MESKILL, Circuit Judge:
Tenneco, Inc. (“Tenneco”) petitions pursuant to 15 U.S.C. § 45(d) (1976)1 for re[348]*348view of a final order of the Federal Trade Commission (“Commission”) requiring- its divestiture of Monroe Auto Equipment Co. (“Monroe”) and prohibiting it from making certain acquisitions for a ten-year period.2 The Commission, in reversing a decision of [349]*349an Administrative Law Judge (“ALJ”), found that Tenneco’s 1977 acquisition of Monroe violated Section 7 of the Clayton Act, 15 U.S.C. § 18 (1976),3 by eliminating potential competition in the market for replacement automotive shock absorbers. We grant Tenneco’s petition for review and set aside the Commission’s order.
A. BACKGROUND
I. The Companies
Tenneco is a diversified corporation whose operations include the manufacture and distribution of automotive parts. In 1975, Tenneco was the fifteenth largest industrial corporation in the United States with over $6.58 billion in assets and revenues exceeding $5.63 billion. Tenneco’s Walker Manufacturing Division (“Walker”), which was responsible for Tenneco’s automotive parts operations at the time of the events giving rise to this case, was the nation’s leading seller of exhaust system parts in 1975 and 1976. Walker also manufactured hydraulic jacks, air jacks, mechanical scissors jacks, oil seals and automotive filters. Walker distributed steering dampers and other automotive parts through a subsidiary. Walker’s exhaust system parts business accounted for most of its revenues.
Monroe, which was established before World War II, has become a leading manufacturer of automotive shock absorbers. Monroe has concentrated its operations on production of replacement shock absorbers: In fiscal 1976, for example, over 80% of Monroe’s output was sold for use as replacement equipment for worn or damaged shock absorbers. See section A. Ill, infra. The company experienced significant growth during the 1960s and early 1970s, but suffered decreased earnings in the years immediately preceding its acquisition by Tenneco. The parties offer conflicting explanations for Monroe’s financial downturn and somewhat differing predictions of Monroe’s future.
II. The Product
Automotive shock absorbers facilitate vehicle control “by keeping the wheels on the road, reducing sway and roll on curves, reducing bottoming, dampening vibrations, [and] controlling wheel hop.” AU’s Findings, J. App. at 70, ¶ 26. In addition, they increase driving comfort by “smoothing the ride.” Id. Shock absorbers consist of one or more steel tubes which contain a hydraulic cylinder, a piston and a rod which move through the cylinder, hydraulic valves and fluid, springs, seals and bearings. Although they take several forms, all shock absorbers perform similar functions. A conventional shock absorber is mounted vertically between the vehicle body and a wheel. The same is true of McPherson strut shock absorbers (or “struts”), a relatively new design combining the shock absorber with other portions of the vehicle’s suspension. The McPherson strut has become increasingly popular, especially for small ears, because its wheel suspension method is more compact than conventional designs. Steering dampers, another form of shock absorber, are mounted horizontally between the front wheels of a vehicle. Steering dampers are designed to dampen road shocks and oscillations in the steering system and differ from conventional shocks principally in mounting hardware.
[350]*350III. The Market
Shock absorbers are distributed through two distinct channels: the original equipment channel and the replacement channel. The original equipment channel consists of sales to manufacturers for use on new vehicles. The replacement channel consists of sales to outlets that install shock absorbers on vehicles already in use as replacements for worn or damaged equipment.
In the years relevant to this case, the replacement channel was highly concentrated, with the four leading manufacturers accounting for over 90% of total sales in both 1975 and 1976: Monroe, the number two firm, and Maremont, the parent company of industry leader Gabriel, collectively accounted for over 77% of replacement shock absorber sales in 1976; Questor and General Motors together accounted for approximately 15% of sales in the same year. Gabriel, Monroe, Questor and General Motors have occupied the top four positions in the replacement market at least since the late 1960s, with Monroe holding either the first or second position since the beginning of that decade.
