The Federal Trade Commission was directed to investigate the possibility of price gouging and manipulation in the aftermath of Hurricane Katrina. The FTC released its 222 page report today (HT: Antitrust Review). It is a comprehensive analysis of local, regional, and national prices before and after Katrina and Rita. One of the key tasks charged to the FTC was the search for “gouging” and other anticompetitive practices.
I am still working through the Report, but my own reading is that it pretty clearly supports the conclusions that “gouging” does not explain any increase in prices during the relevant time period, that observable changes in supply conditions and other market trends do, and that federal (and implicitly, state) price gouging legislation is not a good idea. Here are some of the highlights from the press release:
- In its investigation, the FTC found no instances of illegal market manipulation that led to higher prices during the relevant time periods but found 15 examples of pricing at the refining, wholesale, or retail level that fit the relevant legislation’s definition of evidence of ‘price gouging.’ Other factors such as regional or local market trends, however, appeared to explain these firms’ prices in nearly all cases.
- The report reiterated the FTC’s position that federal gasoline price gouging legislation, in addition to being difficult to enforce, could cause more problems for consumers than it solves, and that competitive market forces should be allowed to determine the price of gasoline drivers pay at the pump.
- No evidence to suggest that refiners manipulated prices through any means, including running their refineries below full productive capacity to restrict supply, altering their refinery output to produce less gasoline, or diverting gasoline from markets in the United States to less lucrative foreign markets. The evidence indicated that these firms produced as much gasoline as they economically could, using computer models to determine their most profitable slate of products.
- No evidence to suggest that refinery expansion decisions over the past 20 years resulted from either unilateral or coordinated attempts to manipulate prices. Rather, the pace of capacity growth resulted from competitive market forces.
- No evidence to suggest that petroleum pipeline companies made rate or expansion decisions in order to manipulate gasoline prices.
- No evidence to suggest that oil companies reduced inventory to increase or manipulate prices or exacerbate the effects of price spikes generally, or due to hurricane-related supply disruptions in particular. Inventory levels have declined, but the decline represents a decades-long trend to lower costs that is consistent with other manufacturing industries. In setting inventory levels, companies try to plan for unexpected supply disruptions by examining supply needs from past disruptions.
- No situations that might allow one firm – or a small collusive group – to manipulate gasoline futures prices by using storage assets to restrict gasoline movements into New York Harbor, the key delivery point for gasoline futures contracts.
These are not surprising findings. At least, they should not be (see my previous post here). Nonetheless, the FTC Report is a very welcome, and timely, substitution of analysis and evidence over handwaving in a debate that desperately needs it.