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United States and State of New York v. Twin America, LLC, et al.; Proposed Final Judgment and Competitive Impact Statement

A. The Defendants and the Transaction

Coach USA, Inc. (“Coach”), a Delaware corporation with its principal place of business in Paramus, New Jersey, operated hop-on, hop-off bus tours in New York City under the “Gray Line New York” brand. Coach acquired the Gray Line business in 1998, and, by the early 2000s, was the dominant provider of hop-on, hop-off bus tours in New York City.
CitySights LLC (“City Sights”), a New York limited liability company with its principal place of business in New York, New York, began operating hop-on, hop-off bus tours under the “CitySights NY” brand in 2005. Between 2005 and 2009, City Sights steadily grew its business and established itself as Gray Line’s only meaningful competitor.

By the end of 2008, City Sights had almost equaled Gray Line in market share and was poised for further growth.
The impact of increasing competition from City Sights generated concern at the highest levels of Coach and its corporate parent, Stagecoach Group plc (“Stagecoach”), and led them to seek a business combination with City Sights. On March 17, 2009, following several months of negotiations, Coach (through subsidiary IBS) and City Sights (through subsidiary City Sights Twin, LLC) executed a joint venture agreement creating Twin America, a Delaware limited liability company with its principal place of business in New York City. Twin America combined Defendants’ New York City hop-on, hop-off bus tour operations and ended all competition between Gray Line and City Sights. Twin America continued to operate both the Gray Line and City Sights brands under common ownership and control.
The formation of Twin America was not subject to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, 15 U.S.C. 18a (the “HSR Act”), which requires companies to notify and provide information to the Department of Justice and the Federal Trade Commission before consummating certain transactions. Neither the United States nor the State of New York was aware of the transaction until after it had been consummated. Upon learning of the transaction, the Antitrust Bureau of the New York State Attorney General’s Office (“NYSAG”) opened an investigation, and on July 31 and August 3, 2009, served subpoenas on Defendants seeking information about Twin America’s formation.
B. The STB’s Rejection of the Joint Venture
Within weeks of receiving the NYSAG’s subpoenas, on August 19, 2009, Defendants applied to the federal Surface Transportation Board (“STB”) for approval of Twin America. Pursuant to 49 U.S.C. 14303, the STB must approve certain transactions involving passenger motor carriers prior to consummation. Following their application, Defendants asserted that review of Twin America was within the STB’s exclusive jurisdiction because STB approval would immunize the transaction from antitrust law.
[3]

On February 8, 2011, following the collection of fact and expert evidence, the STB rejected the Twin America joint venture. The STB expressed “concern[] that the Board’s processes may have been manipulated to avoid the inquiry by NYSAG” and concluded that “[t]he transaction produce[d] an unacceptably high market concentration that can lead to, and has in fact led to, unchecked rate increases, and that holds the potential for other harmful effects of excessive market power.”
[4]

Defendants moved for reconsideration, but in January 2012, the STB affirmed its prior finding. The STB gave Defendants the option of unwinding Twin America or spinning off Twin America’s nominal interstate services, which the STB identified as the basis for its jurisdiction. On February 8, 2012, Defendants chose to spin off the interstate services, which removed the matter from STB jurisdiction but did nothing to address the joint venture’s anticompetitive effects in the New York City hop-on, hop-off bus tour market. Plaintiffs filed the above-captioned lawsuit on December 11, 2012.

C. The Competitive Effects of the Transaction in the Market for Hop-On, Hop-Off Bus Tours in New York City
1. Relevant Market
The evidence demonstrates that a significant number of customers would not substitute to other tours or attractions in response to a small but significant and non-transitory increase in the price (SSNIP) of hop-on, hop-off bus tours. These bus tours combine transportation and sightseeing into a unique product that is not reasonably interchangeable with other tours or attractions. In addition to providing an informative and entertaining tour of New York City’s most popular attractions and neighborhoods, hop-on, hop-off bus tours provide customers with the ability to “hop off” the bus to visit attractions of interest and “hop on” a later bus to continue their tour using the same ticket. As a result of this feature, customers are provided an affordable and reliable means to travel around New York City and the ability to customize their sightseeing itineraries to the attractions and neighborhoods that interest them. Defendants’ documents and business practices illustrate that they have long recognized hop-on, hop-off bus tours in New York City to be a distinct market and do not view other types of tours as a significant constraint, a view shared by numerous other New York City sightseeing tours and attractions.