Substantial barriers, the most significant of which may be economies of scale in the industry, discourage entry into the market for replacement shock absorbers. The parties agree that a shock absorber plant operating at minimum efficient scale would produce six million units annually, which is approximately 10% of total replacement shock absorber sales. Other barriers to entry include the need for technology and marketing skills peculiar to the industry and the significant time lags associated with establishing a plant and penetrating the market to the extent necessary to achieve a reasonable rate of return on investment.
IV. The Commission’s Opinion
Against the background outlined above, the Commission concluded that the relevant market for antitrust analysis was the market for replacement shock absorbers, including conventional shock absorbers, McPherson struts and steering dampers. While the Commission found that competitive performance in this highly concentrated market “improved substantially” “in the years just prior to the [Tenneco-Monroe] merger,” it attributed the market’s “improved economic performance” to “industry fears that Tenneco was likely to attempt entry.” Commission Opinion at 13-14, J. App. at 203-04. In other words, the Commission believed that Tenneco was exerting an “edge effect” on the industry, causing existing manufacturers to compete aggressively in an attempt to discourage entry by Tenneco. The Commission concluded that once Tenneco acquired Monroe and was no longer perceived as a potential independent competitor, the “edge effect” disappeared. The Commission predicted that as a result manufacturers would revert to the anticompetitive, oligopolistic activities that typify competitors in a highly concentrated market. Id. The Commission also ruled that, in addition to this alleged “edge effect,” which is grounded in industry perceptions, Tenneco was in fact likely to enter into the independent manufacture of replacement shock absorbers in competition with existing producers. This likelihood vanished upon the Tenneco-Monroe merger. For these reasons the Commission ruled that “the effect of [Tenneco’s] acquisition [of Monroe] is likely to lessen competition substantially in the sale of replacement shock absorbers through the elimination of both perceived and actual potential competition in violation of both Section 7 of the Clayton Act and Section 5 of the Federal Trade Commission Act.”4 Commission Opinion at 68, J. App. at 258.
B. DISCUSSION
Tenneco challenges both the Commission’s definition of the relevant market and [351]*351its findings with respect to Tenneco’s effect on that market as a potential competitor. The parties agree that our consideration of these issues is governed by the “substantial evidence” standard of review. Under that standard,
the Commission’s findings of fact, “if supported by substantial evidence, shall be conclusive,” 15 U.S.C. § 21(c), and we may not substitute our inferences for those drawn by the Commission simply because we might have evaluated the facts differently as an original matter. See FTC v. Pacific States Paper Trade Ass’n, 273 U.S. 52, 63, 47 S.Ct. 255, [258] 71 L.Ed. 534 (1927); Simeon Management Corp. v. FTC, 579 F.2d 1137, 1142 (9th Cir. 1978). However, the Commission’s findings must be supported by substantial evidence and there must also be a rational connection between those findings and its conclusions.
Fruehauf Corp. v. FTC, 603 F.2d 345, 351 (2d Cir. 1979).
Even assuming that the Commission’s market definition is supported by substantial evidence, we hold that the Commission’s findings on the elimination of potential competition are not. Accordingly, we do not address Tenneco’s challenges to the market definition, but move directly to the potential competition issues.
I. The Clayton Act and Potential Competition
The Supreme Court summarized the purpose of Section 7 of the Clayton Act and its relationship to the doctrine of potential competition in United States v. Faistaff Brewing Corp., 410 U.S. 526, 531-32, 93 S.Ct. 1096, 1099-1100, 35 L.Ed.2d 475 (1973):
Section 7 of the Clayton Act forbids mergers in any line of commerce where the effect may be substantially to lessen competition or tend to create a monopoly. The section proscribes many mergers between competitors in a market, United States v. Continental Can Co., 378 U.S. 441 [84 S.Ct. 1738, 12 L.Ed.2d 953] (1964); Brown Shoe Co. v. United States, 370 U.S. 294 [82 S.Ct. 1502, 8 L.Ed.2d 510] (1962); it also bars certain acquisitions of a market competitor by a noncompetitor, such as a merger by an entrant who threatens to dominate the market or otherwise upset market conditions to the detriment of competition, FTC v. Procter & Gamble Co., 386 U.S. 568, 578-580 [87 S.Ct. 1224, 1230-1231, 18 L.Ed.2d 303] (1967). Suspect also is the acquisition by a company not competing in the market but so situated as to be a potential competitor and likely to exercise substantial influence on market behavior. Entry through merger by such a company, although its competitive conduct in the market may be the mirror image of that of the acquired company, may nevertheless violate § 7 because the entry eliminates a potential competitor exercising present influence on the market. Id., at 580-581 [87 S.Ct. at 1231-1232]; United States v. Penn-Olin Chemical Co., 378 U.S. 158, 173-174 [84 S.Ct. 1710-1718, 12 L.Ed.2d 775] (1964). As the Court stated in United States v. Penn-Olin Chemical Co., supra, at 174 [84 S.Ct. at 1718]. “The existence of an aggressive, well equipped and well financed corporation engaged in the same or related lines of commerce waiting anxiously to enter an oligopolistic market would be a substantial incentive to competition which cannot be underestimated.”
