Staff of the Federal Trade Commission's Office of Policy Planning, Bureau of Economics, and Bureau of Competition yesterday filed comments with North Carolina Attorney General Roy Cooper and State Senator Daniel G. Clodfelter, Chairman of the Judiciary I Committee, stating that the proposed amendments to the state's Motor Fuel Marketing Act are not only unnecessary, but have significant potential to harm consumers by causing them to pay more at the pump.
A current North Carolina statute says it is unlawful "where the intent is to injure competition" to sell motor fuel below cost "with such frequency as to indicate a general business practice of selling [below-cost]." For most vendors, North Carolina law currently defines "cost" as the vendor's own invoice or replacement cost, plus taxes and freight expenses.
North Carolina House Bill 1203/Senate Bill 787, which has passed the House and is now in committee in the Senate, would eliminate the "intent" and "business practice" requirements, so that vendors could be liable for inadvertently pricing motor fuel below cost, even on a single occasion. The bill also redefines cost by reference to Oil Price Information Service (OPIS) prices, which may not accurately reflect discounts that may be available to retailers, according to the comments. Therefore, a jobber or retailer who is able to negotiate prices better than those reported by OPIS would not be able to pass those savings on to consumers.
"Under this bill, a retailer could violate the law even if it sold gasoline at a price higher than the price it paid for the gasoline," said FTC Chairman Timothy J. Muris. "Such a law would obviously deter pro-competitive price cutting."
The bill's goal is to ensure that a seller cannot undercut the prices of gasoline for a period of time, driving other competitors out of the market, then returning with higher prices once competition has been eliminated. According to the FTC staff comments, however, such a situation is unlikely to occur, and the bill could result in other types of consumer harm. The staff noted that the issues discussed in the comments are not new to the Commission, stating that the FTC filed similar analyses regarding bills introduced in a variety of states during the early 1990s, as well as in Virginia and New York last year.
In summarizing its comments, the staff wrote:
In concluding its comments, which are available on the Commission's Web site as a link to this press release, staff wrote, "For these reasons, [we] believe that House Bill 1203/Senate Bill 787 would more likely harm than promote competition. The bill addresses a problem that is unlikely to occur ... [and] to the extent that anticompetitive below-cost pricing is a danger in the retail gasoline market, federal antitrust laws are sufficient to address the problem. Moreover, the bill likely would deter pro-competitive price-cutting and cause some vendors to raise their prices, to the detriment of North Carolina's consumers."
The Commission vote authorizing staff to file the comments with North Carolina Attorney General Cooper and State Senator Clodfelter was 5-0. The comments represent the views of the staff of the FTC's Office of Policy and Planning, Bureau of Economics, and Bureau of Competition, and are not necessarily those of the Commission or any individual Commissioner.
Copies of the documents mentioned in this release are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. Call toll-free: 1-877-FTC-HELP.
(FTC File No. V030011)