Industry Canada

Industry Canada
Competition Bureau Canada

Competition Bureau Canada

September 02, 2005 16:50 ET

Competition Bureau Closely Tracking Gasoline Price Increases Following Hurricane Katrina

OTTAWA, ONTARIO--(CCNMatthews - Sept. 2, 2005) - In the wake of recent price spikes, the Competition Bureau is closely following wholesale and retail gasoline prices to ensure they are consistent with current market forces and not the result of anti-competitive acts.

For more information, the Competition Bureau has updated its Consumer Fact Sheet on Gasoline Prices (http://www.competitionbureau.gc.ca/internet/index.cfm?itemid=1906&lg=e) on its Web site, www.cb-bc.gc.ca.

The Competition Bureau is an independent law enforcement agency that promotes and maintains fair competition so that all Canadians can benefit from competitive prices, product choice and quality services. It oversees the application of the Competition Act, the Consumer Packaging and Labelling Act, the Textile Labelling Act and the Precious Metals Marking Act.


Consumer Fact Sheet on Gasoline Prices

September 2005

What Can be Done About Gasoline Prices?

The federal government does not control the price or distribution of most goods and services sold in Canada - including gasoline. Regulation of retail gasoline prices is under provincial jurisdiction. Where prices are not regulated they are determined by market forces. However, price-fixing and other anti-competitive activities are illegal under the Competition Act.

What is the Competition Bureau doing about the current gasoline price spike?

The Competition Bureau is closely following wholesale and retail gasoline prices to ensure they are consistent with current market forces and not the result of anti-competitive acts.

All publicly available information indicates that the rapid price increases in Canada are the result of potential serious shortages in the U.S. supply of refined gasoline due to damage to gasoline production facilities caused by Hurricane Katrina.

However, should the Bureau find evidence of behaviour that violates the Act, it will take appropriate action.

What can the Competition Bureau do about Gasoline Prices?

The Competition Bureau is an independent law enforcement agency responsible for the administration of the Competition Act, which includes provisions against price fixing, price maintenance and abusive behaviour by a dominant firm resulting in a lessening of competition. All of its provisions apply to gasoline and other petroleum products markets. The Bureau's role is to protect competition in the marketplace so that Canadians can benefit from competitive prices, product choice and quality service. Each year, the Bureau receives numerous complaints about gasoline prices. Complaints are examined to determine whether the provisions of the Competition Act have been violated.

Since 1990, the Competition Bureau has conducted five major investigations into allegations of collusion in the gasoline industry. It has consistently found no evidence to suggest that periodic price increases resulted from a conspiracy to limit competition in gasoline supply. Instead, it has always found that market forces such as supply and demand and rising crude oil prices caused the price spikes. In fact, after each increase prices fell to normal levels.

The Bureau does not possess up-to-the-minute information on all developments in the world-wide petroleum industry. It is not the Bureau's mandate to conduct ongoing economic research and analysis of developments in the petroleum sector of the economy.

What causes gasoline prices to rise so quickly?

Since crude represents nearly half the final price Canadians pay at the pump, gasoline prices follow changes in crude oil prices. That means that gasoline prices will continue to change with the price of crude oil. Increasingly, shortages of refined gasoline in North America also affect retail and wholesale gasoline prices. Similarly, uncertainty about the adequacy of future supplies can add a risk premium to prices. Seasonal variations in demand also contribute to price fluctuations as prices tend to rise in connection with the increasing demand for gasoline in summer.

Why do retail prices always appear to be similar?

Many motorists base their choice of gasoline on price alone -- they consider that gasoline brands differ in few, if any, other ways.

Retailers usually post their prices on large street-side signs. Since retailers know that the majority of consumers are very sensitive to price, gas stations often strive to meet or beat their competitors' posted rates. As a result, competing retailers frequently charge similar or identical prices.

The fact that retailers may charge similar prices does not constitute an offence under the Competition Act -- there must be evidence that competitors have made an illegal agreement to set those prices.


What about allegations of a lack of competition in wholesale prices?