As later explained by the Court in United States v. Marine Bancorporation, Inc., 418 U.S. 602, 624-25, 94 S.Ct. 2856, 2871-2872, 41 L.Ed.2d 978 (1974), the potential competition doctrine is divisible into two theories: perceived potential competition and actual potential competition. The Commission found that Tenneco had violated section 7 under both theories.
The Supreme Court has described the theory of perceived potential competition, which it has approved for application to cases brought under Section 7 of the Clayton Act, see, e.g., Marine Bancorporation, 418 U.S. at 625, 94 S.Ct. at 2871; Faistaff Brewing Corp., 410 U.S. at 531-37, 93 S.Ct. at 1099-1103, as “the principal focus of the [potential competition] doctrine.” Marine [352]*352Bancorporation, 418 U.S. at 624, 94 S.Ct. at 2871.
In developing and applying, the [perceived potential competition] doctrine, the Court has recognized that a market extension merger may be unlawful if the target market is substantially concentrated, if the acquiring firm has the characteristics, capabilities, and economic incentive to render it a perceived potential de novo entrant, and if the acquiring firm’s premerger presence on the fringe of the target market in fact tempered oligopolistic behavior on the part of existing participants in that market. In other words, the Court has interpreted § 7 .as encompassing what is commonly known as the “wings effect” — the probability that the acquiring firm prompted premerger pro-competitive effects within the target market by being perceived by the existing firms in that market as likely to enter de novo.
Id. at 624-25, 94 S.Ct. at 2871-2872.
The actual potential competition theory, which has yet to receive sanction from the Supreme Court or this Court, see, e.g., id. at 625, 639, 94 S.Ct. at 2871, 2878; United States v. Siemens Corp., 621 F.2d 499, 504 (2d Cir. 1980), would
proscribe[] a market extension merger solely on the ground that such a merger eliminates the prospect for long-term deconcentration of an oligopolistic market that in theory might result if the acquiring firm were forbidden to enter except through a de novo undertaking or through the acquisition of a small existing entrant (a so-called foothold or toehold acquisition).
Marine Bancorporation, 418 U.S. at 625, 94 S.Ct. at 2871.
The theory of the [actual potential competition] doctrine is that competition in the market would be enhanced by the addition of the new competitor and therefore the elimination of such a potential competitor would substantially lessen competition within the meaning of § 7.
Siemens Corp., 621 F.2d at 504.
The Commission established two independent grounds on which to base its ruling that Tenneco’s acquisition of Monroe violated section 7 by finding that the acquisition eliminated both actual and perceived potential competition in the market for replacement shock absorbers. Tenneco challenges both grounds, arguing that the record is inadequate to support the factual findings underlying them. We will discuss the substantiality of the evidence underlying both halves of the Commission’s case, addressing first the findings relating to actual potential competition.
II. Actual Potential Competition
To establish a violation of section 7 in this case based upon the elimination of actual potential competition, assuming for the moment that the doctrine is valid, the Commission must show: (1) that the relevant market is oligopolistic; (2) that absent its acquisition of Monroe, Tenneco would likely have entered the market in the near future either de novo or through toehold acquisition; and (3) that such entry by Tenneco carried a substantial likelihood of ultimately producing deconcentration of the market or other significant procompetitive effects. See Marine Bancorporation, 418 U.S. at 630, 633, 94 S.Ct. at 2874, 2875; Siemens Corp., 621 F.2d at 505; BOC International Ltd. v. FTC, 557 F.2d 24, 29 (2d Cir. 1977). Tenneco argues that the Commission’s findings on the relevant market and the likelihood of entry lack substantial record support.
