Trade Commission told New York Gov. George Pataki the state's
proposed fuel legislation could harm consumers.
provided in early August at the request of Gov. Pataki, the FTC's
Bureau of Competition and Office of Policy Planning noted the
two pieces of pending legislation concerning retail fuel prices
and the operation of retail service stations are duplicative and
unnecessary, and, if signed into law, would "have a significant
potential to harm consumers."
submitted to the governor at his request via letter, concerned
S4522, the "New York Motor Fuel Marketing Practices Act (MFMPA),"
and A6942, "An Act to Amend the General Business Law, in
Relation to the Operation of Retail Service Stations (the Amendment)."
The MFMPA would prohibit below-cost sales of motor fuel, where
the effect is to injure competition. The amendment would prohibit
a crude oil producer or refiner from opening new stations that
compete with its own franchised dealers within certain geographic
these provisions could significantly raise the cost of fuel to
consumers; the FTC staff comments pointed out that "even
a 1-cent increase in the retail price of fuel would cost New York
consumers approximately $57 million annually."
then detailed the reasons for FTC staff concerns regarding each
piece of proposed legislation. According to FTC staff, "The
MFMPA merely duplicates existing protections against 'predatory
pricing' found in federal antitrust law; at worst, it may discourage
or even prevent competitive pricing. Similarly, considerable economic
research shows that laws limiting intrabrand competition in fuel
(as the Amendment would) harm, rather than promote, the competitive
process, and can result in significantly higher prices."
director of the FTC's Bureau of Competition, noted, "This
legislation could outlaw more types of pricing behavior than federal
antitrust laws do, and therefore it runs the risk of penalizing
pro-competitive price-cutting that benefits consumers."
director of the FTC's Office of Policy Planning, stated, "New
laws to limit price-cutting and prevent refiners from opening
new (fuel) stations are especially inappropriate at a time when
many Americans are concerned about fuel prices."
staff letter provided specific comments related to each piece
of proposed legislation, as detailed below.
to the MFMPA, the comments stated:
Low prices benefit consumers. Consumers are harmed only if, as
a result of low prices, a dominant competitor is able later to
raise the prices to supra-competitive levels. Scholarly studies
and court decisions indicate below-cost pricing that leads to
monopoly rarely occurs. Consumers are harmed by public policies
intended to increase low prices that arise as a result of the
competitive process in situations where there is no danger monopoly
might later be created. The federal antitrust laws deal specifically
with below-cost pricing that has a dangerous probability of leading
to monopoly. The FTC, the Department of Justice's Antitrust Division,
attorneys general and private parties can bring suit under the
federal antitrust laws against anti-competitive below-cost pricing.
If the proposed legislation leads to higher prices in circumstances
in which there is no danger of the lower prices leading to monopoly,
then consumers will be harmed. With respect to the Amendment,
the comments stated, "Consumers benefit if a private company
decides to increase the number of retail outlets selling fuel.
The benefits come from locational advantages for some consumers,
potentially increased variety of fuel retailers and the potential
for increased competition."
its comments to the governor, the FTC staff wrote, "In short,
in the judgment of the Office of Policy and Planning and the Bureau
of Competition . Bill Nos. S4522 and A6942, if signed into law,
are likely to raise prices significantly at the gas pump, to the
detriment of New York consumers."
A6942 both are in the Senate. For bill status, call (518) 455-7545.