Some Competitive Effects of Vertical Relationships in Austrauan Petrol Distribution

• Author: Donald F. Dixon
• DOI: 10.1177/0003603X7201700303
• Published date: 01 September 1972
• Date: 01 September 1972
• Subject Matter: Article

SOME

COMPETITIVE

EFFECTS

OF

VERTICAL

RELATIONSHIPS

IN

AUSTRAUAN

PETROL

DISTRIBUTION·

by

DONALD F.

DIXON-

The development of franchising agreements has accom-

panied important changes in the structure of Australian petrol

distribution during the

past

two decades. Multiple-brand re-

tail sites have been replaced by exclusive "solo" dealers and

company-owned retail sites. Furthermore, the formerly "free"

dealers have been replaced by dealers tied to the distributing

companies.

The Australian experience is of interest because the nature

of competition in petrol distribution differs from that ob-

served in the United States. Price rivalry has been uncom-

mon

partly

because two states, New South Wales and South

Australia, continue to exercise price controls which initially

were imposed during the Second World War. The decisions

of the South Australian Prices Commissioner

are

tantamount

to national price control; the distributing companies utilize the

prices established in South Australia as a common basis, so

that wholesale prices

are

generally the same in the capital

cities and other main distribution areas. Retail prices differ

from state to state because reseller margins

are

established

by the state reseller associations, subject to government con-

trol only in New South Wales and South Australia. Retail

price cutting such as

that

commonly experienced in the United

States is almost completely unknown.

A second potential form of rivalry, the construction of new

retail sites by the petrol companies, has been limited by agree-

ment among the larger companies. This means of reducing

competition has been achieved with the consent of the govern-

-Professor of Marketing, Temple University.

791

792

THE

ANTITRUST

BULLETIN

ment, which has been concerned with planning and other as-

pects of "too many" sites. The first postwar "site rationaliza-

tion scheme" was introduced by the petrol companies in

1959.

Although the quotas allotted each participant have been re-

negotiated from time to time, the scheme has been remarkably

effective in reducing the

rate

of new construction.

The limitation of two traditional elements of horizontal

rivalry has emphasized the importance of the vertical dimen-

sion of competition within the distribution system of each

company. Some company spokesmen have described stronger

control of retail activity obtained through contractual agree-

ment as an especially important competitive tool.

THE

ESTABLISHMENT

OF

CHANNEL

CONTROL

The extent of the control exercised by the oil companies

over the activities of resellers may be determined by an an-

alysis of trading agreements, in which the type of business to

be conducted

at

the site, the products to be sold, and methods

of doing business are prescribed. All contracts require the

exclusive sale of the company's products, either by express

statement or the requirement

that

the reseller purchase his

total requirements from the company. Some agreements ex-

pressly prohibit the sale either of products not sold by the

company, or of products

that

the supplier "shall direct the

Licensee not to sell," as

in

the case of Total's agreement.

Ampol adds a further requirement,

that

the company

"at

its

discretion may require the Licensee

at

any time to remove

from the Service Station any goods deemed to conflict

with those marketed by the licensor "!

Typically, the exclusivity provision refers to products

which the reseller offers

for

sale,

that

is, products required

for resale

at

the site.

But

some agreements focus not on the

reseller's requirements but on those of the company.

For

example, Esso's agreement states

that

the company shall

make deliveries

"of

all products marketed by Esso

...

in such

quantities as shall be required in the opinion of Esso. . .

."