 Chapter 15
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Chapter 16
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577. Letter to researcher from Ted Gamble Clause, Deputy Attorney
General, August 31, 1995, at 2-3.
578. Id. at 3. In the Attorney General's 1993 report on the
impact of divorcement on consumer prices, the Attorney
General noted that "Hawaii's retail gasoline prices
increased on all islands after the moratorium was
enacted.... These increases appear to reflect an increase
in dealer tank wagon prices." Hawaii, Department of the
Attorney General, Gasoline Prices in Hawaii: The Impact of
Oil Company Divorcement on Consumer Prices (Honolulu: 1993)
(hereinafter, "AG (1993)") at 24. However, while the
retailers' margin appeared to be significant at first
glance, "considering the amount of gasoline taxes, Hawaii's
excise tax, and a gas station's operating costs, the
retailers' margin is minimal." Id. The Attorney General
concluded as follows: "We believe the price data to be
inconclusive on the effect of the moratorium. The data do
not, in our view, provide a sound empirical basis on which
to embrace or reject divorcement." Id. at 25.
579. Letter from John Tantlinger, Ed.D., Energy Planner,
Department of Business, Economic Development, and Tourism,
to Wendell K. Kimura, Director, Legislative Reference
Bureau, September 1, 1995, at 2.
580. Id. at 3. The department also cited the following
references: United States, Department of Energy,
Deregulated Gasoline Marketing: Consequences for
Competition, Competitors, and Consumers (Washington, DC:
March 1984) (hereinafter, "DOE (1984)") and John Zyren,
"What Drives Motor Gasoline Prices?" in Petroleum Marketing
Monthly (Washington, DC: Energy Information Administration,
June 1995).
581. Letter to researcher from Richard C. Botti, Hawaii
Automotive and Retail Gasoline Dealers Association, dated
September 1, 1995, at 2. The Bureau has substituted the
bracketed language for the specific entity named.
582. Id. at 2-3.
583. Letter to researcher from Alec McBarnet, Jr., Vice
President, Hawaii Petroleum Marketers Association, dated
September 7, 1995, at 2.
584. Id. at 1.
585. Id. at 2.
586. Letter to researcher from Jennifer A. Aquino, Administrative
Manager, Aloha Petroleum, Ltd., dated September 21, 1995, at
10.
587. Id. at 11.
588. Letter to researcher from R. A. Broderick, Western Region
Business Manger, Shell Oil Products Co., dated August 31,
1995, at 2.
589. Id. at 3.
590. Letter from Susan A. Kusunoki, BHP Hawaii, to Wendell K.
Kimura, Director, Legislative Reference Bureau, dated
September 8, 1995, at 2.
591. Id. at 3.
592. Letter from J. W. McElroy, Regional Manager, Chevron U.S.A.
Products Co., to Wendell K. Kimura, Director, Legislative
Reference Bureau, dated August 7, 1995, at 9-10. Chevron
cited the government and academic studies included in its
Exhibit 1 in support of its contentions. See note 20 in
chapter 4.
593. Id. at 10, citing Chevron's Exhibit 1.
594. The United States Department of Energy has cited the
following reasons for the increase in retail gasoline
marketing divorcement legislation in the 1970s:
This legislative activity was in response to the
heavy dealer attrition that occurred throughout most
of the 1970s, a period of increasing sales by refiner-
operated gasoline stations. Dealers were faced not
only with increased competition from refiner-operated
outlets and jobber retail operations, but also with
increasing rents and the imposition of credit card
processing fees (the latter did not occur until
November 1981). It was alleged that integrated
refiners were favoring their directly operated outlets
(particularly in the allocation of scarce gasoline
supplies), and were engaging in predatory
subsidization and other anticompetitive practices. It
was feared that small gasoline retailers were being
forced out of business by the major oil companies.
The sponsors of legislation were leery of a
situation where small dealers had to compete with
stations operated by the very companies that
controlled their gasoline supplies, station rents, and
other important aspects of their business.
