondolas/High Speed
``Quads''............................... 0 26
Night Skiing............................. No Yes
Total Uphill Capacity (skiers per hour).. 6,066 121,064
1995-96 Skier Days....................... 241,435 4,615,358
------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
A-Basin Breck Keystone Vail Beaver creek
----------------------------------------------------------------------------------------------------------------
Total Skiable Acres........................ 490 2,031 1,749 4,112 1,529
Acres of Snowmaking........................ None 369 859 347 709
[[Page 39268]]
Total Number of Trials..................... 61 138 91 121 91
Longest Run (in miles)..................... 1.5 3.5 3 4.5 3.5
Total Lifts................................ 5 19 20 26 14
Total No. of Gondolas/High Speek ``Quads''. 0 4 6 12 5
Total Uphill Capacity (skiers per hour).... 6,066 26,030 26,582 45,213 23,739
1995-96 Skier Days......................... 241,435 1,357,790 1,057,568 \1\ 2,200,00
0 ............
----------------------------------------------------------------------------------------------------------------
\1\ Combined.
The Department implies that Arapahoe Basin is a ``close
competitive alternative'' to each of the other four resorts at
issue. This unexplained conclusion is also difficult to square with
the facts: \11\
---------------------------------------------------------------------------
\11\ This conclusion is also difficult to square with the
Department's position last fall in reviewing another (but much
smaller) merger in New England. There is stated that `[m]any of the
other smaller resorts lack the qualitative aspects previously
identified (number of trails and lifts, variety and difficulty of
trails, snowmaking, night skiing, and other amenities) to constrain
a small but significant price increase after the merger'' of larger
resourts. Plaintiff's Response, U.S. v. American Skiing Co., 61 Fed.
Reg. 55995, 55998 (Oct. 30, 1996). See also Competitive Impact
Statement, U.S. v. American Skiing Co., 61 Fed. Reg. 33765, 33771
(June 28, 1996) (``Smaller ski resorts . . . cannot and after this
transaction would not constrain prices charged to weekend skiers
living in eastern New England. Although eastern New England skiers
occasionally choose to ski at such smaller . . . resorts, skiing at
such resorts is not a practical . . . alternative for most eastern
New England skiers most of the time.'').
---------------------------------------------------------------------------
It is my experience that all three categories of skiers--locals,
destination, and Front Range--each view Arapahoe Basin as
fundamentally different than each of the four other ski areas at
issue:
1. Local Skiers. Because Arapahoe Basin is so small and more
different to reach, locals generally ski A-Basin in two of two
circumstances: (a) when they want to ski for several hours only; or
(b) in the spring when, because of its location and elevation, A-
Basin has much better conditions than at other resorts (even if they
are open).\12\
---------------------------------------------------------------------------
\12\ Some locals ski A=Basin for a third reason: to ``extreme''
ski in out-of-bounds areas. Because this activity is not legal, I
suspect the Department cannot consider it.
---------------------------------------------------------------------------
2. Destination Skiers. Arapahoe Basin is not an alternative for
destination skiers because it is completely undeveloped--that is,
there are no shops; restaurants (other than the single lodge);
hotels, or condominiums. Besides, even if it had a developed base,
A-Basin is not large enough and does not have a complete set of
terrain to attract families and groups of skiers with diverse skiing
ability.
3. Front Range Skiers. While I am not personally familiar with
the practices and preferences of many Front Range Skiers, I suspect
they ski A-Basin under circumstances similar to local skiers. In
addition, they may ski A-Basin for half a day, and use their ticket
to ski Keystone the rest of the day.\13\
---------------------------------------------------------------------------
\13\ In your response to this letter, please advise whether you
and your staff (a) are downhill skiers, and (b) have skied at any of
the Summit/Eagle County resorts (and, if so, which ones). Someone
unfamiliar with the different ski areas may have a very different
perspective than one who has actually skied the terrain in question.
No skier I know of would say that A-Basin is ``comparable'' to the
other resorts owned by either Ralston Resorts or Vail Resorts.
---------------------------------------------------------------------------
Thus, if my experience is accurate, it is unlikely that skiers
preferring to ski at Breckenridge or Keystone would ski instead at
A-Basin as a result of a price increase by a merged Vail Resorts
(even assuming A-Basin does not make a responsive price increase as
well). Indeed, as the Department stated last fall, ``[t]he typical
downhill skier who goes to [large] resorts for the qualitative
experience is unlikely to stop skiing or switch to smaller resorts
with less aties because ticket prices increase by a small amount.''
\14\
---------------------------------------------------------------------------
\14\ Plaintiff's Response, U.S. v. American Skiing Co., 61 Fed.
Reg. 55995, 55999 (Oct. 30, 1996).
---------------------------------------------------------------------------
I therefore ask the Department to produce all data in its
possession (whether or not it was considered) which pertains to the
question whether Arapahoe Basin is, or is not, a ``close competitive
alternative'' to each of the other four resorts at issue. I suspect
your Department has prepared ``elasticity'' studies to show the
correlation between the prices charged at the other resorts and the
likelihood that skiers would respond to a price increase by skiing
instead at A-Basin. Please produce these studies, the underlying
data, and the source of the underlying data (e.g., whether it was
produced by the defendants, the industry, or third-party sources).
The Department's sole explanation for opposing a complete merger
but approving a partial merger is that with a complete merger the
new giant would control 38% of all Front Range skiers, while with a
partial merger this Front Range market share would be split between
the new giant, with 32%, and Arapahoe Basin, with 6%. It is this
sharing of the Front Range market that forms of the basis of the
Department's representation that the divestiture of Arapahoe Basin
``would preserve competition'' and ``keep prices lower for skiers.''
In support, the Department undertook a Herfindahl-Hirschman Index
(HHI) analysis, but it chose not to disclose the data used in this
HHI analysis so the public could examine the accuracy of the
Department's analysis--and, in the process, the legitimacy of the
Department's conclusions.
At the outset, the Department never explains in its Complaint or
its CIS how it arrived at its ``Front Range market share'' data--
that is, the data used both to assess the total size of this market,
and to allocate market share among different resorts. The accuracy
of this data is obviously critical: it is this data on which the
Department uses in its HHI analysis which, in turn, is used to
explain the Department's willingness to approve the so-called
partial merger.
The reason I ask is that your estimates do not correspond, even
closely, with my own experience. According to your data, Front Range
skiers constitute less than 13% of total skier days at Vail Resorts
and less than 20% of total skier days at Breckenridge and
Keystone.\15\ My experience is that these numbers are understated
substantially--perhaps as much as 50%.\16\ While I am not very
familiar with the HHI analysis, I suspect that understating the
Front Range skier market share would skew the HHI results.
---------------------------------------------------------------------------
\15\ The Department states that the six resorts owned by Vail
Resorts and Ralston Resorts ``account for over 38 percent of skiers
days in the Front Range market.'' CIS at 10. If this were true, then
the other five resorts which serve Front Range skiers--Copper
Mountain, Eldora, Loveland, Ski Cooper, and Winter Park--serve the
remaining 62% of the market. This does not appear to be possible
given that Eldora, Loveland and Ski Cooper are so small--with each
being perhaps each smaller than A-Basin.
\16\ Your production of this data may help explain this apparent
discrepancy. For example, there are a substantial number of Front
Range residents who own condominiums in Summit or Eagle Counties and
who ski most weekends. Perhaps your data erroneously classified
these skiers as ``destination'' skiers, although they obviously are
more appropriately classified as Front Range skiers, if not local
skiers.
---------------------------------------------------------------------------
However, even assuming the accuracy of the market share data you
used, the Department's statement that Arapahoe Basin currently
serves 6% of the Front Range market is misleading, and may be
misleading in a material way. The CIS does not acknowledge that,
because of its elevation, A-Basin generally stays open months after
other ski resorts close (including all other resorts in Summit and
Eagle Counties).\17\ I suspect a sizable number of A-Basin's total
number of skier days--virtually all of whom are Front Range or local
skiers--are generated after other ski resorts have closed. If this
is the case, Arapahoe Basin may serve less of the Front Range skier
market during the competitive period than the Department asserts.
---------------------------------------------------------------------------
\17\ Most ski resorts in Summit and Eagle Counties generally
close between mid-April and early May, depending upon the conditions
in a given year. My recollection is that in 1996 A-Basin closed on
July 4 and that in 1995 it closed on August 10--months after the
other ski resorts had closed.
---------------------------------------------------------------------------
I therefore ask the Department to submit skier day data by
month, so I can ascertain how many of A-Basin's skier days are
generated in a competitive environment and now many are generated
when the competition has closed. This data may,
[[Page 39269]]
moreover, impact materially your HHI analysis.
At the core of the Department's ``partial-merger-is-OK''
position is that an independent Arapahoe Basin would provide
``significant competition'' with the four much larger resorts which
would be owned by Vail Resorts because, if Vail Resorts increased
its prices too much, Front Range skiers would instead ski at A-
Basin:
A relatively small shift in skier days to Arapahoe Basin would
make any significant price increase by the merged firm unprofitable.
The calculations of profit-maximizing behavior described above
suggest that, after the merger, once Arapahoe Basin is divested, any
increase in average discounted prices to Front Range skiers would be
negligible. CIS at 15-16.
The Department does not explain this conclusion, and objective
facts would suggest otherwise.
To provide this ``significant competition.'' Arapahoe Basin must
have the physical capacity to handle a sufficient number of
additional skiers interested in skiing there rather than at one of
the Vail Resort areas.\18\ Put another way, the issue is not that A-
Basin currently services 6% (or 4%) of the Front Range skier market;
rather, the issue is whether A-Basin has the capacity to serve
additional skiers who decide not to pay the high prices charged at
the four much larger Vail Resorts.\19\ It does not appear that A-
Basin has such capacity--at least enough to make a difference.\20\
---------------------------------------------------------------------------
\18\ During a dry season, Arapahoe Basin may provide no
competition to any resort, because it has no snowmaking
capabilities.
\19\ Indeed, because of its major capacity constraints, the new
owner of A-Basin may decide that the better course is to follow any
price increases made by the Vail Resorts. The Department does not
address this likely contingency in any of its papers.
\20\ See, e.g., Plaintiffs' Response, U.S. v. American Skiing
Co., 61 Fed. Reg. 55995, 55999 (Oct. 30, 1996) (``[M]any of the
smaller resorts are unlikely to be able to expand facilities within
a timely fashion to defeat an anticompetitive price increase. For
example, to increase the number of lifts and trails or add
snowmaking or night skiing capability would take these resorts more
than two years in most cases and/or require a long regulatory
approval process if their resort is on national forest land.''). To
my knowledge, A-Basin is located on national forest land.
---------------------------------------------------------------------------
Arapahoe Basin's best season was in 1986-87, when it enjoyed
total skier days of 269,399. According to the Department, last
season A-Basin served approximately 150,000 Front Range skiers. See
CIS at 4 and 15. Thus, even if A-Basin were able to repeat its best
season, it would be able to accommodate only 120,000 or so
additional Front Range skiers--approximately 5% of the total Front
Range market.\21\ Given that a combined Vail Resorts/Breckenridge/
Keystone operations would average over 4.6 million skier days, and
that the combined operations would still possess 27% of the Front
Range market (even assuming A-Basin reaches its capacity by taking
another 5% of the Front Range market), it is not realistic to think
that an independent A-Basin will constrain Vail Resorts' pricing
decisions in any way--much less ``prevent Front Range skiers from
paying higher lift ticket prices'' as your Division represented in
its January 3 press release.
---------------------------------------------------------------------------
\21\ A-Basin's capacity is limited both by its small skiable
area and its small capacity to take people up the mountain. Given
the terrain surrounding A-Basin, it is doubtful whether any
expansion is possible.
---------------------------------------------------------------------------
In summary, I ask the Department to provide all available facts
in its possession which relate to how an independent Arapahoe Basin
can restrain the pricing behavior of a combined Vail Resorts/
Breckenridge/Keystone operations. I also ask the Department to
explain why, in response to a price increase by Vail Resorts and
given its significant capacity constraints, A-Basin would not
increase its prices as well--thereby defeating the very role the
Department intends A-Basin to play.
