KRUPANSKY, Circuit Judge.

This is an appeal by American Hospital Supply Corp. (AHSC), a national distributor of hospital supplies, from a district court decision which held that AHSC violated Sections 1 and 2 of the Sherman Act by entering into a purchasing agreement with a group of hospitals that offered the hospitals volume discounts and a price increase limit in return for a high volume of purchases by the group from AHSC's full range of hospital supply products. The suit was initiated by White and White, Inc. and other local distributors of surgical supplies who compete with AHSC in various individual cities.

The record in this case is voluminous. The trial consumed 80 trial days, required 43 witnesses, produced 800 exhibits and generated almost 15,000 pages of transcript. The district judge issued an opinion that covers 95 pages in the official reporter. 540 F.Supp. 951-1046 (W.D.Mich.1982). On appeal, the joint appendix extends through 11 printed volumes of 4935 pages. Nonetheless, despite this prodigious compilation, the essence of the matter is not factually complex.

In 1977, 29 major non-profit hospitals located in 22 states created the Voluntary Hospitals of America (VHA), an incorporated for-profit organization, to provide each individual hospital with management services, research and development, economies of scale in purchasing, and a political presence. The common purpose of the above objectives was to contain hospital costs, then rising by 17.3% per year, and to discourage or forestall federal or state regulators from imposing mandatory controls on hospital charges. The same impetus to contain costs has been responsible for the creation of 200 other hospital purchasing groups generally organized (1) regionally, (2) by common religious affiliation or (3) in proprietary chains, such as Humana, or Hospital Corp. of America. VHA is unique only in that it is based on the common status of the members as major non-profit hospitals and not upon the more common bonds cited hereinabove.

These recent affiliations by hospitals have altered the hospital supply distribution business. Historically, individual hospitals relied upon local distributors to supply their medical and surgical requirements from local warehouses. As purchasing affiliations were evolved, local suppliers could no longer serve the individual affiliates which were located beyond the local distribution area. Consequently, some manufacturers of frequently consumed supplies began to distribute directly, and nationwide vendor groups were formed. AHSC is the largest of only two national vendors and it offers a complete range of supplies distributed from regional warehouses.

In 1979, AHSC executed an agreement with VHA which is the focus of this suit. Unlike traditional group purchasing agreements which involve the purchase of a given amount of product for a stated group-discounted price, the present agreement permits an individual VHA hospital to negotiate the terms of its own purchases, if any, from AHSC. If, at the end of the year, the aggregate volume of all merchandise sold by AHSC to any and all VHA hospitals reaches a given level, a retroactive rebate is paid by AHSC. This rebate is activated when aggregated purchases by VHA hospitals total $2,000 of supplies per *499 bed. At higher levels of sales per bed the 1% rebate is progressively escalated to a maximum of 6%. In 1979, VHA totaled 20,051 beds, requiring a total purchase from AHSC of $41,002,000 before the rebates became payable.

To implement this agreement, VHA and AHSC representatives visited each hospital to convince administrators that future rebates would offset any current price disadvantages. Moreover, VHA and AHSC officials planned to utilize “peer pressure” whereby hospitals purchasing in large volume from AHSC would induce the other VHA hospitals to assist in achieving the combined quotas. AHSC salesmen, in turn, were told to be “competitive” on price but to stress the greater benefits to be derived in the form of future discounts when the purchasing quotas were satisfied.

The district court initially concluded that the relevant product market was medical/surgical supplies, rather than all hospital supplies, and the relevant geographic markets were identified as each individual city wherein specific plaintiffs competed with the defendant. The court thereupon dismissed claims of exclusive dealing, group boycott, price fixing, illegal tying, and price discrimination.FN1 It determined, however, that the agreement was an attempt to monopolize and a conspiracy to illegally restrain trade under a “rule of reason” analysis, which focused on the difficulties of single item regional suppliers in competing with a full product-line national distributor.

FN1. These rulings were not contested on appeal.

The specific sections of the trial court's opinion concerning each issue here appealed, and a more amplified factual accounting, will be more fully related at each respective section of the substantive discussion. It should be stressed in this factual overview that the principal issue of this case is the anticompetitive effect, if any, of the agreement, and the essence of the lower court's decision is a belief that AHSC impermissibly used the “lure” of future rebates, which were computed on sales of all types of hospital supplies, to eliminate price competition in medical/surgical supplies.