The direct evidence of anticompetitive effects following the formation of Twin America provides further support for the conclusion that hop-on, hop-off bus tours in New York City constitute a relevant antitrust market. Defendants implemented a substantial price increase around the time of Twin America’s early 2009 formation, raising the fares of City Sights’s and Gray Line’s downtown, uptown, and all loops tours, for example, by approximately 10 percent. These price increases, which Defendants have sustained for six years (and supplemented with further increases), are higher than the 5 percent SSNIP that is often used under the Horizontal Merger Guidelines to define a market. Defining a relevant antitrust market generally involves answering the question of whether a hypothetical monopolist would find it profitable to impose a SSNIP. The evidence that Coach and City Sights significantly increased price as a result of the market power conferred by the joint venture directly answers this question: it is clear that a hypothetical monopolist would find it profitable to impose a SSNIP because an actual near-monopolist (Twin America) did, in fact, find it profitable to raise price significantly for an extended period of time.
Hop-on, hop-off bus tours in New York City therefore constitute a relevant market and line of commence under Section 7 of the Clayton Act, Section 1 of the Sherman Act, and Section 340 of the Donnelly Act.
2. Competitive Effects

The formation of Twin America resulted in actual and immediate harm to consumers as it enabled Defendants to increase hop-on, hop-off bus tour prices by approximately 10 percent. The evidence demonstrates that at the time Coach and Stagecoach were negotiating a business combination with City Sights, Coach and Stagecoach consistently planned for and assumed that the merged firm would implement a 10 percent fare increase on Gray Line and City Sights tours and that Coach shared this assumption with City Sights. Coach ultimately increased Gray Line’s hop-on, hop-off bus tour fares by approximately 10 percent shortly before executing the joint venture and Defendants increased City Sights’s fares to match the Gray Line increase shortly after consummation. Defendants sustained the Gray Line and City Sights fare increases in the years following Twin America’s formation and raised prices further in 2013.
In years prior to the joint venture, Coach and City Sights were each other’s main rival and consumers benefited from the improved products and services that resulted from the fierce and direct competition between them. This head-to-head competition, which intensified over time, was eliminated when Defendants merged their hop-on, hop-off bus tour operations. In addition, the formation of Twin America substantially increased concentration in an already highly concentrated market. Concentration is typically measured by the Herfindahl-Hirschman Index (“HHI”). The more concentrated a market, and the more a transaction would increase concentration in a market, the more likely it is that a transaction would result in a meaningful reduction in competition. Markets in which the HHI is in excess of 2500 points are considered highly concentrated, and a transaction that increases concentration by more than 200 points in such a market is presumed likely to enhance market power. In the year prior to the joint venture’s formation, Gray Line had an approximately 63 percent market share, City Sights had an approximately 37 percent share, and a third firm had a less than one percent share, resulting in an HHI of 5271. The formation of Twin America created an effective monopoly with an approximately 99 percent market share and increased the market’s HHI by 4599 to 9870. Based on the pre- and post-transaction market concentration measures, Twin America’s formation is presumed likely to enhance market power.
3. Entry
Entry and expansion into the relevant market has not been, and is not likely to be, timely or sufficient to counteract the joint venture’s anticompetitive effects. For more than three years following Twin America’s formation, there was no new entry or expansion in the New York City hop-on, hop-off bus tour market and Defendants sustained their early 2009 price increases. Entry that has occurred since 2012 has also failed to roll back Defendants’ price increases and has been insufficient to constrain Twin America’s exercise of market power.
The most significant barrier to entry in the hop-on, hop-off bus tour market is the requirement that an entrant obtain authorizations from the New York City Department of Transportation (“NYCDOT”) for each location where it wishes to stop to load and unload passengers on its tour. Both Gray Line and City Sights have long held large portfolios of bus stop authorizations that enable them to stop at or in close proximity to virtually all of New York City’s top attractions and neighborhoods, providing Defendants with a distinct competitive advantage over other operators in the market. Gray Line and City Sights obtained these bus stop authorizations without difficulty years before their joint venture because NYCDOT awarded the bus stops on a “first come, first served” basis. Recent entrants, by contrast, have faced persistent difficulties securing bus stop authorizations at or sufficiently near key tourist attractions to be competitive with Twin America as NYCDOT has denied the overwhelming majority of bus stops applied for since Twin America’s formation. Most of the stops sought by the entrants—particularly those at or in close proximity to top tourist attractions—are now at capacity or are otherwise unavailable, leaving Twin America with the dominant share of competitively-meaningful stops. The chronic denial of bus stop authorizations has blocked some firms from entering the market altogether and prevented those that have entered from replicating the scale and strength of either City Sights or Gray Line prior to the joint venture. Without needed bus stops, some entrants stop at key attractions on an unauthorized basis, creating the risk of an enforcement action that could curtail their operations at any time.
4. Efficiencies
The formation of Twin America has not resulted in, and is unlikely to result in, cognizable, merger-specific efficiencies that have been passed through to consumers on a sufficient scale to offset Twin America’s anticompetitive effects.


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