IV. There Appears to be a Substantial Question Whether an Independent,
Stand-Alone Arapahoe Basin Can Succeed as a Long Term Competitor to a
Combined Vail Resorts/Breckenridge/Keystone Operations
There is a second, critically important component to the
Department's theory that a partial merger ``resolves the
anticompetitive problems'' raised by a complete merger--namely, that
an independent Arapahoe Basin can be ``economically viable.'' CIS at
15. Even if, as the Department apparently believes, A-Basin can
provide meaningful competition upon its divestiture. A-Basin can
play this important price-constraining role only if it can survive
over the ``long-term.'' DoJ Press Release at 2 (Jan. 3, 1997). If A-
Basin cannot survive, consumers would be penalized twice under the
Department's partial merger plan; (1) they will pay higher prices,
and (2) they will lose the opportunity to ski at A-Basin
altogether--in which case they will likely pay even higher prices at
the remaining resorts.
There is a substantial question whether Arapahoe Basin can
survive, much less provide ``significant'' competition, as ski
resort on its own, especially when it must compete with a giant like
the combined Vail Resorts/Breckenridge/Keystone operations. First,
there is no recent history in which to evaluate the viability of
Arapahoe Basin as an independent operation; Ralston Resorts acquired
A-Basin almost 20 years ago to complement its Keystone operations.
Consequently, anyone's representations about A-Basin's long term
viability as an independent resort is, at best, speculation.
Second, the trend of the ski industry in recent years has been
towards larger and larger consolidations, as evidenced by the merger
proposed in this proceeding.\22\ According to a recent news article,
the number of ski resorts in this country has dropped by 63% over
the last 20 years (from 1,400 to 519).\23\
---------------------------------------------------------------------------
\22\ This consolidation trend is also demonstrated by the
December 1996 announcement that the fourth Summit County resort,
Copper Mountain, would be acquired by Intrawest and by the merger
last year of American Skiing Company and S-K-I Limited, which own
many large resorts in New England.
\23\ See Penny Parker, Vail Resorts, Inc. Sports New Power
Thanks to Merger, The Denver Post On-line (Feb. 2, 1977). Indeed,
numerous small resorts in Colorado, including Berthoud Pass which
once served one-third of all skier days in Colorado, have closed
because of their inability to compete with larger resorts.
---------------------------------------------------------------------------
Presumably, there are economic forces in the ski industry
compelling this consolidation activity.\24\ Divesting such a small
resort as Arapahoe Basin to operate independently and to compete
against so much larger rivals bucks this trend.
---------------------------------------------------------------------------
\24\ Most industry observers believe the driving forces behind
both consolidation and attrition are the need to gain access to
capital to maintain state-of-the-art facilities, the need to retain
professional management, and the inability of numerous resorts to
keep pace with the competition with respect to one or both of these
market forces. The trend among leading resorts is toward investing
in improving technology and infrastructure so as to deliver a more
consistent, high quality product.
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Third, Arapahoe Basin has not enjoyed the growth experienced by
most other ski resorts in the Summit/Eagle County area.\25\ During
last ski season (1995-96), Arapahoe Basin had a total of 241,435
skier days--an 8% decrease over the previous, 1994-95 season
(262.240). Indeed, A-Basin's skier day total last season was less
than that 10 years ago (1985-86: 267,200) or even 14 years ago
(1981-82: 254,618). Without growth, A-Basin may not generate the
revenues it needs to make improvements (e.g., install snowmaking
equipment, newer lifts, electronic ticketing, and the like).
---------------------------------------------------------------------------
\25\ Nationally, growth in the ski industry over the last decade
has been stagnant. Colorado resorts, and the resorts in Summit/Eagle
Counties in particular (with the exception of A-Basin) have
generally fared better.
---------------------------------------------------------------------------
Four, as an independent, self-contained resort, it should be
anticipated that Arapahoe Basin will lose much, if not all, of its
destination skier business--approximately 35% of its current
business.\26\ The Department nowhere explains how A-Basin can
survive with the likely loss of this business.
---------------------------------------------------------------------------
\26\ This 35% is based on the fact that A-Basin had a total of
241,435 skier days during the 1995-96 season and that, according to
the Department, 150,000 of those skiers were Front Range skier
days--leaving 90,000 days involving skiers other than Front Range
skiers. See CIS at 4 and 15. Some of these 90,000 skier days were
generated by local skiers, so the 35% estimate may be overstated.
---------------------------------------------------------------------------
As noted, Arapahoe Basin does not have any base facilities to
accommodate any destination skiers. In the past, A-Basin has been
able to survive because it has been owned by Keystone, a major
destination resort located five or so miles away, and Ralston
Resorts has always operated the two resorts as one (e.g., one life
ticket honored at both resorts.). Ralston facilitated destination
skiing at A-Basin by offering a free shuttle bus so destination
skiers staying at Keystone could ski part of a day at A-Basin and by
including A-Basin ``Ski the Legend'' advertising in its general
advertising. Keystone, because of its large size, presumably offers
A-Basin many other operating cost efficiencies such as joint
purchasing.
This Keystone/A-Basin connection (e.g., one ticket, free
shuttle, extensive advertising) undoubtedly will be severed if Vail
Resorts is allowed to acquire Keystone, but not A-Basin. To a layman
like me, A-Basin must be
[[Page 39270]]
concerned about the potential loss of up to one-third of its skier
customer base.
I therefore ask you to produce data identifying all the services
Keystone has provided to Arapahoe Basin before announcement of the
acquisition, and to explain how the severing of the Keystone
connection will impact A-Basin's future, including the likely loss
of destination skiers.
Arapahoe Basin, currently celebrating its 50th anniversary, is a
national treasure, and it is important that nothing be done to
undermine its long-term viability. In my judgment, A-Basin is such a
marginal player in the ski resort market that, given its beauty and
unparalleled conditions for spring skiing, the Department should
permit A-Basin to continue to be owned by the operator of Keystone--
even if Vail Resorts eventually acquires Keystone. Put another way,
from the perspective of the public interest, it would be preferable
to approve the defendants' original, complete merger plan than to
implement the Department's partial merger alternative. If the choice
is paying higher prices or losing altogether the opportunity to ski
at A-Basin, I would prefer to pay higher prices. I believe the vast
majority of my fellow skiers would agree. Besides, if the partial
merger is consummated, we will likely pay higher prices anyways.
V. Conclusion
For the foregoing reasons, I ask you to reconsider your
unexplained conclusion that local skiers would not be negatively
impacted by the merger. In addition, based on the data available to
me, I believe that the State of Colorado and the Department should
withdraw their support of the proposed Final Judgment and advise the
defendants that they intends to to prosecute the complaint if the
defendants decide to proceed with their merger. As discussed above,
it would appear that the Department's partial merger alternative
would not resolve the anticompetitive problems with the proposed
acquisition.
I freely admit my current position may be based on incomplete
facts, and it is precisely for this reason that I have identified
the facts I need to submit informed comments. However, so I can
meaningfully exercise my statutory right to submit comments. I ask
that you produce the data requested by Tuesday, March 4, 1997.
Yours truly,
Jeffrey S. Bork,
P.O. Box 23169, Silverthorne, CO 80498-3169, 970-468-0103.
Lewis, Rice & Fingersh
Attorneys at Law
500 N. Broadway, Suite 2000, St. Louis, Missouri 63102-2147
March 13, 1997.
Craig W. Conrath,
Chief, Merger Task Force, Antitrust Division, United States
Department of Justice, 1401 H Street N.W., Suite 4000, Washington,
DC 20530
Re: Proposed Merger of Vail Resorts, Inc. and Ralston Resorts, Inc.
Gentlemen: Please be advised that this firm represents Copper
Mountain, Inc. (``Copper Mountain''). This letter is in response to
your Stipulation and proposed Final Judgment filed in the United
States District Court for the District of Colorado in the case of
United States of America and the State of Colorado v. Vail Resorts,
Inc., Ralston Resorts, Inc. and Ralston Foods, Inc., Civil Action
No. 97-B-10 (the ``proposed Final Judgment'') and the Competitive
Impact Statement filed in connection therewith (the ``CIS''). This
letter sets forth Copper Mountain's opposition to Vail Resorts,
Inc.'s (``Vail'') acquisition of the ski resorts in Summit County,
Colorado owned by Ralston Resorts, Inc. (``Ralston''). Vail and
Ralston are the two largest owner/operators of ski resorts in
Colorado and the proposed acquisition would combine several of the
largest ski resorts in that region. CIS page 2. Copper Mountain
believes that the proposed acquisition, even if consummated in the
manner contemplated in the proposed Final Judgment, will create and
enhance market power in Vail and will greatly facilitate Vail's
unilateral exercise of such market power. Copper Mountain
respectfully disagrees with your conclusions that the proposed
divestiture of Arapahoe Basin (``A-Basin'') will preserve
competition and resolve the anticompetitive problems raised by the
proposed transaction. We respectively request that the Department of
Justice (the ``Department'') reconsider its position regarding the
Vail/Ralston merger based on the following information.
I. Statement of Interest
Copper Mountain owns and operates the Copper Mountain ski resort
located at Copper Mountain, Colorado off of Interstate Highway 70 at
the intersection of State Highway 91 (``Copper''). The Vail resorts
(i.e., Vail, Beaver Creek and Arrowhead) are located to Copper's
west and the Ralston resorts (i.e., Keystone, Breckenridge and A-
Basin) are located to Copper's east.
II. Statement of Position
Copper Mountain believes that the effect of the proposed
acquisition will, if consummated, substantially lessen competition,
create a monopoly and increase substantially the concentration among
ski resorts to which Eagle County, Summit County and Front Range (as
defined on page 2 of the CIS) residents practicably will go for day
ski trips and to which skiers will go for destination skiing in
Colorado. Copper Mountain believes that the proposed acquisition, if
consummated, will create and enhance market power in Vail and
greatly facilitate Vail's unilateral exercise of such market power.
This acquisition threatens to raise the price of, or reduce
discounts for, day skiing and destination skiing to consumers and is
likely to result in other adverse competitive effects, all in
violation of Section 7 of the Clayton Act, 15 U.S.C. Sec. 18. Copper
Mountain does not believe the Department's proposed remedy of
requiring the divestiture of A-Basin will rectify these adverse
competitive effects.
III. Inadequate Remedy
The Department's Complaint, the proposed Final Judgment and the
CIS all acknowledge and allege that the proposed acquisition would
substantially increase concentration in the market, reduce
competition in the market, and eliminate the price constraining
impact Vail and Ralston currently have on each other. The economic
models referred to in the CIS predict that such factors will result
in higher prices and/or a reduction in the discounts offered to
skiers in the relevant market. Copper Mountain does not believe the
Department's proposed remedy of requiring the divestiture of A-Basin
will rectify these adverse competitive effects to any meaningful
degree. First, Copper Mountain believes the Department has
substantially misstated the market share of A-Basin with respect to
Front Range skiers. A substantial portion of the skier days at A-
Basin occurs after the other Summit County and Eagle County ski
resorts have closed. All of A-Basin's ``post-season'' skier days are
part of a market in which the surrounding resorts do not compete and
should be excluded in computing Front Range market share. Using such
seasonally adjusted information, A-Basin's share of the Front Range
market has to be less than currently calculated by the Department,
and conversely, Vail's and Ralston's other resorts must have a
greater market share. The logical conclusion from these facts is
that a post-merger divestiture of A-Basin will have less of an
impact on the Front Range market than that apparently presumed by
the Department in the proposed Final Judgment and the CIS.
