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Competition Bureau of Canada

Competition Bureau

Discontinued inquiries concerning Canada's gasoline industry

Executive Summary

Competition Act

The Competition Act is a federal law designed to maintain and encourage competition in order to promote the efficiency and adaptability of the Canadian economy. A partial list of criminal offences under the purview of the Act includes price-fixing, agreements among competitors to share markets, bid-rigging, price discrimination, price maintenance and misleading or deceptive marketing practices. Civil matters subject to review include mergers, market restriction, tied selling and abuse of dominant position or monopoly power.

The Act, however, is not a vehicle for regulating prices or protecting individual firms from changing market forces. Rather, it reflects a common understanding that competition can best determine appropriate prices while maintaining an incentive for product development, improved efficiency and lower prices. Indeed, experience has shown that, when attempts are made by governments to regulate gasoline prices, prices tend to be higher than in markets where no such regulation exists.

Six-Resident Complaints

During the Spring and Summer of 1996, four gasoline inquiries were initiated under the Competition Act following the receipt of applications from six residents of Canada pursuant to section 9 of the Act. The Director of Investigation and Research 1, who is responsible for the administration and enforcement of the Competition Act, is required to initiate an inquiry after receiving such an application provided it meets certain requirements. Once started, however, the direction of the inquiries is determined by the evidence.

The first application, received on May 13, 1996, alleged that a national, pricefixing conspiracy by oil companies had led to retail prices that were higher than could be justified by increases in crude oil prices. Two subsequent applications, received on July 8th and July 10th, concerned a range of anti-competitive acts primarily related to allegations that Ultramar and other major oil companies were using low retail prices to force independents out of business. A fourth application, received on July 26th, alleged that Ultramar's advertising had misled the public about the real reasons for its low prices.

How Current Inquiries Were Conducted

The four inquiries were carried out by Competition Bureau staff assisted by senior legal counsel. Representatives of the six-resident applicants, major petroleum companies, independents, importers and other persons with relevant information were examined under oath. Some of those examined under oath were also asked to provide documentation in response to questions put to them by counsel for the Director, either in advance of the examinations, or in response to questions posed during the examinations. The Director's staff also conducted interviews in a number of local markets.

Additionally, one industry and two economic consultants were contracted to report independently on key aspects of the allegations. Their reports are available on request, from the Bureau's Information Centre.

During the course of these inquiries, there were also ongoing investigations into gasoline prices by New Brunswick, British Columbia and the United States. Bureau staff consulted with groups responsible for these investigations and considered information obtained by them.

Inquiry Conclusions

Evidence collected during the investigations did not support any of the allegations and the Director of Investigation and Research has discontinued them. In summary:

  • All allegations were examined carefully and further inquiry cannot be justified.
  • The Director found no evidence of a price-fixing conspiracy. Instead the evidence suggests that wholesale and retail gasoline prices closely follow crude oil prices and are subject to both domestic and international competition.
  • While prices may be similar in local markets, there are competitive reasons for this related to the nature of the retail gasoline market. Additionally, rather than high profits resulting from price fixing, the evidence indicates declining margins and significant efforts by companies to reduce costs and increase efficiency.
  • The price wars which formed the basis of some of the applications reflect, in part, an ongoing restructuring in the gasoline retail industry. The number of stations, for example, has decreased during the last ten years and the average volume per station has increased. This has allowed high-volume stations to reduce the retail margin per litre of gasoline which, in turn, has put additional pressure on some retail outlets with low volumes. Latest available figures indicate that Canada operated twice the number of service stations per capita as the United States in 1994. (Petroleum Products, Part 1 - Overview and Prospects, Sector Competitiveness Frameworks, Minister of Supply and Services Canada, 1996, p. 22.)
  • Evidence did not substantiate the allegations that Ultramar's Value Plus marketing campaign in the Province of Quebec misled the public.
  • Evidence also confirmed previous studies undertaken by the Competition Bureau or other organizations which suggest that barriers to new entry, or barriers to expansion by existing firms, are comparatively low and represent a potential check against firms that attempt to raise prices to inappropriate levels.

Additional Background

Over the last twenty-five years, the Director has conducted several comprehensive inquiries related to gasoline and a number of smaller inquiries concerning local markets. Since 1972, for example, there have been eleven trials related to gasoline prices resulting from inquiries initiated by the Director. Nine of these cases concluded with convictions. For the most part, however, these cases have concerned local markets and isolated incidents. To date, no inquiry has ever produced evidence suggesting that there is a national or regional conspiracy to limit competition.

Similarly, the former Restrictive Trade Practices Commission, an independent quasi-judicial body, conducted extensive hearings into the gasoline industry during the 1980's with similar results. More recently, the Competition Tribunal also examined issues in relation to the Imperial Oil acquisition of Texaco Canada that are related to the current inquiries, such as barriers to entry and the market strength of independents, and its conclusions were consistent with those reached in the current inquiries. (The Competition Tribunal replaced the Restrictive Trade Practices Commission in 1986.)

Many Canadians purchase gasoline on a regular basis and are very conscious of price changes. This combination of dependency and price sensitivity can sometimes lead to suspicion and frustration for consumers when they notice gasoline prices rising or falling rapidly, or varying significantly from one area to another. Price volatility, however, can often be indicative of a competitive market rather than a market where prices are fixed. Adjusted for inflation, the pre-tax price of gasoline is about 5¢/litre lower today than it was in 1980.

1 Pursuant to revisions to the Competition Act in March 1999, the Director's title was changed to Commissioner of Competition.


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