[Federal Register Volume 63, Number 65 (Monday, April 6, 1998)]
[Notices]
[Pages 16815-16817]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-8920]


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FEDERAL TRADE COMMISSION

[File No. 971-0004]


Associated Octel Company L., et al. and Ethyl Corp; Analysis To 
Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreements

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SUMMARY: The two consent agreements in these matters settle alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaints that accompany the consent agreements and the terms of the 
consent orders--embodied in the consent agreements--that would settle 
these allegations.

DATES: Comments must be received on or before June 5, 1998.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 6th St. and Pa. Ave., NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT:
Michael Antalics or Geoffrey Green FTC/S-2627, Washington, DC 20580. 
(202) 326-2821 or 326-2641.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 2.34 of the 
Commission's rules of practice (16 CFR 2.34), notice is hereby given 
that the above-captioned consent agreements containing consent orders 
to cease and desist, having been filed with and accepted, subject to 
final approval, by the Commission, have been placed on the public 
record for a period of sixty (60) days. The following Analysis to Aid 
Public Comment describes the terms of the consent agreements, and the 
allegations in the complaints. An electronic copy of the full text of 
the consent agreement packages can be obtained from the FTC Home Page 
(for March 31, 1998), on the World Wide Web, at ``http://www/ftc/gov/
os/actions97.htm.'' A paper copy can be obtained from the FTC Public 
Reference Room, room H-130, Sixth Street and Pennsylvania Avenue, NW., 
Washington, DC 20580, either in person or by calling (202) 326-3627. 
Public comment is invited. Such comments or views will be considered by 
the Commission and will be available for inspection and copying at its 
principal office in accordance with Sec. 4.9(b)(6)(ii) of the 
Commission's rules of practice (16 CFR 4.9(b)(6)(ii).

Analysis of Proposed Consent Orders to Aid Public Comment

    The Federal Trade Commission has accepted agreements to proposed 
consent orders from The Associated Octel Company Ltd. (``Octel'') and 
its parent corporation, Great Lakes Chemical Corporation (``Great 
Lakes''), and from Ethyl Corporation (``Ethyl''). Octel has its 
principal place of business in Ellsemere Port, England. Great Lakes has 
its principal place of business in West Lafayette, Indiana. Ethyl has 
its principal place of business in Richmond, Virginia.
    The proposed consent orders have been placed on the public record 
for sixty (60) days for reception of comments by interested persons. 
Comments received during this period will become part of the public 
record.

[[Page 16816]]

