Michael Giberson

The Martha’s Vineyard Times:

A panel of judges sitting in the federal First Circuit Court of Appeals has upheld a lower court ruling that gasoline prices on Martha’s Vineyard have not been illegally inflated by a conspiracy among retailers, according to a report by “The Docket,” the news blog of Massachusetts Lawyers Weekly. The decision was entered a week ago.

Plaintiffs had complained that four of the Vineyard’s nine gas stations entered into a price-fixing conspiracy and engaged in price gouging in the aftermath of hurricanes Katrina and Rita in 2005.

Chief Judge Sandra Lynch, writing for Judges Bruce M. Selya and Jeffrey R. Howard, held that the defendant gasoline retailers did nothing that violated either the Sherman Antitrust Act or a price-gouging regulation promulgated under the Massachusetts consumer protection statute.

(Link to the decision in William White, et al. v. R. M. Packer Co., et al. by the U.S. Court of Appeals, First District.)

The ruling upholds the decision made a year ago in U.S. District Court. On the price fixing claim, both courts concluded that the plaintiffs’ evidence only suggested the existence of parallel pricing and didn’t show direct evidence of price fixing. The law doesn’t insist firms in the same market compete heavily on price, just that they don’t conspire to restrain trade. On the price gouging claim, the district court found that the price changes observed were “consistent with the normal operation of the market.” The appeals court said plaintiffs “have not shown a ‘gross disparity’ in prices under the state price-gouging rule.”

A year ago I commented:

My general reaction from reading parts of Gollop’s testimony [for the plaintiff] was that it was very basic industrial organization analysis – all comparative price movements and changing margins – and neglected completely the extensive economics literature on retail gasoline pricing. The law likely makes no special distinction for gasoline pricing cases, so the analysis wouldn’t have to address what is known about gasoline prices, but neglecting the literature may have led plaintiff’s to mistake common retail gasoline price patterns as evidence of price fixing.

Indeed the courts made no special use of gasoline pricing literature. But plaintiffs pursued the appeal in a way that attempted to take advantage of the relatively normal phenomena of asymmetric price adjustment in retail gasoline markets. In short, the plaintiffs wanted the court to find retailers were price gouging because they failed to reduce retail prices as fast as wholesale prices were falling. The court didn’t buy it.

Typically in retail gasoline, profit margins are higher when prices are falling and lower when prices are rising. Plaintiffs charged that price gouging took place over a period beginning with Hurricane Katrina and ending three months later on December 1, 2005. Generally speaking: prices rose sharply with Katrina, began dropping, rose again around Hurricane Rita, then fell for the next several weeks. The significant times with high gross margins were, not surprisingly, periods of falling prices.

Both courts struggled a bit with the definition of price gouging, finding little direct guidance in Massachusetts law. But one thing the courts saw pretty clearly: price gouging laws are about unconscionably high prices, and prices can’t become unconscionably high when they are falling. Price gouging law does not require retailers to pass along falling wholesale prices.

NOTE: See my post of last year for links to both the plaintiffs and defendants expert testimony.