Gasoline Price Changes - Federal Trade Commission

EXECUTIVE SUMMARY
Many people who purchased gasoline in the U.S. in the past week likely could report the
price paid per gallon. Consumers closely follow gasoline prices, and with good reason. U.S.
consumers have experienced dramatic increases and wide fluctuations in gasoline prices over the
past several years. During 2004 and 2005, U.S. consumers spent millions of dollars more on
gasoline than they had anticipated. In the spring of 2005, the national weekly average price of
gasoline at the pump, including taxes, rose as high as $2.28 per gallon. Steep, but temporary,
gasoline price spikes have occurred in various areas throughout the U.S. Since the mid-1990s,
consumers on the West Coast, especially in California, have observed that their gasoline prices
are usually higher than elsewhere in the U.S.
Rising average gasoline prices and gasoline price spikes command our attention. What
causes high gasoline prices like those of 2004 and 2005? What causes gasoline price spikes?
These important questions require a thorough and accurate analysis of the factors – supply,
demand, and competition, as well as federal, state, and local regulations – that drive gasoline
prices, so that policymakers can evaluate and choose strategies likely to succeed in addressing
high gasoline prices.
This Report provides such an analysis, drawing upon what the Federal Trade
Commission (FTC) has learned about the factors that can influence average gasoline prices or
cause gasoline price spikes. Over the past 30 years, the FTC has investigated nearly all oilrelated
antitrust matters and has held public hearings, undertaken empirical economic studies,
and prepared extensive reports on oil-related issues, such as the Midwest gasoline price spike in
June 2000. Since 2002, the staff of the FTC has monitored weekly average retail gasoline and
diesel prices in 360 cities nationwide to find and, if necessary, recommend appropriate action on
pricing anomalies that might indicate anticompetitive conduct.
Some observers suggest that oil company collusion, anticompetitive mergers, or other
anticompetitive conduct – not market forces – may be the primary cause of higher gasoline
prices. Anticompetitive conduct is always a possibility, of course. That is the reason for the
antitrust laws. The FTC has been and remains vigilant regarding anticompetitive conduct in this
industry. The FTC has taken action against proposed mergers in this industry at concentration
levels lower than in other industries. Since 1981, the FTC has investigated 16 large petroleum
mergers. In 12 of these cases, the FTC obtained significant divestitures and in the four other
cases, the parties abandoned the transactions altogether after antitrust challenge. In 2004, the
FTC staff published a study reviewing the petroleum industry’s mergers and structural changes
as well as the antitrust enforcement actions the FTC has taken. 1 In no other industry does the
FTC maintain a price monitoring project such as its project to monitor retail gasoline and diesel
prices. Most recently, on June 10, 2005, the FTC announced the acceptance of two consent
orders that resolved the competitive concerns relating to Chevron’s acquisition of Unocal and
settled the FTC’s 2003 monopolization complaint against Unocal. The Unocal settlement alone
has the potential of saving consumers nationwide billions of dollars in future years. 2