Questions (1) and (2) of the Resolution request the views of
survey participants on the following issues:
	
     (1)  The effects of prohibiting franchise agreements from
          requiring franchisees to purchase all of their gasoline
          from the franchisor or restraining franchisees from
          dealing with the franchisors' competitors;

     (2)  The effects of limiting the amount of gasoline
          franchisors require franchisees to purchase from the
          franchisor.

	Because questions (1) and (2) of the Resolution are closely
related in subject matter and raise many of the same issues, they
are discussed together.
	
	
	State Government
	
	AG:  The Attorney General responded to question (1) by noting
that prohibiting these types of franchise agreements, while
increasing competition between franchisors and competing sellers,
would also increase transaction costs and decrease the value of
brand names:

          Franchise agreements that require franchisees to
     purchase their requirements from the franchisor have
     anticompetitive effects and procompetitive effects.
     The main anticompetitive effect is that such agreements
     foreclose the franchisee as a customer for a seller in
     competition with the franchisor.  The main procompetitive
     effect is that such agreements (1) reduce transaction costs
     of both parties to the agreements, and (2) protect the value
     of the brand name of the franchisor's gasoline.

          Prohibiting such agreements would increase
     competition between the franchisor and other competing
     sellers in the market.  At the same time, it would
     increase transaction costs and decrease the value of
     the brand name as commercial property.194 

     The Attorney General stated that question (2) would also
produce mixed results:

          Placing limits on the amount of gasoline an oil
     company or a jobber can require a service station to
     buy appears to be an alternative legislative measure to
     prohibiting requirements contracts altogether.  It
     would "free" the retail dealer to buy a portion of the
     dealer's requirements elsewhere.  But it would be a
     kind of "half" measure that would not likely offer any
     incentive to retail dealers to seek out other suppliers
     or gasoline suppliers to seek out retail dealers with
     "remnant" requirements.  The transaction costs would
     likely exceed any possible benefits.  However, it might
     be possible to minimize transaction costs.  For
     example, the measure might authorize dealer purchasing
     cooperatives.195 

     DBEDT:  The department responded to both questions (1) and
(2) by noting that this practice would not produce "any
significant price effects", but that Hawaii's consumers would
benefit most from the free market trade of petroleum:

     [W]e strongly support free market trade of petroleum in
     Hawaii.  For example, we believe that the Hawaii
     consumer can be best served by continuing to allow the
     competitive forces of the free market to work.  Over
     the past few years, we have supported the Attorney
     General's on-going investigation of petroleum pricing
     in Hawaii.  Nevertheless, no evidence of anti-
     competitive behavior was reported by the Attorney
     General in two separate reports on this
     investigation.196 

     The department further noted that the United States General
Accounting Office (1993) found that the wholesale and retail
prices of gasoline and other petroleum products are largely
determined by the market price of crude oil, and that supply
arrangements and the extent of local market competition are
mostly secondary price determinants.197 


     Gasoline Dealers

     HARGD:  In response to question (1), the HARGD maintained
that such a prohibition would lead to uncertainties over the
integrity of branded gasoline, resulting in the elimination of
franchisees; moreover, the enactment of open supply legislation
would ultimately result in oil companies vertically integrating
downstream to capture a greater market share of their branded
products:

     The integrity of the branded fuel would be
     questionable, and would cause franchisees to be
     eliminated because dealers would lose the brand name,
     logo, credit card usage, advertising, and in all
     probability, rental agreements.  Oil companies would
     not allow this with the investment they have for the
     purpose of promoting and selling their branded product.
     Existing contracts prohibit commingling.  The [b]rand
     integrity is the cornerstone of their marketing
     strategy.  This includes additives, credit cards,
     advertising, and logo, which would be lost.

     If the law mandated open supply, extensive modification
     to lease agreements would be established to assure the
     dealer would sell the product as an unbranded product.
     This would lead to vertical integration in order to
     assure marketshare of the branded product.198 

     In response to question (2), HARGD similarly contends that:

     [s]maller stations would be required to purchase
     improvements provided by their oil company supplier.
     This would include tanks, pumps, and piping.
     Comingling of fuel would void contracts....