Apparently, many legislators believed that competitive
forces in gasoline marketing were not strong enough to
prevent refiner-marketers from taking advantage of
this situation. In general, the purpose of the
legislation was to promote the viability of small
independent marketers (dealers) by eliminating the
direct competition (and alleged inequitable practices)
of refiner-marketers.
DOE (1984) at 97. See also id. at 97-105; AG (1993) at
18-19.
595. Until 1985, Florida's divorcement statute read as follows:
§526.151. Petroleum products dealers; restrictions
(1) After October 1, 1974, no producer, refiner,
or a subsidiary of any producer or refiner, shall
operate, with company personnel, in excess of 3
percent of the total number of all classes of retail
service stations selling its petroleum products, under
its own brand or secondary brand.
(2) Every producer or refiner of petroleum
products supplying gasoline and special fuels to
retail service station dealers shall apply all
equipment rental charges uniformly to all retail
service station dealers which they supply.
(3) This section shall not apply to any service
station operated by a producer or refiner of petroleum
products who purchases or obtains more that 90 percent
of the unrefined petroleum products to be so refined
from another producer or refiner of petroleum
products.
(4) A circuit court or circuit judge shall have
jurisdiction, upon hearing and for cause shown, to
grant an injunction restraining any person from
violating any of the provisions of this section.
Fla. Stat. §526.151 (1984); see State ex rel. Gas Kwick,
Inc. v. Conner, 453 So.2d 863, 864 n. 1 (Fla. 1st Dist. Ct.
of App., 1984) (per curiam).
In 1975, in an unreported Florida case that was never
appealed, this statute was declared to be an unlawful
exercise of the State's police power, denied producers
and refiners of petroleum products equal protection of
the laws, and unconstitutionally vague. See Exxon
Corp., et al. v. Conner, Case Nos. 74-1449, 74-1577,
and 74-1772, (Fla. 2d Cir. Ct., Jan. 23, 1975), cited
in State ex rel. Gas Kwick, Inc. v. Conner, 453 So.2d
at 864 and n. 2.
In 1978, the United States Supreme Court upheld the
constitutionality of Maryland's divorcement statute,
see Exxon Corp. v. Governor of Maryland, 437 U.S. 117
(1978), and Florida's divorcement statute was
subsequently revived in a 1984 Florida case. See State
ex rel. Gas Kwick, Inc., v. Conner, 453 So.2d at 863.
However, the Florida Legislature repealed its
divorcement statute the following year. See Sixty
Enterprises, Inc. v. Roman & Ciro, Inc., 601 So.2d 234,
235 n. 1 (Fla. 3d Dist. Ct. of App., 1992); 1985 Fla.
Laws ch. 85-74.
596. In 1979, Louisiana enacted a divorcement statute that read
as follows:
§1471. Operation of retail service station by
producer or refiner of petroleum products.
A. After January 1, 1980, no producer or refiner
of petroleum products shall open a retail service
station or sales outlet of any nature in the state of
Louisiana, and operate it with company personnel, a
subsidiary company, commissioned agent, or under a
contract with any person, firm, or corporation,
managing a service station on a fee arrangement with
the producer or refiner, except on an interim basis
for a period not to exceed sixty days while seeking a
dealer who can operate the station in compliance with
this section after the dealer who formerly operated
the station in compliance with this section has
discontinued such operation. The provisions of this
Act shall be effective through August 31, 1980 at
which time the provisions of this Act shall no longer
be applicable. ***
La. Rev. Stat. Ann. §1471(A) (West 1987) (emphasis
added).
597. John M. Barron, M. A. Loewenstein, and J. R. Umbeck,
"Predatory Pricing: The Case of the Retail Gasoline
Market," Contemporary Policy Issues, vol. 3, no. 3, pt. 2
(Spring, 1985) at 134 n. 5; see also J. Richard Shaner,
"Divorcement Pressures Growing Once Again," National
Petroleum News, vol. 83, no. 6 (June 1991) at 10; Marvin
Murphy, "Divorcement Proposals, Other Retail Gasoline Dealer
Protection Measures Facing Obstacles at State Level," Oil
Daily, no. 9526 (June 21, 1990) at 1; Marvin Murphy, "State
Lawmakers Target Gasoline Retailers; Wide-Ranging
Legislation Sought," Oil Daily, no. 9453 (Feb. 23, 1990) at
1.
