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CADE points out concerns regarding competition in measures to set maximum resale prices for cooking gas during the pandemic

Technical Note

A Technical Note by the Department of Economic Studies of CADE concludes interventions related to the price of cooking gas (LPG) may cause product shortages and bankruptcy
published: May 12, 2020 12:00 AM last modified: May 12, 2020 11:07 AM
by International Unit

On a Technical Note released on Thursday, 30 April, the Department of Economic Studies of the Administrative Council for Economic Defence warns that adopting measures to set a maximum resale price for Liquefied Petroleum Gas (LPG) — popularly known as cooking gas — during the pandemic related to the new coronavirus (COVID-19) may lead to losses to consumers and to competition. The Department concluded that interventions such as that of the Procon-SP (consumer protection agency of the State of São Paulo) may lead to shortages and bankruptcy.

According to the document, the State of São Paulo is already undergoing interventions in LPG prices through Procon-SP's actions, which set a maximum resale price of BRL 70 for the product. Other places in the country also intend to set LPG prices in the future, in case the Congress approves the pending bills on this matter. Thus, the analysis focused on the situation of the State of São Paulo, but the assessment of the effects on competition also include such bills.

As far as competition is concerned, the Department of Economic Studies indicated setting maximum prices for LPG creates great losses to the resale market, which may lead to stores deciding not to sell the product in distant places due to the higher costs incurred, for instance. Moreover, these losses may cause temporary closure or even bankruptcy of LPG resellers. Consumers, in turn, may experience shortages of the product, as it is already the case in some places in the state.

The technical note also points out this situation may intensify if the São Paulo Police and consumer protection agencies (Procons) continue to intervene. “If LPG resellers who cannot bear the costs incurred in Procon's set prices go bankrupt, the degree of concentration in LPG resale will increase, affecting the sector's competition”.  

Finally, the document considers the importance of caution in seeking solutions to counteract the effects of the COVID-19 pandemic, to prevent remedies that should benefit society from doing more harm.

 “What is currently happening in São Paulo can be seen as an experiment which indicates what might happen in a wider scale in Brazil if similar bills (which are aimed at artificially setting LPG prices in states and in the country) are approved. These effects tend to emerge and intensify in the social sphere, creating serioues legal and economic insecurity in fundamental market agents during the pandemic”, warns the Department.

Click here to access the complete Technical Note 19/2020/DEECADE.