Analyst Suggests Gouging on Martha's Vineyard

Lawsuit now before Mass. federal district court

Published in CSP Daily News

MARTHA'S VINEYARD, Mass. -- During 60 months between 2003 and 2008, Martha's Vineyard islanders paid a premium, averaging 56 cents for regular gasoline, at four island fuel retailers, compared with the cost of regular gasoline sold at stations on Cape Cod, reported The Martha's Vineyard Times. Only 21 of the 56 cents, or 38%, can be accounted for by the high cost of doing business on the Vineyard, according to data assembled and analyzed by Frank M. Gollop, an economics professor at Boston College.

The plaintiffs in a civil suit filed first in Dukes County Superior [image-nocss] Court in 2007, charging several Vineyard gasoline retailers with fixing fuel prices, hired Gollop as an expert witness on their behalf, said the report. He concluded, and reported in a March 2009 affidavit, that on average, 62% of the price difference between Vineyard gasoline prices and prices on the Cape is not accounted for or justified by higher business costs for the Vineyard retailers.

The average unjustified premium, according to Gollop, was between 27 and 38 cents a gallon, or about 12% of the cost of a gallon of gasoline priced to the consumer at $2.77.

Consumer complaints about the high cost of gasoline on the Vineyard (even allowing for transportation costs of fuel to the island) have been common and frequent for decades, said the newspaper.

In early August 2007, lawyers filed a class-action lawsuit against two gas wholesalers and three retailers. In their 27-page complaint, Michael Roitman and Stephen Schultz, lawyers with the Boston firm of Engel & Schultz, said that the defendants unfairly fixed the price of gasoline, gouged consumers who purchased gasoline, and engaged in unfair price gouging in 2005 after hurricanes Katrina and Rita.

The defendants are R.M. Packer Co., Drake Petroleum Co., Depot Corner gas station and Francis J. Paciello, owner of Edgartown Mobil and Depot Corner. The four stations with data analyzed by Gollop are Tisbury Extra Mart, owned by Drake Petroleum; Tisbury Shell, owned by Packer; and Depot Corner and Edgartown Mobil, both owned by Paciello or by Paciello and his wife. Three gasoline retailers on Cape Cod were used by Gollop for comparison, one in Falmouth, one in Hyannis and one in Provincetown.

There are nine gasoline dealers on the Vineyard. DeBettencourt Mobil and Jim's Fuel Station, both in Oak Bluffs; Airport Fuel Services in Edgartown; Up-Island Automotive in West Tisbury; and Menemsha Texaco in Chilmark are not defendants in the lawsuit.

The plaintiffs are William White of Oak Bluffs, a former business partner in Tisbury Fuel Services; R. Carleen Cordwell of Oak Bluffs; Ken Bailey of West Tisbury; Nadine Monaco of Oak Bluffs; Karen Lodge of Edgartown; Joan Kriegstein of Oak Bluffs; and Hilary S. Schultz of Edgartown, wife of Schultz.

When the suit was filed, a survey of mainland and Vineyard stations revealed that the cost of a gallon of gasoline varied at times by more than 75 cents comparing Vineyard and mainland stations.

The lawsuit is now before the federal district court for Massachusetts, said the report. The defendants have moved for summary judgment in the case, and in a hearing before retired federal Judge Rya Zoebel, the plaintiffs opposed the motion. For the purposes of the argument over the motion for summary, the defendants have assumed that Gollop's data, but not his conclusions, are accurate, according to an attorney for one of the defendants. That's because, the defendants argue, even if one accepts all the plaintiff's testimony at face value, their case still fails to support the claims, another attorney for the defendants said.

Whether the defendant retailers fixed prices, cooperated in setting prices or set out together to gouge consumers has not been adjudicated or even argued before the federal judge, but Gallop said Vineyard prices were higher than competitive retailing practices would lead an analyst to expect.

"The unexplained excess in price differences is positive for every defendant station in every one of the 60 months examined," he said, according to the report. "The unexplained differences are persistent over time and across stations and are considerable in magnitude."

Gollop concluded that regular gasoline pricing by the four defendant retailers shortly after Katrina struck the Gulf Coast make out a "prima facie" case for price gouging. "During the emergency period following Hurricanes Katrina and Rita," he said, "(a) there were significant disparities between prices charged at the defendants' stations and prices charged in the pre-emergency period, (b) there were significant disparities between prices charged at the defendants' stations and prices charged by other stations in the same trade area, and (c) cost differences cannot explain the observed price differences."

The defendants argue that Gollop's analysis depends on differences in the gross margin realized by the defendant stations, comparing pre-Katrina and post-Katrina prices, which the standard for price gouging requires an unjustified differential in the retail price, not the margin. They also argue that the difference between pre-emergency and emergency period pricing must be on the order of two to six times, whereas among the defendants the differential is never greater than 19%. And, the defense argues that to judge price gouging, one must compare the price immediately before the emergency period, that is in the day or two before the defined emergency period and that Gallop uses a greater period of time pre-emergency as the basis for the comparison on which he bases his conclusion.

Gallop said that, according to Federal Trade Commission (FTC) analysis, a gross margin increase of more than five cents a gallon could not be explained by increased costs. He argued that his analysis of price increases during the post-Katrina period at the four defendant Vineyard retailers shows "that gross margins at each station in each month September through November 2005 exceeded each respective station's August gross margin by more than the five-cent threshold established by the FTC. Using the language of the Massachusetts Price Gouging Law, it seems reasonable to conclude that the 'price disparity is not substantially attributable to increased prices charged by the petroleum-related business suppliers or increased costs due to an abnormal market disruption'."

Click hereto view the plaintiff's original August 2007 complaint and Gollop's affidavit.

Click herefor a comparison of average monthly pump prices on Cape Cod with pump prices at defendants' gas stations.

And click here for volume of gasoline sold at defendants' gas stations.