Proposed acquisition of ARCO by BP Amoco should intensify skepticism about Exxon-Mobil merger, AAI tells FTC

Apr 01 1999
Testimony and Interventions

 

In a letter to Federal Trade Commission Chairman Robert Pitofsky, the American Antitrust Institute today urged the FTC to weigh BP Amoco's newly proposed acquisition of Atlantic Richfield Co. as it analyzes the pending Exxon-Mobil merger. "Coming on top of BP's recent acquisition of Amoco," says the AAI letter, "Exxon's pending acquisition of Mobil, and a flurry of other petroleum industry acquisitions and joint ventures, the BP Amoco acquisition of ARCO puts the question squarely before the Commission: when will the Government draw the line? "

According to AAI President Albert A. Foer, "This latest announcement provides evidence that should bear on the Commission's decision whether to seek an injunction against the pending Exxon-Mobil merger. Section Seven of the Clayton Act is an incipiency statute, calling upon the FTC to make predictions about when mergers may substantially lessen competition. The ARCO merger demonstrates that we are in the midst of an accelerating trend toward concentration in the petroleum industry."

"The Commission should be looking down the road, using the best available information to determine whether we are reasonably likely to be nearing a danger zone. As we approach the zone, the remedy of divesting limited assets (applied by the Commission in the BP-Amoco merger) becomes less viable because it fails to address the question of the minimum number of substantial competitors we are willing to permit. If the Commission determines that we are approaching a tight oligopoly structure in the United States, characterized not only by concentration but by multiple joint ventures, with the context of an internationally cartelized industry, it should do nothing less than seek to enjoin the entire Exxon-Mobil merger."

The AAI's letter elaborates on an article about the Exxon-Mobil merger that Foer published in the April 12 issue of The New Republic magazine.

Contact: Albert A. Foer


April 2, 1999

The Hon. Robert Pitofsky
Chairman, Federal Trade Commission
6th & Pennsylvania NW
Washington, DC 20850

Dear Chairman Pitofsky:

Today's newspapers report that BP Amoco PLC (BP Amoco) is about to acquire Atlantic Richfield Company (ARCO). Coming on top of BP's recent acquisition of Amoco, Exxon's pending acquisition of Mobil, and a flurry of other petroleum industry acquisitions and joint ventures, the BP Amoco acquisition of ARCO puts the question squarely before the Commission: when will the Government draw the line?

We are in the midst of an accelerating trend toward concentration of the petroleum industry. Obviously, the ARCO acquisition will require careful study, giving special attention to the context of what is happening in the industry. We suggest that this latest announcement is immediately relevant to the Commission's decision whether to seek an injunction against the pending Exxon-Mobil merger.

If I may quote from my article in the April 12 issue of The New Republic (which is enclosed):

[T]he key now is for the FTC to think more broadly as it conducts its analysis of the [Exxon-Mobil] merger. First, the FTC should consider whether it is reasonably likely that other petroleum companies will follow suit if BP and Exxon eliminate Amoco and Mobil from the market. The answer is probably yes. After all, if these companies--already quite large-feel they must be much larger in order to compete in a world of low oil prices, small companies will likely feel compelled to merge just to keep pace with the industry leaders.

This was written prior to speculation about a BP Amoco acquisition of ARCO. We can now have no doubt that the industry will continue to consolidate if Exxon-Mobil is permitted to go through.

Undoubtedly, there will be claims that mergers in the petroleum industry are justified because they will create major efficiencies. While such claims must indeed be considered, we encourage the Commission to address them with a skeptical attitude simply because so many projections of future efficiencies made by merging companies have proven to be overstated, or have related to efficiencies which could have been obtained without a merger, or were simply not passed through in any appreciable way to consumers. If there is a realistic assessment that these mergers will facilitate merger-specific efficiencies that are likely to be passed on to consumers, there will still remain the difficult balance of whether such benefits outweigh the long-term risks of increased concentration.

Section Seven of the Clayton Act is an incipiency statute, calling upon the FTC to make predictions about when mergers may substantially lessen competition. The Commission should be looking down the road, using the best available information to determine whether we are reasonably likely to be nearing a danger zone. As we approach the zone, the remedy of divesting limited assets (applied by the Commission in the BP- Amoco merger) becomes less viable because it fails to address the question of the minimum number of substantial competitors we are willing to permit. If the Commission determines that we are approaching a tight oligopoly structure in the United States, characterized not only by concentration but by multiple joint ventures, within the context of an internationally cartelized industry, it should do nothing less than seek to enjoin the entire merger.

Sincerely,

Albert A. Foer
President

CC: William Baer, Director Bureau of Competition