Thursday, March 03, 2011

High Gasoline Prices on Island Not the Result of Price Fixing

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

Gas station operators on the island of Martha’s Vineyard in Massachusetts did not engage in price fixing in violation of the Sherman Act, despite maintaining prices that were considerably higher than on the Cape Cod mainland, the U.S. Court of Appeals in Boston has decided.

Summary judgment in favor of the gas station operators on the claims brought by summer and year-round island residents, as well as an island real estate agency, was affirmed.

Conspiracy v. Independent Parallel Pricing

Though features of the retail gasoline market on Martha’s Vineyard—including barriers to entry, inelastic consumer demand, and product homogeneity—made it susceptible to efforts by gas stations to sustain anticompetitive prices, those features facilitated not only conspiratorial pricing but also merely interdependent parallel pricing, the court stated.

Knowing these features of the market, each gas station operator was likely to reach its own independent conclusion that its best interests involved keeping prices high, including following price changes by a price "leader" (if one emerged), in confidence that the other station owners would reach the same independent conclusion.

There was no evidence or suggestion that the business risk, to any station on the island, of raising its prices was so great as to require communication among stations before any one of them would venture it, the court observed.

“Plus Factors”

Much of the evidence offered by the complaining island residents as "plus factors" for an inference of conspiracy did no more than corroborate that the Martha’s Vineyard gasoline market was an oligopolistic market highly conducive to parallel pricing, the court explained.

These "plus factors" included:

(1) The defendants’ parallel holding or increasing of prices while the wholesale cost declined;

(2) Deposition testimony by station operators that they did not know what margin over cost they needed to charge to turn a profit;

(3) The defendants’ motive to conspire;

(4) Barriers to entry;

(5) Inelastic demand; and

(6) Stable relative market shares over time among the four defendants.

This evidence did not explain whether the parallel pricing was achieved by agreement or mere interdependent decisions.

The remaining evidence of plus factors was that collusion could be revealed by variations in price from region to region (i.e. Martha’s Vineyard to Cape Cod), one defendant’s employment of a consultant to lobby for the denial of a petition for a new gas station on the island, and certain communications between two of the defendants’ principals.

This evidence did not tend to exclude the possibility that the alleged conspirators acted independently.

Thus, the evidence was not sufficient to permit a reasonable inference that the defendants’ behavior was more than mere conscious parallelism, the court concluded.

The decision is White v. R.M. Packer Co., Inc., 2011-1 Trade Cases ¶77,352.

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