Tenneco’s challenges to the Commission’s conclusion that the market for replacement shock absorbers was oligopolistic are not persuasive. Tenneco concedes that the concentration ratios in the market, “the primary index of market power,” Brown Shoe Co. v. United States, 370 U.S. 294, 322 n. 38, 82 S.Ct. 1502, 1522 n. 38, 8 L.Ed.2d 510 (1962), were extraordinarily high during the relevant period: Four-firm concentration was over 90% and two-firm concentration was over 77%. Brief for Tenneco at 18. This fact alone “established a prima facie case that the . . . market was a candidate for the potential-competition doctrine.” [353]*353Marine Bancorporation, 418 U.S. at 631, 94 S.Ct. at 2874. Therefore, it was Tenneco’s burden to show that these high concentration ratios did not accurately reflect the competitive conditions in the market. Id. Tenneco, however, showed only that in 1974 the market for replacement shock absorbers suffered from decreased earnings apparently caused by falling prices, suggesting a more competitive market than the high concentration ratios would reflect. Tenneco argues that this evidence of increased competition, combined with the Supreme Court’s warning that high concentration ratios are not alone conclusive, United States v. General Dynamics Corp., 415 U.S. 486, 498, 94 S.Ct. 1186, 1194, 39 L.Ed.2d 530 (1974); see Brown Shoe Co., 370 U.S. at 321-22 & n. 38, 82 S.Ct. at 1521-1522 & n. 38, 8 L.Ed.2d 510, undermines the Commission’s finding that the market for replacement shock absorbers was sufficiently concentrated and anticompetitive to justify application of the potential competition doctrine. We disagree.
The record establishes that the structure, history and probable future of the market for replacement shock absorbers — the factors that the Supreme Court identified as proper considerations in addition to concentration ratios, General Dynamics Corp., 415 U.S. at 498, 94 S.Ct. at 1194; Brown Shoe Co., 370 U.S. at 322 n. 38, 82 S.Ct. at 1522 n. 38, 8 L.Ed.2d 510 — are all consistent with the Commission’s finding. The extraordinarily high concentration ratios have remained stable over many years with the same firms occupying the top four positions since at least the late 1960s. Substantial barriers to entry severely limit the number of firms likely to provide additional competition. See section A. Ill, supra. The industry has been highly profitable, and despite recent indications that profit margins may be decreasing, industry experts, including Tenneco executives, foresee a bright future. Based upon this evidence, the Commission was fully justified in concluding that the replacement shock absorber market was not genuinely competitive and in proceeding to assess Tenneco’s effects on that market.
Nevertheless, we reject the Commission’s finding that Tenneco was an actual potential entrant likely to increase competition in the market for replacement shock absorbers. The record lacks substantial evidence supporting the Commission’s finding that Tenneco was likely to have entered the market for replacement shock absorbers in the near future either de novo or through toehold acquisition. See Marine Bancorporation, 418 U.S. at 633, 94 S.Ct. at 2875; Siemens Corp., 621 F.2d at 505; BOC International Ltd., 557 F.2d at 29.
The record contains abundant evidence that Tenneco had both the interest and the incentive to enter the market for replacement shock absorbers. The Commission relied upon internal Tenneco and Walker documents identifying shock absorbers as complementary to Walker’s exhaust system products line and urging entry into the shock absorber market. In addition, uncontradicted evidence revealed that Tenneco had negotiated with major European shock absorber manufacturers regarding possible acquisitions or license arrangements and had actually acquired a small manufacturing company that held a patent on a new shock absorber design. The record strongly supports the conclusion that Tenneco was actively considering entry into the market and was pursuing all leads to that end at least since the late 1960s or early 1970s. Moreover, Tenneco clearly possessed adequate financial resources to make the large initial investment needed to attempt to penetrate the market. The record, however, is deficient in evidence that there were viable toehold options available to Tenneco or that Tenneco would have entered the market de novo.
