The Federal Trade Commission today issued a report by staff of the Bureau of Economics entitled, “The Petroleum Industry: Mergers, Structural Change, and Antitrust Enforcement.” The report presents a detailed overview of structural changes in the petroleum industry and describes Commission law enforcement activities related to petroleum industry mergers.
The report develops five major themes: 1) Mergers of private oil companies have not significantly affected worldwide concentration in crude oil – this fact is important, because crude oil prices are the chief determinant of gasoline prices; 2) Despite some increases over time, concentration for most levels of the petroleum industry has remained low to moderate; 3) Thorough FTC merger investigations and enforcement have helped prevent further increases in petroleum industry concentration and avoid potentially anticompetitive problems and higher prices for consumers; 4) Economies of scale have become increasingly significant in shaping the petroleum industry; and 5) Industry developments have lessened the incentive to be vertically integrated throughout all or most levels of production, distribution, and marketing. Several significant refiners have no crude oil production, and integrated petroleum companies today tend to depend less on their own crude oil production.
“Like its predecessors, this report has two basic policy goals – to inform public policy concerning competition in the petroleum industry and to add transparency to the Commission’s merger analyses,” FTC Chairman Timothy J. Muris said. The report addresses a core component of the Commission’s petroleum industry program – the review of mergers. In this role, Muris said, the FTC has devoted substantial resources to investigating mergers and, in a number of instances, to blocking or modifying specific transactions within the petroleum industry.
“As even a casual reading will confirm, this report is the fruit of a major scholarly enterprise – an inquiry into the structural changes that have occurred in the petroleum industry over the last twenty years,” Muris said.
The report is organized into nine chapters, beginning with an executive summary that is followed by a description of the FTC’s merger enforcement actions in petroleum markets over the past 20 years. Next, it provides an overview of industry trends in petroleum pricing, capital expenditures, and rates of return, along with analysis of merger activity between 1985 and 2001, concluding with a discussion of the efficiencies that merging firms have claimed in various larger transactions. Finally, several chapters provide a detailed look at structural trends at specific industry levels.
The report provides a detailed overview and analysis of structural change in the petroleum industry, beginning with crude oil exploration and production and continuing with bulk transport of crude oil, refining, bulk transport of refined petroleum products, and product terminals and gasoline marketing. It then presents information on trends in flows of crude oil and refined products, vertical integration of the petroleum industry, and competitive consequences of government regulation.
Observations in this section include:
“For more than 20 years, the FTC has been the federal antitrust agency primarily responsible for reviewing conduct in the petroleum industry to assess whether it is likely to reduce competition and harm consumer welfare,” the report states in summarizing relevant Commission law enforcement activities in both the merger and non-merger areas.
Since 1981, in 15 large petroleum mergers that the FTC has investigated, the Commission has alleged that these mergers would have resulted in significant reductions in competition and would have harmed consumers in one or more markets had they proceeded as announced. In 11
of these cases, the FTC obtained significant divestitures to prevent reduced competition and harm to consumers. In the four other cases, the parties abandoned the transactions altogether after antitrust challenge.
The report also details the FTC’s enforcement actions to protect competition and consumers of refined petroleum products, including administrative litigation against Union Oil Company of California (Unocal), the ongoing gasoline price monitoring program, and the investigation of gasoline pricing in the U.S.’s western states and Midwest region.
The Commission vote to issue the staff report, which is available on the FTC’s Web site, was 4-0-1, with Commissioner Pamela Jones Harbour abstaining. The Commission majority issued a separate statement, as did Commissioners Mozelle W. Thompson and Pamela Jones Harbour, and each statement is available as a link to this press release on the FTC’s Web site.
Copies of the staff report 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. The FTC’s Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, D.C. 20580, Electronic Mail: email@example.com; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published “Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws,” which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.
(FTC File No. P859912)