[Federal Register Volume 64, Number 19 (Friday, January 29, 1999)]
[Notices]
[Pages 4659-4664]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-2073]


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FEDERAL TRADE COMMISSION

[File No. 981-0345]


The British Petroleum Co. p.l.c., et al.; Analysis to Aid Public 
Comment and Commissioner Statements

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement: Publication of Commissioner 
Statements.

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SUMMARY: The consent in this matter settles 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 complaint that accompanies 
the consent agreement and the terms of the consent order--embodied in 
the consent agreement--that would settle these allegations. This 
document also contains the Statement of Chairman Pitofsky, Commissioner 
Anthony, and Commissioner Thompson; and the Statement of Commissioner 
Swindle, Concurring in Part and dissenting in Part.

DATES: Comments must be received on or before March 8, 1999.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 600 Pennsylvania Avenue, NW, Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: William Baer or Richard Liebeskind, 
FTC/H-374, 600 Pennsylvania Avenue, NW, Washington, DC 20580. (202) 
326-2932 or 326-2441.

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 Rules of Practice (16 CFR 2.34), notice is hereby given that 
the above-captioned consent agreement containing a consent order to 
cease and desist, having been filed with and accepted, subject to final 
approval, by the Commission, has been placed on the public record for 
public comment, until March 8, 1999. The following Analysis to Aid 
Public Comment describes the terms of the consent agreement, and the 
allegations in the complaint. This document also contains (1) the 
Statement of Chairman Pitofsky, Commissioner Anthony, and Commissioner 
Thompson; and (2) the Statement of Commissioner Swindle, Concurring in 
Part and Dissenting in Part.\1\ An electronic copy of the full text of 
the consent agreement package, including the Commissioner Statements, 
can be obtained from the FTC Home Page (for December 30, 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, 
600 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 
section 4.9(b)(6)(ii) of the Commission Rules of Practice (16 CFR 
4.9(b)(6)(ii)).
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    \1\ The Analysis alone was published in the Federal Register on 
January 6, 1999--before the Statements were made public--and the 
public comment period began at that point. See 64 Fed. Reg. 880 
(January 6, 1999).
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Analysis of the Proposed Consent Order and Draft Complaint To Aid 
Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted for 
public comment from The British Petroleum Company p.l.c. (``BP'') and 
Amoco Corporation (``Amoco'') (collectively ``the proposed 
Respondents'') an Agreement Containing Consent Order (``the proposed 
consent order''). The proposed Respondents have also reviewed a draft 
complaint contemplated by the Commission. The proposed consent order is 
designed to remedy likely anticompetitive effects arising from the 
merger of BP and Amoco.

II. Description of the Parties and the Proposed Acquisition

    BP, headquartered in London, England, is a diversified energy 
products company engaged in oil and gas exploration; the development, 
production and transportation of crude oil and natural gas; the 
refining, marketing, transportation, terminaling and sale of gasoline, 
diesel fuel, jet fuel and other petroleum products; and the production, 
marketing and sale of petrochemicals. BP is a major producer of 
gasoline and other petroleum products in the United States. BP 
distributes and markets its gasoline under the BP brand name through 
terminals and retail service stations in a variety of areas, including 
areas in the southeastern and midwestern United States.
    Amoco, headquartered in Chicago, Illinois, is an integrated 
petroleum and chemical products company engaged in the exploration, 
development, and production of crude oil, natural gas, and natural gas 
liquids; the marketing of natural gas and natural gas liquids; the 
refining, marketing, and transportation of petroleum products, 
including crude oil, gasoline, jet fuel, diesel fuel, heating oil, 
asphalt, motor oil, lubricants, natural gas liquids, and petrochemical 
feedstocks; the terminaling and sale of gasoline, diesel fuel, and 
other petroleum products; and the manufacture and sale of various 
petroleum-based chemical products. Like BP, Amoco is a major producer 
of gasoline and other petroleum products in the United States. Amoco 
distributes and markets gasoline under the Amoco brand name through 
terminals and retail service stations in many of the same areas as does 
BP.
    Pursuant to an agreement and plan of merger dated August 11, 1998, 
BP intends to acquire all of the outstanding

