Price discrimination by Pemex-petrochemical section in the ethylene oxide market
Mexico
The Commission conducted an ex officio investigation into an alleged relative monopolistic practice by the petrochemical section of the state owned oil company (Pemex), which involved the state company offering discriminatory prices for ethylene oxide.
Prices charged by Pemex are set by means of formulas approved by a Committee involving, among others, representatives of the Ministry of Finance and Public Credit and the Ministry of Trade and Industrial Promotion. The formulas vary with each kind of user, thereby giving rise to significant differences. Thus, the price paid by ethoxilate producers was 56% higher than that paid by producers of ethylene glycol. These disparities were not based on differences in quality, since the products supplied to each user are markedly similar.
The investigation revealed that the selling conditions of ethylene oxide led to a segmentation of the market, which was defined as that of ethylene oxide sold in the country, and price discrimination, since:
- Pemex is virtually the only supplier in the domestic market.
- The dangerous nature of the product and its high transport costs represent a barrier to imports. Moreover, international trade in ethylene oxide is virtually non-existent.
- As a result of this, Pemex enjoys substantial power in the market.
- The supply contracts included a statement by the purchaser of ethylene oxide by which the purchaser promised not to resell the product in the state in which it was acquired without Pemex's prior authorization.
To summarize, the state company had enjoyed conditions favorable to a policy of price discrimination, facing no threat from other competitors who could offset its market power nor the possibility of resale by users who had paid a lower price. To correct this situation, the Commission made the following recommendations to Pemex:
- It should make the necessary arrangements to modify its pricing policy in order to eliminate the discriminatory treatment given to ethylene oxide users.
- It should give evidence of the elimination of price discrimination by submitting to the Commission certified copies of the modified contracts.