The Italian Competition Authority opens investigation into an alleged gas cartel in Sardinia

Last week the Italian Competition Authority (ICA) has open investigations into alleged anticompetitive practices in the market for bottled liquefied petroleum gas (LPG) for household use in Sardinia. The ICA has taken such a decision, following the receipt of a complaint from the Garante per la Sorveglianza dei Prezzi. This is a newly-established authority created with the Budget Act of 2007, nicknamed Mr. Prices by Italian media. In a nutshell, Mr. Prices, is responsible for the regulation of retail prices. To this end, he has the power, among other things, to collect data and information on retail prices and to file complaints with the ICA, when appropriate. To our knowledge, this is the first time since its inception that the Mr. Prices lodged a complaint with the ICA.

The ICA will investigate into the conducts carried out by 6 gas operators, Butan Gas, Eni, Fiamma 2000, Liquigas, Sardagas and Ultragas. Generally, the markets for bottling and for the wholesale distribution of LPG are oligopolies. An peculiar aspect of the market in Sardinia for the supply of gas for household use is that there is no network for the distribution of methane. As a result, LPG is an essential source of energy for household appliances. That results in two important implications for the competition examination of the contested conducts. First, in Sardinia the demand-side elasticity for LPG is lower compared with other markets where there exist an interfuel competition. Second, quite unsurprisingly, according to Mr. Prices’ submission, the average retail price in Sardinia for LPG is much higher than in mainland Italy.

The product markets concerned by the investigations are the wholesale and retail markets for LPG cylinders for use in home. As for the geographical dimension, the wholesale market is regional in scope and covers the whole territory of Sardinia, while the retail markets is local in scope.

Only a few vertically integrated firms, their activities also including the bottling of gas into cylinders, are active in the LPG wholesale markets. Final consumers are supplied by many retailers that have to fulfil the gas requirements of a very fragmented demand.

According to the ICA, the above market structure as well as the oligopolistic nature of the relevant markets and the low demand-side elasticity are all factors that might be conducive to a collusion. More precisely, the ICA fears that wholesalers may have coordinated their commercial conducts in the market, particularly by fixing prices and other relevant commercial terms to apply to retailers. Thus high retail prices would be an outcome of the alleged collusion among the LGP wholesalers active in Sardinia. That, if proved by the ICA, would amount to an anticompetitive agreement prohibited by Article 2 of the Act n. 287/1990. The ICA have to close investigations into the above alleged collusion by 30 April 2009.