(g) Priority 7.— (Lumber and Building Supplies). Three man-years in FY 1971 with respect to eight pending investigations-and perhaps more coming. The staff asserts that a challenge will have a slowing effect. In light of the staff comments it would seem that although this priority may properly be "down the line" (a question that can be better evaluated when the staff responds to Commissioner Jones' memo), perhaps the bringing of one test case ought to be given a very high priority. The answers to the questions asked above would seem helpful here, too.

(h) Priority 8.—(Apparel); Priority 9-(Paper and Paper Products). These two projects of five man-years and 12 pending investigations do not appear to me to be particularly crucial although they may need continuing vigil. Further analysis along the lines suggested by Commissioner Jones is obviously needed. (i) Priority 10.-(Miscellaneous). To maintain flexibility the Division needs a reserve available to handle emerging problems like the merger trend in mobil homes. However, it seems to me the priority of this project cannot be anticipated since a new and critical trend in a significant industry could well make this a project of the first priority.

(j) Non-priority Projects.-Since these 55 mergers are apparently to be given no manpower for the next two years, it would seem the Division should close them out. Continued pendency will require paper shuffling with consequent expenditure of resources.

SUMMARY

The Commission has already made certain commitments of its resources to the field of mergers; additional resources are committed by the adoption of various procedural methods (e.g., pre-merger notification). Together these constitute a floor to the operational budget of the Division. Therefore, I suggest that the Division summarize the man-years estimates for pending adjudicative matters, pending complaints, pending investigations, preliminary investigations and the pre-merger notification programs. Although the Commission can change its decisions in these areas, They represent in the aggregate an entirely different decisional process from that necessary to future commitments.

The projected man-years for the prospective opening of formal investigations and the issuance of complaints represents the prospective responsibility of the Commission. Looking to trends and the matters discussed above, I would hope the Division could give us greater guidance.

I have suggested throughout that man-years be used rather than dollar value being attached. This is due to an earlier study conducted by my office (and referred to from time to time in some of my circulations) indicating that a charge of $20 per hour might well represent a fair estimate. This was determined by dividing the total hours of the professional staff into our annual budget. At 1800 hours/man-year this would indicate a value of $36,000. We have this Division using a value of $13,000/man-year while the Division of Discriminatory Practices uses $20,000/man-year. I think that this is a matter on which the Comptroller should advise us and that the Divisions and Bureaus should use the man-year approach until that report is made.

COMMISSIONER NICHOLSON'S REQUEST FOR DATA RE FY 1971 BUDGET JUSTIFICATION (In addition to other data requested)

DIVISION DEADLINE JUNE 18, 1969

"Existing" commitments to be treated separately from "future" commitments. (The Commission can reallocate its appropriation-therefore show interim changes)

Divide your budget justification submittal as follows:

I. Pending Matters

A. Current cases in litigation including complaints already issued (do not dis close case names or numbers).

1. Industry involved.

2. Volume of sales of companies involved.

3. Man-year investment to date.

4. Man-years to complete.

5. Alternative possibilities (requiring alternative projections).

B. Pending complaints (including complaints being prepared). Here, you disclose the names of the parties.

1. Industry involved.

2. Volume of sales of companies involved.

3. Man-year investment to date.

4. Man-years to complete.

5. Alternative possibilities. Plus!

6. Evaluation-what it expects to accomplish.

(a) Any novel approach? New legal application, etc.?

(b) Is it related to any industry-wide approach?

(The following topic is out-of-sequence, as I interpret it, but should be included somewhere (probably under "FY 1971 Future Commitments") in your submission. It appears to refer to the correction of projections merely and to the making of re-projections based on your most recent fiscal-year experience.)

"Prospective Commitments" (refers to merger screening and selection). As applied to other Divisions, this apparently refers to internal and external (applications for complaint in the instance of "external") case selection and

similar projections, i.e., you should correct last budget request projections (as appearing in the FY 1970 budget) on the basis of actual number of letters of complaints received, etc. and actual 7-digit matters in FY 1969, etc., and reproject these figures on the basis of last year's experience.

