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.
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MEDIA CONTACT: Don Elder, Office of Public Affairs 202-326-2181
STAFF CONTACT: Ronald B. Rowe, Bureau of Competition 202-326-2610