598. Conn. Gen. Stat. §§14-344a and 14-344b (1995). Chapter 250a
(operation of retail service stations) of title 14 does not
affect allocation and distribution of fuel by the state, nor
does it apply to any service station operated by a producer
or refiner with its employees on July 1, 1979, that is used
as a training or test marketing center or for advertising or
public relations purposes. Id., section 14-344d.
599. Del. Code Ann. title 6, §2905 (Michie 1993).
600. D.C. Code Ann. §10-201 (Michie 1989).
601. Until 1992, the text of that statute read as follows:
§157E. Declaration or statement by wholesalers,
refiners, manufacturers, jobbers and dealers;
operation of service station by producer or refiner or
management firm; uniform treatment of retail dealers.
***
(b) ... [A]fter July 1, 1974, no producer or
refiner of petroleum products shall open a major
brand, secondary brand or unbranded retail service
station in the State of Maryland, and operate it with
company personnel, a subsidiary company, commissioned
agent, or under a contract with any person, firm, or
corporation, managing a service station on a fee
arrangement with the producer or refiner. The station
must be operated by a retail service station dealer.
(c)(1) ... [A]fter July 1, 1975, no producer or
refiner of petroleum products shall operate a major
brand, secondary brand, or unbranded retail service
station in the State of Maryland, with company
personnel, a subsidiary company, commissioned agent,
or under a contract with any person, firm, or
corporation managing a service station on a fee
arrangement with the producer or refiner. The station
must be operated by a retail service station dealer.
(2) A retail service station in operation on
January 1, 1979, that is operated by a subsidiary of a
producer or refiner of petroleum products as of
January 1, 1979 referred to in this subsection shall
be exempt from year to year from paragraph (1) of this
subsection for the fiscal year beginning July 1, of
each year, if the subsidiary's gross revenues from the
sale of petroleum products in this State for the
preceding calendar year is less than 2 percent of the
subsidiary's gross revenues from all retail operations
in this State for the preceding calendar year. Md.
Ann. Code art. 56, §157E (1988).
602. 437 U.S. 117 (1978).
603. AG (1993) at 11.
604. 1992 Md. Laws ch. 4, §1. The 1992 reenactment was included
in Maryland's ongoing revision of its state code.
Telephone
interview with David Warner, Maryland Department of
Legislative Reference, August 23, 1995.
605. Md. Code Ann., Bus. Reg. §10-311 (Michie 1992). Section 10-
101(i) of that article defines "retail service station
dealer" as "a person who operates a retail place of business
where motor fuel is sold and delivered into the fuel supply
tanks of motor vehicles."
606. Nev. Rev. Stat. §§597.440 (1993). Nev. Rev. Stat. §§597.450
(1993) reads as follows:
§597.450. Refiner's sale of motor vehicle fuel to other
retailers during temporary operation: Price.
During the temporary operation of a service
station by a refiner, the refiner may sell
motor vehicle fuel to other retailers in the
marketing area of that service station at a
price not less than 4 cents below the retail
price of fuel at the service station he is
operating.
Nev. Rev. Stat. sections 597.440 and 597.450 replaced
sections 598.677 and 598.678, respectively, in revision.
607. Va. Code Ann. §59.1-21.16:2 (Michie 1992).
608. Arizona, Joint Legislative Study Committee on Petroleum
Pricing and Marketing Practices and Petroleum Producer
Retail Divorcement, Final Report (Dec. 1988), Appendix E
(hereinafter, "Arizona Report (1988)").
609. Id. at 34-35 (Appendix A).
610. AG (1993) at 22; see also Hawaii, Department of the Attorney
General, The Attorney General's 1994 Interim Report on the
Investigation of Gasoline Prices (Honolulu: 1994) at 19.
The Attorney General further recommended, as an alternative,
that the Legislature wait to see what action was taken by
Congress on similar federal divorcement proposals; however,
no federal divorcement legislation has been enacted to date.