     Open supply would require divestiture of assets or oil
     companies would take over the franchise.  Complete
     assets (property and equipment) alignment would be
     necessary before an open supply system could
     operate.199 


     Jobbers

     HPMA:  In response to question (1), the HPMA noted that
restricting a franchisor's right to sell gasoline through the
franchisor's own facility would discourage the building of new
facilities:

     You have to give consideration to the franchisor who
     invested capital and took the risk to build the
     facility to sell his product.  It is only fair that he
     is allowed to capitalize to the fullest extent of his
     investment in the franchisor's facility.  If there was
     an opportunity for a non-franchisor supplier of
     gasoline to solicit the business of all the franchisor
     branded stations on a direct basis, the incentive to
     build additional service stations would be removed.
     Surely a manufacturer/investor would not build a
     facility if he thought he was not going to be able to
     sell products through their facility.  The restriction
     of franchisor's rights to sell petroleum products
     through his own facility is not inducement to build new
     facilities.200 

     With respect to question (2), the HPMA noted that "there is
no economic benefit to limit the amount of gasoline a franchisor
requires the franchisee to purchase.  This limitation would
reduce the potential return on investment from a franchisor,
there being a disincentive to build more gasoline
facilities."201 

     Aloha Petroleum:  With respect to question (1), Aloha
Petroleum also argued that prohibiting or restricting exclusive
dealing arrangements would act as a disincentive for franchisors
to invest in service stations:

     Gasoline franchise agreements are contractual
     agreements reached between the franchisor and
     franchisee.  Both parties are given the opportunity to
     read the agreement, understand the terms thereof, and
     consult with any necessary experts prior to entering
     into the agreement.  In most circumstances, the
     franchisee does not have the financial capability to
     independently initiate the business and must rely on
     the franchisor for this significant financial
     investment.  As an inducement to the franchisor, an
     agreement is reached whereby the franchisee commits to
     dealing exclusively with and purchasing all of the
     franchisee's gasoline from the franchisor.  Without
     this commitment on the part of the franchisee, the
     franchisor would not be motivated to make the
     significant financial investment or enter into an
     agreement with a franchisee.  In most instances, it is
     the franchisor who is taking the greatest risk.  Any
     attempt to prohibit or restrict this contractual
     agreement would serve as a disincentive for franchisors
     to invest in gasoline stations.202 

	Regarding question (2), Aloha Petroleum stated that
establishing minimum fuel volume requirements is based on an
investment analysis of each particular station, and justifies the
franchisor's investment in that station:
	
     The franchisor establishes the amount of gasoline that
     the franchisee is required to purchase so that the
     franchisor can recoup the significant financial
     investment that the franchisor makes.  Establishing
     minimum fuel volume purchases allows the franchisor to
     achieve the financial performance levels projected for
     the gasoline station and justifies the investment to
     the franchisor.  In determining the minimum fuel volume
     to be purchased by the franchisee, the franchisor
     weighs the amount of the financial investment and the
     volume of gasoline that the franchisor expects the
     gasoline station to generate.  Setting minimum fuel
     volume requirements is based on an economic investment
     analysis of the circumstances surrounding that
     particular gasoline station.  If the franchisee is
     unable to meet the volume limits, the franchisor must
     make a business decision to work with the franchisee to
     obtain the desired volume amounts or to find another
     franchisee who can achieve the established minimum fuel
     volume amount.203 


     Oil Companies

	Shell:  Shell noted that questions (1) and (2) raise the issue
of open supply, which has never been implemented and has been
opposed as harmful to consumers by the Antitrust Division of the
United States Department of Justice, the United States Department
of Energy, the Federal Trade Commission, and the Section on
Antitrust Law of the American Bar Association. Anticompetitive
supply arrangements between petroleum suppliers and their
franchisees can be addressed under existing antitrust laws without
changing the distribution system in ways that would be detrimental
to consumers.  In particular, an open supply system would be
detrimental to Hawaii consumers for the following reasons:

          The "open supply" concept would be harmful to
     consumers in Hawaii because it would erode the value of
     suppliers' brands.  This would cause suppliers to
     reduce their investment in retail service stations,
     quality control, product innovation, and ancillary
     services.  In the long run, there would be fewer
     service stations, less consistent product quality and
     less consumer choice.  The majority of gasoline
     consumers in Hawaii, who have demonstrated that they
     prefer the consistent quality of major brands, would be
     either unable to obtain them or able to do so only at
     higher prices.  None of these adverse consequences need
     take place for consumers to be able to buy unbranded or
     local-brand gasoline; those alternatives are already
     available.  The long-run outcome of destroying the
     value of major brands, however, would be that unbranded
     gasoline of uncertain quality would in most areas be
     the only product available.204 

     Shell further noted that a product's trademark, and the
supplier's reputation that it embodies, provides a valuable
source of information for consumers since suppliers (of gasoline
and other products) do not provide identical products and it is
impractical for consumers to evaluate product quality prior to
purchase.  Consumers consistently demonstrate the value of a
product's trademark by their willingness to choose branded
products over lower-priced unbranded alternatives.  The federal
Petroleum Marketing Practices Act further protects consumers'
ability to rely on the supplier's trademark as the source of
branded gasoline, since that Act allows for termination of a
franchise for a dealer's misbranding, mislabeling, or
adulteration of gasoline.205 

     Shell stated that it did not require its franchisees to
purchase all of their gasoline from Shell so long as provisions
were made to protect Shell's trademark, prevent consumer
deception, and maintain quality control.  Shell further stated
that it did not require its lessee dealers to purchase any
particular amount of gasoline from Shell, provided that they
maintained a representative quantity of each grade.  Shell's
agreements with those dealers who do not lease their stations
from Shell include supply arrangements with minimum purchase
requirements, but these dealers may enter into supply
arrangements with other suppliers.  "In sum, the amount of
gasoline that Shell's franchisees purchase from Shell is
determined by the amount that consumers are willing to buy from
the franchisees."206 

     Moreover, Shell argued that open supply legislation would
decrease Shell's incentive to invest in product improvement:

          Shell makes substantial investments to improve its
     products (for example, by the development of additives
     with unique qualities), assure stability of supply,
     maintain a consistent level of product quality, build
     retail outlets, and identify its products to consumers
     through the display of its trademark at its retail
     outlets.  If the "open supply" concept were
     implemented, the incentive to invest in each of these
     areas would be significantly diminished.207 

	In addition to increasing consumer confusion, devaluing
Shell's trademark, and reducing the incentive to invest, Shell
maintained that an open supply mandate would result in fewer
branded outlets, higher prices, and the domination of Hawaii's
market by unbranded gasoline of uncertain quality:  "Even though
gasoline would be supplied by the same refineries, without a brand
system to preserve [suppliers'] incentive to maintain a consistent
level of quality throughout the distribution system, quality would
likely sink to the lowest possible level.  A costly state testing
program might have to be established to insure that unbranded
gasoline met minimum specifications."208
	
	BHP:  With respect to questions (1) and (2), BHP noted that
the franchise agreement is a legally binding contract benefiting
both parties to the contract:  the franchisee can use the
franchisor's branded product, knowledge, marketing support, and,
in some cases, assets to conduct business, while the franchisor is
able to market its products while maintaining a high quality of
service and establishing a recognizable standard on which
consumers can rely.  Both franchisors and consumers would be hurt
by the loss of integrity of the franchisor's branded products:
	
     To the extent that consumers place value in brand
     recognition or in the proprietary products which are
     exclusively offered for sale at such franchises they
     have the benefit of knowing that the same quality of
     proprietary product which they have purchased and
     relied on in the past can be obtained at such
     franchises.  To allow franchisees to obtain their
     products from other suppliers and then market them
     under franchiser's brand, destroys the very basis for
     having such agreements in the first place.

