Low Gasoline Prices in the Greater Vancouver Market are the Result of Vigorous Competition

OTTAWA, January 28, 2000 - The Competition Bureau, after examining a number of complaints from independent gasoline retailers, has concluded that low gasoline prices in the greater Vancouver area are the result of vigorous competition.

A number of complainants alleged that low retail prices in the greater Vancouver area, following the entry of ARCO Products Ltd. in 1998, are pushing independent gasoline retailers from the market. They claimed that the pricing policies of ARCO and other integrated gasoline companies, namely lowering retail prices below the wholesale prices paid by independent retailers or the costs of production, will eventually eliminate competitors in the greater Vancouver area.

The Bureau examined the complaints under the abuse of dominant position and predatory pricing provisions of the Competition Act. The examination included a review of information provided by the complainants and other industry participants, as well as material already in the Bureau's possession, and publicly available data.

The Bureau considered whether low retail gasoline prices, below either the acquisition costs of independent retailers or the production costs of integrated gasoline companies, are likely to substantially lessen competition. The key question was whether low retail prices could eliminate competitors to the extent that thereafter, retail prices could subsequently rise above competitive levels for a sustained period of time to recoup the losses incurred by the low prices.

Whether a practice results, or is likely to result, in a substantial lessening of competition involves not only determining whether there has been a redistribution of business or a reduction in the number of competitors but also whether there had been or is likely to be an increase in prices to consumers. For this to happen, there must be barriers to new gasoline retailers entering the market which would allow a dominant player to raise prices to a level that would be higher than in a competitive market.

The Bureau concluded that the pricing policies of ARCO and other integrated gasoline companies in the greater Vancouver area have not resulted in, nor are they likely to result in, a substantial lessening of competition for the following reasons:

• The market includes major retailers such as Chevron, Imperial Oil, Petro-Canada, Shell and Husky. There is no evidence suggesting that pricing in the market results from any joint-strategy to target independent retailers or any other market participants.
• Rather than being predatory, the observed pricing policies are aimed at meeting competition.
• Periodic low prices over the past year are a result of the entry of ARCO, an aggressive competitor in the market.
• The pricing policies are the result of vigorous competition for market share among major players in the area. As a result, consumers in the greater Vancouver area have enjoyed some of the most competitive retail gasoline prices in Canada over the last year.
• The large number of gasoline retailers competing in the greater Vancouver market serve to ensure a competitive market.
• Attempts to raise retail gasoline prices above competitive levels would encourage entry of new retailers in the market, and this would force prices back down to competitive levels.

On the basis of the facts uncovered during the Competition Bureau's examination, and for the reasons noted above, there are no grounds to proceed with an application to the Competition Tribunal or to the criminal courts and the examination is closed.

For further information, please contact:

Chris Busuttil
(819) 953-4965