Proposed New York Gasoline Legislation Could Harm Consumers, Says FTC Staff

In comments provided last week at the request of New York Governor George Pataki, staff of the Federal Trade Commission's Bureau of Competition and Office of Policy Planning noted that two pieces of currently pending legislation concerning retail gasoline prices and the operation of retail service stations are duplicative and unnecessary, and, if signed into law, would "have a significant potential to harm consumers."

The comments, submitted to the Governor at his request via letter, concerned Bill No. S04522, the "New York Motor Fuel Marketing Practices Act (MFMPA)," and Bill No. A06942, "An Act to Amend the General Business Law, in Relation to the Operation of Retail Service Stations (the Amendment)." The MFMPA would prohibit "below cost" sales of motor fuel, where the effect is to injure competition. The Amendment would prohibit a crude oil producer or refiner from opening new stations that compete with its own franchised dealers within certain geographic areas.

Each of these provisions could significantly raise the cost of gasoline to consumers; the FTC staff comments pointed out that "even a one cent increase in the retail price of gasoline would cost New York consumers approximately $57 million annually." The comments then detailed the reasons for FTC staff concerns regarding each piece of proposed legislation. According to the FTC staff, "the MFMPA merely duplicates existing protections against 'predatory pricing' found in federal antitrust law; at worst, it may discourage or even prevent competitive pricing. Similarly, considerable economic research shows that laws limiting intrabrand competition in gasoline [as the Amendment would] harm, rather than promote, the competitive process, and can result in significantly higher prices."

Joe Simons, Director of the FTC's Bureau of Competition, noted, "This legislation could outlaw more types of pricing behavior than federal antitrust laws do, and therefore it runs the risk of penalizing pro-competitive price-cutting that benefits consumers."

Ted Cruz, Director of the FTC's Office of Policy Planning, stated, "new laws to limit price-cutting and prevent refiners from opening new gas stations are especially inappropriate at a time when many Americans are concerned about gasoline prices."

The FTC staff letter provided specific comments related to each piece of proposed legislation, as detailed below.

With respect to the MFMPA, the comments stated:

With respect to the Amendment, the comments stated:

• Consumers benefit if a private company decides to increase the number of retail outlets selling gasoline. The benefits come from locational advantages for some consumers, potentially increased "variety" (there are a variety of types of gasoline retailers, such as convenience stores, service stations, high volume stations with car washes, etc.), and the potential for increased competition.

These potential benefits accrue whether new outlets are opened by existing retailers, wholesalers, or refiners.

In concluding its comments to the Governor, staff wrote, "In short, in the judgment of the Office of Policy and Planning and the Bureau of Competition . . . Bill No. S04522 and Bill No. A06942, if signed into law, are likely to raise prices significantly at the gas pump, to the detriment of New York consumers."

The Commission vote authorizing staff to send the comments in response to Governor Pataki's request was 5-0.

NOTE: The views expressed in the letter are those of the staff of the FTC's Bureau of Competition and the Office of Policy Planning, and do not necessarily represent those of the Commission or any individual commissioner.

(FTC File No. V020019 [PDF 43KB])