611. See 1995 Haw. Sess. Laws Act 238, §4; Hawaii Attorney
General Opinion No. 95-04, dated November 20, 1995, at 2.
612. Julia E. Schoen, The Consumer and Gasoline Marketing in
Hawaii: The Impact of Direct Retailing of Motor Fuel by
Refiners and Distributors on the Consumer (Honolulu: Hawaii
Department of Commerce and Consumer Affairs, 1993) at 55
("Divorcement has been in place since 1979 in Maryland. It
does not appear to have caused any changes in available
services or been detrimental to the marketplace. The
competition between stations seems healthy and competitive
based on price per gallon signs conspicuously displayed.
Franchised stations representing different oil companies
still occupy different street corners providing the consumer
with a choice of brands and services.")
613. The price of gasoline in Maryland rose after petroleum firms
were forced to divest themselves of employee-operated
stations. See generally J. M. Barron and J. R. Umbeck, "The
Effects of Different Contractual Arrangements: The Case of
Retail Gasoline Markets," 27 J.L. & Econ. 313 (Oct. 1984).
614. Walter Miklius and Sumner J. LaCroix, Divorcement
Legislation and the Impact on Gasoline Retailing in the
United States and Hawaii (Honolulu: University of Hawaii,
Jan. 20, 1993) at iv-v. "On the basis of Maryland's
experience, we estimate that if the divorcement law was in
effect in Hawaii during 1990, Hawaii's consumers would have
paid $11.1 million more for gasoline than they actually
paid. This is a lower bound estimate--the actual increase
in Hawaii could be much larger." Id. at v.
615. Id. at v:
The proposed divorcement legislation represents a
reversal of a long-standing state policy of
encouraging additional competition in Hawaii's oil
industry. This policy formed the basis for the
State's support for building a second oil refinery in
Hawaii and was motivated by the expectation that this
refinery would increase competition and thus reduce
high gasoline prices.... The former PRI refinery was
constructed in 1972 and to increase efficiency it
integrated down-stream into the retail gasoline market
in 1982. On the basis of efficiency considerations,
it chose the most efficient outlet to market its
products, i.e., the large-volume, self-service-only
outlets. There is little question that the appearance
of PRI in Hawaii increased competition and kept
gasoline prices lower than they would have been in its
absence. The results are fully consistent with the
aims of the state's ... original policy: increased
competition and lower gasoline prices.
Act 295 SLH [1991] departs from this policy. Its
aim is clearly anticompetitive. There is, however, no
evidence that there is too much competition in
Hawaii's gasoline retail market. Divorcement
legislation is not in order, as it would impose large
financial burdens on consumers. If the State wishes
to help lessee dealers, it should explore other, more
effective ways to do so.
616. See David J. Teece, An Economic Analysis of S.B. 1757, S.D.
1 "Relating to Prohibition Against Retailing of Motor Fuel
by Refiners" (Berkeley, CA: April 1991). This study is
self-described as "an independent assessment of petroleum
marketing in Hawaii against the backdrop of divorcement
legislation pending before the state legislature.... The
report reflect[s] the views of Professor Teece and not
necessarily those of Pacific Resources, Inc." Id. at [i]
(Preface). This report was submitted in support of Teece's
testimony before the House Committees on Consumer Protection
and Commerce and Judiciary, April 2, 1991, regarding Senate
Bill No. 1757, S.D. 1 (1991).
617. Id. at 18-19:
The adoption of divorcement legislation would be
most unfortunate for consumers in Hawaii. First,
amongst the most vigorous competitors are the Gas
Express stations. Divorcement would force new
stations to be franchised, with no guarantee that the
dealers would be as competitive. Second, evidence
from the mainland where divorcement has been enacted
shows that prices go up in both the short and long run
as a result of divorcement. A price increase of the
same magnitude would cost consumers in Hawaii about
$8.0 million per year. Finally, there are much less
draconian instruments already available if predation
is indeed a problem, which it is not.