The district judge devoted fully 20 published pages to market analysis, and the parties correspondingly consign lengthy sections of the appellate briefs to the issue. Essentially, AHSC, a national distributor of all types of hospital supplies, objects to the finding that the relevant geographic markets are the individual cities wherein each plaintiff operates, and the product market is the medical/surgical supply segment of the total hospital supply business. The appellants here vigorously contest the findings below in three areas: 1) the applicable standard of review to market determinations; 2) the propriety of the “submarket” analysis in the present case; 3) the actual findings.

Standard of Review

The propriety of reviewing a determination of the relevant market as a factual or legal conclusion is not clearly or uniformly resolved in the case law. However, the preponderance of authority holds that the determination of a relevant market is composed of the articulation of a legal test which is then applied to the factual circumstances of each case. See Borough of Lansdale v. Philadelphia Elec. Co., 692 F.2d 307 (3d Cir.1982); Associated Radio Services Co. v. Page Airways, Inc., 624 F.2d 1342 (5th Cir.1980), cert. denied, 450 U.S. 1030, 101 S.Ct. 1740, 68 L.Ed.2d 226 (1981); Telex Corp. v. I.B.M. Corp., 510 F.2d 894 (10th Cir.), cert. dismissed, 423 U.S. 802, 96 S.Ct. 8, 46 L.Ed.2d 244 (1975); Acme Precision Products, Inc. v. American Alloys Corp., 484 F.2d 1237 (8th Cir.1973); Case-Swayne Co. v. Sunkist Growers, Inc., 369 F.2d 449 (9th Cir.1966), rev'd. on other grounds, 389 U.S. 384, 88 S.Ct. 528, 19 L.Ed.2d 621 (1968). See also International Boxing Club v. United States, 358 U.S. 242, 251, 79 S.Ct. 245, 250, 3 L.Ed.2d 270 (“[W]e cannot conclude the district court was ‘clearly erroneous' in [defining the market]”); Von Kalinowski, Antitrust Laws and Trade Regulation (1982) § 8.02[2](b), note 42. But cf. *500 United States v. Household Finance Corp., 602 F.2d 1255 (7th Cir.1979), cert. denied, 444 U.S. 1044, 100 S.Ct. 732, 62 L.Ed.2d 730 (1980). Accordingly, the district court's formulation of the market tests may be freely reviewed on appeal as a matter of law; the conclusion that the relevant markets herein are medical/surgical supplies sold within specific cities is a finding of fact and subject to the “clearly erroneous” rule. Fed.R.Civ.P. 52.

Market Analysis

Appellant AHSC argues that the trial court erred initially by not defining the relevant product and geographic markets before proceeding to consider potential submarkets, and further erred by utilizing an improper legal definition of a submarket. This issue reflects the confusion arising from the comparatively recent use of “submarket analysis” by courts. As Von Kalinowski has observed:

The concept of relevant submarkets does not, however, seem to add a new test in determining the relevant product market for purposes of Section 2. It merely provides several new factors, in addition to [the existing ones of] selling price, uses, and physical characteristics, which the court may use in determining interchangeability between different products.

Antitrust Laws and Trade Regulation, supra at § 8.02[2]. (Emphasis added). Stated differently, a submarket analysis incorporates, but does not replace, the standard market test. It merely adds new factors to that test so as to more precisely define the market affected by the defendant's actions. In United States v. Dairymen, Inc., 660 F.2d 192, 195 (6th Cir.1981) this Court underscored the point that a submarket is a market, ascertained by traditional market analysis, which includes additional, not wholly different considerations.

The district court in the case at bar, however, interpreted Dairymen as permitting a fact-finder to substitute the submarket “test” for the market “test” if the market test produced “ambiguous” results. 540 F.Supp. at 980, 982. Specifically, the district judge stated:

[T]he relevant product focus of this action can be defined only by [ either ] a market analysis using the reasonable interchangeability of product use standard * * * or by a submarket analysis * * *.

Id. at 982.

Neither Dairymen nor any other case holds that market and submarket analyses are substitute tests. In fact, Dairymen remanded the issue of defining a geographic submarket with directions to apply the standard first enunciated in Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 81 S.Ct. 623, 5 L.Ed.2d 580 (1961) for defining a geographic market. 660 F.2d at 195. The district court in the matter at bar, therefore, fundamentally erred by construing the market test and the submarket criteria as independent, substitute standards, leaving to the discretion of the trial court the option to employ “either” one “or” the other when, in fact, the submarket criteria are to be used in conjunction with the basic test to more precisely define the relevant markets. Accordingly, this Court's analysis must now proceed to an articulation of the basic definitions of relevant geographic and product markets, together with identifying the additional submarket criteria.

