FTC Staff: Kansas Bill Is Likely to Deter Gasoline Price Cuts

In response to a request from Kansas State Senator Les Donovan, the staff of the Federal Trade Commission’s Office of Policy Planning, Bureau of Competition, and Bureau of Economics filed comments regarding Bill No. 2330, which would bar the “below-cost” sale of motor fuel. The bill would prohibit a “marketer” or “retailer” from selling motor fuel below cost without any showing that the below-cost sale harmed competition. According to the staff comments, the bill is unnecessary and likely to deter pro-competitive price-cutting within the state. In addition, the staff noted that federal antitrust laws already cover below-cost pricing that has the potential to harm competition.

In its comments, which are available on the Commission’s Web site at www.ftc.gov, FTC staff noted that low prices benefit consumers, and that consumers are harmed only if below-cost prices allow a dominant competitor to raise prices later to supracompetitive 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 FTC’s Office of Policy Planning said that he was pleased to respond to Senator Donovan’s request. Zywicki added, “Legislation that has the effect of limiting competition in the sale of motor fuels almost inevitably will harm consumers.”

The Commission vote authorizing staff to file the comments with the Kansas House of Representatives was 5-0. The comments represent the views of the staff of the FTC’s Office of Policy and Planning, Bureau of Competition, and Bureau of Economics and not necessarily those of the Commission or any individual Commissioner.

Copies of the document 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, D.C. 20580. Call toll-free: 1-877-FTC-HELP.

(FTC File No. V040009)