Gasoline Price Changes - Federal Trade Commission

GASOLINE PRICE CHANGES:
Through zone pricing, a branded refiner may charge different DTW prices to lessee dealer
stations located in different zones. Through territorial restrictions, a branded refiner may impose
territorial restraints on independent jobbers – that is, independent jobbers may supply branded
gasoline to their own gas stations or open dealers in some locations, but not to others.
A. Zone Pricing.
A price zone typically “is a contiguous set of gasoline stations of the same brand that face
a common set of competitive factors, including competing brands.” 83 A branded refiner uses its
knowledge of geographic features and local demand patterns to define an area of effective local
competition among retailers. This area of effective local competition is the basis for DTW price
zones. A branded refiner’s DTW prices to lessee dealers may differ between different zones.
Zones may change over time, depending on evolving competitive factors. See Figure 5-12.
4
3
2
1
Figure 5-12: Hypothetical Example of Price Zones
O
B
O
A - Firm A Station B - Firm B Station O - Other Firm Station
Firm B Price Zone 1
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O
A
Firm A Price Zone
0
-1 -0.5 0 0.5 1 1.5 2 2.5 3 3.5 4
O
Firm B Price Zone 2
Some assert that zone pricing is anticompetitive and leads to higher retail prices for
gasolin e.
ive
are
84 Two principal antitrust concerns are raised: (1) zone pricing may allow branded
refiners to coordinate wholesale gasoline prices more effectively; and (2) zone pricing may g
branded refiners the ability to deter entry through localized price cuts – that is, brand-name
refiners might lower DTW prices to lessee dealers only in price zones that new competitors
trying to enter, thus making entry less profitable (or perhaps even unprofitable) for the new
entrant. 85
126
O
B
B
O
A
FEDERAL TRADE COMMISSION, JUNE 2005