Second, several factors indicate that A-Basin's market presence
after the proposed divestiture will be significantly less than that
indicated by A-Basin's historical operating performance. After the
divestiture A-Basin will lose the substantial benefit of being part
of a Multi-Mountain Ticket (see below). A-Basin's historical
operating performance has been enhanced by its pairing for many
years with Keystone and more recently with Breckenridge. There is no
question that skiers perceive a Multi-Mountain Ticket as a better
value and we anticipate an appreciable drop-off in A-Basin's total
ridership once it is severed from the remainder of the Ralston
family. Also, A-Basin will no longer benefit from the huge
advertising efforts of Keystone and Breckenridge (and now Vail)
which historically have included all mountains within the multi-
mountain group.
Moreover, prior to the current ski season, many of the skier
days at A-Basin have been snowboarders who were prohibited from
snowboarding at Keystone. Historically Keystone has been a skiers-
only mountain and snowboarders holding Ralston's Multi-Mountain
Tickets would utilize the close-by A-Basin facilities. Keystone's
ban on boarders has been lifted effective with the 1996-1997 ski
season. Since Vail's announcement of the proposed acquisition we
believe many of the snowboarders who formerly boarded at A-Basin
have migrated to Keystone. Copper Mountain understands that skier
days at Keystone are up from last year while skier days at A-Basin
are down from last year, and believes this is largely attributable
to the change in Keystone's policy on snowboarders. Accordingly, the
lost snowboarder days and anticipated loss of multi-mountain skier
days should be factored
[[Page 39271]]
in when computing A-Basin's estimated Front Range market share after
the proposed divestiture. Again, A-Basin's share of the Front Range
market after the proposed divestiture must be signifcantly less than
that calculated by merely extrapolating A-Basin's historical
operating data.
Third, A-Basin has fewer lifts, trails, skiable area and other
amenities than the other Eagle/Summit County resorts. These
qualitative differences are so great that it is unlikely that those
skiers who ski at the other Vail mountains after the divestiture
would accept A-Basin as an alternative if Vail significantly raises
prices. The Department specifically recognized in the recent United
States v. American Skiing Company case that if there are significant
qualitative differences between the resorts, price competition by
the lesser resort will not be effective to constrain price increases
by a dominant firm having resorts with more and better facilities.
Neither the proposed Final Judgment nor the CIS discuss the
overwhelming qualitative differences between A-Basin and the other
Vail and Ralston mountains. A reader of the proposed Final Judgment
and the CIS who is not familiar with these facilities could well
assume that A-Basin's facilities and amenities are fungible with
those of the other Vail and Ralston resorts. In fact, A-Basin has
more in common with the lesser Front Range resorts which the
proposed Final Judgment indicates are disdained by most skiers of
the Vail and Ralston resorts. Please explain how A-Basin falls out
of the general rule so forcefully put forward in the United States
v. American Skiing Company case that such qualitatively
disadvantaged competitors are unable to constrain price increases by
their stronger competitors.
We find it interesting that neither the proposed Final Judgment
nor the CIS quantify the ``post-divestiture'' HHI or the resulting
change in HHI. We believe that both numbers (especially after making
the appropriate seasonal and historical adjustments referred to in
this section) will remain well in excess of the benchmarks which
presumptively raise antitrust concerns under the Department's 1992
Horizontal Merger Guidelines. Please provide such calculations so
that all parties will be better able to assess the anticipated
effect of an A-Basin divestiture.
IV. Market Definition, Measurement and Concentration
A. Product Market Definition; Multi-Mountain Tickets
Copper Mountain agrees with the Department's definition of the
business of skiing as set forth at pages 5 and 6 of the CIS and
agrees that one of the relevant products for both Vail and Ralston
in the instant case is downhill skiing. However, Copper Mountain
believes that the Department has failed to consider another relevant
product. In Colorado, several ski resorts offer a multi-mountain
multi-day ski life ticket (a ``Multi-Mountain Ticket''). A Multi-
Mountain Ticket allows a skier to ski on several mountains over a
period of several days instead of just skiing at one location,
thereby offering the purchaser of the ticket a greater variety of
skiing opportunities. The price of the Multi-Mountain Ticket is
usually cheaper than an equal number of one day lift tickets for the
mountains the subject of such Multi-Mountain Ticket. A Multi-
Mountain Ticket is perceived as a better value by a skier, and
several such Multi-Mountain Tickets are offered in Colorado (e.g.,
Ski-The-Summit (discussed below), a multiple mountain ticket offered
by Vail (Vail Mountain and Beaver Creek prior to the proposed
acquisition and, as recently announced, Breckenridge and Keystone
also), Ski The Gems (consisting of Silver Creek, Loveland, Ski
Sunlight, Monarch, Powderhorn, Ski Cooper, Arapahoe Basin and
Eldora), Aspen (Aspen Mountain, Aspen Highlands, Buttermilk and
Snowmass) and Ski 3 (A-Basin, Breckenridge and Keystone prior to
this proposed acquisition)). The firms offering a Multi-Mountain
Ticket can price discriminate with respect to that ticket because it
is a different product. Since both Vail and Ralston offer Multi-
Mountain Tickets, Multi-Mountain Tickets are also a relevant
product.
B. Geographic Market Definition
Both Vail and Ralston sell downhill skiing, including Multi-
Mountain Tickets, to day skiers and destination skiers at each of
their ski resorts. These skiers originate from many different
geographic locations. The Department apparently has determined that
the only relevant market which would experience anticompetitive
effects from the proposed acquisition is the Front Range day and
weekend skier market. Copper Mountain respectfully disagrees and
believes that there are additional relevant geographic markets which
will suffer anticompetitive effects from the proposed acquisition.
1. Local Skier Markets
Vail provides skiing to Eagle County, Colorado skiers at all
three of its resorts and Ralston provides skiing to Summit County,
Colorado skiers at all three of its resorts. Copper Mountain
believes that these skiers are a significant element of Vail's and
Ralston's ski resort income. Eagle County residents (which number
approximately 25,000) generally turn to the Vail resorts for day
skiing trips and Summit County residents (who number approximately
18,000) generally turn to the ski resorts located in Summit County
(which are Copper, Breckenridge, A-Basin and Keystone) for day
skiing trips since these are the resorts that are within a
reasonable and economic traveling distance for these skiers. Local
skiers generally purchase season passes to a local ski resort. This
creates a ``lock-in'' effect and, once purchased, a local skier has
little incentive to ski someplace else. Further, if the Eagle County
local skiers did decide to ski elsewhere, the logical choice would
be Summit County, which means they would be required to drive over
Vail Pass (elevation 10,660 feet) twice, which can be treacherous
during winter storms. If the Summit County local skier decided to
ski outside of Summit County, assuming he headed east, he would be
required to drive over Loveland Pass (elevation 11,990 feet) or
through the Eisenhower Tunnel (elevation 11,160 feet) twice, both of
which can be treacherous during winter storms. A trip in the other
direction to Vail would be further and would require a drive over
Vail Pass. Finally, local residents ski their local resorts due to
the convenient access. A skier wanting to ski during his lunch hour,
or work in the morning and ski in the afternoon (or vice versa),
will ski locally and not at a more distant ski resort. As such, ski
resorts located outside Eagle County and Summit County cannot (and
would not after the proposed Vail/Ralston acquisition is
consummated) constrain a significant non-transitory price increase
charged to day skiers living in those Counties. It is of importance
however that Vail currently influences the rates charged by the
Summit County ski resorts. Summit County resorts generally set their
prices beneath those charged by Vail. This constraint will be
removed by consummation of the Vail/Ralston merger with respect to
three of the four ski resorts in Summit County.
Eagle County and Summit County skiers can be identified easily
by the ski resorts that are reasonable alternatives for these day
skiers. Ski resorts can charge these skiers prices that differ from
prices charged to out-of-county skiers or to destination skiers
generally by increasing the cost of a season pass or reducing the
discount offered on a season pass. This is done by, among other
things, advertising in the Vail Trail, a local newspaper circulated
in Eagle County or in the Summit Daily News and the Summit County
Journal, local newspapers circulated in Summit County or by direct
mailings to P.O. boxes in Eagle and Summit Counties and mailings to
past season ticket holders. A single firm controlling all of the ski
resorts in Eagle County and Summit County would be able to raise
prices a small but significant amount to the local skiers without
losing so much business as to make the price increase unprofitable.
Of further concern is transportation between these two Counties.
In 1995, Vail began operating a bus from Breckenridge to Vail
Mountain. Vail has announced its intentions to expand this bus
service and thereby increase the interaction between the two
counties. If Eagle County skiers do travel to other counties for
skiing, the logical locations of choice are the ski resorts in
Summit County, and vice versa. Nearby resorts outside of Eagle and
Summit Counties are: Eldora, Loveland Basin, Silver Creek, Ski
Cooper and Winter Park. Four of these five alternative resorts
outside of the Eagle/Summit County area (i.e., Eldora, Loveland
Basin, Silver Creek and Ski Cooper) generally have fewer lifts,
trails, skiable area and amenities than the Eagle/Summit County
resorts and are not of the same qualitative choice. Winter Park is
comparable in size and amenities to the Eagle/Summit County resorts,
but it is further away. Gasoline costs to any of the other five
alternative ski resorts, on a round trip basis, would exceed a
significant 5% increase by Vail to the one day lift ticket price.
Finally, none of these five resorts are as convenient to local
skiers as those in Eagle and Summit Counties for the reason set
forth above. As such, ski resorts located outside Eagle/Summit
County would not after the proposed Vail/Ralston acquisition is
consummated constrain a
[[Page 39272]]
significant price increase charged to local skiers living in Eagle
County or Summit County, Colorado.
2. The State of Colorado
Both Vail and Ralston provide skiing to day skiers and
destination skiers (both residents and non-residents of Colorado) at
all of their resorts, as do most ski resorts in Colorado. The ski
resorts in Colorado specifically market Colorado as a skiing market,
not only to residents of Colorado but also to skiers around the
country and the world. The majority of the ski resort owners in
Colorado are members of Ski Country. Ski Country publishes, among
other things, a Consumer Ski Guide. According to this Ski Guide, Ski
Country ``functions as the information source for the Colorado ski
industry and serves as the voice for Colorado Skiing with many
entities, including the travel trade, legislators, government
officials, regulatory agencies, the media and skiers.''
Others also consider Colorado to be a separate market, even
Vail. Adam Aron, Vail's new chairman and chief executive officer,
has been quoted as saying: ``It's time to increase the number of
people coming to Colorado to ski. . . .'' \1\ Mr. Aron was also
quoted that one of his goals was to ``[g]o right to work in
promoting Colorado skiing to see if the market can be expanded.''
\2\ Finally, he stated: ``If Colorado wants to remain a strong
player, its resorts need to come together to keep the spotlight on
the state as a destination.'' \3\ Vail spokesperson Pat Peoples was
quoted as saying: ``[T]his would make an incredible merger and keep
Colorado in the forefront of world-class skiing. . . . Marketing
will be directed toward the sport and Colorado and to the individual
resorts.'' \4\ Ralston also identifies Colorado as a distinct
market: ``Jim Felton, communications director for Ralston resorts,
said the merger `helps us to fortify Colorado's stance as the gold
standard in skiing.' '' \5\
---------------------------------------------------------------------------
\1\ Vail `will grow and grow', Michele Conklin, Rocky Mountain
News, July 24, 1996, p. 4B.
\2\ Skiing behemoth formed, Penny Parker, The Denver Post, July
24, 1996 p. 8C.
\3\ Aron Takes Reins at Vail Resorts; Firm Merges With Ralcorp,
Felicity Long, Travel Weekly, August 15, 1996, p. 15.
\4\ Vail Resorts buys into 3 local ski areas, Marc Angelo,
Summit Daily News, Volume VII, Number 339, July 24, 1996, p. 1.
\5\ Vail to buy three Summit resorts, Madaeleine Osberger,
Snowmass Sun, July 24, 19996, p. 1.
---------------------------------------------------------------------------
Skiers ski in Colorado because of the abundance and quality of
the snow, the variety of skiing conditions and the amenities offered
at the destination resorts. In addition, Colorado is easily
accessible from most places in the country. Colorado day skiers
generally have no other place to go. Destination skiers generally
fly to Colorado to ski and spend an average of seven nights on their
ski trip. A price increase for lift tickets of five percent would
not be sufficient to cause destination skiers to choose another
state in which to ski.
