Gasoline prices high, not fixed
Published: March 11, 2010
Island gasoline retailers may act "oligopolistically" and with "conscious parallelism" - indeed, they admit that they do - to maintain uniformly high and similar prices, but they do not conspire to do so, so it's not price fixing.
On January 6, Judge Rya W. Zobel of the federal District Court for Massachusetts, allowed defendants' motions for summary judgment, ending a lawsuit filed by several Vineyard year-round and seasonal residents, alleging price fixing and price gouging by several gasoline retailers and wholesale distributors.
"Plaintiffs point to a variety of plus factors as evidence of conspiracy," Judge Zobel writes, "but most are indicative only of parallel pricing and do not tend to exclude the possibility of independent action. Specifically, a motive to earn large profits, abnormal profits, price changes unrelated to costs, price leadership by one firm, and fixed market shares would all be expected if defendants engaged in conscious parallelism, aligning their prices without an agreement to fix prices..."
Parallel pricing, if done consciously but without collusion, is legal. Parallel pricing by retailers who plan together to set similar prices is not.
To a significant degree, Island-ness may be the culprit. "The conditions in the Martha's Vineyard gasoline market are remarkably conducive to the development of parallel pricing, whether through a conspiracy or merely conscious parallelism," the judge wrote. "The market for gasoline is highly inelastic; gasoline is a necessity and residents cannot feasibly purchase gasoline off of the Vineyard, so gasoline demand is minimally affected by a change in price. Price coordination is easy, because there are only nine gas stations on the Vineyard and gasoline prices are openly posted. Further, gasoline is a non-durable good, so a consumer who does not buy today will need to buy tomorrow. Therefore, a station owner can advertise a higher price, wait a short time to see if other gas stations follow, and if they do not, the owner can reduce the price with minimal loss to sales."
Lawsuit filed in 2007
In early August 2007, a pair of experienced trial lawyers, one of whom is a seasonal Edgartown resident, filed a class-action lawsuit in Dukes County Superior Court against two gas wholesalers and three retailers. In their 27-page complaint, Michael Roitman and Stephen Schultz, lawyers with the Boston firm of Engel & Schultz, said that the defendants unfairly fixed the price of gasoline, gouged consumers who purchased gasoline, and engaged in unfair price gouging in 2005 after hurricanes Katrina and Rita.
The defendants in the case are R.M. Packer Company, Drake Petroleum Company, Depot Corner gas station, and Francis J. Paciello, owner of Edgartown Mobil and Depot Corner. The four gas stations whose data was analyzed by experts for the both sides in the suit are Tisbury Extra Mart, owned by Drake Petroleum; Tisbury Shell, owned by the Packer Company; and Depot Corner Service Station and Edgartown Mobil, both owned by Mr. Paciello or by Mr. Paciello and his wife. The practices of three gasoline retailers on Cape Cod were studied for comparison, one in Falmouth, one in Hyannis, and one in Provincetown.
There are nine gasoline dealers on the Vineyard. DeBettencourt Mobil and Jim's Fuel Station, both in Oak Bluffs; Airport Fuel Services in Edgartown; Up-Island Automotive in West Tisbury; and Menemsha Texaco in Chilmark are not defendants in the lawsuit.
The plaintiffs are William White of Oak Bluffs, a former business partner in Tisbury Fuel Services; R. Carleen Cordwell of Oak Bluffs; Ken Bailey of West Tisbury; Nadine Monaco of Oak Bluffs; Karen Lodge of Edgartown; Joan Kriegstein of Oak Bluffs; and Hilary S. Schultz of Edgartown, wife of Mr. Schultz.
Parallel pricing is okay
In support of her decisions on the motion, Judge Zobel wrote, "While an agreement to fix prices is unlawful, conscious parallelism, where competitors independently decide to parallel each others' prices, is lawful."
She cited the holding in a 1993 federal court decision in the case of Brooke Group LTD v. Brown & Williamson Tobacco: "Tacit collusion, sometimes called oligopolistic price coordination or conscious parallelism, describes the process, not in itself unlawful, by which firms in a concentrated market might in effect share monopoly power, setting their prices at a profit-maximizing, supracompetitive level by recognizing their shared economic interests and their interdependence with respect to price and output decisions."
"Therefore," Judge Zobel continued, "while an antitrust claim may be predicated on parallel pricing, which for purposes of their motion, defendants concede exists, there must also be 'plus factors,' circumstantial evidence that suggests an associated agreement rather than the independent conduct of conscious parallelism."
The absence of direct evidence of such "plus factors" frustrated plaintiffs' arguments to defeat the defendants' motions for summary judgment, the judge concluded.
On the gouging charges, Judge Zobel also allowed the motions for summary judgment. She found that price disparities between Vineyard retail prices and prices on Cape Cod were small and varied in size like they had before the Katrina and Bob hurricanes, during and after which, plaintiffs alleged, the Vineyard retailers gouged their customers, in violation of state law.
The text of Judge Zobel's decision can be found here.
