Question

The Hellenic Competition Commission (HCC) in a previous Decision (No. 418/V/2008) launched a sector inquiry into the oil industry in Greece (e.g refining, wholesaling and retailing market segment) and claimed among others that multinational oil companies (BP Hellas S.A and Shell Hellas S.A) supported their filling stations (branded retailers) when competitors temporarily reduced prices to increase sales, requiring that the discount was passed on to the consumer ("price support" discount scheme). (a) Give an overview of the decision adopted by the HCC focusing solely on the wholesale oil market segment. Briefly describe the two oil companies. IMark: 0.5] (b) Define the relevant product(s) and geographic market(s) for the wholesale oil market segment in Greece. What type of quantitative economic tools are the proper ones to correctly delineate the relevant markets in such a case? [Mark: 0.5] (c) What economic arguments dictated the abolishment of the "price support" discount scheme by the HCC? [Mark: 1.0] (d) Did the competent Ministry adopt this policy measure? Critically discuss what was the impact of the relevant decision to consumers over the period 2009-2018 (i.e evolution of retail prices, consumption and variety of the petroleum products offered by the wholesalers) and how did the oil industry change thereafter in terms of competition Comment on your findings [Mark: 1.5] Hint: This is an essay type question and students are free to express their views provided that they are well grounded on economic analysis ad are logically consistent. Students ar use official sources that can be found online on the Hellenic Competition Commission's website and the answer should be at most two page answer should be at most two pages long.

Answer 1

a. The Hellanic Competition Commission is a government regulatory body which enforces the competition laws in Greece. In its Annual Report on Competition Laws, 2008, it mentioned a special case under the heading "Action against anticompetitive practices, including agreements and abuses of dominant position". Based on the investigation by the DGC's ex-officio it was found out that two companies namely BP HELLAS S.A. and Shell HELLAS S.A. were involved in coordinating discount policies w.e.f. 01.01.2003 to 31.12.2003. The two companies amounted to price fixing strategies which is a violation of article 1 of law 703/1977 and article 81 of the EC Treaty. The HCC looked into the matter and ordered the undertakings in question to bring the
infringement to an end and refrain from committing the same in future. Also,  a fine of € 30,066,585.00 was imposed on “BP HELLAS S.A,” and €19,664,888.00 on “SHELL HELLAS S.A.” which was 15% of their respective annual turnovers. This decision is considered one of the most important decisions  undertaken by HCC as it was for the first time that it was able to find out necessary economic data to substantiate such a case.

BP HELLAS S.A. and Shell HELLAS S.A. are Greek's major oil retailers and together constitute more than 40% of the market share. In 2009–2010, Shell and BP left Greece and sold their operations to Motor Oil and HELPE, respectively.

b. The oil market in Greece consists of three major segments namely refining, wholesaling and retailing.

Specifically, the wholesale market has 2 segments ; Heating oil resellers and large market consumers[ commercial and industrial users]. After the deregulation of oil sector in 1992, the companies are free to set prices and profit margins in each market segment according to local competition, the level of investment incurred by the wholesalers and the level of their cost.

The Greek market is isolated from abroad by restrictive trade practices. Only crude oil can be imported by the two major market shareholder companies aforementioned.

In order to delineate the markets, various laws have been enforced. A regulatory athourity keeps a check on the activities of all individual firms. Price ceilings and floors must be prescribed in order to avoid high consumer prices on one hand and cut throat competition on the other.

c. The price support policy couldn't be abolished without reasonable economic arguments proposed by HCC. In this context, it conducted thorough analysis of transportation costs, economic geography across the regions, demand conditions etc. of both the firms. It ascertained the special role enjoyed by the aforementioned companies in comparison to the rest of the undertakings in the sector and established their intention not to compete with one another, but instead to converge their net wholesale prices by means of a common discount ratio policy. Based on the findings, the policy was abolished.

d. Yes, the Ministry of Development adopted and modified the policy recommendations of the HCC. It tried to create conditions for more effective competition in this sensitive market.

Although the consumers were not getting slightly higher prices for their fuels, but this reduced price discrimination to a large extent. The sector came under the purview of strict legal framework which also reduced consumer exploitation.