FTC Staff Concludes that Alabama Motor Fuels Marketing Act Restricts Competition

The Federal Trade Commission’s Office of Policy Planning, Bureau of Competition, and Bureau of Economics have sent a letter to Alabama House of Representatives Speaker Pro Tempore, Demetrius C. Newton, stating that the Alabama Motor Fuels Marketing Act (AMFMA) is likely to harm consumers by restricting competition. The Act prohibits vendors from selling gas below cost, or from selling gas at different prices to different customers, even when there is no effect on competition as a whole.

In a letter to the FTC, Speaker Newton asked the staff to comment on the AMFMA, “especially with respect to its impact on consumers.” In its response, the FTC staff noted several reasons why the AMFMA restricts competition. First, the Act protects competitors, not competition. Second, the Act defines “cost” in a way that lacks a firm economic foundation and likely discourages procompetitive price-cutting. Finally, the Act is unnecessary, both because scholarly studies and court decisions indicate that anticompetitive below-cost pricing happens infrequently, and because the federal antitrust laws already prohibit anticompetitive instances of below-cost pricing and price discrimination. Todd Zywicki, Director of the FTC’s Office of Policy Planning, said that he was happy to respond to Speaker Newton. He noted that “an important part of the FTC’s mission is to work with state officials to promote competition and consumer welfare.”

The Commission vote authorizing staff to file the comments with Speaker Newton was
5-0. The letter represents the views of the staff of the FTC’s Bureau of Competition, Bureau of Economics, and Office of Policy Planning, and not necessarily those of the Commission or any individual commissioner.

Copies of the documents mentioned in this release 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, DC 20580. Call toll-free: 1-877-FTC-HELP.

(FTC File No. V040005)