Product Market Test

The essential test for ascertaining the relevant product market involves the identification of those products or services that are either (1) identical to or (2) available substitutes for the defendant's product or service. United States v. E.I. DuPont de Nemours & Co., 351 U.S. 377, 76 S.Ct. 994, 100 L.Ed. 1264 (1956) (The “Cellophane Case”). This comparative analysis has been characterized as the “reasonable interchangeability” standard. The DuPont Court noted that reasonable interchangeability may be gauged by (1) the product uses, i.e., whether the substitute products or services can perform the same function, and/or (2) consumer response (cross-elasticity); that is, consumer sensitivity to price levels at which they elect substitutes for the defendant's product or service. See *501 also United States v. Grinnell Corp., 384 U.S. 563, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966).

Geographic Market Test

The central rubric in evaluating the relevant geographic market was stated in Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 81 S.Ct. 623, 5 L.Ed.2d 580 (1961) as follows:

[T]he area of effective competition in the known line of commerce must be charted by careful selection of the market area in which the seller operates, and to which the purchaser can practicably turn for supplies.

Id. at 327, 81 S.Ct. at 627.

Submarket Criteria

Both of the standard market tests may be utilized in conjunction with the submarket criteria promulgated in Brown Shoe Co. v. United States, 370 U.S. 294, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962):

A submarket may be determined by examining such practical indicia as (1) industry or public recognition of the submarket as a separate economic entity, (2) the product's peculiar characteristics and uses, (3) unique production facilities, (4) distinct customers, (5) distinct prices, (6) sensitivity to price changes, and (7) specialized vendors.

Id. at 325, 82 S.Ct. at 1523.

Two examples illustrate the manner by which submarket criteria are to be utilized as an adjunct to the standard product and geographic market analyses. In Brown Shoe, the Court was confronted with a proposed merger between Brown Shoe and the Kinney Co., a shoe manufacturer and retailer. Brown was the nation's third largest shoe retailer; Kinney, the eighth largest. The government instituted suit to prevent the merger because the combination of Brown and Kinney would create a monopoly in the “footwear” product market. The District Court, recognizing industry practice and public perception, found separate footwear markets, later characterized as submarkets, of “men's,” “women's,” and “children's” shoes.

In International Boxing Club of New York v. United States, 358 U.S. 242, 79 S.Ct. 245, 3 L.Ed.2d 270 (1959), the government initiated legal action to invalidate an agreement purporting to regulate the frequency and television exposure of boxing matches sanctioned by organizations in Illinois and New York. The defendants challenged the finding that the relevant product market was championship boxing rather than all professional boxing competition arguing that the product or service was identical. Although this case was decided prior to the articulation of formal “submarket criteria,” the Supreme Court affirmed the narrower product market as supported by evidence of far greater interest in championship boxing by the public and broadcasters. Significantly, this additional evidence of public perception and consumer response, now part of the submarket criteria, was found to demonstrate that nonchampionship fights were not “reasonably interchangeable” with championship fights, which is the basic inquiry of the standard product market test.

The Present Product Market

As previously noted, a product market is therefore defined by “reasonable interchangeability” as gauged by the interchangeability of other products for the same use, and by consumer sensitivity and response to price fluctuations among available substitutes. The district court herein explicitly rejected this basic test because it concluded the general purpose of all hospital supplies “is their use in the course of patient care.” 540 F.Supp. at 983. The court thereupon found, solely by submarket analysis, (1) that the industry recognized a separate medical/surgical supply market as against markets for other products such as laboratory supplies; (2) that there were specialized vendors for medical/surgical supplies; (3) that there were distinctive marketing parties; and (4) that special groups within a hospital used medical/surgical supplies. Id. at 984.

The similarity of this case to Brown Shoe, where submarkets for men's, women's,*502 and children's shoes were found within the broader product market of footwear, is striking. Brown Shoe is distinguishable in that it utilized the submarket indicia to more precisely answer the standard “reasonable interchangeability” inquiry, whereas the trial judge in the case at bar believed that the basic test and the submarket indicia were not related. However, while it is necessary on review to articulate the proper formulation of “market” and “submarket” concepts, it is plain that the factual conclusion reached below, that medical/surgical supplies constitute a relevant product market, is not clearly erroneous.