[[Page 4660]]

common stock of Amoco in exchange for stock of BP valued at the time of 
the agreement at approximately $48 billion. The new combined entity is 
to be renamed BP Amoco p.l.c. As a result of the merger, BP's 
shareholders will hold approximately 60%, and Amoco's shareholders will 
hold approximately 40%, of the new combined entity.
    The Commission has carefully examined all of the areas in which BP 
and Amoco's operations might overlap in or affecting the United States. 
The Commission found that BP's and Amoco's operations do not overlap in 
many areas. However, the transaction raises competitive concerns in a 
number of local markets, and the Commission proposes to take action to 
remedy the potential anticompetitive effects of this merger in these 
markets.
    The Commission considered this transaction in the context of what 
appears to be a significant trend toward consolidation in the petroleum 
industry. In recent months, there have been consolidations in this 
industry involving the refining and marketing operations of Texaco and 
Shell, Marathon and Ashland, and Tosco and Unocal. Other proposed 
combinations may occur, including Exxon's announced proposed merger 
with Mobil and Phillips' proposed combination of its refining and 
marketing operations with those of Ultramar Diamond Shamrock. The 
Commission will continue to examine the effect of proposed 
consolidations through careful analysis of each specific transaction in 
the context of the trend toward concentration.

III. The Draft Complaint

    The draft complaint alleges that the merger of Amoco and BP would 
lessen competition in two relevant lines of commerce: (1) the 
terminaling of gasoline and other light petroleum products in nine 
specified geographic markets, and (2) the wholesale sale of gasoline in 
thirty cities or metropolitan areas in the eastern United States.
A. Terminaling
    The draft complaint alleges that one line of commerce (i.e., 
product market) in which to analyze the merger is the terminaling of 
gasoline and other light petroleum products, such as diesel fuel and 
jet fuel.
    Petroleum terminals are facilities that provide temporary storage 
of gasoline and other petroleum products received from a pipeline or 
marine vessel, and the redelivery of such products from the terminal's 
storage tanks into trucks or transport trailers for ultimate delivery 
to retail gasoline stations or other buyers. Terminals provide an 
important link in the distribution chain for gasoline between 
refineries and retail service stations. According to the complaint, 
there are no substitutes for petroleum terminals for providing 
terminaling services.
    The complaint identifies nine metropolitan areas that are relevant 
sections of the country (i.e., geographic markets) in which to analyze 
the effects of the acquisition on terminaling. These metropolitan areas 
are: Cleveland, Ohio; Chattanooga and Knoxville, Tennessee; 
Jacksonville, Florida; Meridian, Mississippi; Mobile and Montgomery, 
Alabama; and North Augusta and Spartanburg, South Carolina. Amoco and 
BP both operate terminals that supply each of these nine metropolitan 
areas with gasoline and other light petroleum products.
    The complaint charges that the terminaling of gasoline and other 
light petroleum products in each of these nine metropolitan areas is 
either moderately concentrated or highly concentrated, and would become 
significantly more concentrated as a result of the merger. Premerger 
concentration in these nine markets, as measured by the Herfindahl-
Hirschman Index,\1\ ranges from more than 1,300 to more than 2,500. As 
a result of the merger, concentration would increase in each terminal 
market by more than 100 points to levels ranging from more than 1,500 
to more than 3,600.
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    \1\ The Herfindahl-Hirschman Index, or ``HHI,'' is a measurement 
of market concentration calculated by summing the squares of the 
individual market shares of all participants in the market. Under 
Section 1.51 of the Horizontal Merger Guidelines issued April 2, 
1992, by the Federal Trade Commission and the Department of Justice, 
the Commission considers concentration levels exceeding 1,800 as 
``highly concentrated'' and concentration levels between 1,000 and 
