The petroleum industry: Buyer power can be good for competition and consumers

In recent years, oil prices have dropped significantly, and this has imposed changes and cost-cutting that have particularly affected the supply sector to the petroleum industry. From a professional competition policy standpoint, it is nevertheless difficult to see that the use of purchasing power could limit competition and harm consumers.

Assessment: The petroleum industry and purchasing power. (In Norwegian)

The Norwegian Competition Authority has, under a commission from the Ministry of Trade, Industry and Fisheries, provided a general description of the conditions of competition in the petroleum industry and assessed how competition policy instruments can be used to counteract the harmful effects of buyer power.

– Buyer power is in many cases beneficial for both customers and society, says Director General Lars Sørgard.

Buyer power means that a purchaser could trigger competition among suppliers and thus obtain lower prices, but also stimulate the supplier industry to innovate.

– For buyer power to be a competition problem, the strong buyer also needs to have selling power. Oil companies have a limited ability to influence their sales prices in international markets, and in those cases the Competition Authority is not concerned, says Sørgard.

The report and the Competition Act
Through merger control and prohibitions on anticompetitive cooperation and abuse of a dominant position, the Competition Authority may intervene against the use of purchasing power that restricts competition and leads to consumers being harmed.

– The Competition Authority’s assessment is that the instruments of competition law are sufficient to intervene against any anticompetitive buyer power within the petroleum industry, states Director Ingrid K. Gullaksen.

Oil prices and the level of activity on the Norwegian Continental Shelf have major influences on the negotiation power between the supplier industry and the oil companies there.

– We understand that the situation of the affected players is demanding. From a professional competition policy standpoint, there is little reason to fear that the use of buyer power in the petroleum industry could be harmful to consumers, says Gullaksen.

The Competition Authority has provided a general assessment of the petroleum industry, without assessing the individual players.

Background of the assessment

• The Competition Authority will provide the Ministry of Trade, Industry and Fisheries a general description of the conditions of competition in the petroleum industry, including the supplier industry.

• The Competition Authority shall give an assessment of whether and how competition policy instruments, in particular the enforcement of competition law, may be used to counteract any adverse effects resulting from the use of buyer power.

Source: Ministry of Trade, Industry and Ministry of Fisheries >>

Buyer power

  • Buyer power means that a buyer has the opportunity to influence the conditions under which it buys goods and services.
  • A company with buyer power can push down the purchase prices, stimulate providers to increase innovation, improve the quality of goods or contribute to improving the offer in other ways.
  • A strong buyer will have a vested interest in the supplier industry being competitive and having the necessary diversity and innovation.
  • There are few competition cases concerning interventions against buyer power, including internationally.
Portrettbilde av konkurransedirektør Lars Sørgard.
Lars Sørgard, konkurransedirektør.