Timothy Muris and Richard Parker, officials at the Federal Trade Commission under the Bush and Clinton Administrations respectively, have an op-ed in today's Wall $treet Journal urging lawmakers to recognize the competitive reality of today's oil industry before adopting additional regulations and controls. Here's a taste:
We've spent years at the Federal Trade Commission enforcing the antitrust laws in this industry and even more time studying oil markets. We have come to this conclusion: When legislators don't completely understand the industry, even their best efforts can harm consumers.
Consider one driver of harmful regulation, the belief that a handful of large oil companies control the industry. In fact, the industry is not highly concentrated. The four largest firms collectively hold a smaller share than the top four firms in many other industries, and these firms face a lot of competition. Valero is the largest U.S. refiner and non-oil companies like Wal-Mart, Sheetz and WaWa sell a significant portion of retail gasoline. Most gas stations are owned and operated independently.
The oil industry's long-term earnings are also typically in line with other industries. Recently, the oil industry has earned above-average profits -- 9.5 cents for each dollar in sales in 2006, compared to 8.2 cents for manufacturers. But U.S. oil took a hit in the 1990s as earnings fell well below those of other industries.
And as economic learning and antitrust enforcement have evolved, we've seen that big and profitable are not necessarily bad. In recent decades, the real oil industry has greatly improved its efficiency through a series of mergers, which have improved resource management, increased innovation and technology diffusion, and moved assets to firms with the ability and expertise to expand capacity. Extensive FTC studies have confirmed that the industry is highly competitive, that concentration and mergers have not increased prices, and that market forces -- most notably the price of crude oil and supply shocks -- cause price increases. . . .
What we need are policies that let the market operate to spur investment in exploration, capacity expansion, operating efficiencies and technology advances.
Instead, Congress is proposing to exacerbate America's energy problems. Some want to make price gouging -- a vague term with no clear legal meaning -- a crime. Such legislation would discourage the industry from responding rapidly to product shortages. As bad as high prices are, no gas at all, or a return to gas lines, is much worse. Moreover, price gouging laws will harm consumers by reducing investment in new refineries.