Please provide more information to justify your conclusion that
no relevant market other than the Front Range day and weekend skier
market will be competitively disadvantaged by the proposed
acquisition.
C. Calculating Market Share
In the downhill skiing business, market share has historically
been determined on the basis of skier days (i.e., one person
visiting a ski area for all or part of one paid day or night for the
purpose of skiing). As such, skier days generally are the
appropriate measure of market share for downhill skiing and Multi-
Mountain Tickets. However, although total skier day information for
Colorado resorts is readily available through Ski Country,
definitive information breaking down skier days for Colorado resorts
for the various relevant markets is not, to our knowledge, publicly
available. As such, we have made some assumptions as to the local
markets and the Multi-Mountain Ticket markets shares.
Vail currently owns all of the ski resorts in Eagle County. As
stated above, local residents generally only ski in their own
county. If that is true, then Vail's market share of Eagle County
resident day skiers is close to 100%. As to the Multi-Mountain
Ticket market in Eagle County, since Vail offers the only Multi-
Mountain Ticket in Eagle County, its market share of Multi-Mountain
Ticket users in Eagle County must also be 100%.
There are only four ski resorts in Summit County. Ralston
currently owns three of the ski resorts and Copper Mountain owns the
fourth. Since there is more than one firm participating in this
relevant market, market share should be determined by skier days.
Again, we do not have definitive information regarding skier days at
the Ralston resorts (other than total skier days). However, we
believe Ralston's market share of Summit County local day skiers is
approximately 75%. Ralston's records should substantiate this. There
are only two Multi-Mountain Tickets offered in Summit County, i.e.,
the Multi-Mountain Ticket offered by Ralston and the Multi-Mountain
Ticket offered by Ski-The-Summit (see the discussion below). Since
Ski-The-Summit has effectively been eliminated with respect to local
skiers, Ralston has 100% of the Multi-Mountain Ticket market in
Summit County.
The relevant indicator of market share for the entire Colorado
market is total skier days (i.e. day skiers and destination skiers).
The calculation of market share for all Colorado resorts for the
1995/1996 season is as follows:
------------------------------------------------------------------------
Market
Resort share
(percent)
------------------------------------------------------------------------
Ralston resorts............................................ 23.39
Vail resorts............................................... 19.56
Copper..................................................... 8.49
Silver Creek............................................... 0.80
Winter Park................................................ 8.89
Eldora..................................................... 1.50
Loveland Basin............................................. 2.68
Ski Cooper................................................. 0.58
Aspen...................................................... 11.78
Crested Butte.............................................. 4.45
Monarch.................................................... 1.19
Purgatory.................................................. 2.70
Steamboat.................................................. 8.93
Cuchara Valley............................................. 0.17
Howelson Hill.............................................. 0.16
Powderhorn................................................. 0.46
Ski Sunlight............................................... 0.80
Telluride.................................................. 2.38
Wolf Creek................................................. 1.09
------------------------------------------------------------------------
Total.................................................. 100.00
------------------------------------------------------------------------
Vail, Ralston, Ski The Gems and Aspen are the only firms
effectively offering Multi-Mountain Tickets in Colorado. We do not
know the number of skier days attributable to Multi-Mountain Tickets
at these locations. However, based upon total 1995/1996 skier days,
Vail, Ralston, Ski The Gems and Aspen would have the following
Multi-Mountain Ticket market shares pre-merger:
------------------------------------------------------------------------
Percentage
Firm Skier days (percent)
------------------------------------------------------------------------
Vail........................................ 2,228,419 30.10
Ralston..................................... 2,665,307 36.01
Ski The Gems................................ 1,166,461 15.76
Aspen....................................... 1,342,109 18.13
---------------------------
Total................................... 7,402,296 100.00
------------------------------------------------------------------------
The Department should be able to obtain the actual information from
Vail, Ralston and the other resorts.\6\
---------------------------------------------------------------------------
\6\ It is interesting to note that the Ski The Gems ticket is a
season pass at each of its participating resorts as opposed to a
multi-day ticket. Generally the multi-day ticket is practical only
at the same mountain or at mountains in close proximity to each
other. Looking strictly at true multi-day tickets (as opposed to a
season pass), the top three firms in Colorado (based on skier days)
offer the Multi-Mountain Ticket.
---------------------------------------------------------------------------
D. Proposed Acquisition (HHI Analysis)
In the local markets and the Colorado market, it appears that
Vail's post-merger market share will result in an HHI factor
substantially in excess of 1800. In addition, it appears that Vail's
increase in the HHI after the merger will be in excess of 3000
points in the case of the Eagle/Summit County market, 4000 points in
the case of the Eagle/Summit County Multi-Mountain Ticket market,
900 points in the case of the Colorado market and 2000 points in the
case of the Colorado Multi-Mountain Ticket market. These HHI numbers
and increases in concentration are substantially in excess of what
the Department considers acceptable.
V. Potential Adverse Competitive Effects of the Proposed Acquisition
Market share and concentration as well as the HHI factor provide
only the starting point for analyzing the competitive impact of a
merger. Other factors to review are: the firm's ability to
unilaterally increase prices; the ability of other firms to enter
the market; the efficiencies achieved through the merger; and
whether one or more of the firms are failing or their assets will be
leaving the market. A merger may diminish competition because the
merging firms may find it profitable to alter their behavior
unilaterally following the acquisition by elevating price. Based on
the prior acts of Ralston after its acquisition of the Breckenridge
ski resort (as described
[[Page 39273]]
below), and some of the announced intentions of Vail if the proposed
acquisition is consummated, we believe that Vail will take these
unilateral acts. The Department has stated in the CIS that its
``unilateral effects'' economic models predict significant post-
acquisition price increases at the Vail and Ralston resorts. In
addition to these effects on price, we believe the proposed
acquisition will have numerous other deleterious effects on
competition.
A. Multi-Mountain Tickets; Ski-The-Summit
In May 1984, Keystone organized the Ski-The-Summit (``STS'')
program for Summit County. STS allowed skiers to visit any of the
four participating areas (A-Basin, Breckenridge, Copper and
Keystone) for a package price pursuant to a Multi-Mountain Ticket.
Summit County restaurants, hotels and condos were also advertised
together. The idea behind STS was that skiers would find a ticket
usable at four mountains more favorable than a ticket usable at only
one mountain. From the mid 1980's until after the Breckenridge
merger, STS sold season passes and Multi-Mountain Tickets, as well
as selling cards (the ``STS Club Card'') which allowed discounts off
of various purchases at participating ski resorts, lodges and
merchants in Summit County. STS marketed Summit County to Front
Range and out-of-state skiers.
After Ralston acquired Breckenridge in 1993, the Ralston
effectively excluded Copper from a Multi-Mountain Ticket. Ralston
set its price for its season pass to the Ralston resorts below the
season pass price of STS, thereby drawing the multiple-mountain
season pass holder away from STS.\7\ Prior to the 1993 Breckenridge/
Keystone acquisition, STS offered a four or six day Multi-Mountain
Ticket. After the 1993 Breckenridge/Keystone acquisition, Ralston
refused to allow any STS Multi-Mountain Ticket for a period shorter
than ten days, while at the same time Ralston marketed its own
Multi-Mountain Tickets from 2 to 14 days. These actions have
effectively eliminated STS as a viable competitor, the result of
which is to exclude Copper Mountain from Multi-Mountain Tickets. The
only area in which STS still has remaining viability is in the
international arena.
---------------------------------------------------------------------------
\7\ STS still sells some season passes (approximately 2,000 for
the 1995/1996 season, with less than 1,500 expected for the 1996/
1997 season).
---------------------------------------------------------------------------
STS used to offer the STS Club Card for $30 per skier per
season. STS used the revenues from the sales of the card for STS
marketing. As noted above, the STS Club Card allowed skiers
discounted ski tickets and discounts for food and lodging in Summit
County. After the Breckenridge merger, Ralston created its own ``Ski
3'' cards, and distributed over 100,000 of the Ski 3 cards free of
charge to local and Front Range skiers via mass mailings. The Ski 3
card could only be used at the Ralston resorts. This undercut the
STS Club Card, STS Club Card sales went to zero and the STS Club
Card was discontinued, eliminating an important source of revenue to
market STS.
Ralston's actions have effectively precluded Copper Mountain's
access to a Multi-Mountain Ticket other than in the international
market. A Multi-Mountain Ticket is perceived by the skier as a
better value. Vail's tentative plans call for creating a Multi-
Mountain Ticket for all five resorts if the acquisition is
consummated. Copper will be excluded from this ticket also, thereby
eliminating a choice to skiers in the Multi-Mountain Ticket market.
Furthermore, these past actions predict that A-Basin will be
excluded from the Vail Multi-Mountain Ticket after the proposed
divestiture.
B. Lift Ticket Marketing
Copper Mountain and Ralston sell their lift tickets both on-site
and through off-site merchants. Copper Mountain sets its on-site
price, but Copper Mountain's off-site vendors are allowed to set
their own lift ticket prices. Copper Mountain establishes the amount
per off-site ticket which must be passed back to Copper Mountain by
the off-site vendor, but the off-site vendor is free to establish
whatever retail price it desires. We believe, however, that Ralston
may exercise significant resale price maintenance with respect to
its off-site lift tickets. Several vendors have expressed to Copper
Mountain dissatisfaction with Ralston's setting of prices, but the
vendors felt they had no choice but to go along with Ralston's
requirements because of Ralston's huge market presence.
Ralston also may have entered into contracts with off-site
merchants which preclude the merchants from selling other lift
tickets, including Copper Mountain's lift tickets and Ralston may
have used its market power to discourage the selling of Copper
tickets by vendors. The means used by Ralston to achieve these ends
we believe are several. First, Ralston may have entered into
exclusive contracts with retailers which provide that the retailer
can only sell tickets to the Ralston resorts. Second, Ralston may
set favorable commissions, or discounts for the retailer's purchases
from Ralston, which are available only if the retailer agrees to
sell Ralston tickets exclusively. Finally, Ralston may provide
incentives, such as additional tickets, season tickets, lodging
packages, free transportation, joint advertising promotion, public
relations or other forms of consideration, if the retailer sells
more Ralston tickets than Copper tickets, or has a sliding scale of
consideration based on their selling a high, or increasing
percentage of, Ralston tickets. These methods would effectively
reduce competition by preventing the off-site sale of other ski
resort lift tickets or by providing a greater incentive to sell only
Ralston resort tickets. Because of these practices, Copper Mountain
has been able to find only a few retailers in Breckenridge who will
sell Copper Mountain's tickets, and none in Keystone. Copper is
concerned that Vail may exclude Copper Mountain from selling its
tickets in all of the Vail resorts and Ralston resorts, and will
continue the anticompetitive attempts with Front Range vendors if
the proposed acquisition is allowed to proceed.
C. The ``Summit Stage'' Local Bus Issue
STS used to expand a large portion of its budget to pay for
buses running between the four ski areas in Summit County. Several
years ago, Summit County passed a one-half per cent sales tax to pay
for public buses (the Summit Stage) that drive to all four ski areas
and intermediate towns and carry passengers without charge. After
the merger between Keystone/A-Basin and Breckenridge in 1993,
Ralston started operating buses that drive only between the Ralston
resorts. Summit County residents are now suggesting a repeal of the
tax,
D. Other Concerns
One of the more important benefits which a ski resort can offer
its employees is a season multi-mountain pass. With the demise of
STS, Copper Mountain can no longer offer this benefit, potentially
resulting in a loss of a substantial number of employees. This
problem will become even more acute if Vail offers a five-mountain
lift ticket. Vail is expected to have a $20,000,000 advertising
budget. Cooper Mountain is concerned that Vail could dictate the
placement of print advertisements and time slots for radio and
television. Finally, Copper Mountain is concerned that Vail can make
package deals with the airlines which other ski resorts cannot match
or will not be given the opportunity to match. Further, Copper
Mountain currently has an agreement with United Airlines whereby
United provides discount airline tickets to Copper Mountain in
exchange for Copper Mountain meeting a set quota for tickets sold to
Copper customers. Copper Mountain is concerned that Vail will cause
United to increase the quota or increase the penalty for falling
short of the quota. In effect, Vail would be raising a rival's
costs.
