Announced Action for June 18, 2004

In comments provided today at the request of Michigan House Representative Gene DeRossett on Michigan House Bill 4757, commonly referred to as the “Petroleum Marketing Stabilization Act,” staff of the Federal Trade Commission stated that, if enacted, the bill likely would restrict competition and lead to higher prices for the state’s consumers.

The bill, currently pending in Michigan’s legislature, would ban below-cost gasoline sales that take business away from only a single competitor, even if there is no danger that the low prices could limit competition or harm consumers. According to the FTC staff comments, the bill is likely to deter pro-competitive price-cutting within Michigan. The comments also stated that the bill is unnecessary because federal antitrust laws already cover below-cost pricing that has the potential to harm competition.

The FTC staff’s comments noted that low prices benefit consumers, and that consumers are harmed only if a competitor is able to use below-cost pricing to drive out other competitors and then later raise prices above competitive levels. Further, the staff observed that economic studies, legal studies, and court decisions indicate that below-cost pricing that leads to monopoly occurs infrequently, and that below-cost sales of motor fuel that lead to monopoly are especially unlikely.

Todd Zywicki, Director of the Commission’s Office of Policy Planning, said that the bill could harm consumers. “At a time when consumers are especially concerned with high gasoline prices, it’s a bad idea to prevent competitors from cutting prices,” he said.

The Commission vote to issue the staff comments, which are available on the FTC’s Web site as a link to this press release, was 5-0. The comments represent the views of the FTC’s Bureau of Competition, Bureau of Economics, and Office of Policy Planning. (FTC File No. V040019; the staff contact is Asheesh Agarwal, Office of Policy Planning, 202-326-3558.)

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.