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"Price Gouging," the Antitrust Laws, and Vertical Integration: How They Are Related

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Publication Date: September 2005

Publisher(s): Library of Congress. Congressional Research Service

Series: RS22262

Topic: Law and ethics (Commercial law)

Abstract:

The antitrust laws and statutes to prohibit "price gouging" aim ultimately to serve the same end -- realization of lower or reasonable prices for consumers, but they do so from different perspectives. The theoretical underpinning of antitrust law is the belief that vigorous and unfettered marketplace competition will yield the most advantageous result for consumers.

Statutes concerning "price gouging," on the other hand, are direct consumer-protection provisions, generally making no reference to the competitive effects of the practice (see, e.g., CRS Report RS22236, Price Increases in the Aftermath of Hurricane Katrina: Authority to Limit "Price Gouging," by Angie A. Welborn and Aaron M. Flynn). Similarly, statutes to limit the extent of vertical integration (common ownership of different stages of production, marketing, or retailing) in the petroleum industry have been proposed at the federal level, and exist at the state level, although there is not currently any overarching antitrust prohibition on such integration.

The potential for anticompetitive actions by vertically integrated entities has been noted by, among others, the Federal Trade Commission (FTC) in its report, Gasoline Price Changes: The Dynamic of Supply, Demand, and Competition (2005). But that report also states that "the vast majority of the FTC's investigations [into the petroleum industry] have revealed market factors to be the primary drivers of both price increases and price spikes"; and further notes that, contrary to certain expectations, the price of gasoline in those states that prohibit refiners from operating retail gasoline stations is generally higher than in states without similar prohibitions.

Section 1809 of the "Energy Policy Act of 2005" requires both current and annual FTC investigations "to determine if the price of gasoline is being artificially manipulated by reducing refinery capacity or by any other form of market manipulation or price-gouging practices."

This report, which may be updated, sets out the federal antitrust "rules of the road" in an attempt to provide the antitrust context for the FTC investigations, note prior congressional action concerning vertical divestiture in the petroleum industry, and provide information on the state "divorcement" statutes.