FTC Staff Comment to the Hon. Francis C. Heitmeier Concerning Louisiana H.B. 444 and 847 to Prohibit Below Cost Gas Pricing

UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
DALLAS REGIONAL OFFICE
V890076
100 N. Central Expf_ay
Suit. sao
0_. TX 75201
(214) 767·5503
Office of the Regional Director
June 	2, 	1989
The 	Honorable 	Francis 	C. 	Heitmeier
Louisiana 	House 	of 	Representatives
Post 	Office 	Box 	44062
Baton 	Rouge, 	LA 	70804
Dear Mr. 	Heitmeier:
COMMISSION AUTHORIZED
The 	staffs 	of 	the 	Dallas 	Regional 	Office 	and 	the 	Bureau 	of
Competition 	of 	the 	Federal 	Trade 	commission 1 	are 	pleased 	to
submit 	this 	letter 	in 	response 	to 	your 	request 	for 	comments 	on
the 	potential 	competitive 	effects 	of 	House 	Bill 	444 	and 	House
Bill 	847, 	two 	almost 	identical 	bills 	that, 	in general, 	would
prohibit 	"below cost" 	pricing, 	as 	"cost" 	is 	defined 	in 	the
bills, 	and 	price 	discrimination 	in 	the 	sale 	of 	gasoline. 	We
believe 	that 	both 	H.B. 	444 	and 	H.B. 	847 	are 	likely 	to 	be
anticompetitive 	and 	that, 	if 	either bill 	is 	enacted, 	Louisiana
consumer~ and 	visitors 	could pay 	higher 	prices 	for 	gasoline.
Interest 	and 	experience of the 	Federal 	Trade Commission
The 	Federal 	Trade 	Commission 	is 	charged 	by 	statute 	with
preventing 	unfair methods 	of 	competition 	and 	unfair 	or deceptive
practices 	in 	or 	affecting 	commerce. 	15 U.S.C. 	§ 	45. 	Under 	this
statutory mandate, 	the 	Commission 	seeks 	to 	identify 	restrictions
that 	impede 	competition 	or 	increase 	costs 	without 	offering
countervailing benefits 	to 	consumers. 	In 	particular, 	the
Commission 	and 	its 	staff have 	had 	considerable 	experience
assessing 	the 	competitive 	impact 	of 	regulations 	and 	business
practices 	in 	the 	oil 	industry.2
1 	These 	comments 	are 	the views 	of 	the 	staffs 	of 	the
Dallas 	Regional 	Office 	and 	the 	Bureau 	of 	Competition 	of 	the
Federal 	Trade 	Commission. 	They 	are 	not 	necessarily 	the 	views 	of
the 	Commission 	or 	any 	individual 	Commissioner.
2 	The 	Commission's 	staff has 	gained 	extensive 	experience
with 	energy 	competition 	issues 	by 	conducting 	studies,
investigations, 	and 	law 	enforcement 	actions. 	FTC 	staff 	comments
(continued •.. )

Description 	of B.a. 	444 	and B.a. 	847
H.B. 	847 	would 	add 	a 	new Chapter 	14-A to 	Title 	51 	of 	the
Louisiana 	Revised 	statutes 	of 	1950, 	entitled 	"Motor 	Fuel
Marketing Act."3 	section 	1473 	of H.B. 	847 	would, 	inter ~,
prohibit 	any 	entity 	(including 	refiners, 	wholesalers, 	and
retailers) 	engaged 	in 	the 	sale 	of 	gasoline 	at 	any 	level 	in 	the
distribution process 	from 	selling gasoline 	in 	Louisiana 	at 	prices
below 	costs, 	as 	defined 	in 	section 	1472, 	"where 	the 	effect 	is 	to
injure 	competition."4 	Transfers 	between 	affiliates 	within 	a
vertically 	integrated gasoline marketing 	organization would 	be
treated 	the 	same 	as 	sales 	between 	unrelated 	marketing 	entities.