          Consumers would be negatively impacted for they
     can no longer rely on the brand under which such
     products are marketed.  The product's value would be
     severely diminished and confidence within the market
     place would erode.209 

     Furthermore, BHP noted, establishing brand awareness and
associating it with a product class is expensive; for example,
over $200 million was spent changing the name "Esso" to "Exxon":

     [F]ranchisers expend large amounts of capital to
     establish and enhance brand loyalty and product
     awareness.  The franchiser benefits by being able to
     sell its product and to the extent that such
     advertising works, the franchisee benefits by being
     able to sell more of that branded product.  If any
     product is allowed to be sold under a franchiser's
     trademark, quality assurance could be lost and
     consumers would be "cheated" in not getting what they
     expect when buying that brand.210 

     Finally, as a result of the implementation of questions (1)
and (2), BHP believed that competition and business development
in the State would be inhibited, consumers would be left without
assurances as to whether the brand they value is in fact the
brand they are purchasing, and gasoline prices would be
maintained at artificial levels.211 

	Chevron:  With respect to question (1), Chevron noted that
none of its lessee dealers in Hawaii are required to purchase all
of their gasoline from Chevron, and maintained that consumers tend
to avoid those outlets that sell more than one brand, finding the
practice confusing:
	
     Chevron owns 65 motor fuel retail outlets in Hawaii
     which it leases to Chevron dealers.  (Chevron also owns
     and operates three company-operated Chevron motor fuel
     retail outlets in Hawaii.)  These Chevron dealers are
     not required to purchase all of their gasoline from
     Chevron.  They are only required to purchase from
     Chevron and continuously offer for sale all three
     grades of Chevron gasolines.  The dealer is free to
     install additional pumps and tanks at his own expense
     to sell competitive gasolines.  Chevron's dealer
     agreements provide that Chevron will not unreasonably
     withhold its consent to the installation of such
     additional pumps and tanks.  In fact, Chevron has never
     withheld its consent to the installation of such
     additional tanks.

     Chevron dealers typically do not also sell competitive
     gasolines because these sales are not economically
     attractive to dealers.  Consumers do not expect to find
     more than one brand of gasoline at a service station-
     -particularly a service station prominently flying the
     Chevron flag.  When they do so, they tend to find the
     situation confusing, have questions about what type of
     gasoline they are in fact buying, and thereafter avoid
     the station.  The unattractiveness of such sales is
     demonstrated by the fact that Chevron also supplies 17
     service station dealers in Hawaii who own their own
     stations.  Each of those dealers is free at any time
     without cause to terminate his agreements with Chevron.
     These dealers are also free to sell competitive
     gasoline as long as they continue to offer for sale all
     three grades of Chevron gasolines.  All of these owner
     dealers elect to sell all three grades of Chevron
     gasolines and not to offer competitive gasolines,
     because they have determined that it is good business
     to do so.212 

     With respect to question (2), Chevron argued that open
supply would abrogate contractual rights and lead to the
destruction of brand-name marketing, ultimately resulting in
poorer quality products and services for consumers:

     Over the last 20 years [innumerable] bills have been
     introduced in state legislatures throughout the country
     and in the U.S. Congress which would abrogate an oil
     company's ability to require that all grades of its
     gasoline be continuously offered at service stations
     owned by the oil company and leased to independent
     dealers.  This so-called "open supply" legislation can
     take a number of forms--usually some form of limitation
     that the oil company can require no more than 60% or
     70% of the gasoline sold at the station be sold under
     its brand or that the oil company can only insist that
     one or two grades of its gasolines be sold under its
     brand.  No such legislation has ever been enacted-
     -because upon reflection it is clear that such an
     abrogation of normal contract rights would be bad for
     everyone involved--not only consumers and oil
     companies, but for service station dealers themselves.

