VEHICLE FUEL DISTRIBUTION (Start of investigation and advisory opinion)
PRESS RELEASE
PRESS RELEASE
Petrol prices are being investigated, and a report submitted to Parliament and the government.
On 7 October, the Competition Authority resolved to investigate the oil companies Agip, Ip, Api, Erg, Esso, Fina, Q8, Shell and Tamoil as well as the Unione Petrolifera, Assopetroli, Consorzio Grandi Reti, Federpetroli, Faib-Confesercenti, Fegica-Cisl e Figisc-Confcommercio associations, in order to ascertain whether they are parties to anti-competitive agreements concluded in violation of section 2 of the Competition Act.
The investigation was begun following complaints to the Authority by associations of petrol service station managers and consumer associations, alleging that: 1) the agreements concluded between the oil companies’ associations and the service station professional associations impeded competition, and that 2) vehicle fuel selling prices of all these companies were rising in parallel in terms of the amount and the timing of the price increases.
The investigation will examine the mechanism used by the oil companies to set the fuel prices charged to service stations. This mechanism, which was set out in the agreements of 29 April 1994, 29 July 1997 and 23 July 1998 between the oil companies’ associations and the petrol station managers’ associations, discouraged petrol station managers from charging lower prices than those ‘recommended’ by the oil companies. The ‘agreements’ in question may constitute vertical infringements of the competition rules, in relations between individual oil companies and the managers of the petrol stations trading under their brand name, by pegging retail fuel prices to the detriment of the consumer.
Furthermore, the mechanism used by the oil companies to set the fuel prices charged to service stations was not the result of an independent corporate choice but stemmed from the ‘agreements’ defined by the oil companies’ own associations. The oil companies had set what were essentially identical financial parameters for the price-setting mechanism in the ‘agreements’. Considering these two aspects, the Authority thought it likely that the adoption by the oil companies of one and the same mechanism for stipulating contractual relations with their own service station managers was tantamount to a horizontal agreement between competing companies, designed to remove any uncertainty regarding compliance with the ‘recommended price’ levels set by all the oil companies.
Considering that the ‘recommended prices’ charged by the oil companies had been demonstrably uniform over a sufficiently long period of time, the Authority felt that they could be based on a horizontal agreement, which was also designed to coordinate their respective pricing policies.
The investigation will be completed by 11 May 2000.
In order to open up this industry to real competition, pursuant to section 21 of the Competition Act the Authority also resolved to submit a report to Parliament and to the government on the distortions to competition introduced by section 2 of Legislative Decree 346 of 8 September 1999. This provision extended the transition period from 31 December 1999 to 30 June 2001. This meant that any company would now have to wait until 1 July 2001 before it could instal and operate service stations on the basis of a mere administrative permit.
The 18 months delay in lifting the administrative barrier to market entry created by the public franchise system (beyond the deadline set in Legislative Decree 32/98) prevented potential new competitors from competing on the vehicle fuel distribution market.
Furthermore, five years after its previous report on the same subject, the Authority decided to draw attention once again to section 1 of the Ministerial Decree of 7 May 1994 which requiring oil companies to notify all service station managers of the ‘recommended selling prices’ to charge the consumers. Since the investigation is beginning at the same time to ascertain violation of section 2 of the Competition Act, the Authority is of the opinion that notifying service station managers of the ‘recommended selling price’ not only fails to benefit consumers, but actually reduces still further the already negligible level of uncertainty on the part of the oil companies regarding each other’s commercial policies, which facilitates the adoption of convergent price strategies.
Rome, 14 October 1999.