Cost 	to 	retailers 	and wholesalers 	is 	defined 	as 	"the 	invoice
or 	replacement 	cost 	of 	the motor 	fuel 	within 	five 	days 	prior to
the 	date 	of 	sale, 	or 	the 	quantity 	last 	purchased, 	whichever 	is
less," 	less 	most 	trade 	discounts, 	plus 	other 	specified 	costs 	of
2( .•. continued)
and 	testimony 	to 	legislative 	bodies have 	identified 	the 	costs 	of
proposed 	gasoline 	retailing 	divorcement 	and 	"below-cost 	selling"
legislation 	for 	Montana, 	North 	Carolina, 	South 	Carolina, 	Georgia,
Alabama, 	Tennessee, 	Washington, 	Hawaii, 	Nevada, 	and 	for 	the
united 	states 	Senate 	and 	House 	of Representatives. 	The
Commission 	and 	its 	staff 	have 	also 	gained 	considerable 	experience
with 	gasoline 	refining 	and marketing 	issues 	affecting 	consumers
from 	premerger 	antitrust 	reviews 	pursuant 	to 	sections 	7 	and 	7A of
the 	Clayton Act, 	15 U.S.C. 	§§ 	18, 	18a.
For 	a 	more 	general 	discussion 	of 	the 	potential
anticompetitive 	effects 	of 	statutes 	that 	prohibit 	"below cost
selling," 	please 	see 	the 	attached 	copy 	of 	the 	Commission 	staff
comment 	on 	such a 	bill 	which 	was 	introduced 	in 	the 	Texas
legislature. 	Letter 	from 	Thomas 	B. 	Carter, 	Director, 	Dallas
Regional 	Office, 	Federal 	Trade 	Commission, 	to 	Senator William R.
Ratliff, 	Texas 	State 	Senate 	(May 	15, 	1989).
3 	La. 	Rev. 	Stat. 	§§ 	51:1471-51:1481 	(1950). 	In 	this
letter, 	the 	particular provisions 	of 	this 	bill 	will 	be 	referred
to 	by 	their 	Chapter 	14-A citation, 	as 	they 	are 	set 	out 	in 	the
bill. 	All 	references 	to 	the 	provisions 	of 	both H.B. 	444 	and H.B.
847 	will 	be made 	by 	use 	of H.B. 	847 	citations. 	The 	statutes 	are
virtually 	identical, 	except H.B. 	847 	has 	a 	few 	additional
provisions 	and 	a 	few 	structural 	modifications. 	Every 	provision
contained 	in 	H.B. 	444 	is 	also 	contained 	in H.B. 	847.
4 	Section 	1476 	specifies 	exceptions 	for 	unusual
circumstances, 	such 	as 	sales 	of 	damaged 	fuel, 	clearance 	sales, 	or
a 	sale 	in 	final 	liquidation 	of 	a 	business. 	H.B. 	847 	contains 	an
exception 	not 	contained 	in 	H.B. 	444 	for 	grand 	opening 	sales, 	not
to 	exceed 	three 	days. 	Section 	1476(A) (5).
2

doing 	business, 	such 	as 	taxes, 	transportation 	costs, 	and a 	share
of 	overhead 	costs. 5 	Cost to 	a 	refiner 	is 	defined 	as 	Wthat
refiner's 	posted 	terminal 	price 	to 	the wholesale 	class 	of 	trade,"
unless 	the 	refiner 	does 	not 	have 	such 	a 	price, 	in which 	case 	the
cost 	to 	the 	refiner 	is 	"the posted 	price 	of 	any 	other 	refiner 	at
any 	terminal 	within 	the 	general 	trade 	area."6
section 	1473 	of 	the 	bill 	would 	prohibit 	suppliers 	or
wholesalers 	of 	gasoline 	from 	discriminating 	in price, 	"where the
effect 	is 	to 	injure 	competition." 	sections 	1479 	and 	1480 	provide
for 	civil 	penalties, 	injunctions, 	and 	recovery 	of 	damages 	to
remedy 	violations 	of 	section 	1473.
