FTC Closes Western States Gasoline Investigation

The Federal Trade Commission today announced the completion of its investigation of various marketing and distribution practices employed by the major oil refiners in Arizona, California, Nevada, Oregon, and Washington ("Western States"). After an almost three-year investigation, the Commission found no evidence of conduct by the refiners that violated federal antitrust laws.

According to Commissioners Sheila F. Anthony, Orson Swindle and Thomas B. Leary, the FTC initiated the investigation to explain the differences in the price of gasoline between Los Angeles, San Francisco and San Diego. Regarding the particular question that was investigated - whether there was a violation of antitrust laws - the investigation produced no evidence of illegal conduct by the refiners.

The Commissioners write that "[t]he investigation produced no evidence of horizontal agreement on price or output at any level of supply." While zone pricing -- the practice whereby refiners "set uniform wholesale prices and supply branded gasoline directly to their company-operated and leased stations and to some independent open dealer stations within a small but distinct geographic area called a 'price zone'" - exists in the Western States, the investigation found no evidence of collusion between oil companies in furtherance of this practice.

In addition, the Commissioners state that "the investigation revealed no evidence of conspiracy or coordination" in marketing practices known as "redlining" - the refiners' practice of preventing independent gasoline distributors - "jobbers" - "from competing with them to supply branded gasoline to independent dealers in metropolitan areas."

In the absence of such a conspiracy, redlining "likely would be evaluated under the rule of reason," which "would require the Commission to show actual or prospective consumer harm." However, the investigation "uncovered no evidence that any refiner had the ability profitably to raise price market-wide or reduce output at the wholesale level, nor did it find a situation in which a refiner adopted redlining in a metropolitan area and increased market-wide prices." As a result of these findings, the Commission voted to close the investigation.

Commissioner Mozelle W. Thompson stated in a concurring statement that despite voting with the majority, he remains "somewhat troubled by the practice of site-specific redlining that some West Coast refiners utilize as part of their distribution strategies." Thompson adds that "[s]uch vertical restraints could be unlawful in those circumstances where - whether in the Western States or other gasoline markets - the practice leads to higher-than-otherwise wholesale prices." He concludes by saying he believes that, "should the Commission find evidence in any future investigation that site-specific redlining results in anticompetitive effects without generating countervailing consumer benefits, it would challenge the practice."

The Commission vote to close the investigation was 4-0, with Chairman Robert Pitofsky recused from participating.

Copies of the Commissioners' statement 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; 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. 981-0187)