The parties, including defendant AHSC, do not take issue with the trial court's conclusion that medical/surgical supplies constitute a separate product market, insofar as that conclusion is an implicit finding, pursuant to the DuPont standard, that these items are not “similar in use” to, or “reasonably interchangeable” with, other hospital supplies. However, AHSC argues that while medical/surgical supplies are not, in themselves, similar to laboratory items or to parenteral supplies (intravenous fluids), the product market in the instant matter is the distribution of these medical/surgical supplies (a mixed product/service market), and there is potentially a high cross-elasticity between distributors of these specific supplies and direct sales of the same merchandise by manufacturers. Stated differently, there is a pricing level at which hospitals would abandon purchasing practices designed to maintain low inventory levels through frequent limited quantity purchases from local distributors in favor of volume purchases directly from the manufacturer. If only a very small price differential would induce distribution by manufacturers, then high cross-elasticity becomes apparent, and it would follow that manufacturers and distributors become substitute providers of medical/surgical supplies; i.e., they are “reasonably interchangeable” and manufacturers must be included within the relevant product/service market.

The district court analyzed this argument by noting four barriers to high cross-elasticity: (1) manufacturers cannot offer emergency service; (2) manufacturers do not provide frequent, personal sales contact; (3) manufacturers must ship in bulk; (4) manufacturers offer only their own products. 540 F.Supp. at 987. The district judge thus implicitly concluded that no significant cross-elasticity existed.

On review, the Court must initially note that, notwithstanding the current barriers to market participation by manufacturers identified in the trial court's opinion, there is a paucity of evidence in the record as to how fluctuation in the price of medical/surgical supplies attributable to the method of distribution could alter present hospital purchasing practices, and thus this tribunal can neither affirm nor reverse the decision to exclude direct sales by manufacturers from the relevant product market. However, in view of our conclusion that the district court erred on other issues, it is not necessary to remand the issue of cross-elasticity for additional findings.

The Present Geographic Market

The essential dispute concerning geographic market definition is the district court's description of the relevant geographic markets as the eight Standard Metropolitan Statistical Areas (SMSAs) wherein a VHA hospital is located and where AHSC and at least one plaintiff compete. 540 F.Supp. at 989. This Court notes that, as with the preceding product market analysis, there is imprecision in the utilization of the “market” and “submarket” concepts. Specifically, the court below rejected the eight SMSAs as “too small to reflect entire geographic markets” but then approved the SMSAs as “adequately defin[ing] geographic submarkets for this action.” Id. at 992.

The fundamental error of the district judge in delineating the geographic market, as with his product market definition, was the mistaken premise that standard market tests may be abandoned or ignored and replaced with a less demanding “submarket test.” Von Kalinowski, in his standard treatise which was frequently cited in the opinion below, clearly refutes the lower court's supposition:

*503 This concept, that a relevant submarket may constitute the geographic market for Section 2 purposes, does not, however, mean that a new test has been promulgated for determining the relevant geographic market. It merely emphasizes the general rule that although the geographic market in some instances may encompass the entire nation, under other circumstances it may be a much smaller area, i.e., a relevant submarket.

Antitrust Laws and Trade Regulation, supra, § 8.01[2] at 8-27 (footnotes omitted, emphasis added).

Accordingly, the proper criteria for defining a geographic market is that “area in which the seller operates, and to which the purchaser can practicably turn for supply.” Tampa Elec. Co., supra, 365 U.S. at 327, 81 S.Ct. at 627. While that area is not ordinarily susceptible to a “metes and bounds definition,” it is the area in which “producers effectively compete.” Id. Accord, United States v. Dairymen, 660 F.2d at 195 (6th Cir.1981):

On remand the district court should determine the relevant geographic submarkets on the basis of commercially significant areas in which D.I. operated and in which D.I.'s customers could turn to other suppliers. Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 327 [81 S.Ct. 623, 627, 5 L.Ed.2d 580] (1961).

In light of the clear mandate of this Court in Dairymen to define a geographic submarket in terms of the Tampa Elec. teachings for determining a geographic market, a mandate wholly consistent with accepted market theory, the district court's own findings condemn its conclusion:

Assuming a firm is a representative supplier in the industry, the geographic market may be defined as that area where the seller predominantly operates. Some scholars suggest that an area should encompass a minimum of 75% of a supplier's sales before designating that area as a geographic market. See Elzinga and Hogarty, supra.

Plaintiffs appear to be representative suppliers in this industry. The following table abstracted from PX244, Table 1, indicates the geographic locus of at least 75% of the sales made from each of plaintiffs' six warehouses.

TABLE 2