1,800 to be ``moderately concentrated.''
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    According to the draft complaint, entry into the terminaling of 
gasoline and other light petroleum products in each of these nine 
metropolitan areas is difficult and would not be timely, likely, or 
sufficient to prevent anticompetitive effects that may result from the 
merger.\2\
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    \2\ The Commission has found reason to believe that terminal 
mergers would be anticompetitive on prior occasions. E.g., Shell Oil 
Co., C-3803 (1997) (combination of refining and marketing businesses 
of Shell and Texaco); Texaco Inc., 104 F.T.C. 241 (1984) (Texaco's 
acquisition of Getty Oil Company); Chevron Corp., 104 F.T.C. 597 
(1984) (Chevron's acquisition of Gulf Corporation). Indeed, several 
of the markets involved in this proceeding are markets in which BP 
acquired terminals that were divested by Chevron in 1984 pursuant to 
the Commission's order in Chevron.
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B. Wholesale Gasoline
    The draft complaint alleges that a second line of commerce in which 
to analyze the competitive effects of the merger is the wholesale sale 
of gasoline. Gasoline is a motor fuel used in automobiles and other 
vehicles. It is manufactured from crude oil at refineries in the United 
States and throughout the world. There are no substitutes for gasoline 
as a fuel for automobiles and other vehicles that use gasoline.
    According to the draft complaint, there are thirty cities or 
metropolitan areas in which to evaluate the effects of this merger on 
the wholesale sale of gasoline: Albany, Georgia; Athens, Georgia; 
Birmingham, Alabama; Charleston, South Carolina; Charlotte, North 
Carolina; Charlottesville, Virginia; Clarksville, Tennessee; Cleveland, 
Ohio; Columbia, South Carolina; Columbus, Georgia; Cumberland, 
Maryland; Dothan, Alabama; Fayetteville, North Carolina; Florence, 
Alabama; Goldsboro, North Carolina; Hattiesburg, Mississippi; Hickory, 
North Carolina; Jackson, Tennessee; Memphis, Tennessee; Meridian, 
Mississippi; Mobile, Alabama; Myrtle Beach, South Carolina; Pittsburgh, 
Pennsylvania; Raleigh, North Carolina; Rocky Mount, North Carolina; 
Savannah, Georgia; Sumter, South Carolina; Tallahassee, Florida; 
Toledo, Ohio; and Youngstown, Ohio (hereinafter collectively referred 
to as the ``gasoline markets'').
    The wholesale sale of gasoline, as alleged in the complaint, is the 
business of selling branded gasoline to retail dealers. Both BP and 
Amoco sell branded gasoline at wholesale in the markets alleged in the 
complaint. In some cases BP or Amoco, or both, sell gasoline on a 
wholesale basis to retail gasoline stations owned by BP or Amoco, and 
operated either by employees of BP or Amoco (``company operated'' or 
``owned and operated'' stations) or by persons who lease the station 
from BP or Amoco (``lessee dealers''). In other cases, BP and Amoco 
sell gasoline to independently owned stations (``open dealers'') or to 
intermediaries (``jobbers'') who deliver gasoline to individual gas 
stations owned by the jobber or by other persons.
    Irrespective of the identity of the wholesale customer, wholesale 
sellers (BP and Amoco, and their branded and unbranded competitors) set 
the wholesale price of gasoline paid by retail dealers, and that 
wholesale price affects the price of gasoline charged to motorists. In 
the gasoline markets alleged in the complaint, the wholesale

[[Page 4661]]

sale of gasoline would become significantly more concentrated as a 
result of the merger, and the relatively small number of remaining 
wholesalers could tacitly or expressly coordinate price increases. 
Postmerger concentration, as measured by the Herfindahl-Hirschman 
Index, would increase by more than 100 points, to levels above 1,400 in 
five markets and to levels above 1,800 in the remaining markets. In 
each of the gasoline markets alleged in the complaint, BP and Amoco, 
and three other firms, would have at least 70% of the wholesale 
gasoline market.
    According to the complaint, entry into the wholesale sale of 
gasoline in each of these markets is difficult and would not be timely, 
likely or sufficient to prevent anticompetitive effects that may result 
from this merger.

