CADE assesses fuel company Ipiranga's new pricing policy

In a hearing held last Wednesday (30 June), the Tribunal of the Administrative Council for Economic Defense (CADE) assessed a consultation requested by Ipiranga Produtos de Petróleo. The Tribunal decided in favour of the company's new policy to negotiate prices with its retailers.

In the consultation, Ipiranga questioned about implementing a pricing system that employs a smart mechanism and algorithms to negotiate maximum retail prices charged by fuel stations that operate under its brand.

Commissioner Paula Azevedo, who served as the proceedings' rapporteur, found the pricing system does not raise competition concerns, as some of the system's features prevent it from producing anticompetitive effects on the market.

For instance, the system operates only as a recommendation, where the suggested parameters are set according to each fuel station, and the system only proposes a maximum price, not a minimum one. According to Ms Azevedo, the individual pricing feature mitigates the risk of having a uniform price across competitors.

In addition, the pricing system will be solely developed and implemented by Ipiranga, and there are no mechanisms to monitor or punish retailers who diverge from the suggested prices – two measures that also mitigate potential harms to competition in the sector.

Moreover, to ensure Ipiranga's compliance with its own proposal, the authority's Tribunal demanded the company satisfies these conditions: price suggestions should always be inferior to retailers' original resale price; suggestions should be individually made, based on a fuel station's unique features and location; and the algorithm and database should be for exclusive use of Ipiranga.

"With regard to the smart mechanisms and algorithms, the competitive risks involved in employing the IT pricing system are also low and, provided the safeguards described in this review are properly implemented, other competition concerns should not arise", explained Ms Azevedo.

However, as an innovative policy that applies a new technology in the sector, the Tribunal established its response remains legally binding for a period of two years.

Access Administrative Proceedings No. 08700.002055/2021-10.