Quantity and Price Adjustment in Long-Term Contracts: A Case Study of Petroleum Coke

In 1964, the Federal Trade Commission (FTC) launched an investigation into the possible anticompetitive effect of the long-term contracts under which 8 oil refineries sold petroleum coke to the Great Lakes Carbon Corp. (GLC). This investigation culminated in a decision in 1973 that these contracts violated the antitrust statutes. Here, quantity and price adjustment in long-term contracts are studied using data collected by the FTC in its investigation. One of the most surprising findings is the frequent use of multipart, or nonlinear prices to protect the seller's reliance. Virtually all the GLC contracts that indexed to crude oil prices imposed maximum-minimum limits; however, while the maximum (minimum) was about 40%-50% above (below) the base price in the low-inflation 1960s, it was only about 15% above (below) the base in the high-inflation 1970s. Increased price volatility resulted in contracts that were of shorter duration and were easier to terminate.