IV. Terms of the Agreement Containing Consent Order (``the Proposed 
Consent Order'')

    The proposed consent order will remedy the Commission's competitive 
concerns about the proposed acquisition. Under Paragraph II of the 
proposed consent order, the proposed Respondents must divest the Amoco 
terminal serving each of the nine relevant terminal markets to Williams 
Energy Ventures, Inc., a subsidiary of the Williams Companies 
(``Williams''), or to another acquirer approved by the Commission. 
Williams is a major energy company with substantial experience in 
operating terminals.
    The Commission's goal in evaluating possible purchasers of divested 
assets is to maintain the competitive environment that existed prior to 
the acquisition. A proposed buyer must not itself present competitive 
problems. The Commission believes that Williams is well qualified to 
operate the divested terminals and that divestiture to Williams will 
not be anticompetitive in these markets.
    The proposed consent order requires that the divestitures occur no 
later than ten days after the BP/Amoco merger is consummated, or thirty 
days after the consent agreement is signed, whichever is later. The 
proposed consent agreement also requires respondents to rescind the 
transaction with Williams if the Commission, after the comment period, 
decides to reject Williams as the buyer. If the Williams agreement is 
rescinded, then respondents are required to divest the terminals within 
six months from the date the order becomes final, at no minimum price, 
to an acquirer that receives the prior approval of the Commission and 
only in a manner that receives the prior approval of the Commission. If 
respondents have not divested the terminals pursuant to Paragraph II of 
the order, then the Commission may appoint a trustee to divest the 
assets.
    The proposed consent order obtains relief with respect to the 
wholesale sale of gasoline in two ways. First, in eight markets where 
either Amoco or BP (or both) own retail gasoline stations (Charleston, 
South Carolina; Charlotte, North Carolina; Columbia, South Carolina; 
Jackson, Tennessee; Memphis, Tennessee; Pittsburgh, Pennsylvania; 
Savannah, Georgia; and Tallahassee, Florida), Paragraph III of the 
proposed order requires respondents to divest gasoline stations 
belonging to either Amoco or BP (as specified in the proposed order) to 
an acquirer approved by the Commission. These divestitures must be 
completed within six months of the date on which the parties signed the 
agreement containing consent order (December 29, 1998).
    Second, in all 30 markets, including markets in which neither Amoco 
nor BP owns retail gasoline stations, Paragraph IV of the order 
requires Amoco and BP to give their wholesale customers (both jobbers 
and open dealers) the option of canceling their franchise and supply 
agreements with Amoco and BP, freeing them to switch their retail 
gasoline stations to other brands. In order to provide an incentive for 
these persons to switch to other brands, the order provides that 
wholesale customers who take advantage of this provision will be 
released from all debts, loans, obligations and other responsibilities 
under their agreements with Amoco and BP (other than for fuels actually 
delivered and other specific debts scheduled by the respondents), if 
they agree to stop selling Amoco and BP gasoline in the market and not 
sell any other brand that has more than 20% of the market. The proposed 
order requires that BP and Amoco provide notice to their wholesale 
customers upon the Commission's final acceptance of the proposed order 
(should the Commission do so after the public comment period), and 
allows these customers thirty days to exercise this option. Should a 
wholesale customer choose to terminate its relationship with BP or 
Amoco under the terms of the proposed order, BP and Amoco will not 
solicit that customer as a reseller of branded gasoline for two years 
thereafter.
    In addition, Paragraph V of the order requires that unless retail 
gasoline sellers representing a specified volume of sales in Toledo and 
Youngstown, Ohio agree to switch to other brands, then respondents must 
divest retail gasoline stations with an equivalent volume of sales to 
an acquirer acceptable to the Commission.
    For a period of ten years from the date the proposed consent order 
becomes final, the proposed Respondents are required to provide notice 
to the Commission prior to acquiring terminal assets or gasoline 
stations located in the markets at issue.
    The proposed Respondents are required to provide to the Commission 
a report of compliance with the proposed consent order within thirty 
days following the date on which the order becomes final, every thirty 
days thereafter until the divestitures are completed, and annually for 
a period of ten years.

V. Opportunity for Public Comment

    The proposed consent order has been placed on the public record for 
sixty days for receipt of comments by interested persons, until March 
8, 1999. Comments received during this period will become part of the 
public record. After that date, the Commission will again review the 
agreement and the comments received and will decide whether it should 
withdraw from the agreement or make the proposed consent order final.
    By accepting the proposed consent order subject to final approval, 
the Commission anticipates that the competitive problems alleged in the 
complaint will be resolved. The purpose of this analysis is to invite 
public comment on the proposed consent order, including the proposed 
sale of terminal assets to Williams, in order to aid the Commission in 
its determination of whether to make the proposed consent order final. 
This analysis is not intended to constitute an official interpretation 
of the proposed consent order, nor is it intended to modify the terms 
of the proposed consent order in any way.