For all of these reasons, it is not in the public
interest to pass this protectionist bill. What it
does is to protect franchised as well as independent
dealers, primarily at the expense of Hawaiian
consumers. Hawaii consumers have clearly spoken on
the issue. A large number prefer low-price, self-
service gasoline stations like Gas Express and low
priced, high volume repair shops such as Jiffy Lube or
Midas. They like to buy tires at Consumer Tire
Warehouse and Costco. Some consumers still prefer
full service gasoline stations. These consumers are
being served by a smaller number of stations than in
the past, because fewer motorists want this kind of
service. The proposed legislation will erode the
representation of the low-priced, self serve, day and
night operation service stations that motorists have
been willing to support with their patronage.
618. See, e.g., Barron and Umbeck (1984); Putnam, Hayes, and
Bartlett, Inc., Gasoline Prices in Maryland Following
Divorcement, (March 13, 1987) (commissioned by the Maryland
Attorney General and the Comptroller of the Treasury);
Thomas P. Hogarty and Rayola S. Dougher, "The Impact of
Divorcement on Consumers in Maryland: A Critique of
'Gasoline Prices in Maryland Following Divorcement,' by
Putnam, Hayes, and Bartlett, Inc., March 13, 1987," American
Petroleum Institute Critique #019 (June 1987); and Philip
E.
Sorensen, The Cost to Consumers in Maryland of the
Divorcement of Refiners from Retail Gasoline Marketing,
1979-1986, (January 1988). For a review and discussion of
these studies, see AG (1993) at 11-22; see also Schoen
(1993) at 51-55.
619. 437 U.S. 117 (1978).
620. Maryland, Department of Fiscal Services, Gasoline Station
Divorcement: A Review of Studies Concerning the Economic
Impact of Maryland's Gasoline Station Divorcement Law
(Annapolis: Nov. 1988) at 2.
621. Id.
622. Id. at 3 (emphasis added):
A difficulty in analyzing divorcement today is
that considerable change has occurred in the marketing
of gasoline since the divorcement statute was enacted
in 1974. Many small retail stations have been
replaced with large "gas and go" stations. Many
stations are now part of convenience stores and the
price structure of gasoline is influenced by the
pricing of other products. The widening gap between
full-service and self-service prices generates an
increasing use of self-serve by many motorists. The
price differential between cash and credit sales is an
added dimension. It is quite possible that the effect
of divorcement on a price per gallon basis is less
than price per gallon variations from one station to
another in close geographic proximity.
The divorcement issue involves the relationship
between the oil refineries and the retail service
stations. The case for divorcement can only be
justified on the basis that this type of state
regulation is necessary to assure the viability of
small, locally owned businesses in the retail
petroleum industry. Divorcement cannot be sustained
as being in the financial interests of consumers.
Others have similarly concluded that divorcement legislation
of the type enacted in Maryland has a negative impact on
consumers. See, e.g., Ben W. Bolch and William W. Damon,
"Modeling Divorcement in the Retail Petroleum Industry,"
Quarterly Review of Economics and Business, vol. 28, no. 2
(Summer, 1988) at 59 ("[W]e can find no clear benefits to
consumers from regulations of the kind that were passed in
Maryland. Indeed, the benefits may be negative to consumers
in that dealers that are no longer economically viable may
remain in business because of the retardation in adopting
more efficient self-service marketing technology."); see
also "Cheap Gasoline Isn't as Cheap in Maryland," Sun
(Baltimore, MD), May 11, 1986, Section F at 11.
623. Massachusetts, Open Supply and Divorcement Task Force,
Report Concerning House Bills H861 and H4490 Currently
Before the Joint Committee on Energy (Boston: Aug. 11,
1993) at v.
624. Id. at 12.
625. See Montana Legislative Council, Motor Fuel Pricing Problems
(Helena, MT: Oct. 1990).
626. Id. at 5-6.
627. "Representative offering", also referred to as "wholesale
competition option" or "limited open supply", means the
ability of a dealer to sell one grade of motor fuel that
was purchased from sources other than the refiner with whom
the dealer has a franchise agreement, provided that the
dealer observes all trademark identification requirements
established by the refiner and complies with all federal and
state laws relating to motor fuel quality specifications,
handling practices, and labeling requirements. See
Virginia, General Assembly, Report of the Joint Subcommittee
Studying Divorcement and Representative Offering for
Inclusion in the Virginia Petroleum Products Franchise Act
(Richmond: 1991) (hereinafter, "Virginia Report (1991)") at
2; see chapter 4 of this report for a discussion of open
supply and related issues.