VI. Conclusions
Vail has and will continue to have a virtual monopoly on ski
resorts in Eagle County, Colorado. In addition, Ralston currently
has (and Vail will have if the proposed acquisition is consummated)
a substantial portion of the market in Summit County, Colorado. As
to the Eagle/Summit County market. Vail will own six (or five if the
A-Basin divestiture is completed) of the seven ski resorts in that
two-county market. Finally, the proposed merger will decrease the
number of participating firms in the Colorado market and will
decrease the number of participating firms in the Multi-Mountain
Ticket markets as follows: which could leave Copper without a
transportation system. The Summit Stage is very important to
transport both guests and employees to Copper, and its elimination
or replacement with a system that did not serve Copper would harm
both guests and employees. Vail's tentative plans call for creating
bus service among all five resorts. Copper Mountain believes this
will bring further pressure to eliminate the tax that supports the
Summit Stage, thereby eliminating an important source of
transportation in Summit County. In addition, Copper Mountain is
concerned that it would be precluded from such bus service, meaning
that skiers using such service would not have readily available
access to skiing at Copper or other resorts if they so chose.
[[Page 39274]]
------------------------------------------------------------------------
Market From To
------------------------------------------------------------------------
Eagle/Summit County..................................... 2 1
All Front Range Resorts................................. 3 2
Colorado................................................ 4 3
------------------------------------------------------------------------
In summary, Copper Mountain agrees with the Department as to the
likely anticompetitive effect of the merger on the Front Range
skiers. There will be significant nontransitory price increases and
past behavior in this market indicates that numerous other
anticompetitive effects in the Front Range market will follow.
However, Copper Mountain also believes there will be an anti-
competitive effect on local skiers as well as Colorado skiers in
general, and in the Multi-Mountain Ticket market as well. Finally,
Copper Mountain respectfully disagrees with the Department's
conclusion that a post-acquisition divestiture of A-Basin will do
anything to ameliorate the deleterious effects of the Vail/Ralston
combination. A-Basin is too small and too ill-equipped to constrain
price increases by its monopolistic neighbor and otherwise is
unlikely to be an effective competitor. Nothing short of prohibiting
the merger or at least requiring the divestiture of either
Breckenridge or Keystone will adequately lessen the anti-competitive
effects which otherwise will ensue.
Sincerely,
Douglas D. Hommert
January 18, 1997.
Mr. Craig W. Conrath,
Chief, Merger Task Force, Antitrust Division, U.S. Department of
Justice, 1401 H St., N.W., Room 4000, Washington, D.C. 20530.
Dear Mr. Conrath, I am extremely disappointed to hear of your
preliminary approval of Vail Associates quest to buy Breckenridge
and Keystone ski areas. I am a native Coloradan and Denverite. I
have been skiing here for 30 years. I share the opinion of many that
this is a monopolistic move by Vail Associates. The figures
published in the paper indicate Vail Associates will have ``between
32% and 34% of the front range ski market''. The article in the
January 4, 1997 Rocky Mountain News goes on to say that 35% market
share is a benchmark used in federal law to determine when a company
can raise prices unilaterally.
I would like you to consider my argument from a local skiers
point of view. Consider that these acquisitions are along the I-70
corridor. A front range skier considers the winter road conditions
as we decide where to ski. We travel I-70 past Idaho Springs
(approximately 45 minutes from Denver) to the major fork where US 6
and US 40 split. Hundreds of millions of federal and state dollars
have been spent to improve I-70, including the building of the
Eisenhower Tunnel. Little if any money (beyond maintenance) has been
used to make the road over Berthoud Pass any easier in tough winter
conditions. Obviously it is a much more difficult trip to go skiing.
The majority of the money has been spent on roads in the I-70
corridor. Therefore, that is the easiest route to take skiing.
Vail's acquisition of Keystone and Breckenridge gives them dominance
in the heart of Colorado's prime ski market. They have continued to
raise prices and it is difficult for my family or four to ski more
than once per month at best. Arrowhead, under Vail's management, has
gone from an affordable family resort to a prohibitively expensive
place to ski.
I ask you to consider my argument and reconsider this decision.
It's not healthy for one organization who is known for catering to
out of state wealthy people to suddenly have reign over two more
strategic ski areas so near to the Denver market. As a last request,
ask them to keep Arapahoe Basin but divest of Keystone or
Breckenridge. That would leave a larger resort like Keystone or
Breckenridge independent. If Vail Associates is effective in their
marketing as they always have been, what happens when their market
share of 32% to 34% grows to 35% to 40%? Will they have the ability
to raise prices unilaterally? Will you have any control at that
point?
Please rethink this issue. It's not good for Colorado's ski
industry. I'll look forward to your reply.
Sincerely,
Greg Horstman,
5892 E. Geddes PL., Englewood, Colorado 80112.
1101 Market Street, 29th Fl., Philadelphia, PA 19107.
March 14, 1997.
Craig W. Conrath,
Chief, Merger Task Force, Antitrust Division, United States
Department of Justice, 1401 H Street N.W., Suite 4000, Washington,
D.C. 20530
Re: Vail Resorts, Inc., C.I.S., Civ. Action No. 97-B-10
Dear Mr. Conrath: This is a comment on the above-captioned
Competitive Impact Statement as filed by the Department of Justice
(``DOJ'') in U.S. and Colorado v. Vail Resorts, Inc. et al.
Having just returned from my annual ski trip to the Front Range,
I must advise you that a major topic of conversation out there was
how the DOJ got sucked into accepting that the sale of A-Basin (the
Front Range name for Arapahoe Basin) could save us from the
inevitable lift ticket increases which will surely come about with
Vail's acquisition of Keystone and Breckenridge.
The CIS for this transaction, and the lack of factual detail
therein is fascinating. I'll wager that not one of the attorneys or
economists representing the Government in this matter has ever
ridden the Pavliacini lift! Therefore, some ``real skier'' (and
antitrust lawyer) facts:
1. A-Basin is a bowl. It is high, stark, open and tough. It
tends to magnify adverse weather conditions, notably wind, cold and
flat-light white-outs. A large number of those who ski The Basin do
so to ski non lift-serviced terrain. This is very different skiing
from the standard groomed and semi-groomed runs which constitute the
bulk of skier business at Keystone, Breckenridge and Copper
Mountain. In addition, A-Basin is a much smaller resort than the
others.
2. Because of the items set forth in 1. above, A-Basin has
traditionally been a cheaper place to ski than the other Summit
County resorts. Even after Ralston bought it, an A-Basin only ticket
(not usable at Keystone) was cheaper than the Keystone/A-Basin
combined ticket.
3. No one goes to A-Basin to ski because the weather is bad at
Keystone. It is, however, common for skiers to go to Keystone, buy a
ticket, take the little shuttle from Keystone up to The Basin, and
check out the conditions frequently by taking the bottom chair up to
the bottom of the bowl which allows a skier to check out the bowl
conditions without having to actually ski the bowl. The significance
of this pattern is that such a skier's ticket would be recorded at
the bottom of A-Basin as an A-Basin skier, although the skier almost
immediately leaves the hill and returns to Keystone. Note that the
CIS statistics are skier-days, not skier-runs. Having bought tickets
and ridden ski lifts in this area since before electronic scanning
existed, I do not believe that either Keystone or A-Basin has
sufficiently sophisticated systems to draw the kinds of
differentiations which would really indicate the degree to which A-
Basin is a meaningful skiiing alternative to Keystone.
4. Breckenridge and Keystone do in fact compete with Copper and
Vail in the minds and planning of Front Range skiers. Copper
Mountain has for a number of years been cheaper than the others, but
that may change given Copper Mountain's new ownership. Vail has for
many years placed large quantities of Vail/Beaver Creek deep
discount coupons and lift tickets in the Dillon/Silverthorne/Frisco/
Breckenridge areas serviced by Breckenridge, Keystone/A-Basin and
Copper. However, even with the deep discounting, Vail/Beaver Creek
lift tickets are much more expensive than the Summit County
alternatives. A half-day ticket purchased at Beaver Creek on March 7
was $44. On the same day, a half-day ticket at the other resorts
would have cost as follows: Breckenridge or Keystone/A-Basin, $36;
Copper, $33. (Due to high winds at no time during the course of a
week could we ski at A-Basin alone).
5. The only resort with which A-Basin alone (without Keystone)
might be considered competitive by local Front Range skiers is
Loveland Basin (which is on the other side of the continental divide
(and the Eisenhower Tunnel) from A-Basin).
In conclusion, I offer another wager: allow this transaction to
proceed and within 2-3 seasons lift ticket prices at Keystone and
breckenridge will have gone up and prices at Vail/Beaver Creek will
not have gone down. In addition, those of us who love A-Basin are
seriously concerned that being contaposed to the big resorts it will
not survive. It is readily understandable that Vail is delighted to
not have to carry the burden of this small and peculiar operation.
However, if the Department of Justice wants to allow this
transaction to occur, please do not orphan A-Basin--make Vail buy it
and keep it.
Very truly yours,
[[Page 39275]]
Jones, Day, Reavis & Pogue
Metropolitan Square, 1450 G Street, N.W., Washington, DC 20005-2088
April 4, 1997.
Via Hand Delivery
Craig W. Conrath,
Esquire, Antitrust Division, U.S. Department of Justice, 1401 H
Street, NW Ste. 4000, Washington, DC 20530.
Re: United States v. Vail Resorts, Inc.
Dear Craig: I have enclosed for filing the Tunney Act comments
of the City and County of Denver and the Winter Park Recreational
Association. Please acknowledge your receipt of these materials by
signing and dating one original of this letter and returning it with
our messenger.
Needless to say, we would be happy to answer any questions you
might have.
Sincerely,
Charles A. James
Received by the Antitrust Division:
----------------------------------------------------------------------
(Name)
----------------------------------------------------------------------
(Date)
United States v. Vail Resorts, Inc.
[Civil Action No. 97-B-10]
United States District Court for the District of Colorado
Comments of the city and county of Denver and the Winter Park
Recreational Association in opposition to the proposed final
judgment.
Submitted to the Antitrust Division of the U.S. Department of
Justice pursuant to 15 U.S.C. 16(b)-(h).
April 4, 1997, Washington, D.C.
The City and County of Denver (``Denver''), together with the
Winter Park Recreational Association (``Winter Park''). hereby comment
in opposition to the proposed final judgment resolving United States v.
Vail Resorts, Inc., Civil Action No. 97-B-10, (D.Col.). We fully agree
that Vail's acquisition of Ralston Resorts threatens substantial harm
to competition in the Front Range ski market. The proposed relief,
however, falls well short of what would be required to eliminate that
threat and restore competition.
This matter involves the combination of the two premier ski resort
operators serving Colorado Front Range skiers. The transactions places
under single ownership the three top ski resorts in North America and
four of the top six resorts serving the Front Range skier. Following
the transaction, Vail will own properties that accounted for 61.7
percent of total 1995-96 visits to ski areas serving Front Range
skiers, as measured by Colorado Ski Country USA data. Five of the
remaining eleven Front Range resorts each reported 305,000 or fewer
1995-96 visits, an amount that represented less than twenty percent of
the 1995-96 visits to Vail's largest single resort alone. After an
extensive investigation, the U.S. Department of Justice found that the
merger would allow Vail, single-handedly, to raise prices above
competitive levels.
The proposed consent decree calls for the divestiture of Arapahoe
Basin, a small, remote ski area that is little more than a few ski
trails and a parking lot. It has none of the amenities that
characterize the year-round, full service resorts that have been
combined under the Vail/Ralston transaction, and has virtually no
potential to expand into a major resort property. Because of its
location, altitude and ski conditions, Arapahoe Basin has a limited
following, even among advanced Front Range skiers. The divestiture of
this small ``niche'' ski area cannot be expected to check the enormous
economic power that will be gained through the Vail/Ralston merger.