    By direction of the Commission.
Donald S. Clark,
Secretary.

Statement of Chairman Robert Pitofsky and Commissioners Sheila F. 
Anthony and Mozelle W. Thompson

    On December 30, 1998, the Commission published a proposed complaint 
alleging that this merger would violate Clayton Act Sec. 7, 15 U.S.C. 
Sec. 18, and FTC Act Sec. 5, 15 U.S.C. Sec. 45, in 30 wholesale 
gasoline markets and nine light petroleum products terminating markets 
in the United States, and accepted a proposed consent order resolving 
those allegations. Our colleague, Commissioner Swindle, dissents from 
that portion of the

[[Page 4662]]

proposed complaint and consent order that alleges violations and 
mandates relief in 27 of the wholesale gasoline markets.\1\ We write to 
clarify our view.
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    \1\ Commissioner Swindle concurs in the proposed complaint and 
consent order to the extent it alleges that the merger of BP and 
Amoco would violate the antitrust laws in the nine terminal markets 
and in wholesale gasoline markets in Pittsburgh, Pennsylvania, and 
Cleveland, Toledo and Youngstown, Ohio.
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    British Petroleum Company p.l.c. (``BP'') and Amoco Corporation 
(``Amoco'') are integrated producers, refiners and marketers of 
petroleum products, including gasoline, in the United States. Although 
BP's and Amoco's operations do not overlap in many areas,\2\ both are 
wholesale marketers of gasoline in the southeastern and midwestern 
United States, i.e., both BP and Amoco sell gasoline to retail gas 
stations that they may or may not own. In these markets, BP is the only 
firm that can sell ``BP''-branded gasoline to retail dealers, and Amoco 
is the only firm that can sell ``Amoco''-branded gasoline to dealers. 
Therefore, measuring concentration of retail sales by brand is an 
adequate proxy for measuring concentration in gasoline wholesaling.\3\
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    \2\ For example, to a large extent, Amoco and BP produce and 
market different petrochemical products in the United States. BP 
produces acetic acid and acrylonitrile in the U.S., but Amoco does 
not. Similarly, Amoco produces ethylene, propylene, polypropylene, 
and styrene in the U.S., but BP does not. In the few petrochemical 
areas where the parties overlap in the U.S., concentration would not 
change significantly as a result of the merger.
    \3\ Indeed, brand concentration may understate concentration in 
the wholesale market, because some branded wholesale sellers also 
supply unbranded gasoline to unbranded retail stations. The brand 
concentration statistics used here would not attribute these 
unbranded sales by branded wholesalers to the branded wholesaler.
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    In 25 metropolitan area markets, the combination of BP and Amoco 
would result in a highly concentrated wholesale gasoline market, and an 
increase in concentration in an amount that the Department of Justice-
FTC Merger Guidelines presume likely to create or enhance market power 
or facilitate its exercise. Merger Guidelines Sec. 1.51(c).\4\ In each 
of these markets, the top four firms will together have at least 70% of 
wholesale sales; in 15 markets, the top four firms will have more than 
80%.\5\
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    \4\ The Merger Guidelines presume anticompetitive effects when 
the post-merger Herfindahl-Hirschman Index (``HHI'') is over 1800 
and there is an increase of more than 100 points. HHI is a 
statistical index that measures the degree of concentration in a 
relevant antitrust market. Those metropolitan areas and the changes 
in HHI are: Albany, Georgia (post-merger HHI 3674, increase of 542); 
Charleston, South Carolina (1865/362); Charlotte, North Carolina 
(1909/610); Charlottesville, Virginia (2214/278); Clarkesville, 
Tennessee (1863/492); Cleveland, Ohio (1859/124); Columbia, South 
Carolina (2257/378); Columbus, Georgia (2194/351); Cumberland, 
Maryland (2592/161); Dothan, Alabama (2259/235); Fayetteville, North 
Carolina (2635/795); Florence, Alabama (1959/269); Goldsboro, North 
Carolina (2133/310); Hattiesburg, Mississippi (2214/281); Jackson, 
Tennessee (2051/508); Memphis, Tennessee (1948/468); Myrtle Beach, 
South Carolina (2138/353); Pittsburgh, Pennsylvania (2129/663); 
Raleigh, North Carolina (2032/535); Rocky Mount, North Carolina 
(2003/302); Savannah, Georgia (2668/515); Sumter, South Carolina 
(1920/528); Tallahassee, Florida (2366/794); Toledo, Ohio (2022/
