INST Committee Report

The Committee set out to investigate the causes of the recent increase in the price of gasoline and its impact on the Canadian economy. Witnesses advanced both competitive and anticompetitive explanations, and provided evidence in support of their positions whenever possible. The Committee further reviewed both the price data, particularly focusing on the past year, and the petroleum industry’s structure and performance over the past decade. The Committee has weighed this evidence and concludes that the recent increase in the price of gasoline was the result of industry participants’ competitive reactions to a series of international crises and the abnormally cold weather that gripped northeast North America last winter. No evidence was presented to the Committee of a conspiracy to raise and fix prices, nor was there evidence presented of abusive behaviour on the part of vertically integrated suppliers in the form of squeezing retail margins to eliminate or discipline independent retailers.

Although the Committee did not find any evidence of collusion by retailers, the distinctive way in which the retail sector advertises gasoline prices by signage, combined with the next-to-costless shopping behaviour of the motoring public, could potentially mask a conspiracy to raise prices. Independent and interdependent decision-making on prices — when price is sometimes the only strategic weapon a retailer possesses — is not easily distinguished. The public is right to be suspicious.

The Committee has some suggestions and a recommendation to the government that should help to alleviate the public’s concern. First, the Committee suggests that the petroleum industry put more effort into educating the public about the competitive nature of the industry, focusing on price-setting issues and conventions adopted by retailers. The industry should also post larger and more visible breakdowns of the component costs of the final retail price of regular gasoline.

In terms of federal government action, the Committee is satisfied that the Competition Bureau has sufficient powers, personnel and resources devoted to overseeing competitive aspects of the petroleum industry. Those powers should soon be bolstered when proposed changes are implemented to the Competition Act and the Competition Tribunal Act, as recommended by the Committee in its 2001 report on Canada’s competition regime. If there is fault in the oversight provided by government, it lies with the collection and dissemination of price data and with the timely review of the industry’s structure and performance. The Committee appreciates the price data collected by MJ Ervin and Associates and presented to the public by the Canadian Petroleum Producers Institute. The Committee would prefer, however, that the federal government undertake these activities, as it believes that the collection and dissemination of price data on gasoline by an agency that is independent of the petroleum industry would have more credibility with the public. The Committee, therefore, recommends:

RECOMMENDATION 1

That the Government of Canada create and fund a Petroleum Monitoring Agency with a three-year mandate to collect and disseminate, on a timely basis, price data on crude oil, refined petroleum products, and retail gasoline for all relevant North American markets. That the Government of Canada, in consultation with stakeholders from the petroleum sector (the “majors,” the “independents,” and consumer groups), appoint a director who would head this agency. That the agency report, on an annual basis, to Parliament on the competitive aspects of the petroleum sector in Canada and that, upon tabling the agency’s third report to Parliament, the House of Commons Standing Committee on Industry, Science and Technology review the agency’s performance and the need for an extension of its mandate.