Accordingly, we urge the Antitrust Division to reconsider its decision
to accept this paltry divestiture or, failing that, we urge the Court
to reject the proposed decree.
The Commentors
Denver is the local governing authority for the 153 square mile
land area encompassing the City and County of Denver and is responsible
for a population of approximately 484,000. The City Attorney is the
chief local attorney responsible for civil matters affecting Denver
residents.
Denver is vitally interested in the competitive health of the
Colorado ski industry. By virtue of its Rocky Mountain location and
climate, winter sports, especially skiing, are a major engine of
economic activity and development for the Denver area. Skiing generates
tourist trade, as well as tax revenues associated with lodging, travel,
dining, entertainment, equipment purchases and other ski-related
expenditures. Winter Park estimates that the ski industry is worth
about $2.5 billion to the Colorado economy. Perhaps even more
importantly, skiing is a vital component of the recreational life of
the community. The availability of winter sports is a major factor in
drawing residents and industry to the Denver area.
Having closely evaluated the Vail/Ralston transaction, Denver
believes that the combination will harm resident skiers. Among other
things, Denver concurs in the Antitrust Division's conclusion that Vail
will have the ability to raise prices charged to Front Range skiers.
Winter Park is a not-for-profit corporation formed in 1950 by
Denver to operate, maintain and develop the Winter Park Recreational
Area for the benefit of the people of the City and County of Denver and
the general public. By virtue of its charter, the Winter Park resort
operates to advance the public interest by providing an enjoyable
winter sports experience at reasonable prices, providing unique
programs for special populations, such as young skiers and the
disabled, and subsidizing non-ski recreational activities throughout
the community. The Winter Park Board of Trustees believes that its
corporate charter is furthered by the preservation of a fully
competitive ski industry in the Colorado Front Range area.
Like Denver, Winter Park is concerned about the market power
created by the Vail/Ralston transaction. It believes that, having
acquired the Ralston resorts, Vail will have the ability to discipline
other ski areas so as to discourage aggressive price and service
competition. Further, Winter Park believes that Vail will be well
positioned to pursue predatory strategies directed at other ski areas
and resorts toward the ends of eliminating competitors and perhaps
softening potential acquisition targets.
The Front Range Ski Market
The complaint supporting the proposed final judgment defines the
relevant market as the provision of skiing services to residents of the
Front Range. The Front Range is defined as the geographic area just
east of the Rocky Mountains, including, from north to south, the
metropolitan areas from Fort Collins to Pueblo. The complaint goes on
to allege that most Front Range skiers limit their day trips to resorts
within two and one-half hours travel time, and somewhat longer for
overnight trips. For all practical purposes, this definition excludes
thirteen of the twenty-four Colorado ski areas, including the major
resorts at Aspen and Steamboat Springs. The remaining market
participants are: Arapahoe Basin, Beaver Creek/Arrowhead, Breckenridge,
Copper Mountain, Eldora, Keystone, Loveland, Silver Creek, Ski Cooper,
Vail and Winter Park. Five of them--Arapahoe Basin, Breckenridge,
Beaver Creek/Arrowhead, Keystone and Vail--are now owned by Vail.
Although there are eleven ski areas that serve the Front Range
Skier, the market has been dominated by the Vail and Ralston resorts,
which are now a single competitive entity. Since consummation of the
merger, Vail controls three of the four resorts that attracted 1
million or more 1995-96 skier visits. Indeed, according to the
prospectus accompanying Vail's most
[[Page 39276]]
recent stock offering, Vail, Breckenridge and Keystone, in that order,
are the three most popular ski resorts in North America. Together the
four Vail resorts, excluding Arapahoe Basin, accounted for just under
62 percent of total skier visits to resorts serving the Front Range.
According to the complaint in this matter, they accounted for over 38
percent of skier days in the Front Range market.
Among the remaining Front Range resorts, only Winter Park had one
million or more skier visits in the 1995-96 season. Three resorts--
Copper Mountain, Beaver Creek/Arrowhead and Loveland--had skier visits
between 970,000 and 300,000. The remaining four competitors--Arapahoe
Basin, Eldora, Silver Creek and Ski Cooper--each had 250,000 or fewer
1995-96 skier visits, with Silver Creek and Ski Cooper each having less
than 100,000.
The four Vail resorts dominate the Colorado ski market for a
variety of reasons. Each is a modern winter sports complex, offering a
variety of ski terrains and non-ski recreational facilities. Each is
located within a well-developed resort community, featuring lodging,
dining and entertainment. According to the White Book of U.S. Ski
Areas, the Vail Resort, for example, offers a full-service school with
1100 instructors, has 20,000 beds for lodging on the resort and in the
immediate community, offers nine restaurants on the mountain itself and
over 100 in the surrounding community and has over 250 shops and
services in the area. Even Beaver Creek/Arrowhead, Vail's smallest
property, offers a full-service ski school with 400 instructors, 4700
beds for lodging and six on-mountain restaurants.
By way of contrast, the smaller areas, such as Arapahoe Basin and
Eldora, offer no lodging and few other amenities. Indeed, the White
Book directs Arapahoe Basin skiers to the Keystone Resort for lodging,
dining and entertainment.
The Antitrust Division's Competitive Analysis
The competitive impact statement accompanying the proposed final
judgment states that the Antitrust Division's opposition to the Vail/
Ralston merger is premised upon the ``unilateral effects'' model.
Competitive Impact Statement at 12. This model, as articulated in the
1992 DOJ/FTC Horizontal Merger Guidelines, posits that a merger may
enable the surviving firm to raise prices where ``a significant share
of sales in the relevant market are accounted for by consumers who
regard the products of the merging firms as their first and second
choices and that repositioning of the non-parties' product lines to
replace the localized competition lost through the merger (is)
unlikely.'' Merger Guidelines at 23.
The Antitrust Division described the application of the unilateral
effects model to this case as follows:
(B)efore a merger, if two resorts are significant competitors to
each other and one of these resorts increases its prices, a
significant portion of this resort's customers would be ``lost'' to
the other resort. After a merger between these two resorts, however,
some customers who switch away from the resort that raises its price
would no longer be lost, but rather would be ``recaptured'' at the
newly-acquired resort. Price increases that would have been
unprofitable to either firm alone, therefore, would become
profitable to the merger entity.
Competitive Impact Statement at 12. Based upon its analysis of costs
and demand in the market, the Antitrust Division estimated the adverse
price effect of the merger to be an increase of roughly four percent or
about $1 per lift ticket. Competitive Impact Statement at 14.
The conclusion that the Vail resorts would be able to increase
prices following the merger necessarily means that the six non-party
ski areas (excluding Arapahoe Basin) do not provide a sufficient
constraint upon the combined Vail and Ralston resorts to discipline
pricing in the Front Range market. That conclusion also means that the
Antitrust Division has concluded that none of the non-party resorts
could ``reposition'' their service offerings so as to enhance localized
competition between their resorts and those of Vail. An effective
remedy, therefore, requires the creation of a new competitive entity
attractive enough to Vail patrons to capture sales to consumers
switching away from the Vail resorts in response to a price increase.
Inadequacy of the Proposed Final Judgment
By the very terms of the Antitrust Division's competitive effects
analysis, the divestiture of Arapahoe Basin would serve to constrain
price increases at the Vail resort only to the extent that Arapahoe
Basin is a close competitive substitute for each of the Vail
properties. Otherwise, the run-off resulting from a Vail price increase
at one of its resorts would be recaptured by another Vail resort. It
would be virtually impossible to find anyone acquainted with the
various ski areas serving Front Range skiers who would even suggest
that Arapahoe Basin is a close substitute for any of the Vail
properties.
Arapahoe Basin has the highest altitude base among the ski areas
serving the Front Range. This, together with the fact that much of it
is situated above the timberline, means that is suffers extreme weather
conditions, including frequent ``white-outs,'' more intense winds and
much colder temperatures than other Front Range properties.
Additionally, unlike most of the other resorts serving Front Range
skiers, Arapahoe Basin is not located on the Interstate 70 corridor.
Indeed, the most direct route to and from Arapahoe Basin requires
traversing one of the highest and most frequently closed highway passes
in the United States.
As a winter sports experience, Arapahoe Basin bears not even the
slightest resemblance to the Vail resorts. First and foremost, Arapahoe
Basin is not a resort at all. It is more properly characterized as a
pure ski area. Unlike the Vail resorts, which boast full-service ski
schools, cross country skiing, curling, ice skating, indoor tennis,
sledding and snowcat riding, among other activities, Arapahoe Basin has
ski lifts and trails, a snack bar and a parking lot. Unlike the Vail
resorts, which feature a balanced skiing experience to accommodate
skiers of varying skill levels, 90 percent of Arapahoe Basin's trails
are listed as intermediate or advanced.
Moreover, contrary to the suggestion in the competitive impact
statement that Front Range skiers are less interested in amenities than
destination skiers, the social aspects of a ski trip often are just as
important to the Front Range skier as they are to those who travel from
more distant locations. Front Range skiers are as diverse as
destination skiers. They are not just ski fanatics willing to drive two
and one-half hours simply to take a few runs down the mountain and
return home. Thus, it would be preposterous to suggest that Front Range
skiers, even those travelling on a day-trip basis, have no interest
whatsoever in non-ski winter sports activities, dining, entertainment
and shopping.
The Vail resorts and Arapahoe Basin simply are at opposite ends of
the spectrum of ski experiences available to Front Range skiers. Front
Range skiers who are inclined toward the Vail resorts obviously are
attracted by the full package of services and amenities they offer. It
taxes the imagination to believe that Front Range skiers would find a
``no-frills'' ski area like Arapahoe Basin to be the next best thing to
a visit to any one of the Vail properties.
Nor can it be believed that Arapahoe Basin, if placed under new
ownership, can be transformed into a more significant competitive rival
to the Vail
[[Page 39277]]
resorts than it is at present. As an initial matter, all of the lands
at and around Arapahoe Basin are owned by the federal government,
meaning that government permission would be required for any major
development effort. Moreover, by virtue of its remote location,
altitude and terrain, Arapahoe Basin is a highly unlikely site for
major development. These conditions not only increase construction
costs by several orders of magnitude, but also call into question
whether any meaningful development effort would have any prospect of
success. Finally, even if the governmental approval, engineering,
construction and financial obstacles could be overcome, it would take
decades to develop sufficient lodging, dining establishments,
entertainment venues, and shopping facilities necessary to even
approach the type of resort communities available at the Vail resorts.
In the terminology of the Merger Guidelines, Arapahoe Basin cannot be
``repositioned'' to become a close competitive substitute for any of
the Vail properties.
Arapahoe Basin has functioned as a specialized satellite operation
of the Keystone resort, catering to a small cadre of hardcore, advanced
skiers who appreciate its unique ski conditions and no-frills
character. Indeed, in the 1996-97 edition of Colorado Ski Country USA
Travel Agent Guide, Arapahoe Basin is advertised as a part of the
Keystone resort; it is not listed as having any independent existence.
Travel Agent Guide at 52-3. Given this history, it is unclear that
Arapahoe Basin can even survive on its own, much less offer the type of
competition necessary to check the economic power of the Vail resorts.
For all of the foregoing reasons, a strategic price increase by one
of the Vail resorts would not cause any significant shift of patronage
to Arapahoe Basin. By the Antitrust Division's own theory, the switch
likely would be to one of the more similar resorts within the Vail
resorts family. The proposed divestiture of Arapahoe Basin, therefore,
fails miserably as a means of preventing an exercise of market power by
Vail. Short of seeking to untangle the now-consummated merger, the only
remedy that would stand any chance of constraining Vail's market power
would be the divestiture of one of its more substantial resorts--i.e.,
one that has scale, ski characteristics and amenities comparable to the
resorts Vail will continue to operate.
