In the Matter of Magellan Midstream Partners, L.P.and Shell Oil CompanyC
This is the second FTC prosecution in the past month of arefined petroleum terminal sale by Shell to a midstreampartnership. Just last week, CVT filed comments on FTC'sproposed order against Shell and Buckeye Partners, L.P.
, over anabandoned sale of a terminal in Niles, Michigan. FTC is clearlymicromanaging the midstream industry through antitrustregulation, although the Commission can demonstrate noeconomic benefits to this approach. There is no evidence in therecord, either in this case or in the Buckeye prosecution, thatviolent intervention by FTC yields superior economic outcomes tothose created by the free market.FTC's “competitive” concerns about the sale of the OklahomaCity terminal relies almost exclusively on the Commission's use of the Herfindahl index.
The index purports to measure marketconcentration by adding the squares of the market shares of theexisting competitors. For example, if a market has fourcompetitors with market shares of 30%, 30%, 20%, and 20%, thenthe Herfindahl index number will be 900+900+400+400 or 2,600.FTC would define this theoretical market as “highlyconcentrated,” because the index exceeds 1,800. If two of the fourcompetitors—say the two firms with 30% shares—were to merge,FTC would probably object because this would increase the indexnumber from 1,800 to 4,400. Any post-merger increase in theindex of more than 100 in a “highly concentrated” market isdeemed suspect because the merger is considered “likely to createor enhance market power or facilitate its exercise.”
In this case, FTC claims Magellan's acquisition of Shell'sOklahoma City terminal would increase the Herfindahl indexnumber from 3,100 to 4,300, an 1,200-point increase in a “highly
1FTC File No. 041-0162.2Also called the Herfindahl-Hirschman index.3U.S. Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines at 1.5. (Available atwww.usdoj.gov/atr/public/guidelines/horiz_book/15.html).