628. Virginia Report (1991) at 1.
629. Id. at 11. In reviewing divorcement and open supply laws,
the subcommittee heard testimony from the director of
litigation of the Federal Trade Commission (FTC) that:
Claims that vertical integration by refiners into
gasoline retailing is anticompetitive in and of itself
or because of refiner subsidization did not appear to
be well founded. Although most refiners in the United
States are vertically integrated into gasoline
retailing because such integration is efficient, the
major oil companies targeted by the divorcement and
open supply in Virginia are the least integrated into
retailing....
The FTC pointed out that predatory or
monopolistic behavior in the petroleum industry is
subject to federal law and the Virginia Antitrust Act
which address possible anticompetitive practices in
the industry more effectively than legislation
restricting new entry by potential competitors. Id.
at 10.
630. Id.
631. Washington, State Senate Select Committee on Petroleum
Marketing Practices, 1986 Report to the Legislature on the
Retail Gasoline Market (Olympia, WA: 1986) at 1.
632. Id. at 18. The committee noted that company-operated
stations accounted for approximately nine percent of the
total gasoline sold statewide in 1984, and that the
committee's recommendation, along with other recommendations
of the committee, "will ensure the survival of the
independent gasoline retailer while continuing the
opportunity of the major refiners to market their product at
company-operated outlets in Washington." Id.
633. Id. at 19.
634. See Washington, State Attorney General, Final Report to the
Washington State Legislature on the Attorney General's
Investigation of Retail Gasoline Marketing (Olympia: Aug.
12, 1987).
635. Id. at 14. The attorney general further noted that at the
retail level, gasoline revenues alone were not sufficient to
recover the wholesale (DTW) cost, the costs of marketing
gasoline, and a reasonable profit margin, and that stations
without alternative profit centers (such as a convenience
store format) would have difficulty being profitable on the
basis of sales of gasoline alone; however,
in view of this evolving nature of the retail gasoline
business, slim margins on gasoline do not necessarily
evidence an intent by companies to drive out their
lessee dealers. In a rapidly changing market with
thin retail profit margins due to competitive factors,
it would be reasonable to expect that a significant
number of dealers would be unable to adapt quickly
enough to survive. Id. at 27.
636. See Virginia Report (1991) at 5-6; see also Arizona Report
(1988) at 18.
637. Virginia Report (1991) at 6-7.
638. 1991 Haw. Sess. Laws Act 295, §5.
639. Testimony of Senator Ikeda on Senate Bill No. 1757, S.D. 1,
Journal of the Senate of the Sixteenth Legislature of the
State of Hawaii, Regular Session of 1991, 29th Day, page
322:
As you know, the attorney general has been
conducting ... an ongoing investigation of gasoline
pricing in Hawaii. In his September 1990 preliminary
report he found the following: First, the gasoline
markets in Hawaii are highly concentrated. Second,
barriers to the entry of new competition are extremely
high at the refinery, terminal storage, and retail
outlet levels of the markets. Third, demand for
gasoline in Hawaii is highly inelastic. Fourth,
historically, wholesale gasoline prices in Hawaii have
been above those in competitive markets by an amount
substantially in excess of the price of transportation
between those markets and Hawaii.
He has tentatively concluded after these findings
that there are four probable causes and these are:
the exchange agreements used by the incumbent oil
companies, the control of storage facilities by the
incumbent oil companies, and the control of retail
outlets by the incumbent oil companies, as well as the
limited size of the Hawaii market.
I would like to put emphasis on the third of the
four probable causes, the control of retail outlets by
the incumbent oil companies. This is what we have
seen happening over the years. There's no doubt that
the facts show that the numbers of independent
gasoline dealers have steadily declined. We have seen
their numbers reduced from roughly 600 in 1979 to less
than 300 today.... [G]iven the fact that it's fairly
obvious that we lack a competitive environment in this
state as far as gasoline pricing is concerned, the
only thing that we can do is take steps to keep this
business from becoming a total monopoly. And that's
basically what has already occurred--it only helps to
retain the status quo....