351); and Youngstown, Ohio (2540/1043).
    \5\ In addition, in five areas the HHI will increase 
substantially (by more than 100 HHI points): Birmingham, Alabama 
(post-merger HHI 1778, increasing by 273); Mobile, Alabama (1600/
160); Athens, Georgia (1654/251); Meridian, Mississippi (1705/359); 
and Hickory, North Carolina (1782/354). In each of these 
``moderately concentrated'' markets, the top four firms will 
together have at least 70% of wholesale sales, and independent 
unbranded sellers have less than 20%.
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    Market shares and concentration levels of this magnitude raise 
antitrust concern because they suggest that a small number of firms 
might, after this merger, be able to raise price without losing 
significant sales to what could well be an insignificant fringe \6\ 
See, e.g., United States v. Rockford Memorial Corp., 898 F.2d 1278, 
1283-84 (7th Cir. 1990). Concerns about collusion or coordination, and 
consequent price increases to consumers, are more pronounced in 
markets--such as gasoline markets--where (among other factors) the 
product is homogeneous and prices are generally observable, making it 
relatively easier for a small number of firms to coordinate and to 
detect deviation.
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    \6\ In this case, the Commission examined the gasoline markets 
in which BP and Amoco competed and alleged antitrust violations in 
markets with a small number of fringe players, and not in markets 
where fringe competitors collectively appear to have significant 
market presence.
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    Of course, high market concentration is less of a threat to 
consumers if retailers in the market are likely to switch to new 
sources of supply in the event of a wholesale price increase. But, we 
required persuasive evidence that entry would be timely, likely and 
sufficient to defeat a coordinated price increase. Merger Guidelines 
Sec. 3. Our colleague concludes that such entry could occur, and is 
likely to occur, ``if there are enough branded retail gasoline stations 
that could switch and become customers of the new wholesale entrant.'' 
\7\ We do not disagree with this analysis, but we are unpersuaded by 
the investigative record here that there is a sufficient likelihood 
that switching would occur to allay our concerns. The history of 
switching in these markets appears to be more among incumbents than to 
new entrants, and switching among incumbents (particularly among 
incumbents with substantial market shares) will not defeat a wholesale 
price increase by those incumbents. Dealers also would be less likely 
to switch to fringe suppliers or to new entrants if there are 
significant reasons for dealers to prefer major brands (particularly 
major brands that are well-established in a given area), such as the 
benefit of local marketing or of brand credit card programs. Moreover, 
dealers might not have an incentive to switch to new entrants to defeat 
a price increase by their suppliers in which they also may profit.
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    \7\ We all agree that our concerns about concentration among 
wholesale sellers of gasoline are not obviated by the asserted fact 
that retailers can set their own prices for retail gasoline sold at 
their outlets. The wholesale price of gasoline is plainly the most 
substantial portion of the dealer's cost, and increases in wholesale 
prices will likely result in increases in retail prices.
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    Instead, we believe that the proposed consent order will make 
jobbers and open dealers able to switch, and by relieving them of 
financial penalties that might deter switching to new entrants, make it 
more likely that they will in fact switch, preventing an increase in 
concentration that otherwise could well give rise to a substantial risk 
of higher prices for gasoline in the markets alleged in the proposed 
complaint. As we noted, our disagreement with our colleague is narrow: 
whether, in the absence of the proposed relief, jobbers and open 
dealers are sufficiently likely to switch in substantial numbers to 
protect the ultimate consumers from the risk that otherwise would be 
associated with highly concentrated gasoline markets. In this case, we 
believe the investigative record regarding dealer switching is 
insufficiently compelling to demand that ultimate consumers bear the 
substantial risk of higher prices for gasoline that may result from 
these highly concentrated markets.

