chapter  14
17 Pages

Oligopolistic behavior of Brazilian gas stations

ByIGNÁCIO TAVARES D E ARAÚJO JÚNIOR ,

Introduction In Brazil, even in the big cities, with large number of competitors, gas station owners and their unions are frequent targets of investigations of cartel practices. In the Secretariat of Economic Rights (Secretaria de Direito Econômico – SDE) of the Ministry of Justice, reports of cartel behavior in the fuel retail market are responsible for one-third of the total complaints received, with current inquiries of approximately 130 processes of cartel practices by gas stations (Ministério da Justiça website). Since 2006, SDE has incorporated an economic methodology, developed by the SEAE (Secretaria de Acompanhamento Econômico), to identify if there is a cartel acting in a specific market. It takes a closer look only after observing: (a) the evolution over time of the retail’s margins at the county level; (b) the correlation between the retailer’s margins and the variability of the retailer’s prices; and (c) the correlation between the county and state margins. Examples of such cartels are those of João Pessoa and Recife, and Londrina. In the first case, in May of 2007, SDE, in cooperation with the SEAE, federal police and the Ministério Público, deployed a joint operation in these two cities (João Pessoa and Recife) to obtain evidence of cartel formation in the retail fuel market. In August of 2007, it was Londrina’s turn, with the coordinated action of the SDE, SEAE and state law enforcement making it possible to collect evidence against the cartel acting in the region. Another known example is the Lajes (SC) “Cartel of Lajes”. This was an organization formed by several gas stations acting to defraud the market through the setting of the fuel prices with the aid and coordination of the SINDIPETRO/ SC (Union of the Retailing of Oil Derivatives). CADE points out this case as emblematic, since it confirms the importance of the partnership between the CADE and the Ministério Público in defense of the economic order, already observed in other cases such as “cartel of the gas station of Florianópolis” and “the gas station cartel of Belo Horizonte”. The goal of this chapter is to examine the existence of factors that would indicate the use of anti-competitive practices in the Brazilian fuel (gasoline) market. In particular, we are concerned with the relationship between retail margins and price dispersion as well as with the impact of unbranded retailers (those without

an exclusive contract with a specific distributor) and retail margins. A negative relationship between retail margins and price dispersion can be an indication of lack of competition: the station may collude to reduce competition, set prices and increase margins.1 Such behavior does not, however, guarantee the causality of the dispersion on profitability. An investigation in more detail of the profitability by gas stations, with individual data on their characteristics, including variables for localization (main avenue, proximity of competitors, etc.), existence of other services (convenience stores, etc.), allows us to take a better look at the effect of the vertical contracts on the profits, along the lines of Shepard (1993).2