640. Testimony of Representative Tatibouet on Senate Bill No.
1757, S.D. 1, H.D. 1, Journal of the House of
Representatives of the State of Hawaii, Regular Session of
1991, 46th Day, page 514:
The proponents of this divorcement legislation
have alleged that ... integrated refiners who sell
gasoline to the public are somehow engaged in
predatory pricing behavior and that this has led to
independent franchise dealers going out of business.
They argued that permitting refiners to own and
operate retail gasoline stations place the dealers in
an unfair and competitive disadvantage.
However, in reviewing the information and data
that have been prepared by numerous sources contained
in the testimony and elsewhere, I have not bee able to
identify any documented evidence to support the
statements that such actions and activities are being
promoted in our State[.] On the contrary, study after
study ... have discounted the allegations of unfair
competition committed by integrated oil companies. In
fact the FTC found the divorcement laws have resulted
in higher motor fuel prices and fewer choices for
consumers.
... I believe this action is premature and
another example of unwanted government intervention in
the marketplace.
... [I]t is unconscionable that we, as a
legislative body, would condone interfering with the
marketplace and prohibit certain business activities
based on no real documented evidence.
641. Testimony of Representative Thielen, id. at 515:
In a free market system such as ours, the general
rule is that the more competition there is, the
better. There must be a strong presumption against
any measure which bans a company from competing.
This bill contains just that--a two year
moratorium. Although there was no convincing evidence
that oil refiners are competing unfairly, the bill was
passed out of Committee.
The ultimate loser of course, as always, will be
the consumer. We do not do gasoline buyers any favor
by telling them that they cannot buy from a refiner,
even if the refiner offers the lowest price of gas.
Hawaii and the federal government already have
adequate antitrust laws forbidding anti-competitive
actions by oil companies. If there is evidence of
antitrust violations, the proper authorities,
including our Office of the Attorney General, should
act vigorously to enforce those laws. Otherwise, the
government should stay out of the free market.
642. Barron, Loewenstein, and Umbeck (1985) at 131; see also
Herbert Hovenkamp, Federal Antitrust Policy: The Law of
Competition and its Practice (St. Paul, MN: West Publishing
Co., 1994) at 298-328.
643. Barron, Loewenstein, and Umbeck (1985) at 131-132.
644. Jeffrey L. Spears, "Note: Arguments For and Against
Legislative Attacks on Downstream Vertical Integration in
the Oil Industry," 80 Ky. L.J. 1075, 1078-1080 (Summer,
1992) (footnotes omitted):
Although many politicians are quick to build a
platform upon such public fears, there can be no
serious debate concerning the lack of similarity
between the high level of industrial concentration
within the oil industry prior to 1911 and the low
level of economic concentration that characterizes the
oil industry today. During Standard Oil's market
predominance, it could boast of refining,
transportation, and retail market concentration levels
hovering around ninety percent. Today, however, the
American oil giants are capable of individually
controlling only a relatively small percentage of the
refined products market. Furthermore, concentration
ratios computed for the gasoline market reveal that
the level of concentration possessed by refiners has
fallen significantly in recent years. Nonetheless,
many so-called "consumer advocates" and jobbers feel
compelled to lobby passionately in state and federal
arenas for legislation to curb purported industry
excesses by forcing oil refiners to become divorced
from their retail gasoline operations, thereby eroding
the degree of vertical integration in the oil
industry.
645. Miklius and LaCroix (1993) at 7:
Dealers have, however, suggested an alternative
explanation for vertical integration: major oil
companies use their integrated operations to predate
on their own lessee dealers. If major oil companies
are engaging in predatory behavior, this would lend
support to dealers' contentions that divorcement
legislation would lead to lower long-run prices.
Divorcement would prevent major oil companies from
increasing future prices to monopoly levels after the
predatory activity has driven the lessee dealers from
the retail gasoline marketplace.