The Commission conceded in its opinion that Tenneco never expressed any interest in entering the market for replacement shock absorbers “on a completely de novo basis.” Commission Opinion at 57, J. App. at 247. However, the Commission found that Tenneco had expressed interest in entering the market essentially de novo, building the required production facilities from [354]*354scratch and acquiring the necessary technology via a license from an established foreign shock absorber producer, id. at 57-58, J. App. at 247-48. The Commission concluded that Tenneco would likely have done so absent its acquisition of Monroe.
The Commission’s reasoning is flawed. It ignores Tenneco’s decision not to enter the market during the 1960s and early 1970s, a period of high profitability for shock absorber manufacturers, because of anticipated inadequate earnings during early years. The record is devoid of evidentiary support for the Commission’s assertion that in the period relevant to this case, when industry earnings were in decline, Tenneco would have been willing to suffer the “cost disadvantage” inherent in the building of an efficient scale plant that would remain underutilized “for a number of years.” Commission Opinion at 59 n. 61, J. App. at 249. The Commission’s conclusion that Tenneco would have entered the market de novo with the aid of a license absent its acquisition of Monroe is based on the kind of unsupported speculation that the Supreme Court condemned when it warned that we should “remember[ ] that § 7 deals in ‘probabilities,’ not ‘ephemeral possibilities.’ ” Marine Bancorporation, 418 U.S. at 622-23, 94 S.Ct. at 2870-2871 (quoting Brown Shoe Co., 370 U.S. at 323, 82 S.Ct. at 1522).
The Commission’s conclusion that Tenneco would likely have entered the replacement shock absorber market through toehold acquisition is similarly flawed. The Commission identified Armstrong Patents, Ltd. (“Armstrong”), a British shock absorber manufacturer, DeCarbon Shock Absorber Co. (“DeCarbon”), a French company, and Blackstone Manufacturing Corp. (“Blackstone”), a small United States producer of shock absorbers, as potential toeholds.5 However, the record reveals that Tenneco in fact negotiated unsuccessfully with Armstrong and DeCarbon. Armstrong management indicated that Tenneco would have to offer a 100% premium over the market price of its stock to generate its interest. Tenneco’s negotiations with DeCarbon, which were conducted through an independent broker, were equally fruitless. DeCarbon had asked a selling price of 100 times its earnings. In addition, there was testimony that the French Ministry of Industry had the authority and probably the inclination to disallow such an acquisition.
Despite recognizing the failure of Tenneco’s negotiations with Armstrong and DeCarbon, the Commission again retreated to speculation, asserting that continued negotiation could have produced favorable results. As we stated above, speculation does not provide an adequate basis for a finding of a section 7 violation. The Commission cannot negate the strong evidence that Armstrong and DeCarbon were not reasonably available with a bald prediction that the situation might change in the future.
As for Blackstone, the Commission itself described that company as “a small, struggling domestic firm . . . burdened with aged equipment, a less than complete product line . . ., declining market share and a mediocre reputation.” Commission Opinion at 61, J. App. at 251. Since 1974, Blackstone had unsuccessfully sought a buyer for its business, soliciting, among others, Midas International Corp., which operates a chain of muffler installation shops, and Questor. Nevertheless, the Commission remarkably concluded that Blackstone “would have served as a viable method of toehold entry, although this route would have been more difficult and less attractive than the acquisition of a substantial foreign firm.” Id. We do not believe that the Commission’s [355]*355assertion that Tenneco would have acquired a weak and deteriorating firm with a poorly accepted product and run-down equipment in which neither Tenneco nor any other company had shown significant interest satisfies the requirement that a finding of a section 7 violation be based on “probabilities.” See Marine Bancorporation, 418 U.S. at 622-23, 94 S.Ct. at 2870-2871 (quoting Brown Shoe Co., 370 U.S. at 323, 82 S.Ct. at 1522).
Because we hold that the Commission’s findings and conclusions with respect to Tenneco as an actual potential competitor in the market for replacement shock absorbers are unsupported by substantial record evidence, we need not reach the issue of the validity of the actual potential competition doctrine.