Other Competitive Issues
In challenging the proposed merger solely under the unilateral
effects model, the Antitrust division either rejected or ignored other
possible adverse consequences of this transaction. It is worth noting
that the transaction, which increases the Herfindahl-Hirschman index by
643 points to over 2200, is presumptively anticompetitive under the
Merger Guidelines, without regard to any unilateral effects scenario.
Denver and Winter Park believe that the proposed merger has created a
market force in the Vail resorts that can wield power in a variety of
anticompetitive ways, ranging from discouraging aggressive price
competition by smaller rivals to outright predatory conduct.
Through this merger, Vail has brought under common ownership four
of the premier ski resorts available to Front Range skiers. They are
geographically dispersed along the Interstate 70 corridor in varying
proximity to the other ski areas. Vail has complete freedom to price
each resort separately or to bundle resorts together in special
promotional packages. Under these circumstances, Vail has both the
incentive and the ability to target particular competitors with
disciplinary or predatory conduct.
For example, as the market share leader, Vail has the most to lose
from any softening of prices in the market. Should any other ski area
seek to increase its share through special promotions or other
competitive initiatives, Vail has the economic power to respond with
pricing counter-measures that would render the other resort's pricing
initiative useless. Given the prospect of a Vail pricing response, the
other ski area would recognize that a decrease in price would neither
increase revenues nor increase market share. In this way, Vail has the
ability to stabilize market pricing. While the other ski areas might
benefit in the short term from this price stability, it simultaneously
locks them into a subordinate economic position, since any attempt to
grow their business relative to Vail can be crushed. Alternatively,
Vail has the ability and incentive to target smaller ski areas with
predatory prices, at least to the point where they might become
acquisition targets.
These potential adverse effects are the direct result of combining
so many of the premier Front Range resorts under the Vail banner. The
transaction gives Vail enough distinct resorts to pursue selective
strategies directed at individual competitors and the ability to
subsidize such strategies at one property with supracompetitive profits
earned at another. The divestiture of the Arapahoe Basin ski area does
nothing to address these potential competitive effects. Once again,
Arapahoe Basin is far too remote, small and specialized to provide any
meaningful constraint on Vail's market power.
Alternatives to the Final Judgment
The competitive impact statement asserts that the only alternative
the Antitrust Division considered to the proposed final judgment is a
full trial on the merits of the complaint. Competitive Impact Statement
at 19. These commentors, however, find it hard to believe that the
Antitrust Division did not at least consider requiring the divestiture
of one of Vail's more prominent resorts. Given the process the
Antitrust Division says it went through to analyze the effects of the
merger--a close examination of localized competition between each
possible pairing of resorts--it would be surprising indeed that no
similar analysis was performed with respect to the remedy or, if such
an analysis were performed, that it would lead so definitely to the
conclusion that Arapahoe Basin is the ideal divestiture candidate.
Very clearly, the Antitrust Division considered, and perhaps
sought, other possible divestitures, but were rebuffed by the parties.
Vail likely would not give up one of its premier resorts without a
fight, but probably commenced the Hart-Scott-Rodino process willing to
divest Arapahoe Basin if challenged on the merger. It is equally clear
that any sane businessperson would readily give up a tiny resort like
Arapahoe Basin in exchange for the opportunity to own the top three
resorts in the market and four of the top six.
Although we can see why this is a more than satisfactory settlement
from Vail's perspective, we fail to see how it protects the public
interest. If the adverse effects the Antitrust Division alleges in the
complaint are real ones, and we most certainly believe they are, then
they merit an effective remedy. Here the proposed remedy is completely
hollow. Having asserted that the merger likely would cause
anticompetitive effects if the parties were not willing to offer
meaningful divestiture in settlement, the Antitrust Division should
have been willing to obtain meaningful relief through litigation.
Conclusion
There is absolutely no sense in which the divestiture of Arapahoe
Basin can be expected to remedy the severe economic harm likely to be
caused by the Vail/Ralston merger. Accordingly, we urge the Antitrust
Division to insist upon
[[Page 39278]]
more meaningful relief in the form of more extensive divestiture. The
divestiture of either Breckenridge or the Keystone/Arapahoe Basin
combination would provide more appropriate relief.
Dated: April 4, 1997.
Respectfully Submitted,
Daniel E. Muse,
City Attorney, Denver, Colorado.
Gerald F. Groswold,
President, Winter Park Recreational Association.
532 Oakwood Drive, Castle Rock, CO 80104
15 January 1997.
U.S. Department of Justice,
1401 H St. N.W., Room 4000, Washington, DC 20515.
Attn: Mr. Craig W. Conrath, Merger Task Force Antitrust
Division.
Re: Vail's acquisition of Breckenridge, Keystone, and A-Basin
Dear Mr. Conrath: I offer this in opposition to the above
acquisition. Justice Department approval has been granted so this
effort will be nothing but an expression of frustration and
incredulity. Why does Justice think this is good for Colorado
skiing? Such an acquisition (merger is a euphemism) places Vail in
control of 40% (not 35% as you say) of the Colorado ski market. Your
denial of A-Basin from the acquisition has no meaning in total skier
market. A-Basin is absolutely a great ski area but for expert
skiers--a small group by comparison. Breckenridge or Keystone has to
remain a competitor of Vail to keep any sense of fairness for the
skiing public. Otherwise, Vail will control the most accessible and
significant skiing in Colorado. That is plainly enough reason to
deny such concentration of market. How can anyone see Colorado
skiing being better served with this acquisition than without it?
The acquisition by Vail eliminates the need to compete with
Summit County ski areas. It is that simple and it is Vail's true
purpose. Vail's incentive is to maximize profit, not to improve the
skiing experience. Vail has the highest ticket prices of all these
areas. There is no way Vail will not equalize prices among a combine
they control. Vail is buying what they could not otherwise get thru
competition. After skiing here 25 years I can say few mid-westerners
(I recently moved from Illinois) ski Vail for more than a day or
two. Vail is congested, overdeveloped, elitist, very expensive and
one goes away feeling taken. Most people I talk to in this area feel
the same thing will happen to Breckenridge and Keystone.
Skiers prefer skiing to bigger and grander resorts or more
extravagant hotels. Where base areas build out, as Vail has, further
growth is thru acquisition and/or market consolidation. It will not
benefit less affluent skiers to allow Vail to exploit a market
segment they cannot otherwise attract. Instead of Justice rewarding
Vail for poor business decisions, you should encourage them to
address skier concerns and attract more skiers. Skiers have not
disappeared. The population is bigger today than yesterday. If ski
areas gave attention to providing reasonable access, accommodations,
parking and ticket prices, a huge market exists.
Some say skiing is recreation and unimportant in a bigger
picture of important business activity. That argument is specious
and ignores significant contribution to the economy. So isn't this
grab by Vail just another step towards the insidious and relentless
pressure to control by elimination of competition? There are few
business consolidations that improve the product with consequent
lower user prices? The incentive to do that is absent! Consolidation
is for the benefit of the surviving company. Like other business,
ski areas should take the consequences for bad business decisions.
Overdevelopment rather than improving access to their product is the
problem.
I have seen the cost of lift tickets increase from $6.00 in mid-
1970 to $48/$50 to date in Breckenridge and Vail. That calculates as
32% per year. In comparison with other business, ski area prices are
way ahead of inflation. While that increase is huge the market has
expanded till recent years. I will continue to pay for the pleasure
but I worry for younger skiers. The point is, few new ski areas are
likely to open to the public, because skiing growth has been made
flat. Cost has something to do with flat growth but other factors
enter the equation as well. Further public land availability is
improbable. Yet, most, if not all, ski areas are on public land and
enjoy the benefits of low rent and good profitability. Ski areas do
not have to provide the capital for land ownership. The government
provides it to them at a bargain from the taxes of skier and non-
skier alike. Should consolidation of these ski areas, on public
land, be approved in what is already a limited market with limited
entry for new ski areas?
Governments already subsidize in the form of low rent, highways
and maintenance, snow removal, tax abatements, utilities and other
subsidies that do not come to mind. It is apparent to the most
uninformed that healthy competition is what is needed to keep this
industry vying for skier business. What is wrong with competition
among the ski areas? It serves both skier and ski area well? Vail
has opted for the top income bracket skier and has exploited their
base operation to such an extent they can attract only the most
affluent skiers. Now with Justices blessing they buy their
competition. You cannot tell me this will be an improvement for
Breckenridge, Keystone or the skiing public.
As said above, public comment will not halt the Vail acquisition
because the Justice Department has rolled over to mega mergers and
mega business. They now bless mega ski corporations. It is sad to
see the demise of Breckenridge and Keystone because of the resultant
loss to skiers. Skiers are served best as competition now exists.
Each area vigorously competes for the skier and although ticket
prices have soared year after year each area offers special prices
that help to stabilize costs. Justice now says this will continue if
Vail owns it all. How gullible do you think the public is? You allow
this because skiing is small concern to big government but most of
all because you are lazy. It is easier to accept this as an
unimportant merger than to do your job of preserving balance in the
marketplace. Vail is buying out their competition pure and simple
and it is sad for the loss to skiers.
Disappointed in Denver,
Mr. Craig W. Conrath,
Chief, Merger Task Force, Antitrust Division, U.S. Department of
Justice, 1401 H St., N.W., Room 4000, Washington, D.C. 20530.
Dear Sir: I am writing to protest the proposed Vail Associates
buyout of Breckenridge and Keystone ski resorts. I understand the
standard for determining an antitrust violation is control of 35% of
the market. In this case, the Denver Front Range skier is the market
considered. It may be true that by selling off Arapahoe Basin, that
percentage falls below the magic percentage, but an important aspect
is being ignored.
If one makes the more realistic evaluation comparing the big
resorts as a group (toss in Winter Park and Cooper as biggies), the
market controlled by Vail Associates would be a much higher
percentage. It is not realistic to include Arapahoe Basin, Eldora,
Loveland, and Ski Cooper in the same market. They are fun little
areas, but these niche areas are already much cheaper than the
biggies and do not have a major effect on pricing. Vail Associates
has been advertising their good intentions in supporting the local
skier. It looks good in print. Then one should take a look at what
happened to Arrowhead lift prices once VA purchased them. Prices
went up . . . way up. Image what happens when Vail introduces the
All VA ticket for Beaver Creek, Breckenridge, Vail, and Keystone.
Ski Keystone for the price of a Vail ticket!
I do believe Breckenridge and Vail Associates make a good fit--
I'm not anti-everything. I just believe the entire package cannot
help but increase lift prices. Please prevent it.
Regards,
David LeBlang.
James E. Leibold, MD,
3458 S. Columbine Cr., Englewood, CO 80110.
Jan. 14, 1997.
Mr. Craig W. Conrath,
Chief, Merger Task Force, Antitrust Division, U.S. Department of
Justice, 1401 H St., N.W., Room 4000, Washington, D.C. 20530.
Dear Mr. Conrath: When word of Vail's plan to buy Breckenridge,
Keystone and Arapahoe Basin Ski Areas appeared in the press, we
wrote to your department protesting this plan. As senior citizen
skiers we are very concerned about lift ticket prices as their cost
continually increase whereas our income is fixed. Vail does not
offer skiers over age 60 the same discounts as Breckenridge and
Keystone presently do. Therefore, we are fearful of losing these
discounts if Vail owns these resorts also. We simply have not been
able to afford to ski at Vail the past few years.
To think that asking Vail to divest Arapahoe Basin will prevent
a monopoly in
[[Page 39279]]
Summit County is ludicrous. Arapahoe is a small ski area with only
4% of the skier days in central Colorado. If you truly wanted to
avoid monopoly issues, divestiture of either Keystone or
Breckenridge would have been far more effective.
Vail's clout in marketing will surely have a severe adverse
impact on Central Colorado ski areas not under Vail's mantle and
this is bound to eventually cause a rise in lift ticket prices.
Surely, this is not in the public interest. We again urge you to
disapprove the buyout plans as now proposed. Thank you for your
consideration of this matter.
Your truly,
James E. Leibold,
Angela M. Leibold.