646. See Arizona Report (1988) at 21 and studies cited therein;
see generally DOE (1984); United States, Department of
Energy, The State of Competition in Gasoline Marketing
(Washington, DC: Jan. 1981).
647. Barron, Loewenstein, and Umbeck (1985) at 135 (emphasis in
original; footnotes omitted).
648. Philip E. Sorensen, An Economic Analysis of the Distributor-
Dealer Wholesale Gasoline Price Inversion of 1990: The
Effects of Different Contractual Relations (N.p., April
1991) at 34:
The theory of monopolization is contradicted by
the history of the gasoline marketing industry in the
U.S. Since the late 1960s concentration ratios in
gasoline marketing have declined consistently, and are
currently below levels of the 1950s. In addition, an
exhaustive federal study (which included audits of
refiner-operated stations throughout the U.S.) found
no evidence of below-cost pricing or predation.
Predatory pricing in industries with low barriers
to entry (such as gasoline marketing) has long been
considered to be an unprofitable strategy by antitrust
experts. It would not be possible for a hypothetical
predatory seller of gasoline to recoup enough foregone
profits through supra-competitive pricing in the post-
predation period to pay for a predatory pricing
campaign since new sellers would enter the market as
price levels were raised, ruining any chance that the
predatory firm could profit from the strategy. The
predatory seller would also face probable antitrust
action and suits for damages by competitors if it were
ever to gain even a temporary degree of monopoly
control over the market.
649. Miklius and LaCroix (1993) at 7.
650. Miklius and LaCroix (1993) at 57; see also id. at 7-16. For
further discussion of predatory pricing under Hawaii law,
see also Lyle Harada and Randall Sing, "Note: Island
Tobacco Co., Ltd. v. R. J. Reynolds Tobacco Co. [63 Haw.
289, 627 P.2d 260 (1981)]: Federal and State Views of
Hawaii's Antitrust Laws," 4 U. Haw. L. Rev. 195, 202-206
(1982); see also Haw. Rev. Stat. §§480-2 and 481-3.
651. Maryland Dept. of Fiscal Services (1988) at 3.
652. AG (1993) at 22.
653. Rayola Dougher and Thomas F. Hogarty, The Impact of State
Legislation on the Number of Retail Gasoline Outlets,
Research Study #062 (Washington, DC: American Petroleum
Institute, Oct. 1991) at 15. Although they found that no
definitive conclusions could be drawn with respect to the
impact of divorcement laws on the number of retail outlets
in a state, Dougher and Hogarty cited examples of market
departure by refiners due to the divorcement laws in
Maryland and Virginia, and noted that "[t]he departure of
major refiners can mean the loss of substantial refiner
investments, and hence, a decline in the number of
stations." Id. at 7; see also "Divorcement Has No Impact on
Station Closings: API," U.S. Oil Week, Dec. 9, 1991.
654. T. Crawford Honeycutt, "Competition in Controlled and
Uncontrolled Gasoline Markets," Contemporary Policy Issues,
vol. 3, no. 3, pt. 2 (Spring, 1985) at 107.
655. Id. at 116. Sorensen (1991) also noted that retail
divorcement laws raise retail gasoline prices and have had
their greatest relative impact on small and independent
refiners, while tending to benefit jobbers over dealers:
Economic theory and various studies of the
experience of retail divorcement in states where it
has been imposed generally agree that retail
divorcement has an anti-consumer effect in raising the
average level of retail prices. This is true because
it reduces the number of current sellers in the market
and bars entry by an entire class of new sellers.
Paradoxically, retail divorcement laws have their
greatest relative impact on small and independent
refiners--sellers who have not even a theoretical
capacity to carry out a "predatory pricing" campaign.
To a greater degree than other refiners, small
refiners focus their marketing strategy on low-margin,
high volume distribution of gasoline through salary-
operated stations.
... [E]vidence suggests that jobbers have
benefitted relative to dealers as a result of
divorcement, but it does not support the notion that
retail divorcement eliminates the market conditions
which give rise to inversions of wholesale prices.
Sorensen (1991) at 34-35.
656. Miklius and LaCroix (1993) at 53-54 (footnotes omitted).
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Chapter 16
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