Economic Effects of Exclusive Dealing and Ownership Control: The U.K. Petrol Case Revisited

• Author: Donald F. Dixon
• DOI: 10.1177/0003603X7301800214
• Published date: 01 June 1973
• Date: 01 June 1973
• Subject Matter: Article

ECONOMIC

EFFECTS

OF EXCLUSIVE DEALING

AND OWNERSHIP CONTROL:

THE U.K.

PETROL

CASE

REVISITED

by

DONALD

F.

DIXON·

INTRODUCTION

Arecent articleIinvestigating the practice of supplier-

controlled distribution arrangements, in the context of anti-

monopoly policy, made reference to the Monopolies Commis-

sion

Report

on

Petrol

in the United Kingdom. The authors

generally supported the Commission's conclusions

that

sup-

plier control

"in

principle, need not operate against the public

interest," :I

but

suggested alimitation of ownership control by

dominant suppliers

and

raised anew the argument

that

com-

petition would be stimulated by the introduction of quantity

discounts.

Although

Pass

and

Hawkins begin

their

analysis with the

caveat

that

few generalizations can be made with certainty,

they suggest

that

supplier-controlled distribution systems

have three types of economic effect upon competition.

First,

there

are

varied effects upon distribution costs; costs

may

be

either increased or reduced. Second, supplier control may

limit market access. Finally, supplier control may inhibit

price competition

and

lead to undue emphasis on non-price

measures,"

• Professor of Marketing, School of Business Administration,

Temple University.

IC. L. Pass and K. H. Hawkins, "Exclusive Dealing, Supplier

Ownership of Outlets

and

the Public Interest: The Petrol Case,"

The Antitrust Bulletin, Summer 1972, pp.

567-595.

1&

Monopolies Commission Report on the Supply of Petrol to Re-

tailers (HMSO) 1965, p. 157. [Hereinafter cited as M.C.]

a Pass and Hawkins, op. cit., pp.

570-573.

375

376

THE

ANTITRUST

BULLETIN

The present

paper

raises some questions concerning these

three areas of discussion, as well as the recommendations

derived from the analysis; and indicates some public policy

implications of both the analysis and recommendations.

It

will be argued

that

there is a danger in the application of

economic models to a specific situation without careful con-

sideration of the intricacies of the actual case being con-

sidered.

Further,

questions will be raised concerning the ap-

propriate economic model to be employed in such analysis.

SUPPLIER

CONTROL AND

DISTRIBUTION

COSTS

Although the Monopolies Commission agreed

that

asaving

in distribution costs could be attributed to the introduction of

the "solus" exclusive dealing arrangements, it suggested

that

these savings might have been achieved instead by "some

form of quantity allowance as a direct incentive to retailers

to maximize

their

storage

tank

capacity." 4

This point was taken up

at

length by one of the Commis-

sion members, in a separate dissenting statement.

Barna

saw

all supplier control as against the public

interest;

and held

that

economies in distribution were a

matter

of technology,

and the quantity delivered to a retail site in one installment

was the main factor of Importance," He thought

that

"No

doubt the suppliers would like to deliver

larger

quantities,

but

they give no financial incentive to the retailer to order

larger

quantities," and argued

that

prices should take account

of differences in quantities

and

regularity of delivery,"

In

subsequent discussion

Barna's

argument was ques-

tioned by Townsend, who maintained

that

the actual extent

of delivery cost was not

very

substantial:

"Barna

seems to

overestimate the size of discounts which would profitably

4M.e., op. cit., p. 158.

5Ibid., p. 171.

6Ibid.