section 	1473 	would 	prohibit 	a 	producer 	or wholesaler 	from
selling 	or 	transferring motor 	fuel 	to 	any 	retail 	outlet 	at 	a
price 	lower 	than 	the 	price 	it 	charges 	any 	competing 	retailer. 7
Section 	1481 would 	create a 	presumption 	of 	a 	violation, 	which
would 	shift 	the 	burden 	of 	proof 	to 	the 	defendant 	to 	justify the
price 	charged, 	if 	a 	plaintiff 	retailer 	establishes 	any 	of 	the
following 	circumstances:
(1)
(2)
(3)
5
6
The 	plaintiff's 	purchase 	price 	from 	a 	refiner 	or
wholesaler 	is 	greater than 	the 	refiner's 	price 	to 	its
own 	affiliates;
The 	plaintiff's 	purchase 	price 	from 	a 	refiner 	or
wholesaler plus 	the 	plaintiff's 	cost 	of doing business
is 	greater 	than 	the 	refiner 	or wholesaler's 	posted
retail 	price; 	or
The 	plaintiff's 	cost 	of 	purchasing gasoline 	plus 	his
cost 	of 	doing business 	is 	greater 	than 	the 	posted 	sales
price 	at 	a 	retail 	location 	of 	a 	competitor, 	within 	the
same marketing 	area, 	suspected 	of 	selling gasoline 	in
violation 	of 	the 	requirements 	that 	would 	be 	imposed by
these 	bills. 8
Sections 	1472(14) 	and 	(15).
Section 	1472(13).
7 	Louisiana 	currently has 	an 	"Unfair Sales 	Law" 	which
makes 	illegal 	sales 	at 	a 	price below the 	seller's 	invoice
purchase 	price 	plus 	a 	uniform markup. 	La. 	Rev. 	Stat. 	§§ 	51:421-
51:428. 	This 	statute does 	not 	appear 	to 	apply 	to 	transfers 	among
corporate 	affiliates 	of 	vertically 	integrated marketers.
8 	These 	presumptions 	are 	extremely broad. 	A presumption
would 	apply 	in 	any market 	where 	some gasoline 	prices 	are 	lower
than 	others. 	This 	would 	create 	an 	incentive 	for 	an 	inefficient
(continued ••. )
3

Claims 	of predatory. 	monopolistic or cOllusive
activities by refiners 	against gasoline dealers
may not be well-founded
The 	premise 	of 	both H.B. 	444 	and 	H.B. 	847 	appears 	to be 	that
independent 	and 	small 	retailers 	and wholesalers 	are 	being
victimized 	by 	subsidized 	pricing by 	the major gasoline marketers.
Several 	studies 	of 	competition 	in gasoline marketing 	in 	the
united 	States 	since 	1981 	have 	concluded 	that 	gasoline 	dealers 	and
distributors 	have 	not 	been 	and 	are 	not 	likely 	to 	become 	targets
of 	anticompetitive 	practices 	by 	their 	suppliers, 	although 	these
studies 	did 	not 	focus 	on 	Louisiana. 	In 	light 	of 	these 	studies,
discussed 	below, 	you 	may wish 	to 	examine 	any 	claims 	by 	Louisiana
gasoline 	dealers 	to 	be 	sure 	that 	the 	claims 	are 	well-founded.
Federal 	studies
Following 	enactment 	of Title 	III 	of 	the 	Petroleum Marketing
Practices 	Act 	("PMPA") 	in 	1978, 	15 U.S.C. 	§ 	2841, 	the 	Department
of 	Energy 	("DOE") 	studied whether 	the 	alleged 	·subsidization" 	of
retail 	gasoline 	operations 	by 	the major 	refiners 	actually
existed, 	and, 	if 	it 	did, 	whether 	the 	practice was 	predatory 	or
anticompetitive. 	The 	final 	report 	to 	Congress, 	published 	in
January 	of 	1981, 	was 	based 	on 	an 	extensive 	study 	of 	1978 	pricing
data 	in 	several 	Standard Metropolitan 	statistical 	Areas, 	as 	well
as 	on 	internal 	oil 	company documents 	subpoenaed by 	the 	DOE
8( .•• continued)
competitor whose 	costs 	are 	higher 	to 	initiate 	a 	lawsuit, 	because
his 	burden 	of 	proof would 	be 	low. 	However, 	the 	defendant would
face 	a 	difficult 	and 	expensive 	burden 	to 	overcome 	the
presumption. 	If 	the 	defendant 	is 	unable 	to 	overcome 	the
presumption, 	the 	plaintiff 	could be 	awarded 	injunctive 	relief 	and
treble 	damages 	under 	section 	1480.
