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Competition Bureau of Canada

Competition Bureau

Gasoline Prices in Kenora, Ontario

Introduction

The Bureau regularly receives complaints from consumers concerning high gasoline prices in their area compared to other locations.

Except in the case of a national emergency, the federal government has no jurisdiction for the direct regulation of retail gasoline pricing. While provinces have the constitutional authority to regulate retail prices, most provinces have chosen to rely on market forces as the most effective means to determine an appropriate price while maintaining incentives to innovate and reduce costs.

The Competition Act is intended to address those situations in which market forces are being suppressed through anti-competitive conduct, such as price fixing or abuse of monopoly power.

Complaint

During the last year, the Bureau received a number of complaints about high prices in the Kenora area, comprising the communities of Kenora, Keewatin and Jaffray Mellick.

Allegations relevant to a possible investigation under the Competition Act included suggestions that gas prices in the area were high as the result of price fixing at either the wholesale or retail level. The allegations were based in part on observations of lower prices in nearby communities; an impression that all retailers in the area charged exactly the same prices; and a belief that all retailers increased their prices at exactly the same time.

Relevant Markets

Kenora, Keewatin and Jaffray Mellick are three adjacent communities on the north shore of Lake of the Woods. The communities are approximately 40 km east of the Manitoba/Ontario border and approximately 120 km west of Dryden.

When a Bureau representative visited the area, most service stations in Kenora were selling regular gasoline at 69.5¢. By comparison, prices at two stations on Highway 17 in nearby Clearwater Bay (approximately 20 km west of Kenora) were 63.9¢ and prices at stations on Highway 17 in Vermillion Bay and Dryden (approximately 90 km and 120 km east respectively) were 65.9¢.

The price difference of 5.6¢ / litre between stations in Kenora and nearby Clearwater Bay exists because the two areas are in separate relevant geographic markets. If this were not the case, there would be a major shift of consumer purchases from Kenora to the two stations in Clearwater Bay. However, there are approximately fifteen retail gas outlets in the Kenora area operating successfully at higher prices.

The market dynamics also appear to be different in each of these markets. For example, information obtained through interviews suggests that slightly lower prices in Keewatin are unlikely to attract many additional customers from the adjacent community of Kenora.

By comparison, a majority of consumers at the Clearwater Bay stations are out-of-town travellers on long distance highway trips. The Bureau's examination indicated that the principal competitors to gasoline retailers in Clearwater Bay are stations on Highway 17 in nearby Manitoba communities, rather than stations in Kenora, and that most of their customers from the east have taken the Highway 17 bypass around Kenora rather than driving through the city. Partly because of provincial taxes, which are about 3¢ lower in Manitoba than Ontario, prices can be substantially lower in Manitoba and this has placed downward pressure on wholesale and retail prices in the Clearwater Bay area.

Dryden and Vermillion Bay, which are significantly further away from the Kenora area than Clearwater Bay, also had different competitive factors affecting gasoline prices. In the case of Dryden, the main highway goes through a commercial section which includes a major superstore that opened a discount high-volume retail gas bar last year. Market entry by the superstore helped drive prices down in Dryden and at major stations on Highway 17 in Vermillion Bay.

Competition Act

Section 45 of the Competition Act makes it a criminal offence for anyone to agree or arrange with another person to prevent, or lessen unduly, competition in the sale or supply of a product. This could include, for example, price fixing or the dividing of markets or customers among competitors. Section 61 of the Act also prohibits attempts by agreement, threat, promise, or any like means, to influence upwards, or discourage the reduction of, the price at which another person sells a product.

However, similar gasoline prices, or similar changes in the price of gasoline, do not necessarily indicate anti-competitive conduct. Many motorists in Canada base their purchase of gasoline on price alone, rather than brand, and gasoline retailers cannot realistically sell at higher prices than nearby competitors without quickly losing significant business. As a result, if one retailer lowers his price, nearby retailers tend to quickly lower their prices. While the price decrease may appear to be happening at the same time, one company has in fact started the price reduction. Similarly, if one retailer raises his price, and other retailers independently decide to follow this increase, no offence is committed.

Information obtained by the Bureau concerning Kenora confirmed that the majority of stations charged similar prices most of the time. There were, however, exceptions to this and available information suggested that retailers are independently deciding to follow price changes initiated by other retailers rather than, as suspected by some Kenora residents, deciding among themselves to increase gasoline prices. For example:

  • Anonymous phone checks on prices in Kenora were done while a price increase was taking place. One station, subsequently identified by several retailers as a price leader because of its large volume, had already increased its prices. However, other stations contacted were still selling at the old price.

  • One downtown station in Kenora did not increase its price when there was a general 1.5¢ price increase shortly before a Bureau representative visited the area. The station's sales volume, however, did not increase significantly and, after more than a week, it increased its price to a level just slightly below the average market price.

  • Similarly, a station in Keewatin, which was selling slightly below the market price when it was visited by the Bureau representative, indicated that its price had been approximately 2¢ / litre below stations in downtown Kenora for about three months during one period of the year.

There was also information suggesting that wholesale prices charged by different suppliers to retailers in the Kenora area were neither identical nor changing at the same time.

Summary

While gasoline prices were higher in Kenora than in some nearby communities, there were legitimate explanations for these differences and no evidence of an offence under the Competition Act.


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