Statement of Commissioner Orson Swindle Concurring in Part and 
Dissenting in Part

    The Commission's proposed complaint alleges that the merger of 
Amoco Corporation (``Amoco'') and British Petroleum Company p.l.c. 
(``BP'') is likely to substantially lessen competition or tend to 
create a monopoly in certain terminaling markets and in certain markets 
for the wholesale sale of gasoline. I agree that the merger is likely 
to have anticompetitive effects in terminaling markets and that the 
divestitures that would be required adequately remedy these antitrust 
violations. However, because the merger is unlikely to have 
anticompetitive effects in southeastern United States markets for the 
wholesale

[[Page 4663]]

sale of gasoline,\1\ I dissent from the allegations and relief related 
to those markets.
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    \1\ The ``southeastern United States markets for the wholesale 
sale of gasoline'' include all of the ``gasoline markets'' described 
in Paragraph 15 of the proposed complaint except those located in 
Ohio and Pittsburgh, Pennsylvania. I support the Commission's action 
in the Ohio and Pittsburgh wholesaling markets.
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    Refined gasoline is transported by pipeline from the refinery to 
gasoline terminals. Wholesalers sell refined gasoline from terminals to 
retail gasoline stations. Retail gasoline stations may be either 
unbranded or branded. Unbranded retail gasoline stations do not display 
the brand of a wholesaler and do not sell branded gasoline. In 
contrast, branded retail gasoline stations display the brand of the 
wholesaler, such as ``Amoco'' or ``Texaco,'' and sell the wholesaler's 
brand of gasoline, which is refined gasoline plus proprietary 
additives.
    Among branded retail gasoline stations, there are various types of 
ownership and operation arrangements. The wholesaler may itself own and 
operate the retail gasoline station (a ``company station''). The 
wholesaler may own the retail gasoline station but lease the station 
pursuant to an agreement that requires the operator (a ``lessee/
dealer'') to purchase branded gasoline from the wholesaler. The 
wholesaler may have franchisees (``open dealers'') who sell branded 
gasoline pursuant to a franchise agreement. Finally, the wholesaler may 
sell branded gasoline to independent firms known as ``jobbers'' that 
distribute the branded gasoline to retail gasoline stations (which are 
sometimes owned by the jobber).
    The proposed complaint alleges, among other things, that the merger 
of Amoco and BP, both wholesalers of branded gasoline, would have an 
anticompetitive effect in certain southeastern United States markets 
for the wholesale sale of gasoline. Each of these markets would be 
moderately concentrated or highly concentrated after the merger, which 
would significantly increase the levels of concentration in these 
markets. The theory is that because these markets would be concentrated 
following the merger, wholesalers could coordinate the wholesale price 
of gasoline, which, in turn, would harm consumers by causing higher 
gasoline prices at the pump.\2\
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    \2\ There is no evidence that wholesalers in these markets have 
already attempted to collude.
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    Any effort by wholesalers to pass on a collusive price increase 
would be defeated if enough branded retail gasoline stations switched 
to other wholesalers rather than pay the higher price. Entry by new 
wholesalers offering lower prices could defeat a collusive price 
increase, and such entry is likely if there were enough branded retail 
gasoline stations that could switch and become customers of the new 
wholesale entrant.\3\ Cheating by an existing wholesaler on a collusive 
price also is likely if enough branded retail gasoline stations would 
switch to make cheating worthwhile.
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    \3\ Because the Commission's proposed order should help ensure 
that gasoline terminaling markets in the southeastern United States 
remain competitive, a new wholesale entrant would be able to 
purchase gasoline at terminals to sell to jobbers.
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    Is such switching likely to occur? I certainly think so. An 
evaluation of the southeastern markets reveals that switching is 
already the reality, not mere speculation or prediction. Unlike company 
stations and lessee/dealer stations, open dealers and jobbers have the 
option of responding to their wholesaler's collusive price increase by 
switching to another wholesaler. Open dealers and jobbers currently 
(and with some frequency), switch relatively easily and quickly \4\ in 
response to changes in market conditions, including trying to combat 
price increases. Open dealers and jobbers have stated that they would 
in fact switch in response to a price increase attributable to the 
merger, and they have explained that they would not anticipate 
significant problems in switching.
