FTC Staff Sends Virginia House of Delegates Comments on Bill Regarding Below-Cost Sales of Motor Fuels

FTC Staff Sends Virginia House of Delegates Comments on Bill Regarding Below-Cost Sales of Motor Fuels

Agency: Federal Trade Commission
Date: 18 February 2002

Staff of the Federal Trade Commission's Office of Policy Planning and Bureau of Competition today filed comments with the Commonwealth of Virginia's House of Delegates, at its request, regarding Senate Bill No. 458, "Below Cost Sales of Motor Fuels," saying that such legislation is unnecessary and has a significant potential to be anticompetitive. The Virginia bill seeks to prohibit retailers from selling motor fuels "below cost" (and specifically defines what "cost" is to the retailer) to eliminate the possibility of "predatory pricing." According to the FTC staff comments, "at best [the bill] merely duplicates existing protections against 'predatory pricing' found in federal antitrust law [and] at worst may discourage or even prevent competitive pricing."

"To find a company guilty of predation, antitrust laws require that the company price below cost and that there be a dangerous probability that the company could succeed in monopolizing the market," said FTC Chairman Timothy J. Muris. "This bill simply outlaws most below-cost pricing of gasoline, even when it benefits consumers and poses no threat of monopolization."

The staff summarized its analyses of the bill in five points, with supporting evidence provided:

Anticompetitive below-cost pricing is already illegal under federal antitrust laws;
Anticompetitive below-cost pricing rarely happens;
Past studies suggest that anticompetitive below-cost sales of motor fuels are especially unlikely;
The bill would penalize some forms of price cutting that benefit consumers, as it would outlaw more types of pricing behavior than the federal antitrust laws currently do; and
If enforced vigorously, the legislation likely would harm consumers by increasing the price of motor fuels.

In concluding its comments, which are available on the Commission's Web site at www.ftc.gov, the staff said, "To the extent that anticompetitive below-cost pricing is a danger in the retail gasoline market, federal laws are adequate to deal with the problem, and the additional sanction of the proposed bill could significantly deter pro-competitive price-cutting and result in Virginia consumers paying more at the gas pump."

The Commission vote authorizing staff to file the comments with the House of Delegates was 5-0. The comments represent the views of the staff of the FTC's Office of Policy and Planning and Bureau of Competition 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. V020011)

Media Contact:: Mitchell J. Katz
Office of Public Affairs
202-326-2161
Staff Contact:: R. Ted Cruz
Office of Policy Planning
202-326-3683