Because 	an 	important 	characteristic 	of 	competitive markets
is 	legitimate price 	competition, 	litigation 	encouraged 	on 	the
basis 	of 	different 	prices 	alone 	may 	chill 	vigorous 	price
competition. 	Deterrence 	from 	price 	competition 	is 	a 	particular
problem because 	firms 	have 	an 	incentive 	to 	complain 	about 	the
successful 	competitive 	efforts 	of 	their 	competitors, 	however
proper 	their 	efforts may 	be. 	A competitor may 	determine 	that 	the
risk 	of 	facing 	expensive 	litigation 	is 	too 	high 	to 	permit 	it 	to
compete 	on 	the 	basis 	of 	price. 	The 	likely 	result 	would 	be 	higher
prices 	for 	consumers.
4

investigating 	staff. 	DOE 	found 	no 	evidence 	of 	such 	Nsubsidiza-
tion N• 9
In 	1984, 	DOE 	published 	an 	updated 	study 	that 	further
substantiated 	and 	elaborated on 	its 	1981 	findings. 10 	The 	study
showed 	that 	company-operated 	stations were 	not 	increasing 	as 	a
percentage 	of 	all 	retail 	outlets, 	except among 	the 	smaller
refiners. 	DOE 	concluded that 	the 	increased 	pressures 	on gasoline
retailers 	since 	1981 were 	not 	caused by 	anticompetitive 	behavior
on 	the 	part 	of 	the 	major 	oil 	companies. 	Rather, 	DOE 	concluded
that 	the 	decline 	in 	the 	overall 	number 	of 	retail 	outlets 	and 	the
intensification 	of 	competition 	among 	gasoline marketers 	were due
to 	decreased 	consumer demand 	for 	gasoline 	and 	a 	continuing 	trend
toward 	the 	use 	of more 	efficient, 	high-volume 	retail 	outlets. 11
state 	studies
In 	1986, 	the 	Washington 	state 	attorney general 	initiated a
study 	of motor 	fuel 	pricing 	in 	that 	state 	to 	determine whether
subsidization had 	occurred 	or was 	occurring. 	The 	study 	focused
on whether 	major 	oil 	companies 	injured 	competition by 	charging
lessee-dealers 	higher 	prices 	for 	gasoline 	than 	the 	companies were
charging 	their 	own, 	company-operated 	retail 	stations. 	The 	study
also 	sought 	to 	examine whether 	the major 	oil 	companies 	injured
competition by 	establishing a 	structure 	of 	retail 	and wholesale
prices 	that 	foreclosed 	the 	ability 	of 	dealers 	to 	cover 	their
costs. 	Information was 	gathered 	on 	the 	practices 	of 	all 	eight 	of
the 	major 	companies 	in Washington 	for 	a 	three-year 	sample 	period.
The 	study covered 	regions 	throughout 	the 	state 	where 	the
companies 	had 	retail 	operations 	and 	sold 	to 	lessee-dealers. 	The
Final 	Report 	concluded 	that 	instances 	of 	significant 	price
variation 	among 	lessee-dealers 	and 	company-operated 	retailers
were 	Nclearly 	too 	infrequent" 	to 	support 	any 	claim that 	lessee-
dealers' 	gasoline 	purchase 	costs were 	higher 	than 	the 	retail
prices 	of 	competing 	company-operated 	stations, 	and 	that 	these
dealers 	were 	being 	systematically driven 	from 	the 	market. 12
9 	DOE, 	Final 	Report: 	The 	state 	of 	Competition 	in
Gasoline Marketing 	(Jan. 	1981).
10 	DOE, 	Deregulated Gasoline Marketing: 	Consequences 	for
Competition. 	Competitors. 	and 	Consumers 	(Mar. 	1984)
[hereinafter 	cited 	as 	1984 	DOE Report].
11 	xg. 	at 	125-32.
12 	Final 	Report 	to 	the 	Washington 	state 	Legislature 	on
the 	Attorney General's 	Investigation 	of Retail 	Gasoline
Marketing, 	August 	12, 	1987, 	at 	14.