James W. Margolis
1250 Golden Circle, #509, Golden, CO 80401
January 6, 1997.
Craig W. Conrath,
Chief, Merger Task Force, Antitrust Division, U.S. Department of
Justice, 1401 H St., N.W., Room 4000, Washington, D.C. 20530.
Dear Mr. Conrath: As an economist and regular skiier in Summit
County for nearly 20 years now, I have followed the news about
Vail's purchase very carefully.
Based on the limited coverage in the Denver newspapers, I must
say that I am dumbfounded that the ``regulators'' determined the
proposed merger would have anti-competitive effects and that the
solution would be to sell A-Basin. Although I certainly believe that
the merger would be anti-competitive (by whatever definition), the
proposed solution to sell off A-Basin makes no sense. A-Basin is
simply too small to make a difference. If you are not going to force
Vail to sell Keystone or Breck, you are better off doing nothing.
The public interest is best served by keeping Keystone and A-
Basin together and treating them as a single unit for analyses
purposes. Without Keystone, A-Basin has no lodging or transportation
link. Also, even hard core skiiers have been known to go to Keystone
on white-out days when it is very difficult to ski at A-Basin due to
flat light. Keystone and A-Basin are wonderful complements to each
other. It is unfortunate that in your efforts to quantify ``market
share and competition'' you have simply ignored common sense.
Is there any report that your office could mail to me? I would
be interested in reading the details of your assumptions and
analyses.
If you have any questions about the trade-off between
quantitative analyses and common sense, please feel free to contact
me.
Thank you,
James W. Margolis
Summit County
Joe Sands, District 3, County Commissioner
January 8, 1997.
Mr. Craig Conrath,
Chief, Merger Task Force, U.S. Department of Justice, Anti-Trust
Division, City Center Building #4000, 1401 H Street, N.W.,
Washington, D.C. 20005.
Dear Mr. Conrath: Speaking as a commissioner, not for the Summit
County Board of Commissioners, this letter is a further
interrogatory and follow-up to my September 30, 1996, letter of
concern about the proposed Vail Resorts-Ralcorp merger. I have
compliments to your team mixed with puzzlement about issues
unanswered. I am having to write this before the Competitive Impact
Statement is released, but based on my conversations with the
Taskforce, I would be surprised if that document answers these
questions.
First the compliments. My staff and myself are pleasantly
surprised at the availability and responsiveness of your task force
members to whom we have inquired. We haven't always agreed with
their answers, but that is not due to any obfuscation on your team's
part.
Most importantly, from a community need, ski culture diversity,
and front range experienced skier need, the divestiture of Arapahoe
Basin is great. I hope that order in your decision does not assume
some very hotly debated proposed additions to the A-Basin permit
(controversial alpine slide, and major new water works for
snowmaking). You need to clarify this. If I am reading correctly
that the trustee is paid a commission on this sale, that becomes an
immense issue.
Almost as important, is if your order means Andy Daly and Vail
Resorts can start to manage the former Ralcorp remaining properties,
then I'm all for that. The outgoing Ralcorp leadership caused many
societal controversies; their own employees, guests, and the local
community is ready to give a parade for any new management.
Unfortuntely, there is also puzzlement. I haven't found anyone
who thinks A-Basin has enough unused skier day capacity to be a
market competition leveling effect as the stipulation and order
indicate. If the five million skier day Apollo consortium does
anything negative to its customers, at most the 100,000 new skier
day absorption at A-Basin, is not a significant competitive
alternative. Plus a lot of Vail/Apollo's skier days are closely tied
to real estate purchases and lodging geography. Both of which make
the remote A-Basin less of an alternative. I also predict the H.H.I.
formula you used could create a new round of jokes at an economics
convention (make them forget the C.P.I. controversy). Divesting the
non-compatible A-Basin so as to sneak your H.H.I. to 1781 and just
below the 1800 points of a concentrated market appears hollow.
Taking this into consideration, I would hope you would see that A-
Basin does truly offer competition to the other mountains in the
merger. Therefore the stipulation offered with A-Basin's divestiture
does nothing to guarantee competition.
Probably my biggest personal puzzlement is your team's
efficiency assumptions. Many items they see as savings passed on to
the customer, I see as expanding the corporate profit margin, not
going to the customer, because the competition's ability to be an
alternative is inconsequential. I've seen nothing in these documents
that addresses my September 30th, 1996, concerns on:
controlling airplane seats, transportation access,
etc.;
ad/promoting control;
lodging reservation favoritism;
labor market, control of salaries;
societal impacts (healthcare, donations, infrastructure
support);
and their past practices of ``shutting out others'' in
a lot of these areas.
Even if I were to allow the Department of Justice's assumption
that the efficiency will benefit the customer, I would have to
challenge the assumption that this necessarily will be maintained
long term or sustain competition from A-Basin or the other ski
resorts. The efficiency will give the merged mountains the power to
undercut prices to the point of eliminating your so called
competition.
The good news of this proposed settlement, is I had challenged
Vail/Apollo in a Labor Day thesis of community concerns to answer
some of this. Maybe without the excuse they have used your process
for, they will finally address these matters. But my conclusion
today is doubtful. All of this is about the profit to be gained when
Vail goes public in I.P.O. I hope the judge who decides this sees
that.
My closing thought is an objection to a far-fetched insulting
statement (enclosed) quoted to Colorado's First Assistant Attorney
General. I'd accept an apology if offered. For the second most
politically motivated state office to present this thought, * * *
while ignoring the powerful 17th Street law firm and political
handler who were hired ``to facilitate'' this matter, is the
ultimate in hypocrisy. Possibly this last sentence is incorrect, the
judge ruling should also question if the ultimate hypocrisy is the
campaign contributions from Leon Black, Apollo parties, Vail,
Ralcorp, etc., to all interested political groups since this has
started.
I would hope the Department of Justice would have a change of
heart/position and consider more action before the United States
consent to entry of the Final Judgment.
Sincerely,
Joe Sands,
County Commissioner.
Enclosure
6299 E. Caley Dr., Englewood, CO 80111
Feb. 11, 1997.
Mr. Craig W. Conrath,
Chief, Merger Task Force, Antitrust Division, U.S. Department of
Justice, 1401 H St. NW., Room 4000, Washington, DC 20530.
Dear Sir: I am writing to protest the proposed Vail Associates
buyout of Breckenridge and Keystone ski resorts. I understand the
standard for determining an antitrust violation is control of 35% of
the market. In this case, the Denver Front Range skier is the market
considered. It may be true that by selling off Arapahoe Basin, that
percentage falls below the magic percentage, but an important aspect
is being ignored.
If one makes the more realistic evaluation comparing the ``big''
resorts as a group (toss in Winter Park and Copper as biggies), the
market controlled by Vail Associates would be a much higher
percentage. It is not realistic to include Arapahoe Basin, Eldora,
[[Page 39280]]
Loveland, and Ski Cooper in the same market. They are fun little
areas, but these niche areas are already much cheaper than the
biggies and do not have a major effect on pricing.
Vail Associates has been advertising their good intentions in
supporting the local skier. It looks good in print. Then one should
take a look at what happened at Arrowhead lift prices once VA
purchased them. Prices went up * * * way up. Imagine what happens
when Vail introduces the All VA ticket for Beaver Creek,
Breckenridge, Vail, and Keystone. Ski Keystone for the price of a
Vail ticket!
I do believe Breckenridge and Vail Associates makes a good fit--
I'm not anti everything. I just believe the entire package cannot
help but increase lift prices. Please prevent it.
Regards,
Dick Thompson,
Front Range skier.
Thomas J. Tomazin, P.C.
Attorney at Law, 5655 South Yosemite, Suite 200, Englewood,
Colorado 80111
January 17, 1997.
Craig W. Conrath,
Chief, Merger Task Force, Antitrust Division, U.S. Department of
Justice, 1401 H Street, N.W., Room 4000, Washington, D.C. 20530.
Re: Vail/Ralcorp Merger
Dear Mr. Conrath: I am a life-long resident of the State of
Colorado. While I was born in the rural part of Colorado, I have
lived in the Denver metropolitan area for the past thirty-one years.
Both myself and my five children have enjoyed skiing in Colorado
since 1969.
I am writing regarding the proposed merger between Vail and
Ralcorp. I have skied at all of the ski areas that are involved.
Overall, I am in favor of the merger and do not believe that there
is any risk of a monopoly being created by permitting the merger. To
the contrary, all of the Colorado ski areas cater tremendously to
the Colorado skier. All of the ski areas are well-aware that their
customer base and profit are to a large extent dependent upon the
Colorado skier rather than the out-of-state skier.
My only objection to the merger as proposed is that Vail and
Ralcorp must divest Arapahoe Basin. From comments I have read in the
newspaper, it is conceded that the requirement for the divestiture
of Arapahoe Basin makes no sense. Rather, the reasons assigned in
the newspaper was that it was a negotiated settlement. One account I
read indicated that by taking out the annual number of Arapahoe
Basin skiers, approximately 258,000, it would reduce the percentage
share of Vail/Ralcorp from approximately thirty-eight percent to
approximately thirty-four percent.
Regardless of the rationalizations, reasons or negotiations, as
a practical matter, the requirement that Arapahoe Basin be divested
spells a death knell for Arapahoe Basin. Any proposed purchaser will
essentially be unable to maintain the area in the manner in which
Ralcorp has done to date nor will the purchaser be able to compete
effectively. Arapahoe Basin will surely deteriorate and, I am
fearful, cease to exist.
In an era where Keystone, Breckenridge and Vail continue to grow
and become more technologically advanced, it was always refreshing
to have Arapahoe Basin as a throwback to an era long since past.
I would strongly request that reconsideration be given in this
matter and that as part of the merger, Vail and Ralcorp not be
required to divest Arapahoe Basin.
Should you have any questions, please do not hesitate to contact
me. Thank you in advance for your cooperation and assistance in this
regard.
Very truly yours,
Thomas J. Tomazin, P.C.
Town of Montezumza
P.O. Box 1476 Dillon, Colo. 80435
Hon. Lewis T. Rebcock,
District Judge, United States District Court for the District of
Colorado, 1961 Stout Street, Denver, Colo. 80202.
Re: U.S. v. Vail Resorts, 97B-10
Dear Judge Babcock, The Town of Montezumz opposes Vail's
acquisition of the Ralston Resorts ski areas of Breckenridge,
Keystone, and Arapahoe Basin. We apologize for not submitting our
comments earlier, but likemost people in Summit County we believe
the merger was a done deal and had closed without the opportunity
for public comment. Our apparent misconception was corrected by a
recent article in our local newspaper, The Summit Daily, indicating
that the City of Denver had recently opposed the merger.
Montezuma is an incorporated Town (1862) 6 miles from the
Keystone ski area at 10,400's in the center of 5 major Forest
Service trailheads and by their 1996 count 15,000 persons pass
through here annually. One concern is the increased vehicle traffic
that will impact the Town with the obvious growth expected from the
merger. The additional recreational users in the area can only harm
the delicate surrounding forest. This 100 year old growth is very
susceptible to fire. The only road to Montezuma and these trailheads
off Hwy 6 is narrow and winding causing additional concern of the
increased traffic.
Hwy 6 is the main artery for trucks carrying hazardous material
crosscountry East and West. They must, at the bottom of Loveland
Pass, drive through the already congested skier traffic. This
situation with the additional development can only create further
dangers to the public safety.
We are a working class population proud of the modest homes we
live in, but fearful the rising taxes the merger will create could
prohibit local ownership as has happened in other communities. We
realize we are only a very small voice in this vast expansion but we
are the voice of people and ask you to consider the far reaching
effects this ``monopoly will have on our communities, the work
force, the skiers, and the State of Colorado. Adam Arron of Vail
Resorts has acknowledged the present problems and has said new
problems could be on the horizon if the company's plans for
increased growth are realized.
Thank you for your time and consideration.
Sincerely,
Town Trustee,
Town of Montezuma.
[FR Doc. 97-19164 Filed 7-21-97; 8:45 am]
BILLING CODE 4410-11-M