AT AN AVERAGE price of more than $4 a gallon, gasoline is more expensive in Washington, D.C., than in any state of the continental United States except Connecticut. But don’t worry. D.C. Mayor Vincent C. Gray’s administration is on the case: D.C. Attorney General Irvin Nathan has started investigating Capital Petroleum Group, run by immigrant entrepreneur Eyub “Joe” Mamo, which owns about 45 of the 107 stations in the District and dozens more in Maryland, Virginia and New York. Ostensibly, the attorney general wants to know whether Mr. Mamo’s market power gives rise to antitrust violations.
Mr. Nathan can have at it, but we doubt there’s any wrongdoing afoot. The District’s gas prices have always been a bit above those in the surrounding suburbs: Insurance and rents are higher in town, and stations are smaller, which limits their ability to make money from convenience-store items. To be sure, the gap, currently 17.3 cents, has widened by seven cents since Mr. Mamo began snapping up District stations in 2009. But intervening D.C. tax increases — specifically a gas tax hike of 3.5 cents per gallon and a sales tax boost of 0.25 percentage points — account for most of that.
Local business executives such as Mr. Mamo have little control over the price at the pump: Crude oil prices, taxes and refining costs determine 93 percent of it, according to the Energy Department. The case against Mr. Mamo rests heavily on the fact that operators who lease their stations from him must also agree to buy their fuel from a wholesale supply firm he controls.
That sure sounds anticompetitive. But Mr. Mamo’s business model is both common in gas retailing nationally and perfectly legal in the District — under a law that Mr. Mamo’s lobbyist persuaded the D.C. Council to pass in 2007. Does it hurt consumers? The answer is a somewhat counterintuitive but emphatic no, according to both a host of economic studies and a 2007 policy statement by the Federal Trade Commission.
Yes, retailers might be able to get their gas more cheaply from someone other than Mr. Mamo, but there’s no guarantee that the retailers would pass the savings on to consumers. The FTC explained that, unless suppliers and retailers are united by a contract or some other mechanism, their divergent economic interests lead to inefficiencies and, hence, slightly higher prices at the pump. A senior FTC economist estimated that banning business models similar to Mr. Mamo’s would raise prices 2.6 cents per gallon.
As a reward for their efficiency, Mr. Mamo’s business and others like it face an attack from the city government. In addition to Mr. Nathan’s probe, council members are threatening repeal of the 2007 law. Leading the effort, in a 180-degree reversal of her position four years ago, is Mary M. Cheh (D-Ward 3). Several gas station operators and their lobbyist, Mr. Gray’s close friend Bruce Bereano, staged a news conference Wednesday urging her on. If there’s been a more blatant example of political scapegoating and opportunism in D.C. lately, we can’t think of it.
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