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.”
This article appears in February 25, 2011.
Always try and buy your gas in WT not only cheaper but great service and more friendly. Even if it does not save you much it is better than given to the greed of Edgartown’s owners.
I’d love to know the reasoning why everyone is going crazy over gas prices on this island. This is the United States of America. People are allowed to make a profit. And not just people who sell your beloved so called organic foods. How about doing an article on the prices of food at Cronigs ?? how about mentioning they charge you almost a buck for a bag to put your over priced organic groceries in. Or the price of food at restaurants. Office supplies at DeRosas, etc, etc. Everything is more expensive here. Get over it. People make a choice to live here. And how much do we really drive here ?? I would bet the average islands total gas bill is less than half the average commuter off island.
I would also add that Mr. Paciello and other owners took on substantial risk of capital to purchase these fueling stations. I don’t know for sure, but I would also say they pay a ton for insurance, taxes, and every other fee the towns can think of. I know if I went to the bank for a loan for two million they would laugh in my face. I’d like to take this time to say thank you to Mr. Paciello and other owners who took on the risk to provide us with gas and since they took the risk they are allowed to make a profit without being badgered in the papers for it.
before u even got your article out the gas prices went from 3.85 to 4.05 at the depot gas station…….exactly for the reasons given by the judge is why it should have been found illegal…that and the fact that two of the gas stations are also wholesalers and one sells to two of the edgartown gas stations which has the highest prices on the vineyard leaves only half the stations to compete against these 4..and those remaining 5 try to hae lower prices but its hard to compete against another station that is also the wholesaler…another unjustice to the people that live here year round………….
As nearly everyone including the Courts understands, while it’s not illegal to “make” as much money as you possibly can while selling necessities into a constrained market to a population of mixed demographics, it certainly is foul.
There is no excuse besides impenetrable greed for at least one of the vendors not to take the lead in establishing a system for discounting a few hundred gallons a year for Island residents. Maybe the rest would follow that. Oh. Come to think of it, that leader stand to lose his wholesale sources and his business, which is probably another, better lawsuit but who wants to be a martyr?
I like the last sentence.
“Apparently, bicycles are the way to go on Martha’s Vineyard.”
Considering that nation wide the average automobile trip is just around 5 miles, I wonder what the average trip is on the Island?
If every license driver nation wide were to use alternative transportation (such as a bicycle) and leave their car at home, we could cut oil imports in half.
In the absence of collusion, by definition, the pricing isn’t illegal. As to labels such as greed and foul, I wonder if the folks imposing their value judgement of fairness voluntarily limit their compensation in the name of the greater good. I doubt it. If you don’t like the price of gas, drive less. If enough people do this, the price will go down. A better solution, lobby town officials to allow more filling stations. More competition will reduce prices as a matter of course.
I agree, bicycles are the way to go. Unfortunately, I have found it quite challenging to carry two children and their hockey bags on the back of my bike, so I am forced to used my car quite a bit.
It would be an excellent show of good will if the gas station owners would consider offering discounts for island residents, especially in the off-season.
I wonder if they will ever report the fact that this frivolous lawsuit brought on by a seasonal resident lawyer cost each party involved over $150,000. And when will they report on the extreme charitable donations these businesses have made over the years. I know every time i have knocked on Mr. Packer’s door he has given to the cause.
The fuel business is more complex than they even begin to mention in these articles. Most of the fuel stations off island that have much lower prices are owned by the oil companies themselves or by very large distributors that have hundreds of stations. Most of these sell fuel at cost just to get customers to come into their convenience store or Dunkin Donuts, etc.. Also most of the stations you see off island sell 5 times as much fuel as the stations on the island, while the stations on island have the same if not more overhead! same overhead, less gallons, equals more mark up per gallon…
90% of all goods and services on Martha’s Vineyard are 20 – 30 % higher!! As are your property values. this is the price we pay to live in a beautiful safe place..
Lastly a big thank You to Mr. Packer for giving back some of those profits to the community. and also nice job on the renovations to tisbury shell, i am sure it wasn’t cheap and it was probably mandated by the government!!
Stacy
I fully understand what it means to raise two kids.
I do drive but prefer cycling every chance I get.
I also have a bicycle built for 3 and a bike trailer for the big stuff. I’ve raised my kids since they were infants on bicycles.
In the last 15 months I’ve cycled 8,500 + miles and driven perhaps 2,000.
Regular gas in Montreal is at the equivilant of $5.36 per gallon this week. Your prices are a relative bargain.
We don’t care about the price of gas in Canada Erik. Jeff quit sucking up to Ralph Packer, good for you and your bike Dave, but we really don’t care. It doesn’t take a high IQ not to realize this is gouging. Prices took huge jumps in price on what they already had in their tanks. Why doesn’t either one of these Island papers print the cost these island dealers actually pay for their liquid gold.