5

More 	recently, 	in 	1987, 	the Arizona 	legislature 	created a
Joint 	Legislative study 	Committee 	on 	Petroleum 	Pricing 	and
Marketing 	Practices 	and 	Producer Retail 	Divorcement. 	In 	December
1988, 	after more 	than 	a 	year 	of 	extensive 	inquiry 	and 	analysis,
the 	Final 	Report 	recommended 	that 	no 	new 	legislation be 	enacted,
concluding 	that 	W[t]he 	marketplace 	for 	petroleum products 	is very
competitive 	in Arizona. w13
The 	state 	and 	DOE 	studies 	have 	revealed 	no 	instances 	of
predatory behavior by major gasoline 	refiners. 	Rather, 	they 	show
that 	the 	fortunes 	of 	refiners 	and 	their 	franchised 	retailers 	are
closely 	linked, 	and 	that 	these 	firms 	Wform 	a 	mutually 	supporting
system backed by 	company 	advertising 	and promotion. w14
Independent 	franchised 	retailers 	have 	continued 	to 	be 	by 	far 	the
predominant 	form 	of 	outlet 	for 	the 	direct 	gasoline 	sales 	of
major, 	integrated 	refiners. 15 	Indeed, 	major 	refiners 	operate
only 	a 	small 	percentage 	of 	the 	gasoline 	stations 	in 	the 	United
13 	Final 	Report 	to 	the Arizona 	Joint 	Legislative 	study
Committee 	on 	Petroleum 	Pricing 	and Marketing 	Practices 	and
Producer Retail 	Divorcement, 	December, 	1988, 	at 	35. 	We 	are 	aware
of 	no 	similar 	studies 	in 	Louisiana 	analyzing 	the 	need 	for
legislation such 	as 	H.B. 	444 	and 	H.B. 	847. 	However, 	some data
contained 	in 	the 	1984 	DOE 	study 	indicate 	that 	gasoline markets 	in
Louisiana 	are 	unconcentrated. 	See 	1984 	DOE 	Report, 	supra 	note
10, 	at 	90-91 	(Tables 	111-25 	and 	111-26). 	Generally, 	as 	a 	market
becomes 	less 	concentrated, 	the 	likelihood 	of 	anticompetitive
conduct 	in 	the 	market 	declines.
14 	1984 	DOE Report, 	supra 	note 	10, 	at 	ii. 	We 	do 	not mean
to 	suggest 	that 	the 	fortunes 	of 	refiners 	and 	their 	franchised
retailers 	are 	perfectly 	linked, 	only 	that 	the 	studies 	have 	found
that 	in 	general 	the 	refiners 	and 	their 	retailers 	share 	common
goals. 	Although 	our 	information 	for 	these 	propositions 	comes
from 	1984 	reports 	and 	articles, 	we 	have 	no 	reason 	to 	believe 	that
the 	distribution 	structure 	has 	significantly changed 	since 	that
time.
15 	In 	1981, 	the 	eight 	largest 	refiners, 	who 	in 	the
aggregate, 	accounted 	for 	about 	half 	of 	all 	gasoline 	sales, 	sold
approximately 	eight 	times 	more 	gasoline 	through 	lessee 	dealers
than 	through 	company-operated 	outlets. 	1984 	DOE 	Report, 	supra
note 	10, 	at 	146 	(Table A-10). 	The 	1984 	DOE Report, 	supra 	note
10, 	at 	82, 	indicates 	that 	vertically 	integrated marketers 	of
gasoline 	accounted 	for 	18.8 	percent 	of 	total 	sales 	in 	1981 	in
Louisiana.
6

States. 16 	Given 	the 	importance 	of 	the 	branded, 	franchised
marketing distribution 	system, 	major 	refiners 	are 	unlikely 	to
charge 	discriminatory 	prices 	that 	would 	cause 	their 	franchised
retailers 	to 	seek new 	sources 	of 	supply 	or 	to go 	out 	of 	business.
A refiner that 	undertook 	such 	a 	course 	of 	action would probably
face 	a 	decrease 	in market 	share, 	an 	increase 	in 	exces~ refining
capacity, 	and 	higher 	per 	unit 	costs. 	Thus, 	the major 	integrated
refiners 	are 	not 	likely 	to 	engage 	in 	predation 	against 	the
mainstay 	of 	their 	own 	retail 	distribution 	systems, 	their
franchised 	retailers.