III. Perceived Potential Competition
We also conclude that the record contains inadequate evidence to support the Commission’s conclusion that Tenneco’s acquisition of Monroe violated section 7 by eliminating Tenneco as a perceived potential competitor in the market for replacement shock absorbers.
In order to make out a “perceived” potential competition case the [Commission], in addition to showing a market highly concentrated among a few firms, must prove that the acquiring company is (1) perceived by existing firms in the market as a potential independent entrant, and (2) has exercised a tempering impact on the competitive conduct of existing sellers.
Siemens Corp., 621 F.2d at 505 (footnote omitted). See also Marine Bancorporation, 418 U.S. at 624-25, 94 S.Ct. at 2871-2872. Tenneco once again challenges the Commission’s findings on each of these elements, including the finding of a highly concentrated market, which we have already addressed in section B. II, supra.
There is abundant evidence that the oligopolists in the market for replacement shock absorbers perceived Tenneco as a potential entrant. Industry executives testified that they considered Tenneco one of very few manufacturers with both the incentive and the capability to enter the market. This perception was based on Tenneco’s financial strength and on the compatibility of shock absorbers with exhaust system parts produced by Tenneco’s Walker Division. This testimony was enhanced by evidence that the negotiations between Tenneco and DeCarbon were initiated by an independent broker and that the negotiations that eventually led to the TennecoMonroe merger were initiated by Monroe, indicating that those in the industry were aware of Tenneco’s interest. This, especially when combined with the fact that industry participants were apparently not privy to the lack of success in Tenneco’s toehold acquisition negotiations, is more than sufficient to satisfy the substantial evidence requirement with respect to industry perceptions of Tenneco as a potential entrant.
However, the analysis does not end here. The Commission’s conclusion that the perception of Tenneco as a potential entrant actually tempered the conduct of oligopolists in the market must also be supported by substantial evidence. It is not.
Throughout this case, Tenneco has argued that in the years immediately preceding its acquisition of Monroe the market for replacement shock absorbers had become highly competitive. The Commission apparently agrees with this assessment. Commission Opinion at 13, J. App. at 203. The rate of increase in advertised retail prices for shock absorbers fell significantly behind inflation, and so-called mass merchandisers such as Sears Roebuck replaced traditional wholesale distributors as the leading purchasers of replacement shock absorbers from manufacturers. Sears retail prices for shock absorbers were frequently below the prices that manufacturers charged wholesale distributors, who were several levels above the retail customer in the traditional chain of distribution.
The advent of increased sales by mass merchandisers coincided with aggressive competition among shock absorber manufacturers. Manufacturers offered substantial discounts off their circulated price sheets to traditional wholesalers and imple[356]*356merited “stocklifting,” a practice in which a manufacturer buys a wholesaler’s inventory of a competing manufacturer’s product and replaces it with his own product. Perhaps the most aggressive and certainly the most successful manufacturer was Maremont, which acquired Gabriel in 1962. At the time of the acquisition, Gabriel was, in the Commission’s words, “in a downward trend,” id. at 64, J. App. at 254, and ranked third in the industry with a market share of between 10% and 20%, J. App. at 1650-51. After the acquisition, Maremont undertook an aggressive campaign to improve its position. Since that time, “Gabriel’s market share has at least doubled and has possibly increased four-fold. Maremont today is the number one firm in the replacement shock absorber market.” Commission Opinion at 64, J. App. at 254.
While agreeing that competitive activity increased dramatically in the mid-1970s, the Commission stated:
[W]e disagree with [Tenneco] over the cause of that new competitive vigor. In brief, we find that the source of the improved economic performance lay in industry fears that Tenneco was likely to attempt entry — an actual “edge effect”— rather than in the buyer power supposedly asserted by mass merchants against their suppliers.
Commission Opinion at 13-14, J. App. at 203-04. The Commission’s hypothesis depends almost entirely on inferences drawn from the activity of Maremont. The Commission pointed to the testimony of Byron Pond, Senior Vice-President and Director of Maremont, who stated:
the attractive nature of the shock absorber business has caused us to invest because of the opportunities and also to invest because, if we didn’t invest, someone else would.
