FTC Testifies Before Congress on Petroleum Industry Consolidation

Testifying today on behalf of the Federal Trade Commission before the U.S. Congress’ Joint Economic Committee, Bureau of Economics Director Michael A. Salinger described the FTC’s initiatives to protect competitive markets in the production, distribution, and sale of gasoline through the agency’s comprehensive merger program.

“Although the FTC does not regulate energy market sectors, the agency plays a key role in maintaining competition and protecting consumers in energy markets,” Salinger said in opening the testimony. “The Commission has been particularly vigilant regarding mergers in the oil industry that could harm competition. It examines any merger and any course of conduct in the industry that has the potential to decrease competition and thus harm consumers of gasoline and other petroleum products,” he said.

The Commission’s testimony first provides background on the FTC’s expertise and experience in evaluating proposed transactions within the U.S. petroleum industry. It states that a review released in January of this year on horizontal merger investigations and enforcement actions from fiscal year 1996 to fiscal year 2005 shows that the FTC has brought more merger cases at lower market concentration levels in the petroleum industry than in any other industry. Further, unlike in other industries, the Commission has brought enforcement actions – and obtained merger relief in many instances – in petroleum markets that are only moderately concentrated.

Over the past 20 years, the testimony continues, the Commission’s merger policy has been consistent across administrations. “Applying sound principles of law and economics, this policy has been designed and focused to prevent the accumulation and use of market power to the detriment of consumers.”

Next, in describing the FTC’s expertise in the petroleum industry, the testimony states that as the federal antitrust agency primarily responsible for addressing petroleum industry competition issues since the early 1980s, the Commission has “closely scrutinized prices and examined any merger or nonmerger activity . . . that has the potential to decrease competition and
thus harm consumers. In that time, the FTC has examined proposed mergers and has blocked or required revisions to any that could harm consumers and competition. The Commission also has challenged, or obtained modifications of, numerous other mergers and acquisitions. From 1981 to 2007, for example, the agency filed complaints against 21 petroleum mergers. In 13 of these cases, the FTC obtained significant divestitures, according to the testimony. In the eight other matters, the parties in four cases abandoned the transactions altogether after antitrust challenges, one case resulted in a conduct remedy, and the others were resolved in ways that protect competition.

The testimony continues by presenting several themes from the Commission’s recent study of changes in the petroleum industry over the past two decades, including the findings that: 1) mergers of private oil companies have not significantly affected worldwide concentration in crude oil – this is important, as the price of crude is the primary determinant in gasoline prices; and 2) despite some increases over time, concentration in most levels of the U.S. petroleum industry has remained low to moderate. It then provides a overview of the FTC’s merger enforcement work in the petroleum industry, including a detailed review of recent Commission actions, up to the recent filing for a preliminary injunction in federal court (and the issuance of an administrative complaint) to stop Western Refining’s proposed acquisition of Giant Industries.

“To sum up structural changes and merger enforcement policy in the last two decades,” the testimony states, “mergers have contributed to the restructuring of the petroleum industry but have had only a limited impact on industry concentration. The FTC has investigated all petroleum mergers and required relief when it has reason to believe that a merger was likely to lead to competitive harm.”

Finally, the testimony presents other FTC activities in the petroleum industry, such as its unique program to monitor retail and wholesale gasoline prices in more than 20 wholesale regions and approximately 360 retail areas across the country. “In no other industry,” the testimony states, “does the Commission so closely monitor prices.” The testimony also describes the FTC’s work and results stemming from its investigation of gasoline price spikes after Hurricane Katrina in 2005.

“The Federal Trade Commission has an aggressive program to enforce the antitrust laws in the petroleum industry,” the testimony concludes. “The Commission continues to search for appropriate targets of antitrust law enforcement, to analyze and bring cases against any merger that is potentially anticompetitive, and to study this industry in detail.”

The Commission vote authorizing the presentation of the testimony and its inclusion in the formal record was 5-0.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission,
600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at http://www.ftc.gov/bc/edu/pubs/consumer/general/zgen01.shtm.

(FTC File No. P859910)