     Abrogating these contracts would likely lead to the
     destruction of brand-name marketing.  Consumers could
     no longer be assured that, just because Chevron's flag
     flew over a service station, all grades of Chevron
     gasoline were in fact sold there.  The value of the
     brand would be diminished and trademark identification
     ultimately lost.

     The ... stations that Chevron owns and leases to
     dealers in Hawaii were built by Chevron for the sole
     purpose of providing an outlet for its products.  If
     Chevron cannot assure that all of its principal
     products will be offered at those stations, it cannot
     not [sic] justify the enormous investments represented
     by these stations.  Nor could any other supplier
     justify these investments.  Since brand would mean
     little, the quality and appearance of service stations
     would deteriorate.  There would be little incentive to
     spend the time and money necessary to present a
     uniform, clean, inviting and convenient offering to the
     public.  What would emerge is a mish-mash of unsightly
     stations.

     Destruction of brand-name marketing would ultimately
     result in poorer quality products and services.
     Gasoline is a product which the consumer cannot
     appraise by seeing, tasting or touching.  A well-known
     brand and a responsible company are the best assurances
     of quality the consumer has.  If brand-name marketing
     ends, suppliers will have no incentive to pursue
     research or to make better products.  As a result, the
     quality of gasoline will sink to the lowest common
     denominator.  Consumers would lose the option of
     patronizing stations where they know a determined
     effort is made to provide high-quality products and
     services.213 


     Discussion

     Questions (1) and (2) of the Resolution raise the issue of
"open supply".  Open supply legislation would permit retail
dealers to buy gasoline from more than one supplier (i.e., from
persons other than the refiners from whom they lease their
stations) and sell that gasoline through the leased outlet.214
While lessee dealers may currently buy gasoline from other
suppliers, there are a number of ways that the dealer's original
supplier may make it difficult for the dealer to buy gasoline
from other suppliers:

          Open supply would permit a dealer to buy gasoline
     from any supplier, and not just the supplier which owns
     the station and leases it to the dealer (called here
     the traditional supplier).  The gasoline bought from
     the nontraditional supplier would have to be sold on an
     unbranded or other basis, unless the traditional
     supplier permitted it to be sold under the station's
     brand name.  According to the present law, a lessee
     dealer has the ability to buy gasoline from any
     supplier other than its traditional supplier.  But the
     traditional supplier has a number of ways that it can
     circumscribe the dealer's purchases of some other
     supplier's gasoline.  If the traditional supplier is a
     branded refiner, then it can require the dealer to
     install or use separate tanks to prevent the dealer
     from commingling branded and unbranded gasoline.  The
     branded refiner can require the dealer to post signs
     that are conspicuous and easily understood to make sure
     that consumers know that they are not buying the
     branded refiner's product.  The branded refiner can
     attempt to enforce minimum purchase contracts against
     the dealer.  Thus, while there is nothing in present
     law that directly states a lessee dealer must buy only
     from its traditional supplier, there are many ways to
     make it extremely difficult for a dealer to buy product
     elsewhere.215 

	Franchise agreements that require franchisees to purchase all
of their gasoline exclusively from the franchisor, or restrain
franchisees from dealing with the franchisor's competitors,
referred to in question (1) of the Resolution, are a type of
requirements contract or exclusive dealing arrangement. Exclusive
dealing contracts are a form of vertical integration by
contract.216  Exclusive dealing is an example of open-ended
contracting, i.e., one that allows the parties to reduce their
risk and to account for their lack of knowledge concerning the
future.  Exclusive dealing arrangements may be preferable to
vertical integration by ownership, which entails a heavier
investment in markets in which others are already specialists and
in which there may be adequate capacity, or simple contracts
specifying quantity, which may be too inflexible to consider
future uncertainties in the market:217
	
          The exclusive dealing arrangement stands between
     the vertical merger and the individual sale as a device
     for facilitating distribution of a manufacturer's
     product to the ultimate consumer.  Markets are
     uncertain, some much more uncertain than others.  Long-
     term, flexible contracts can minimize the costs and
     risks to both parties of dealing with these
     uncertainties.  For example, no retail gasoline dealer
     knows in advance precisely what its sales will be over
     some future period.  Nor may he have anything
     approaching reliable information about the status of
     his suppliers.  Some markets are so uncertain that no
     reasonable investor will build an outlet unless she has
     advance assurance of a steady source of supply.  If
     summer travel is brisk, the gasoline retailer needs to
     know that it can obtain enough gasoline, and relying on
     the spot market for short-notice purchases can be risky
     and expensive.

