FOR YOUR INFORMATION..............................MAY 6, 1992
FEDERAL TRADE COMMISSION STAFF CAUTIONS CALIFORNIA GAS PRICING
BILL MAY RAISE CONSUMER PRICES
Staff of the Federal Trade Commission, in comments made
public today, expressed its view on a proposal in the California
Legislature that would subject oil refiners who operate retail
gas stations to lawsuits for charging wholesale prices to their
branded wholesalers and retail dealers that exceed specified
margins below the refiners' own retail prices to consumers. The
comments were submitted in response to a request from California
Assemblyman David Knowles.
The proposed California bill is similar to other recent
legislation designed to control pricing of petroleum products to
non-company owned retail outlets by vertically-integrated
petroleum companies. Similar legislation has been considered in
other states, including Utah, Kansas, and Colorado, on which FTC
staff has commented. As with previous requests for comments, FTC
staff reviewed studies of allegations that refiners subsidize the
retail outlets they own, to the disadvantage of independent
franchise dealers, and found those allegations to be unfounded.
In its comments, FTC staff said that the proposed legislation "is
likely to be anticompetitive, and that its likely result may be
that California consumers and visitors could pay higher prices
for gasoline."
Under the proposal, Assembly Bill 2371, a service station
operator, or other purchaser for resale, could sue its refiner-
supplier if the price the purchaser paid was higher than the
"adjusted retail price" at which the refiner sold gasoline to its
owned-and-operated stations in the same geographic area. The
bill presumes injury to any retailer who purchased gasoline at a
higher price and allows the plaintiff to sue for injunctive
relief, triple damages or $5000 per violation, whichever is
- more -
(California Gas Pricing--05/06/92)
higher, and attorneys' fees. Under the bill, a refiner could not
avoid liability by showing that there was no injury to
competition or that the refiner attempted in good faith to meet a
competitor's lower-priced offer.
The bill's premise, that gasoline wholesalers and retailers
suffer "financial hardship" and a "high rate of attrition"
because of predatory or monopolistic practices by major oil
companies, is unfounded, according to FTC staff. The history of
pricing practices in the industry and the pattern of change in
gasoline distribution methods, the FTC staff said, do not support
claims of predatory pricing or monopolization.
The staff said it reviewed numerous studies of competition
in the gasoline industry, conducted over the past decade by the
Department of Energy (DOE) and state agencies, that have
concluded that gasoline dealers have not been and are not likely
to become targets of anticompetitive practices by their
suppliers. To the contrary, a 1984 DOE report said that the
number of company-operated gas stations -- as opposed to
franchised or independent stations -- is not increasing as a
percentage of all retail outlets, except among smaller refiners.
The fortunes of refiners and their franchised retailers, the DOE
report said, are closely linked and these firms "form a mutually
supporting system backed by company advertising and promotion."
Franchised retailers, FTC staff said, "have continued to be by
far the predominant form of outlet for the gasoline sales of
major, integrated refiners. Indeed, major refiners operate only
a small percentage of the gasoline stations in the United
States."
The diverse and competitive national pattern of gasoline
marketing is reflected in the distribution systems of the leading
brand-name refiners in California, FTC staff said. None of the
major brand refiners who operate in California use company-owned
outlets as a predominant form of retailing on a national basis,
and it is unlikely, FTC staff said, that they would engage in
predatory pricing against a mainstay of their retail distribution
system, their franchised dealers. A refiner that price-discrimi-
nated against its franchisees and dealers would probably lose
sales, which would result in lower market share, greater excess
refining capacity and higher per-unit costs.
If predatory behavior or price discrimination were found,
the FTC said, it is already subject to prosecution under existing
federal laws, including the Sherman Act, the Clayton Act, the
Federal Trade Commission Act and the Robinson-Patman Act. In
addition, price discrimination that injures competition is
subject to existing California law.
(California Gas Pricing--05/06/92)
In conclusion, the FTC staff said, the proposed legislation
may lead to higher gasoline prices by discouraging price
competition and facilitating uniform pricing by refiners to avoid
the risk of law suits from retailer-customers.
These comments represent the views of the staff of the
Bureau of Competition of the Federal Trade Commission. They do
not necessarily represent the views of the Commission or any
individual Commissioner.
Copies of the comments are available from the FTC's Public
Reference Branch, Room 130, 6th Street and Pennsylvania Avenue,
N.W., Washington, D.C. 20580; 202-326-2222; TTY 1-866-653-4261.
# # #
MEDIA CONTACT: Don Elder, Office of Public Affairs
202-326-2181
STAFF CONTACT: Ronald B. Rowe, Bureau of Competition
202-326-2610
(V920012)
(CALGAS)