PDF _ RS22262 - “Price Gouging,” the Antitrust Laws, and Vertical Integration: How They Are Related
28-May-2008; Janice E. Rubin; 6 p.

Update: Previous releases:
March 15, 2007
August 1, 2006
May 8, 2006 (/NLE/CRSreports/06jun/RS22262.pdf)

Abstract: The antitrust laws and statutes to prohibit “price gouging” each aim 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 measures, generally making no reference to competition. Statutes to limit the extent of vertical integration in the petroleum industry (common ownership of different stages of production, marketing, or retailing) have been proposed at the federal level, and exist at the state level. The potential for anticompetitive actions by vertically integrated entities has been noted by, among others, the Federal Trade Commission (FTC): but its report, Gasoline Price Changes: The Dynamic of Supply, Demand, and Competition (2005), 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”; moreover, 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. Provisions in both the Energy Policy Act of 2005 and the State, Justice and Related Agencies Appropriations Act, 2006 require FTC investigations, respectively, “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” and “into nationwide gasoline prices in the aftermath of Hurricane Katrina.” In the 110th Congress, H.R. 1252 and S. 94 would each incorporate the FTC Act, direct FTC enforcement, and provide for civil and criminal penalties for, respectively, “excessively unconscionable” or “unreasonably” increased prices during “emergencies” (undefined); and sales at “unconscionable” price increases in areas of “abnormal market disruption” as declared by either the President or the FTC. This report, which may be updated to further reflect congressional action, attempts to provide the antitrust context for the prohibited practices, notes prior congressional action concerning vertical divestiture in the petroleum industry, and provides information on the state “divorcement” statutes.

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Topics: Natural Resources, Economics & Trade, Government

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