1. Bring these projections up-to-date from FY 1970 estimates (for application to FY 1971).

2. Disclose the selection criteria used.

C. Formal Investigations (which are included in major projects).

1. Supply evaluation information as requested by Commissioner Jones. (Commissioner Jones requested Merger Division to supply justification for each project in terms of industry sales, size of industry members, growing concentration, number of industry members, etc. As applied to the other divisions, this parallels what Commissioner Nicholson requests as "evaluation" for each listed major project. Note, however, that the nature of justification for General Trade Restraints and Discriminatory Practices' matters, for example, may, under their statutes, require a somewhat different kind of justification data than that applicable to mergers. Therefore, justify each project according to the priority that you are assigning to it, on the basis of the specific significance of that project which is material to your statutory area.)

2. As to each priority project show:

(a) Number of investigations presently pending.

(b) What will be accomplished during FY 1970.

(c) How is manpower for FY 1971 computed in light of what is to be done in FY 1970 as answered in "(b)" above?

(1) What additional investigations may be expected?

(2) Relate FY 1971 manpower justification to what is actually expected to be done specifically in FY 1971. (If projected further e.g. to FY 1973, this should be noted.)

[Commissioner Nicholson would also like to comment, in appropriate place, as to the impact on scheduled projects of Commission Directions.]

II. Future Commitments for FY 1971.

In addition to the pending matters which will extend into FY 1971, what are your proposals for the future and their significance? Evaluate on the same kind of basis as for ongoing projects.

MEMORANDUM

JUNE 18, 1969.

Subject: Budget Plans for Fiscal 1971.

To: Commission.

From: Division of Mergers.

This is the Division of Mergers response to Commissioner Nicholson's memorandum to the Commission of June 10, 1969, directing the Divisions to provide additional information and justification for the Fiscal 1971 budget estimates. An effort has been made to answer Commissioner Nicholson's memorandum on an item by item, seriatim basis, insofar as possible.

A. Pending Matters

As was suggested, the procedure followed in arriving at revised Fiscal 1971 estimates was to, first, re-evaluate the Fiscal 1970 estimates in the light of actual experiences during Fiscal 1969, which ends in less than two weeks. This has been done, and an up-to-date Fiscal 1970 budget estimate has been prepared and is forwarded herewith. In the course of this procedure, it is apparent that the Division predictions for Fiscal 1971 were, in actuality, almost exactly what will be required for Fiscal 1970. In other words, our 1970 estimates were too modest, due to the lack of factual experience upon which to base it, and due also to administrative restrictions, such as a man-power ceiling and flat percentage increase allocations-which were arbitrarily levied against our original estimates. Thus, we now have for the Commissions' consideration a tighter Fiscal 1970 budget estimate, and a more realistic Fiscal 1971 estimate which may, in turn, be tightened up by a re-evaluation one year hence.

There are attached as Appendix A and Appendix B to this memorandum, a list of cases currently in litigation within the Division, and a list of investigations for which complaints are pending or are in final stages of preparation but which are not yet in litigation, respectively. For each grouping and for each case we have endeavored to provide the information specified in items (a) and (e) on page 3 and items (a) and (b) on page 4 of Commissioner Nicholson's memorandum.

B. Prospective Commitments

In response to the questions posed under this heading, the Division does not have a summary of actual surveys of all merger activities, nor does the Bureau of Economics, to the best of our knowledge. The paragraph quoted in the Nicholson memorandum was intended to relate to merger screening activities conducted by this Division and the Division of Economic Evidence, which are formalized by a listing and brief description of mergers as they are reported in the news media. The Bureau of Economics picks up all mergers and joint ventures which are reported in the standard periodicals and newspapers. By experience, the Bureau of Economics indicates that 61% of those reported are actually given some form of preliminary screening by the Commission staff, either economic or legal or both. These are then reported to the Commission for statistical purposes. The original Fiscal 1969 estimate for this activity was 2100 mergers and 195 joint ventures; the actual figure as of June 30, 1969 (estimated for last quarter) will be: 2850 mergers and 185 joint ventures. This means not only that many more mergers were reported than were anticipated but also that some 750 more mergers were preliminarily examined (screened) than the 2100 originally estimated when the FY 1969 estimated input was prepared over a year ago. Joint venture activity has remained constant. Based upon this accelerated pace of merger activity, our Fiscal 1971 forecast for mergers to be examined must be dramatically revised and increased to an anticipated 3000 mergers and with joint ventures being expected to continue as was originally estimated at about 190.