          The refiner, by contrast, wants a steady outlet
     for its product.  Customers become accustomed to buying
     a particular brand at a particular location.  A
     customer's ability to know in advance that a particular
     station carries a brand he prefers makes the customer
     better off.  The exclusive dealing arrangement gives
     both refiners and ultimate consumers the advantages of
     outright refiner ownership of retail stations, but
     permits the refiner to avoid the high capital costs of
     investing in stations.  The exclusive dealing contract
     may also provide incentives at the retailer level.  If
     the refiner owns its own stations, the station operator
     is merely an employee.  The independent dealer is a
     businessman who usually maximizes his profits by
     selling as much as possible of the refiner's gasoline.218 

     However, exclusive dealing has been disapproved under the
"foreclosure theory":  "For example, if independent gasoline
retailers agree to buy all their gasoline needs from one refiner
and no one else, the stations are 'foreclosed' from other
gasoline refiners for the duration of their contracts."219  In
Standard Oil Co. of California v. United States (Standard
Stations),220 the United States Supreme Court found these types
of contracts illegal when they collectively foreclosed 6.8% of
the gasoline market to refiner competitors of the defendant.221
Exclusive dealing contracts may also inefficiently foreclose
competition if an upstream firm has a dominant market position
and there are limitations on entry into the downstream
market.222 

	Proponents of open supply contend that this legislation would
accomplish similar objectives to that of divorcement legislation,
namely, that it would increase competition in the retail gasoline
industry, assure the economic viability of independent service
stations, and give dealers greater control over their
operations.223  Moreover, it is argued that dealerships offering
generic gasoline could increase their sales volume of branded
fuel, because the lower generic gasoline prices may attract more
customers.  Increased volume sales may also lower the dealer's
rent, since most major oil companies offer volume rental rebates. 
An open supply system may therefore result in increased
availability and choice for consumers.224
	
	In particular, proponents maintain that open supply may
increase competition by increasing the number of alternative
suppliers for lessee dealers, thereby allowing dealers to shop
around for the lowest prices and pass these savings on to
consumers.225  Open supply may also create pressure on branded
refiners to lower their dealer tankwagon price to their lessee
dealer if enough lessee dealers choose to buy gasoline from
suppliers other than their traditional supplier.226
	
	On the other hand, opponents maintain that open supply- -which
is not statutorily mandated in any state227 --would lead to the
demise of the branded marketing system.  Refiners lease stations
to lessee dealers and rely on them to market their brand of
gasoline.  If refiners could not rely on their dealers to buy
their gasoline, refiners would be forced to find other ways to
market their gasoline, including forward integration into company
stores or exclusive contractual arrangements with jobbers, which
may undermine the branded dealer network.228
	
	Another issue is quality control.  Because the policing
requirements of an open supply system would be more difficult and
expensive, refiners with valued brands would be able to guarantee
their products' quality only if they were sold through refiner-
operated stations.  Refiners with highly-valued brands would most
likely withdraw from the markets involved or eliminate their
lessee dealer networks in these markets, since refiners would have
less of an incentive to continue making large investments in their
lessee dealer networks if they could not contractually guarantee
the sale of their products through an efficient distribution
system.229  Consumers would also be worse off, since they may no
longer be able to rely on the quality of their preferred brand of
gasoline.230
	
	In addition, open supply may also result in a "free rider"
problem.  A free rider is a person who is able to take advantage
of services offered by another person without paying for them.231
If a lessee dealer sells gasoline from other suppliers at separate
pumps, the unbranded sales receive benefits from the branded
marketing network costs without paying for those benefits.232 
From a supplier's point of view, exclusive dealing may prevent
interbrand free riding:
	