Collectively the major gasoline companies are responsible for the vast majority of gasoline sales across Canada. Gasoline imports by companies not affiliated with them represent a small percentage of Canadian wholesale supply. Canadian wholesale prices, which are published and are quite visible to competitors and customers, tend to be benchmarked according to prevailing prices in neighbouring regions in the United States. This is due to the ability of Canadian refiners to sell most of their output into large U.S. markets. In fact, two refineries in the Atlantic provinces are primarily export-oriented.

Given the commodity characteristics of gasoline, commonly published wholesale prices among competitors is a normal practice and insufficient to raise suspicion of conspiracy. Moreover, published wholesale prices rarely represent actual transaction prices, as volume discounts are usually applied to most sales. Discount programs vary for wholesale customers, which reduces the probability of a conspiracy.

There are a number of publicly available data sources on wholesale prices, including the U.S. Energy Information Administration Web site, eia.doe.gov.

What causes price swings and why are they often an indication of competition?

Street-level pricing is cyclical as competitors attempt to increase market share by cutting prices or by restoring prices when operating margins fall to unsustainable levels. As a result, retail prices within a region or town can change significantly in response to competitive forces. It is common for a gasoline station to change its prices more than 25 times per week. Understandably this is a source of frustration for consumers who miss a price reduction. Price swings of up to 10 per cent are not uncommon. In gasoline retailing, the constant cycle of price changes in a market is actually a sign that the market is competitive. Changes in the level of consumer demand or the conditions of gasoline supply may also cause price shifts.

What Kinds of Activities are Illegal Under the Act?

It is illegal for gasoline retailers:



- to agree to fix prices or enter into other anti-competitive
agreements;
- to try to influence another retailer's prices by agreement, threat
or promise; or
- to persuade wholesalers to cut off gasoline supplies to discount
retailers, because of the discounters' low prices.

It is illegal for gasoline wholesalers:

- to agree to fix prices or enter into other anti-competitive
agreements;
- to try to influence a retailer's prices by agreement, threat or
promise; or
- to refuse to supply a gasoline retailer just because that retailer
charges low prices.


All of these activities are illegal under the criminal provisions of the Competition Act. To convict someone of such an offence, the evidence must be convincing "beyond a reasonable doubt" - it must meet the standard criminal law test. If the Bureau has evidence of criminal violation of the Competition Act, such as price-fixing, it can refer the case to the Attorney General of Canada and recommend prosecution. This can result in heavy fines, prison terms, or both, for offenders.

Franchise retailers who sell gas on consignment often change their prices on instructions from their head offices. This is not illegal under the Competition Act.

The non-criminal provisions of the Competition Act may also come into play to address abuses of market power that exclude competitors from a market. If the Bureau has evidence of a civil contravention of the Act, such as abuse of dominant position, it can apply to the Competition Tribunal or the courts for a remedial order to remedy anti competitive acts engaged in by one or more dominant firms that prevent or lessen competition substantially.

How do I Complain?

If you have any evidence of improper communications, illegal agreements among competitors or evidence of the impact of the alleged anti-competitive conduct please contact the Information Centre of the Competition Bureau.

If you are an employee of a company which you believe may be engaged in a criminal offence under the Act, the whistleblowing provisions of the Act will protect your identity and guard you against retaliation by your employer. Any information provided will be kept strictly confidential.

If you are involved in conduct which you believe may be contrary to the Act and you wish to disclose that fact but are afraid of being prosecuted, the Immunity Program may provide you with immunity from prosecution or favourable treatment in return for cooperation.

Examinations under the Act are carried out in private and all information obtained during the course of an examination is treated on a confidential basis.



Toll-free: 1 800 348-5358
National Capital Region: (819) 997-4282
TDD (for hearing impaired): 1 800 642-3844
Fax: (819) 997-0324
E-mail: compbureau@cb-bc.gc.ca
Web site: www.competitionbureau.gc.ca


Contact Information

  • For media enquiries:
    Eric Glaude
    Communications Advisor
    Communications Branch
    (819) 953-9760
    or
    For general enquiries:
    Competition Bureau
    Information Centre
    (819) 997-4282
    1-800-348-5358