Competition Bureau Finds No Lack of Competition In Saskatchewan Gasoline Industry

OTTAWA, November 30, 1999 -- The Competition Bureau, after an extensive examination of the Saskatchewan gasoline market, has concluded that there are no grounds to apply to the Competition Tribunal for a remedial order or to take action in the criminal courts.

The Bureau's examination, which began in December 1998, included a review of information provided by numerous industry sources and publicly available data as well as interviews with industry and interested parties.

The investigation originated with the filing of a six-resident application under Section 9 of the Competition Act. An examination of the matter was immediately launched.

In addition to general allegations under the civil and criminal provisions of the Competition Act, the complainants specifically alleged that:

• there were significantly higher pump prices in Saskatchewan than in other provinces for eight months prior to October, 1998;
• pump prices in Regina rose following the sale of Mohawk Oil to Husky Oil;
• the independents' market share in Saskatchewan is falling;
• once independents are removed, prices at the retail level rise in that market;
• independents are being charged higher prices by integrated firms than the firms are charging at the retail level;
• integrated firms are engaged in price maintenance;
• national refiner-marketers overwhelmingly control independents' supply;

The Bureau conducted a through review and found that generally these allegations were either not substantiated or, in the cases where they were, they were not due to anti-competitive behaviour.

In terms of the allegation that Saskatchewan had higher pump prices, it was found that Saskatchewan's annual retail prices (1995 -1998) and monthly prices between February and October of 1998 were generally lower than most provinces. When compared with the provinces referred to by the complainants (Nova Scotia, Manitoba, Ontario and British Columbia), Saskatchewan prices were lower except when compared to Ontario. Between 1997 -1998, prices dropped to below the level in 1995. Prices in Regina fell following the Mohawk - Husky merger and Saskatoon prices consistently fell in the same period. In its investigation, the Bureau considered prices ex tax to eliminate the effect of different tax rates.

The Bureau substantiated the claim that there was a decline in the market share of independents in Saskatchewan but concluded that this reduction in 1998 was mainly attributable to the above-mentioned acquisition by Husky of Mohawk. Husky is a regional refiner-marketer. Mohawk was the largest independent in Saskatchewan. However, the examination disclosed that prices in Saskatchewan did not rise, but rather fell, following this merger. The Bureau also noted that the share of the national refiner-marketers fell during the same period. While the above merger did not lead to higher retail prices, a Bureau study did, however, find that the presence of independents tends to lower overall concentration in a market.

During the period examined, independents in Saskatchewan did not complain of being charged higher prices by refiner-marketers than those charged to the retail outlets of the refiner market. Furthermore, there were no complaints of predatory pricing received in Saskatchewan during that period and no evidence of predation (where prices are unreasonably low for a long period) was found by the Bureau during the course of its examination.

The Bureau investigated whether any criminal provisions of the Act had been violated i.e. sections 45 (conspiracy), 50 (illegal trade practices), or 61 (price maintenance).

With respect to the allegation of conspiracy , similar prices or price movements alone are not by themselves evidence of an offence since these observations are consistent with competitive markets. Of primary concern, from a competition perspective, is whether uniform pricing has resulted from a conspiracy or an agreement between competitors. No evidence of such an agreement or arrangement among suppliers of gasoline in Saskatchewan to artificially raise price levels were found.

In examining the allegation that price discrimination occurred in the Saskatchewan wholesale gasoline market, the Bureau determined that wholesale prices do vary based on volume discounts. Discounts of this nature do not violate the price discrimination provision of the Competition Act.

Predation is defined as the situation where a dominant firm charges low prices over a long enough period of time so as to drive a competitor from the market or deter others from entering and then raise prices to recoup its losses. With respect to the predatory pricing allegation, no retailer complained of such occurrences during the period under review. The Bureau examined pricing data and found no evidence of a sustained practice of predation in Saskatchewan . A closer examination of the major market of Regina indicated prices near or below cost from December 1996 - March 1997, but this decline failed to meet the required test for predation since it was sporadic and not part of a policy. More recently, margins have been stable and few price wars have occurred. No predatory effects were found.

The Bureau could not pursue the allegation of price maintenance since the sources who made the allegation have withdrawn or declined to confirm their claim that refiner-marketers "run out" of supply to an independent with too low prices and there was no evidence of a violation of this provision.

The Bureau also examined whether any practices resulted in an abuse of dominant position under the civil provisions of the Act ( section 79).The first element to consider in an abuse of dominance case is control. The Competition Tribunal has defined control as being synonymous with market power. Market power is the ability to set prices above competitive levels for an extended period of time. Market power requires high market share, barriers to entry, and, in the case of joint control, some form of co-ordinated behaviour to facilitate this exercise of control. No single firm in Saskatchewan had greater than 27% of the market share. Consequently, any notion of control had to be considered in the context of a joint control by a group of firms. The national refiner-marketers jointly accounted for a market share of 62% during the period under examination which was sufficient to prompt further examination. From the examination, no evidence of co-ordinated action in Saskatchewan was discovered. Therefore, the element of control could not be established and the first requirement of the abuse of dominant position provision was not met.

For the reasons stated above, the Bureau has concluded that there are no grounds to apply to the Competition Tribunal for a remedial order or to take action in the criminal courts. The examination is therefore closed.

For a complete explanation of these findings, please see the Report on the Saskatchewan Gasoline Industry.

For further information, please contact:
Richard Taylor
(819) 997-1990