Even 	if predatory behavior were 	found. 	it 	is 	already
subject to prosecution under existing 	state and
federal 	laws
Predatory 	conduct 	in 	the 	petroleum 	industry 	is 	sUbject 	to
the 	Sherman Act, 	the 	Clayton Act, 	and 	the 	Federal 	Trade
Commission Act, 	and 	at 	the 	state 	level, 	the 	Louisiana 	antitrust
laws. 17 	These 	statutes 	address 	possible 	anticompetitive
practices 	in 	the 	industry more 	effectively than would 	legislation
regulating 	gasoline markets. 	The 	existing 	antitrust 	laws 	deter
firms 	from 	engaging 	in 	predatory behavior, 	but, 	at 	the 	same 	time,
allow 	them 	to 	lower 	their 	costs 	of 	operation through vertical
integration. 	In 	contrast, 	the price 	regulation 	envisioned by
H.B. 	444 	and 	H.B. 	847 	would 	deny 	firms 	the 	flexibility 	to 	adjust
their 	prices 	in 	response 	to 	changing 	conditions 	of 	demand 	and
supply. 	Such 	legislation 	is 	likely 	to 	add 	costs 	to 	the
distribution 	of 	gasoline 	in 	Louisiana 	that 	do 	not 	exist 	in 	other
states, 	costs 	that 	would 	be 	borne 	by 	Louisiana 	consumers 	and
visitors.
In 	addition, 	many 	of 	the 	apparent 	concerns 	of 	the 	sponsors
of H.B. 	444 	and 	H.B. 	847 	in 	redressing 	alleged 	anticompetitive
abuses 	associated 	with 	refiner-owned 	and 	operated 	gasoline
stations 	are 	addressed 	by 	the 	existing 	federal 	Petroleum
Marketing 	Practices 	Act 	of 	1978, 	supra. 18 	The 	legislative
16 	Lundberg 	Letter, 	Vol. 	XI, 	No. 	36, 	July 	6, 	1984, 	at 	3,
where 	it was 	reported 	that 	the major 	refiners 	operated 	only 	about
3.3% 	of 	all 	retail 	stations. 	Although we 	have 	not 	found 	more
recent 	comprehensive 	analyses 	of 	the 	extent 	of 	refiner-owned 	and
operated 	retail 	stations, 	we 	have 	no 	reason 	to 	believe 	that
substantial 	changes 	have 	occurred.
17 	La. 	Rev. 	Stat. 	§§ 	51:122-51:152, 	51:331-51:337 	(1950).
In 	addition, 	discriminatory pricing 	is 	SUbject 	to 	the 	Robinson-
Patman Act.
18 	The 	PMPA 	establishes 	certain 	notice 	requirements with
respect 	to 	cancellation 	and 	nonrenewal 	of 	contracts 	between
(continued .•• )
7

history 	of 	the 	PMPA 	shows 	that 	Congress 	was 	concerned 	about 	these
same 	alleged 	abuses 	of 	the 	franchise 	relationship, 	and 	that 	the
PMPA was 	intended 	to 	balance 	the 	rights 	of 	the 	respective 	parties
to 	retail 	gasoline 	franchise 	agreements. 19
The price 	and 	allocation 	regulatory 	features 	of 8.B. 	444
and 8.B.847 	are 	likely to 	lead to higher gasoline prices
Enactment 	of 	H.B. 	444 	or H.B. 	847 	may have 	adverse
consequences 	for 	consumers. 	Short 	term price 	discounts 	designed
to 	attract 	new 	customers would 	be 	deterred. 	Refiners 	may 	be
prevented 	from 	realizing 	the 	efficiencies 	of 	vertical
integration, 	which 	can 	often 	reduce 	transaction 	and 	search 	costs
and 	lower prices 	to 	consumers. 20
Lawful 	price 	differences 	often 	operate 	to 	destroy 	cartel
pricing. 21 	Moreover, 	changing market 	conditions 	frequently 	are
manifested 	in 	temporary 	discriminatory 	pricing 	patterns. 	If
these 	lawful 	price 	differences 	are 	prohibited, 	firms 	may 	become
insulated 	from 	competition, 	and 	pricing may 	become 	rigid. 	The
bill, 	therefore, 	if 	enacted, 	may 	result 	in 	higher 	profits 	for 	all
gasoline 	refiners 	and 	marketers 	through 	higher 	prices 	for
Louisiana 	consumers. 22
18{ ..• continued)
franchisers 	and 	franchisees, 	and 	creates 	a 	private 	claim 	for
violation by 	franchisers, 	enforceable 	in 	federal 	courts.