     Free riding is an important reason why suppliers impose
     resale price maintenance and other vertical restraints.
     The free rider would otherwise take advantage of the
     promotional activities undertaken by another dealer of
     the same brand.  Interbrand free riding occurs when a
     dealer having an ongoing supply relationship with one
     supplier sells a second brand at the same location and
     takes advantage of facilities or goodwill contributed
     by the supplier of the first brand.  For example, when
     Standard licenses a new gasoline station, it may help
     the dealer with financing, acquisition and maintenance
     of equipment, certain amenities such as "free" road
     maps, and most importantly, the large Standard sign at
     the top of the station.  If the dealer were permitted
     to pump a second brand of "equally good" discount
     gasoline--even if it were properly distinguished from
     the true Standard pumps--neither Standard nor the
     dealer could segregate all these facilities and
     amenities supplied by Standard.  Invariably, part of
     Standard's investment would contribute to the sale of a
     competitor's gasoline.  The solution for Standard is to
     force dealers to sell its gasoline exclusively.233 

	Open supply also raises constitutional concerns.  One
potential challenge is that open supply may be an unconstitutional
taking of private property in violation of the Fifth Amendment of
the U.S. Constitution and Article 1, section 20 of the Hawaii
Constitution.234  In particular, the major oil companies may
contend that open supply would deprive them of the use of their
private property (tanks and pumps) without satisfying the public
use requirement and without the payment of just compensation.235 
Another potential constitutional challenge is that open supply may
create an impairment of contract in violation of Article I,
section 10 of the United States Constitution, since that
legislation would impose open supply as a contract condition that
may be absent from present franchise contracts.236
	
	In addition, open supply may lead other businesses that are
suffering financially to request similar relief from the
Legislature, and may have a chilling effect on new industries that
are contemplating entrance into the market.237  Open supply
legislation may further result in business conflicts and legal
disputes arising from a refiner's liability for violation of
various environmental regulations, such as those applying to
gasoline vapor pressure and underground storage tank requirements,
with respect to unbranded gasoline sold at the refiner's
station.238
	
	Opponents further contend that open supply would lead to
consumer confusion:  "The dealer's ability to switch back and
forth between different suppliers would confuse motorists and
would increase the potential for consumer fraud and
misrepresentation."239  Refiners could also be held unfairly
liable for defective gasoline that it did not supply but which was
sold at its stations.240  Opponents cite the lack of success of
dealers selling both branded and unbranded gasoline as indicative
of consumers' preference for branded gasoline.241
	
	Finally, the United States Department of Energy (1984) noted
that while open supply may enhance competition by increasing
alternative suppliers for dealers, it may nevertheless be
disruptive by leading "to the demise of the branded lessee dealer
network as branded refiners find alternative ways to ensure
downstream purchases and to maintain quality control":
	
          Open supply may be beneficial overall if it
     improves the competitive process and passes along lower
     prices for consumers.  But the costs of open supply may
     be quite high for a particular segment of the industry,
     the one that consistently seeks the most protection,
     and consumers.  Lessee dealers usually have been the
     strongest supporters of open supply.  This support is
     puzzling in light of the potentially heavy cost to the
     branded lessee dealer network if open supply were
     adopted.  Consumers would be adversely affected through
     lack of quality assurance and the loss of branded
     outlets.  The Department is aware of the benefits and
     costs of open supply.  While we do not vigorously
     support open supply, we do not vigorously oppose it
     either.  At best, there is little evidence, empirical
     or otherwise, to support findings of benefits and
     costs.  Thus, while open supply may enhance
     competition, and almost certainly not decrease
     competition, it potentially may be disruptive, causing
     costly adjustment, equity, and perhaps political
     problems.  The Department would prefer to have more
     information before formulating a definitive policy.242 
     
     

		Endnotes	Chapter 5 Table of Contents