With respect to the criteria used in selecting mergers for preliminary investigation, they have remained pretty much the same in spite of the increased tempo in merger activity, and are listed as follows: (1) the importance of the industry involved to the national economy; (2) the competitive significance of mergers within the specific industry involved; (3) the concern within and without the industry with respect to mergers in this industry (4) the remedy which can logically be anticipated; (5) the likelihood of developing new and novel theories of violation; and (6) the economic and legal resources available to the Commission and the staff for accomplishing a desired economic goal, such as

the restructuring of an industry or the prevention of a merger trend in its incipiency.

The pre-merger notification program did not become effective until May 9, 1969, and in view of this there is insufficient actual experience data upon which to predicate anything more than a tenative prediction as to its probable manpower requirements. However, it is already apparent that there will be a significant increase in the administrative time needed to screen, acknowledge and handle merger reports and notifications as they are received and to make a preliminary evaluation of the need for further investigation. The Division of Economic Evidence plays an important part in this process. In the revised Fiscal 1971 budget estimate (submitted herewith), we have taken into consideration probable manpower requirements for this work and they are set forth under the specific project headings; the adjustments have all been upwards. Priority 1.-(Grocery products) The revised Fiscal 1970 estimate specifies 5 man-years for this industry, based upon the four prospective complaints to be issued. The Fiscal 1971 estimate has been increased to 6 man-years. The rule of thumb used is to allocate one man-year for each outstanding complaint, and to anticipate two additional complaints from mergers yet to occur during the next year. However, in projecting for the years beyond no one can reasonably predict how many mergers will take place within an industry and how many will develop into complaints. It is a judgement process which is speculative at best, and which is made by the Chief of the Division upon the basis of experience and observation of current merger activity occurring in the business world. This is a continuing project which is likely to require 6 man-years in FY 1970, perhaps decreasing to 4 man-years in Fiscal 1973 and 1974.

Note: The man-year estimate of 1 man-year per complaint, present or anticipated, and the judgement process referred to above apply to all projects discussed in this memorandum.

Priority 2.-(Auto Parts) This has been revised upward to 5 man-years for Fiscal 1970 and 6 for Fiscal 1971. There is little doubt but that within this industry there will be a continuing merger activity, barring an unforseen economic depression in the auto industry. Current investigations and litigation will reveal additional violations as our expertise in the field increases. At least 2 additional complaints from pending investigations or future mergers are contemplated during Fiscal 1971, and the category will likely require comparable man power during Fiscal 1972 and 1973.

Priority 3.—(Cement) Contrary to the expectations of some, the Commission's enforcement policy statement for this industry has not lessened the manpower requirements. It may increase manpower needs due to the necessity for resolving, one way or another, all outstanding investigations and complaints involving members of the industry. Additionally, the Section 6(b) survey activities place an additional burden upon the staff. With these factors in mind the Fiscal 1970 estimate has been increased to 5 man-years and the 1971 to 6 man-years. Here again an allowance of 2 man years is being made for 2 more complaints from pending investigations or future mergers. The project is a continuing one with little likelihood of any manpower reduction before FY 1973 or 1974.

Priority 4.-(Special Projects) The requirements for this category have been more realistically set at 3 man-years for Fiscal 1970 and 5 man-years for 1971, based upon experiences during the current period. With respect to special and unanticipated projects which the Commission imposes upon this Division, it can be said that such projects completely alter the predicted work schedule in almost every instance. Commission projects are always of major import, and are of invaluable guidance in setting the policy for merger enforcement. However, they are implemented precipitiously, in most instances, and it is never possible to work them into the advance budget planning procedures. It is always necessary to forgo a scheduled effort in order to accommodate a new Commission project, just as is the case when an unexpected major merger is reported in the press and it is necessary to institute immediate investigation and, perhaps, litigation. These are variables which we know will arise, but for which the PPBS makes little or no allowance.

Since it is contemplated that special project assignments by the Commission will continue and will increase, because they generally envision the use of industry-wide approaches or something other than the case-by-case approach to merger enforcement, this, too, seemingly will be a continuing project requiring increasing amounts of manpower in FYs 1972-1974.