. .. One of the ways that you strengthen your position in a business and restrict or limit the amount of competition that you are faced with is to make considerable efforts to become a low-cost producer.
J. App. at 679-80. The Commission inferred from this testimony that Maremont’s “efforts to ‘restrict or limit’ competition were in large measure aimed at deterring a destabilizing de novo or toehold Tenneco entry.” Commission Opinion at 53, J. App. at 243. The Commission analyzed other Maremont activities as follows:
Maremont testified that it invested heavily in inventory to improve the quality of its service, its rate of “order fill,” to a level substantially higher than the industry standard then in effect. The record does not reveal competitive pressure from Monroe or others within the replacement shock absorber market to improve service, but an extraordinary level of order fill could be a useful weapon against a feared potential entrant. One obvious impact is in raising the investment in inventory needed by a potential entrant to compete in winning over new accounts, making entry more expensive. Providing improved service to its accounts also can reasonably be expected to increase the loyalty of those accounts to Maremont, to increase the difficulty facing a new entrant in winning market shares generally, and to push whatever loss did arise onto Monroe or others. Finally, there is the possibility that Maremont was responding to an expectation that Tenneco, upon entering, would set a high standard of service, comparable to what it was already providing in the replacement [exhaust system parts] market.
Similarly, a better explanation for Maremont’s cost-cutting and cost-absorption can be found in fear of potential entry than in the actual competition which then faced the firm. One would not expect a firm in such a concentrated market voluntarily to absorb cost increases and thereby cut its rate of return. Rather, one would expect Maremont merely to pass such increases through in the reasonable expectation that its one main competitor will find that enlightened self interest lay in following a similar course.
Even investments in cost-cutting, which generally would appear not to be inhibited by a high level of concentration, [357]*357as the payoff from that investment could be retained by the firm, here appear motivated by fear of potential entry rather than by the present competition facing Maremont. Maremont, it must be noted, had a large proportion of its sales, 41%, going to one account, Sears, Roebuck and Co., and an additional 14% going to three other mass merchants. Although the record does not disclose the nature of Maremont’s contractual relationships with these other big accounts, it does demonstrate that the Sears contract provided for payment on a cost-plus basis, i.e., projected actual cost for the contract year plus a fixed percentage of that cost as Maremont’s return. This arrangement is significant for it limits the return which Maremont could obtain from investments in new, cost-saving technology. Thus, the benefit to Maremont of investment in this area is substantially less than it would otherwise seem to be.
Investment in cost-reducing technology, however, might be completely justified as an attempt to deter entry by Tenneco, or to be better prepared for more rigorous competition following entry. Indeed, Maremont recognized that Tenneco was a highly efficient [exhaust system parts] manufacturer.
In conclusion, we find that the various improvements in the competitiveness of the replacement shock absorber market in the pre-merger period cannot be adequately explained by factors indigenous to that market. Rather, the competitive upsurge appears closely related to the presence of Tenneco poised on the market’s edge, in short, an actual edge effect.
Commission Opinion at 54-57, J. App. at 244-47 (footnotes and citations omitted).
Whatever might be our conclusion on the substantiality of this evidence standing alone to support the Commission’s findings, a review of the record reveals that the Commission ignored evidence contrary to its hypothesis. We must weigh this evidence in our review of the substantiality of the record evidence. “The substantiality of evidence must take into account whatever in the record fairly detracts from its weight.” Universal Camera Corp. v. NLRB, 340 U.S. 474, 488, 71 S.Ct. 456, 464, 95 L.Ed. 456 (1951).
The Commission appears to have disregarded in this portion of its analysis evidence of the precarious condition of Gabriel at the time it was acquired by Maremont. As we noted above, the Commission described Gabriel as a firm in “a downward trend” when Maremont took it over and began to implement the aggressive competitive measures which the Commission concluded were prompted by a perception of Tenneco “on the wings.” We find it somewhat remarkable that, apparently aware of Maremont’s shaky position in the replacement shock absorber market and its resultant need to improve that position and increase its market share, the Commission could conclude starkly: “The record does not reveal competitive pressure from Monroe or others within the replacement shock absorber market to improve [the quality of its] service . .. . ” Id. at 54, J. App. at 244. Equally striking is the Commission’s statement that, because the industry was highly concentrated, Maremont would not voluntarily absorb cost increases and decrease its rate of return. We cannot understand how else Maremont could attract customers away from industry leader Monroe and others. The Commission’s conclusion that Maremont’s activity cannot be explained by a need to compete against those already in the market is clearly contrary to the record as well as common sense.
