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Statistics Show It: Continued Aggressive Merger Enforcement in Oil Industries. The Energy Antitrust News. (Winter 2008)

February 17, 2009

By Sarah Pojanowski

Statistics Show It: Continued Aggressive Merger Enforcement in Oil Industries

Sarah Pojanowski

Published: American Bar Association Fuel & Energy Industry Committee of the Section of Antitrust Law, The Energy Antitrust News (Winter 2008).

On December 1, 2008, the Federal Trade Commission released its biannual report updating the agencys statistics on horizontal merger investigations. The report encapsulates enforcement data from 1996 through 2007, including industry-specific data from 1998 through 2007.

One thing is clear from the report: The Commission continues to take enforcement action at lower levels of market concentration in the oil industry, when compared with other industries it investigates.

The Numbers

The FTC report analyzes industry data through two benchmarks: the number of significant competitors in a relevant market and the concentration based on market shares using the Herfindahl-Hirschman Index.

The report defines a significant competitor as a firm that could independently affect the ability of the merged firms to achieve an anticompetitive outcome. The agency analyzed potential competitive effects based on the most plausible theory of competitive harm. For transactions raising coordination concerns, these figures include required participants in the collusive group. For monopolization concerns, they include close rivals and firms that could reposition in response to a price increase.

Since 1998, the FTC has brought enforcement actions in all oil industry mergers in relevant markets moving from four to three, three to two, or two to one significant competitor(s). In contrast, the FTC declined to undertake enforcement activity in 14 percent of all merger investigations involving four to three and fewer significant competitors.

Evidence of the agencys increased enforcement efforts in the oil industry shows up at the other end of the spectrum as well. In the oil industry, the FTC has challenged oil industry mergers in markets moving from seven to six significant competitors and more, up to ten-to-nine mergers. Over the same time, the Commission has not brought actions against seven-to-six mergers in markets in any other industries.

The FTCs HHI statistics from 19962007 tell the same story. Every transaction the FTC enforced with a post-merger HHI of less than 2000 (and there were 90 total) was in the oil industry. At least 75 percent of challenged transactions in the 2000 to 2400 range also were in the oil industry. Again, these numbers show substantially higher levels of FTC enforcement activity in oil markets with low to moderate levels of concentration than any other industry.
These numbers present at best a partial view of agency merger enforcement in the oil industry. These figures do not include mergers where significant competitor information was not available. Of 229 excluded markets, 199 involved the oil industry. As a result, FTC enforcement at low levels of market concentration in the oil industry may be more widespread than these numbers reflect.

These statistics serve as a starting point for an analysis of agency enforcement efforts. Of course, the FTC also considers other, case-specific market facts and circumstances when deciding whether enforcement action is appropriate.

Looking Forward

Before the recent fall in oil prices, public outcry over high gas prices had focused attention on the oil industry.  Congress openly criticized concentration levels in oil markets, despite the fact that most sectors of the petroleum industry generally remain unconcentrated or moderately concentrated.  

The Commission makes no secret of its aggressive enforcement policies in the oil industry. On behalf of the FTC, former Bureau of Economics Director Michael Salinger testified before the Joint Economic Committee of the United States Congress that:

the Commission has been particularly vigilant regarding mergers in the oil industry that could harm competition. It examines any merger and any course of conduct in the industry that has the potential to decrease competition and thus harm consumers of gasoline and other petroleum products.

There is every reason for companies to expect continued close scrutiny of oil mergers under the new administration.  President-elect Barack Obama has pledged to reinvigorate antitrust enforcement and step up review of merger activity.  He has specifically advocated increased enforcement in energy sectors.

This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.