MOTOR VEHICLES FUEL PRICES (Conclusion of the fact-finding investigation)
PRESS RELEASE
The Italian Competition Authority concluded a fact-finding investigation initiated last April into motor vehicles fuel prices.
The investigation revealed that the structure of the fuel distribution Italian network is very far from being competitive. By contrast, a greater opening of this market to competition was reasonably expected, given that, especially in the last two years, firms set fuel price freely, without being tied by administrative constraints. However, freedom of the oil companies to set fuel price does not seem to have led to a complete liberalisation of the market. In other words, the single oil companies are not still really independent in their pricing policies. Indeed, from 1991 to 1995, fuel resale prices had a nearly uniform trend. Further, net prices showed a systematic tendency to increase over the last five years, with a more accentuated dynamic in the stage corresponding to the complete removal of any administrative constraints (1994-1995). Nevertheless, the structures of the distribution costs of the single oil companies vary for level and dynamic, bringing about variations in the net margins. The distribution average cost borne by the less effective firms from 1991 to 1995 was higher up, to two times, compared to the same cost incurred by the more effective firm. Hence, the different structures of the distribution costs could have ensured a price competition, which did not occur instead. Therefore, the firms took all economic cost advantages in such a way that consumers could not benefit from them.
The network reorganization process, often considered by the oil companies themselves as one of their main goals, and the consequent reduction of distribution costs, were not pursued hard as it was expected within a sector where cost competition - also as regards distribution - constitutes a crucial key to success.
The convergence between price levels and market share stability contributed, as such, to allow each firm, independent of its economic efficiency, to obtain more or less appreciable margins. This situation derived both by market structural aspects and regulatory provisions. The Authority deemed it necessary to modify both the present regulatory framework and the oil industry structure, in order to eliminate substantially and on a lasting basis all considerable limits to effective competition on the domestic market of fuel distribution.
First, with respect to regulation, the Authority mentioned the need to proceed as quickly as possible with the liberalisation of the market. To this end, the concessionary regime under Section 16, subsection 1, of Law no. 1034/70, based on the concept of network planning, should be replaced by an authorization regulatory regime, focused on environmental, safety and consumer protection considerations. In addition, provisions should be implemented regarding the widening of service stations' commercial activity, both by broadening the range of products on sale, and removing existing restraints in service stations' opening hours and shifts.
Second, so far as the oil industry structure is concerned, the Authority considered it necessary to change the ways of fuel supply to the distribution networks of the single oil companies. Regulations applied to the exchange of petroleum finished products amongst companies improved fuel supply conditions, but, at the same time, strengthened co-operation relationships and exchanges of information. To date, each company exchanging finished goods with a competitor is able to know in advance the rival's supply and influence its quantitative evolution through strictly scheduled supplies.
Furthermore, such a company can prevent the rival from price competition, which is successful only on condition that quantities supplied can be increased, because of the existence of restraints in the minimum and maximum variations in the quantities of exchanged goods.
The Authority expressed the hope that the regulatory framework regarding market access is amended and highlighted that the current ownership of the logistics system - which originates the frequent exchange of goods - cannot be considered neutral, given that it influences the competitive context.
In particular, the dominant position hold by Agip in the logistics activity constitutes one of the principal obstacles to the development of independent and non co-operative policies on the markets of fuel distribution which depend on Agip's logistics to a variable extent. The removal of such a barrier to independent entry into logistics could be achieved through a considerable reduction of Agip's presence, in favour of rivals, or through the creation of a joint-venture, which would be assigned to manage storage plants of all oil companies.
This joint-venture should be open to the entry of new firms, in the view of transforming the logistics in a neutral service, no longer influenced by the interests of the firms operating in the downstream distribution markets.