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    \4\ Switching can occur relatively quickly because, although any 
individual open dealer or jobber may have to wait for its contract 
to expire before it can switch, the short-term nature of contracts 
between Amoco and open dealers and jobbers means that some of those 
contracts are expiring at any given time. Station switching also can 
occur relatively inexpensively, especially because new wholesalers 
often reimburse open dealers and jobbers for the costs incurred in 
switching.
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    Would enough branded retail gasoline stations in the southeastern 
markets be willing to switch to make possible new wholesale entry or 
cheating by an existing wholesaler? Again, I certainly think so. In 
most of these markets, open dealers and jobbers purchase from about 60 
percent to about 80 percent of the gasoline that is sold at retail.\5\ 
Given that open dealers and jobbers account for such a large proportion 
of retail gasoline sales and that they are likely to switch, enough 
switching could occur to induce entry or cheating sufficient to defeat 
a collusive price increase by wholesalers.
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    \5\ By contrast, in other investigations the Commission has 
determined that sufficient switching would not occur in markets that 
are dominated by company stations and lessee/dealer stations.
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    The majority of the Commission emphasizes that the concentration 
levels in these markets create a presumption of anticompetitive effects 
and that history demonstrates that switching to new wholesale entrants 
is unlikely to prevent these effects. Specifically, the majority 
believes that open dealers and jobbers will switch primarily to 
incumbent wholesalers. The majority reasons that switching will be 
limited primarily to incumbent wholesalers because many of them offer 
benefits (such as local marketing or brand credit card programs) that 
would not be offered by a new wholesale entrant.
    The investigative record is to the contrary. While there has been 
significant switching by open dealers and jobbers among incumbent 
wholesalers, there also has been significant switching away from 
incumbent wholesalers to new branded wholesalers and new unbranded 
wholesalers.\6\ Moreover, open dealers and jobbers have stated that 
they would switch in response to a collusive price increase, but have 
not stated that their switching would be limited to moving from one 
incumbent wholesaler to another. Detailed economic analysis has shown 
that whatever non-price benefits incumbent wholesalers may be able to 
offer to open dealers and jobbers, they are unlikely to induce open 
dealers and jobbers to ignore promising opportunities offered by new 
wholesale entrants.\7\
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    \6\ For example, by offering lower prices to induce switching, 
Citgo has been able to enter Florida and Coastal has expanded in 
South Carolina. Similarly, by offering lower prices to induce 
switching, unbranded wholesalers (such as Kwic Trip, Racetrac, 
Speedway, Smile, Wilco, and Hess) also have been able to enter many 
of these markets.
    \7\ The majority also posits that instead of switching, open 
dealers and jobbers may decide to accept a collusive price increase, 
pass it on consumers at the pump, and share in the profit from the 
price increase. For an open dealer or jobber to share in the profit 
from a collusive increase, it would have to be confident that 
increased prices at the pump would not be undercut by other 
retailers. Given that wholesalers do not control the pricing at most 
retail gasoline stations in these markets, open dealers and jobbers 
would have good reason to worry that any collusive price that they 
sought to impose would be undercut, especially to the extent that 
there are unbranded retail gasoline stations in these markets.
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    Because switching is likely to defeat any collusive price increase, 
the merger of Amoco and BP would not have anticompetitive effects in 
the southeastern United States markets for the wholesale sale of 
gasoline. The Commission nevertheless has extracted from the merging 
parties a variety of costly concessions designed to facilitate 
switching and improve the marketplace. As explained above, because 
market forces are likely to cause sufficient switching without 
government intervention, these measures are simply

[[Page 4664]]

unnecessary. Rather than imposing excessive requirements that will 
force substantial costs on the parties, the Commission should have 
allowed the merger of Amoco and BP to proceed with antitrust relief 
limited to terminaling as well as the Ohio and the Pittsburgh, 
Pennsylvania wholesaling situation.
    I therefore dissent from the aspects of this matter dealing with 
gasoline wholesaling in the southeastern United States markets 
identified in Paragraph 15 of the proposed complaint.

[FR Doc. 99-2073 Filed 1-28-99; 8:45 am]
BILLING CODE 6750-01-M