A federal court in Massachusetts has dismissed a class-action claim filed against four Martha’s Vineyard gasoline retailers. The suit claimed the stations engaged in price fixing over several years and in price gouging after Hurricanes Katrina and Rita in Fall 2005. Defendants argued that pricing patterns observed by plaintiffs were insufficient to support either the price fixing or price gouging allegations.
The Martha’s Vineyard Times has provided thorough description of the case, including articles on the plaintiff’s expert testimony (by Boston College economist Frank Gollop) and the defendant’s expert testimony (by Michael Quinn of the Analysis Group). In addition, the Times posted selections from expert testimony online. (Links below.)
My general reaction from reading parts of Gollop’s testimony 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.
The main surprise from looking at Quinn’s testimony for the defense was the revelation that there are nine gasoline stations on Martha’s Vineyard, not just the four defendant stations. Gollop managed to produce a 36 page affidavit, including a discussion of market shares, barriers to entry, the relevant market area and economic substitutes for the defendant’s gasoline with – so far as I was able to find – just one incidental reference to just one of the five non-defendant retailers. Gollop compares the defendants’ prices to prices on Cape Cod, nearby but obviously less relevant than the five other on-island gasoline retailers. I assume that the plaintiffs studied the behavior of the other on-island stations and found it not helpful to their case, but it looks like a pretty big hole in the plaintiff’s analysis.
The price gouging claim rests almost entirely on Gollop’s calculation that gross margins on gasoline sales at the four defendant stations increased by more than five cents after Katrina, comparing margins in September, October, and November to the margin in August, 2005. Gollop said the five-cent standard was suggested by the FTC’s report on gasoline prices post-Katrina and Rita.
Quinn, for the defendants, observed that patterns in retail prices surrounding Hurricanes Katrina and Rita were similar to patterns in retail prices at other time of wholesale price volatility. And, interestingly, price increases at the defendants’ stations were smaller than the price increases at the five non-defendant stations on the island. In general he finds the price patterns to be typical of “price-cost dynamics inherent in this industry,” including the rockets-and-feathers effect that has been studied at length by economists. In short, nothing surprising here (at least to someone familiar with the economics literature on gasoline prices).
Additional information (posted online by the Martha’s Vineyard Times):
- The plaintiff’s original August 2007 complaint and Frank M. Gollop’s affidavit
- Comparison of Average Monthly Pump Prices at some Cape Cod stations with Pump Prices at Defendants’ Gas Stations
- A table showing Volume of Gasoline Sold at Defendants’ Gas Stations
- A report for the defendants written by Michael Quinn and dated April 30 of this year, but not yet made a part of the court record in the case
- Price Changes During Market Emergency Period
- Average Daily Unleaded Regular Retail Price for Dukes County and Providence Average Rack Price
- United States Average Daily Unleaded Regular Retail Price and United States Average Rack Price