19 	See 	S. 	Rep. 	No. 	731, 	95th 	Cong., 	2d Sess., 	15-19, 	29-
43 	(1978), 	reprinted 	in 	1978 	U.S. 	Code 	Congo 	& Ad. 	News 	873.
20 	For 	example, 	vertical 	integration 	can 	reduce 	the 	costs
of 	contracting with 	various 	retailers 	and 	of 	coordination
problems 	between 	different 	distribution 	levels.
21 	See 	generally Schwartz, 	The 	Perverse 	Effects 	of 	the
Robinson-Patman 	Act, 	United 	States 	Dept. 	of Justice, 	Antitrust
Division, 	Economic Analysis 	Group 	Discussion 	Paper 	86-12, 	July
30, 	1986, 	at 	8-10.
22 	Indeed, 	the 	1984 	DOE 	Report, 	supra 	note 	~, 	at 	122,
analyzed 	the 	possible 	effects 	of 	"uniform price 	laws," 	as
follows:
In 	a 	market 	where 	there 	are 	no 	restrictions 	on 	pricing,
price 	reductions 	tend 	to 	spread 	throughout 	the 	geographic
area 	providing 	lower 	prices 	for 	consumers. 	. 	•• 	If 	the
geographic 	area 	within 	which 	the 	price 	cutting 	occurs 	is
limited, 	it 	is 	very 	likely 	that 	the 	refiners 	will 	respond 	in
kind. 	. 	. 	. 	Thus, 	a 	price 	cut 	in 	one 	area 	often will 	lead
(continued .•. )
8

Moreover, 	the 	legal 	presumptions 	that would 	be 	created 	if
either 	of 	the 	bills were 	enacted may 	have 	the 	effect 	of
inhibiting 	efficient, 	pro-competitive pricing 	practices. 	Under
the 	legislation, 	many 	efficient 	pricing 	practices, 	although
legal, 	may 	be 	discouraged by 	the 	threat 	of 	costly 	litigation.
The 	presumptions which 	the 	bills 	contain would 	shift the 	burden
of 	proof 	to 	the 	defendant 	to 	justify 	its 	pricing.
Conclusion
For 	the 	reasons 	stated 	above, 	we b~lieve that 	either H.B.
444 	or 	H.B. 	847, 	if 	enacted, 	would 	tend 	to 	insulate gasoline
refiners 	and marketers 	from 	competition, 	and 	thereby 	could 	cause
gasoline 	prices 	in 	Louisiana 	to 	increase.
We 	appreciate 	the 	opportunity to 	comment 	on H.B. 	444 	and
H.B. 	847. 	Please 	feel 	free 	to 	contact us 	if we 	can be 	of 	further
assistance.
Sincerely,
~~~#~,s~--
Tomas 	B. 	Carter
Director
Dallas 	Regional 	Office
22( •.• continued)
to 	price 	cuts 	across 	broad market 	areas. 	In 	this 	situation,
competition has 	worked 	effectively and 	consumers 	in 	all
areas 	affected 	are 	better 	off.
In 	markets 	where 	there 	are 	uniform price 	restrictions, 	it
is more 	likely 	that 	the 	responses 	will 	be 	different. 	Again,
a 	refiner may 	decide 	to 	lower 	prices 	in 	a 	geographic 	area
where 	sales 	traditionally have 	been weak. 	Reriners'
responses 	must 	now 	take 	into 	account 	the 	uniform 	price 	law.
. 	• 	. 	[R]efiners must 	lower 	prices 	throughout 	the 	area
covered 	by 	the 	law. 	In 	this 	situation, 	the 	refiners 	are
more 	than 	likely 	to maintain 	their prices, 	since 	they may
decide 	it 	is 	less 	costly 	to 	forego 	some 	sales 	in 	the 	initial
market 	where 	price 	cutting 	is 	occurring 	than 	lower 	prices
throughout 	the 	region. 	. 	• 	• 	Competition 	has 	been 	adversely
affected 	and most 	consumers 	are 	no 	better 	off, 	since 	price
reductions 	have 	not 	occurred 	in 	areas 	where 	they 	would 	have
without 	the 	uniform price 	law.
9