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American Government Topics:  BP Amoco

FTC Releases Statements on BP/Amoco Case

Agency: Federal Trade Commission
Date: 15 January 1999
The following is an excerpt from the statement of Federal Trade Commission Chairman Robert Pitofsky and Commissioners Sheila F. Anthony and Mozelle W. Thompson explaining why they believe the consent agreement accepted on December 29, 1998, protects the interests of U.S. consumers and clarifying the "narrow" grounds of their disagreement with their colleague, Commissioner Orson Swindle, with respect to wholesale gasoline markets in the southeast:

"On December 30, 1998, the Commission issued a proposed complaint alleging that this merger would violate [federal antitrust statutes] in 30 wholesale gasoline markets and nine light petroleum products terminaling markets in the United States and accepted a proposed consent order resolving those allegations. ...

"In 25 metropolitan area markets, the combination of BP and Amoco would result in a highly concentrated wholesale gasoline market, and an increase in concentration in an amount that the Department of Justice-FTC Merger Guidelines presume likely to create or enhance market power or facilitate its exercise. ...

"Market shares and concentration levels of this magnitude raise antitrust concern because they suggest that a small number of firms might, after this merger, be able to raise price without losing significant sales. ...

" ... [W]e require persuasive evidence that entry would be timely, likely and sufficient to defeat a coordinated price increase. ... [W]e are unpersuaded by the investigative record here that there is a sufficient likelihood that switching would occur to allay our concerns. The history of switching in these markets appears to be more among incumbents than to new entrants, and switching among incumbents (particularly among incumbents with substantial market shares) will not defeat a wholesale price increase by those incumbents. Dealers also would be less likely to switch to fringe suppliers or to new entrants if there are significant reasons for dealers to prefer major brands (particularly major brands that are well-established in a given area), such as the benefit of local marketing or of brand credit card programs. Moreover, dealers might not have an incentive to switch to new entrants to defeat a price increase by their suppliers in which they also may profit.

"Instead, we believe that the proposed consent order will make jobbers and open dealers able to switch, and by relieving them of financial penalties that might deter switching to new entrants, make it more likely that they will in fact switch, preventing an increase in concentration that otherwise could well give rise to a substantial risk of higher prices for gasoline in the markets alleged in the proposed complaint. As we noted, our disagreement with our colleague is narrow: whether, in the absence of the proposed relief, jobbers and open dealers are sufficiently likely to switch in substantial numbers to protect the ultimate consumers from the risks that otherwise would be associated with highly concentrated gasoline markets. In this case, we believe the investigative record regarding dealer switching is insufficiently compelling to demand that ultimate consumers bear the substantial risk of higher prices for gasoline that may result from these highly concentrated markets."

Commissioner Orson Swindle concurred in part and dissented in part.

Commission Swindle dissented from the complaint allegations related to the southeastern United States markets for the wholesale sale of gasoline. The theory of anticompetitive effects on which these complaint allegations are based is that "because these markets would be concentrated following the merger, wholesalers could coordinate the wholesale price of gasoline, which, in turn, would harm consumers by causing higher gasoline prices at the pump."

Commissioner Swindle concluded that the proposed merger of Amoco and BP is unlikely to have these anticompetitive effects. He explained that "[a]ny effort by wholesalers to pass on a collusive price increase would be defeated if enough branded retail gasoline stations switched to other wholesalers [new wholesale entrants or cheating wholesalers] rather than pay the higher price." Switching is likely to occur because "[a]n evaluation of the southeastern markets reveals that switching is already the reality, not mere speculation or prediction." Specifically, "open dealers and jobbers currently (and with some frequency) switch relatively easily and quickly in response to changes in market conditions, including trying to combat price increases." Open dealers and jobbers also have stated that in response to a price increase they would be willing and able to switch to other wholesalers, without indicating that their switching would be limited to incumbent branded wholesalers.

Commission Swindle further stated that not only is switching likely, but enough of it is likely to occur to make possible new wholesale entry or cheating by an existing wholesaler.

He emphasized that "[i]n most of these markets, open dealers and jobbers purchase from about 60 percent to about 80 percent of the gasoline that is sold at retail. Given that open dealers and jobbers account for such a large proportion of retail gasoline sales and that they are likely to switch, enough switching could occur to induce entry or cheating sufficient to defeat a collusive price increase by wholesalers."

Finally, Commissioner Swindle stated that because "market forces are likely to cause sufficient switching without government intervention, [the antitrust relief designed to facilitate switching in these markets is] simply unnecessary. Rather than imposing excessive requirements that will force substantial costs on the parties, the Commission should have allowed the merger of Amoco and BP to proceed [without imposing this] relief."

Copies of the press release, proposed complaint and consent agreement and an analysis of the proposed consent agreement to aid public comment 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, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. Comments on the proposed consent agreement must be received by March 8, 1999. Consent agreements subject to public comment also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. 9810345)



Media Contact:
Victoria Streitfeld
Office of Public Affairs
202-326-2718




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