In its brief to this Court, the Commission attempts to resurrect its conclusion by noting that it need not “trace competitive conduct [in a concentrated market] ‘directly and solely’ ... to the perception of a firm’s presence on the edge of the market.” Brief for Commission at 52. Rather, the Commission argues that it need only produce enough evidence from which one might draw a reasonable inference that the competitive activities “were ‘at least in part’ attributable to [industry participants’] perceptions] of [a potential competitor’s] presence in the wings.” Id. at 55.
[358]*358We have no doubt that direct evidence of an “edge effect” is not required to support a Commission finding of a section 7 violation. See Falstaff Brewing Corp., 410 U.S. at 534 n.13, 93 S.Ct. at 1101 n.13. In this case, however, direct evidence concerning Tenneco’s “edge effect” on Maremont was elicited by the Commission, though it does not support the Commission’s conclusion. During the testimony of Byron Pond, Senior Vice-President and Director of Maremont, the following colloquy occurred:
Q [By Commission Counsel:] Did the presence of Walker, IPC or Midas and/or TRW as likely potential entrants into the shock absorber market, have any effect on Maremont’s decisions, business decisions?
A [By Mr. Pond:] I don’t think that we looked specifically at competitors on a periodic basis or potential competitors, in developing our strategy. I think we developed our strategy and approach to the business based on how we perceive it and how we perceived the opportunities. . . .
J. App. at 678-79. The Commission dismissed this testimony, arguing that the fact that Maremont did not take Tenneco directly into account was unimportant in a section 7 case “which is concerned with the probable anticompetitive impacts of acquisitions.” Commission Opinion at 54, J. App. at 244.
The Commission’s analysis of Mr. Pond’s testimony confuses “direct evidence” with “evidence of a direct effect.” The Commission is correct that it need not produce direct evidence that Maremont altered its actions in response to a perception of Tenneco “in the wings.” However, it must produce at least circumstantial evidence that Tenneco’s presence probably directly affected competitive activity in the market. Marine Bancorporation, 418 U.S. at 625, 94 S.Ct. at 2871 (To prove a potential competition case, the moving party must show that “the acquiring firm’s premerger presence on the fringe of the target market in fact tempered oligopolistic behavior on the part of existing participants in that market.”) (emphasis added); Siemens Corp., 621 F.2d at 509 (“A claim of ‘perceived’ potential entry will not be upheld in the absence of evidence that present competitors have altered or tempered their conduct as a result of the acquiring firm’s presence.”). Moreover, when determining the substantiality of that circumstantial evidence, we must consider all other record evidence that “fairly detracts from its weight.” Universal Camera Corp., 340 U.S. at 488, 71 S.Ct. at 464. Mr. Pond’s testimony constitutes direct evidence that Tenneco had no direct effect on Maremont’s business decisions or competitive activity. In the face, of this contrary and unchallenged direct evidence, the substantiality of circumstantial evidence arguably suggesting an “edge effect” vanishes. Accordingly, we hold that the Commission’s finding that Maremont’s actions were probably taken in response to its desire to dissuade Tenneco from entering the market is unsupported by substantial evidence in the record. Our reading of Mr. Pond’s testimony and our conclusions with respect to its effect on the substantiality of evidence underlying the Commission’s findings are buttressed by the ALJ’s finding that the evidence was insufficient to show an “edge effect” exerted by Tenneco. “[E]vidence supporting a conclusion may be less substantial when an impartial, experienced examiner who has observed the witnesses and lived with the ease has drawn conclusions different from the [Commission’s] than when he has reached the same conclusion.” Id. at 496, 71 S.Ct. at 468.
CONCLUSION
For the foregoing reasons, we grant Tenneco’s petition for review and set aside the Commission’s order.
So ordered.