After sixty (60) days, the Commission will again review the agreements 
and the comments received, and decide whether it should withdraw from 
the agreements or make final the agreements' proposed orders.
    The complaint alleges that Octel, Great Lakes, and Ethyl 
(collectively referred to as ``respondents'') have engaged in acts and 
practices that have unreasonably restrained competition in the 
manufacture and sale of lead antiknock compounds in violation of 
Section 5 of the Federal Trade Commission Act. Lead antiknock compounds 
are gasoline additives that contain tetraethyl or tetramethyl lead, and 
that increase the octane rating of gasoline.
    The complaint alleges that until 1994, Octel and Ethyl were the two 
largest manufacturers of lead antiknock compounds in the world. Between 
October 1993 and March 1994, respondents entered into a series of 
contracts, agreements, and understandings--written and unwritten--
regarding the manufacturer, distribution, and sale of lead antiknock 
compounds. According to the complaint, among the important undertakings 
are the following:
    (a) Ethyl agreed to cease manufacturing lead antiknock compounds.
    (b) Octel agreed to supply to Ethyl each year, for re-sale, a 
limited volume of lead antiknock compounds at a discount price.
    (c) Octel and Ethyl agreed that the maximum volume of lead 
antiknock compounds supplied to Ethyl each year would be a fixed 
portion of Octel's annual capacity to manufacture compounds, but left 
Octel free to reduce that capacity unilaterally.
    (d) Octel and Ethyl agreed that the price of lead antiknock 
compounds purchased by Ethyl for re-sale to customers in the United 
States and certain other countries would be adjusted each year, 
depending upon the change in the average sale price charged by Octel to 
retail customers located in the United States and certain other 
countries, thus giving Octel the means to influence Ethyl's costs (and 
therefore its price) by raising its own price.
    (e) Octel agreed to notify Ethyl each year of the change in the 
average sale price charged by Octel to retail customers located in the 
United States and certain other countries.
    (f) Octel agreed to cease the bulk shipping of lead antiknock 
compounds, and to transfer to Ethyl certain ocean going vessels 
dedicated to transporting lead antiknock compounds.
    (g) Ethyl agreed to provide to Octel all bulk shipping services 
required by Octel for the distribution of lead antiknock compounds.
    The complaint further alleges that in March 1994, Ethyl closed its 
manufacturing operation in Sarnia, Canada--the company's only facility 
for the production of lead antiknock compounds.
    Finally, the complaint alleges that the effect of respondents' 
concerted decision to close the Sarnia manufacturing facility, together 
with certain terms of respondents' supply agreement, is to increase the 
likelihood of coordinated interaction among sellers of lead antiknock 
compounds, to increase prices, and to injure consumers.
    The quantity and price terms of the supply agreement are of serious 
concern to the Commission. As Ethyl has closed its facility for 
manufacturing lead antiknock compounds, the company's potential sales 
volume is artificially capped by the supply agreement, and is subject 
to manipulation by Octel. Given this arrangement, Ethyl's ability to 
expand its output is diminished. And if Ethyl cannot expand its output, 
then it has no incentive to reduce its prices.
    The wholesale price term adopted by the parties (tying the Octel-
to-Ethyl transfer price to changes in Octel's retail price) enhances 
Octel's incentive to increase its own retail prices. The reason is the 
Ethyl increases its payments to Octel as and to the extent that Octel 
increases its prices to refiners.\1\
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    \1\ In American Cyanamid, Docket No. C-3739 (May 12, 1997), the 
Commission determined that an incentive payment tied to higher 
retail prices was anticompetitive where the parties were in a purely 
vertical relationship: American Cyanamid made rebate payments to 
dealers that charged higher prices. An incentive payment between 
horizontal competitors, as here, is even more dangerous to 
competition.
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    Finally, in order to implement the price term, Octel discloses to 
Ethyl any changes in its average retail price. This disclosure of 
information may reduce uncertainty in an oligopolistic market and thus 
facilitate coordinated interaction.
    Octel, Great Lakes, and Ethyl have signed consent agreements 
containing the proposed consent orders. The proposed consent orders 
require respondents to modify the contract under which Octel supplies 
lead antiknock compounds to Ethyl.\2\ Octel would be obligated to 
provide Ethyl with whatever volumes Ethyl requires for resale to U.S. 
customers. The elimination of the artificial cap on Ethyl's output 
should enhance Ethyl's incentives to price aggressively.\3\
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    \2\ The Commission has determined that it is not practicable to 
order Ethyl to re-open its Sarnia facility.
    \3\ This order provision would not diminish the volume of lead 
antiknock compounds available to Ethyl from Octel for resale outside 
of the United States.
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    The proposed consent orders also require respondents to modify the 
price term of the supply agreement so that (i) the price of product 
available to Ethyl for resale in the United States is not tied to 
changes in Octel's retail price, and (ii) the price of product 
available to Ethyl for resale outside of the United States is not tied 
to changes in Octel's retail price in the United States. The transfer 
price is thus de-coupled from Octel's retail price, thereby eliminating 
the anticompetitive incentives discussed above.
    Octel and Ethyl will negotiate a new transfer price for lead 
antiknock additives. If the transfer price is too high (relative to the 
price at which Ethyl could self-manufacture product), then prices to 
consumers may likewise be supra-competitive. The proposed remedy relies 
upon Ethyl's incentive to negotiate the lowest possible price.\4\
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    \4\ Ethyl's incentive to seek a low transfer price would be 
compromised if the company could recoup high payments by receiving a 
side payment from Octel, perhaps by means of a separate transaction. 
In theory, the bulk transportation agreement between Octel and Ethyl 
offers an opportunity for such recoupment. However, as long as the 
fee that Octel will pay Ethyl for transportation services is 
regulated by the parties' contract dated March 25, 1994, there is no 
danger of side payments through this mechanism.
    The alternative to permitting the parties to negotiate a new 
transfer price is to have the Commission set the transfer price. 
Generally, the Commission does not regulate prices.
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    The proposed consent orders provide that the new transfer price 
adopted by the parties may not be structured such that the unit price 
increases if Ethyl purchases greater volumes of lead antiknock 
additives from Octel. The prohibited pricing mechanism, a ``volume 
penalty,'' would deter output expansion by Ethyl and thus restrain 
competition. Indeed, a volume penalty could have the same effect upon 
Ethyl as an artificial cap on the quantity of product available to 
Ethyl.\5\
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    \5\ As noted above, the proposed consent orders would require 
respondents to eliminate the artificial cap that is included in the 
original Octel-Ethyl supply agreement.
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    The proposed consent orders also would prohibit Octel and Ethyl 
from disclosing to one another information regarding historical, 
current, or future prices for lead antiknock compounds sold to 
customers located in the United States.
    In addition, the proposed consent orders would require respondents 
to provide the Commission with notice in

[[Page 16817]]

advance of acquiring the assets or securities of any firm engaged in 
the distribution of lead antiknock compounds in the United States, or 
the manufacture of lead antiknock compounds anywhere in the world. The 
prior notice obligation would also apply to the sale of lead antiknock 
compounds to a competing manufacturer, as such a transaction may be 
used to induce the rival to exit from manufacturing.
    The purpose of this analysis is to facilitate public comment on the 
proposed orders, and it is not intended to constitute an official 
interpretation of the agreements and proposed orders or to modify in 
any way their terms.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 98-8920 Filed 4-3-98; 8:45 am]
BILLING CODE 6750-01-M