Sky-high gasoline prices on Martha’s Vineyard — a universal truth here and an unending point of annoyance among Islanders of every stripe who pay dearly at the pump — are not the result of price-fixing, the United States Court of Appeals has found.
In a ruling issued early this week, the federal appeals court upheld a previous ruling from the U.S. District Court in a case brought by a group of Vineyard businessmen who were turned down 14 years ago by the Martha’s Vineyard Commission in their own bid to build a new gas station in Vineyard Haven.
Stephen Schultz, an attorney, and others as plaintiffs in the case have tried to prove that the uniformly high gasoline prices on the Vineyard are the result of conspiracy and collusion among gas station retailers and wholesalers and amount to price gouging in violation of the Sherman Antitrust Act.
But the two federal courts disagreed as a matter of both law and principle, finding instead that the Vineyard gasoline market, with only nine filling stations is an oligopoly that due to its nature sustains what is known as parallel pricing. Island gas station owners “in effect share monopoly power, setting their prices at a profit-maximizing, supra-competitive level by recognizing their shared economic interest and their interdependence with respect to price,” the federal appeals court wrote in part.
Put more simply, the small number of Island gas station owners are well aware of what each is charging for gasoline and adjust their prices accordingly. This adjustment could be down, but in fact, of course, it is up.
And there is nothing illegal about it.
The Island has consistently ranked among the highest in the country for gasoline prices, which are regularly tracked by the American Automobile Association.
The lawsuit was filed against owners of four of the nine gas stations on the Vineyard: Francis Paciello, who owns the Edgartown Mobil and Depot Corner in Edgartown, Drake/Kenyon, which owns the XtraMart Citgo station in Vineyard Haven, and R.M. Packer Co., which owns the Tisbury Shell station. In addition to being gasoline retailers, Packer and Drake also are wholesalers who sell gas to other stations on the Vineyard, further heightening the insular nature of gasoline enterprise on the Island. Drake is the wholesale supplier to the two Paciello stations.
“Some markets are particularly conducive to maintaining parallel pricing without the need for agreement among the producers,” the federal appeals court concluded. Using case law to illustrate the point, the court said the Vineyard, in effect, has the perfect storm of conditions, including “a geographically contained gasoline market with publicly posted prices.” The translation is roughly this: The person who owns the filling station in Edgartown knows what the person who owns the station in Vineyard Haven is charging, and can adjust his prices up or down accordingly. There aren’t that many stations, everybody has to buy gas and so quite naturally the free market response is to increase — not decrease prices. “Since there are only nine gas stations on the entire Island, each station can easily monitor and respond to the prices of the others,” the court wrote. “A station acting as a price ‘leader’ risks little by raising its price under such market conditions. Other stations are likely to follow, given the possibility of higher prices and profit margins for all.”
Plaintiffs in the case used experts to analyze retail gasoline prices. The experts found that gas prices at Vineyard stations exceeded prices on Cape Cod by an average of 56 cents a gallon during a five-year period beginning in 2003. Of that, 21 cents was tracked to transportation costs.
The high federal court sketched a detailed profile of the Vineyard gasoline market which includes regulatory barriers in the form of the Martha’s Vineyard Commission, which it described as a “gatekeeper,” effectively capping the number of gas stations here.
“Customer demand for gasoline on an Island is inelastic, meaning customers will not buy much less gas when prices rise because they cannot choose to drive farther away to get cheaper gas . . .
“High barriers to entry and inelastic demand are two hallmarks of oligopolistic markets susceptible to parallel pricing practices.”
The case also revealed more than one previously-unknown twist, including the fact that the owners of Drake had hired a consultant to lobby the Martha’s Vineyard Commission when it was reviewing the 1997 plan for a new gas station on State Road in Vineyard Haven (the plan was ultimately denied). The court found nothing illegal in this but rather said it was the gas station owners exercising their right to petition.
And it was also revealed that Drake, which sells wholesale gasoline to Mr. Paciello for his two stations in Edgartown, had made a large loan of $2 million to Mr. Paciello at a time when he was unable to secure a loan from a bank.
Referring to the earlier decision, the appeal court wrote: “The district court found it troubling that an unusually generous loan from Drake to Paciello may have provided Paciello with an incentive to conspire with Drake, but held that this was not enough to permit a reasonable jury to find an agreement to fix prices.”
Meanwhile, Islanders who find their wallets empty after a fill-up can expect to see no relief at the pump in the near future. Regular gas at XtraMart Citgo was selling yesterday for $3.97 a gallon. At Depot Corner and Edgartown Mobil the price for regular was $3.85 and $3.89 respectively.
In a short piece on the court ruling this week, Paul Lamoureux, a reporter for Lawyer’s Weekly wrote: “Apparently, bicycles are the way to go on Martha’s Vineyard.”