Vertical Relationships and Competition in Retail Gasoline Markets: An Empirical Evidence from Contract Changes in Southern California

UC Berkeley Competition Policy Center Working Paper No. CPC00-10 Revision

46 Pages Posted: 28 Feb 2004

See all articles by Justine S. Hastings

Justine S. Hastings

Brown University; National Bureau of Economic Research (NBER)

Date Written: November 2000

Abstract

This study examines how much, if any, of the differences in retail gasoline prices between markets is attributable to differences in the composition of vertical contract types at gasoline stations in each market. The purchase of the independent retail gasoline chain, Thrifty, by ARCO provides a unique opportunity to examine the effects of changes in different vertical contract types on local retail prices. This event caused sharp changes in the market share of i) fully vertically integrated stations, and ii) independent stations; differentially affecting local markets in the Los Angeles and San Diego Metropolitan areas. Using unique and detailed station-level data, this study examines how these sharp changes affected local retail prices. The detailed data and the research design based on the Thrifty station conversions allow for credible estimation of the effects of the market share of independent retailers and vertically integrated retailers on local market prices, controlling for any omitted factors at the station level, and the city level over time. Results for the Los Angeles and San Diego metropolitan areas indicate that a decrease in the market share of independent stations has a significant positive impact on local retail price. However, a change in the market share of refiner owned and operated branded stations does not have a significant impact on local market price. These results have important implications as policy makers consider the regulation of vertical contracts as a means to increase competition in gasoline markets. The research design and detailed data also allow for inference on the underlying nature of retail gasoline competition.

Keywords: gasoline prices, branded stations

JEL Classification: L2, D4

Suggested Citation

Hastings, Justine, Vertical Relationships and Competition in Retail Gasoline Markets: An Empirical Evidence from Contract Changes in Southern California (November 2000). UC Berkeley Competition Policy Center Working Paper No. CPC00-10 Revision, Available at SSRN: https://ssrn.com/abstract=507082 or http://dx.doi.org/10.2139/ssrn.507082

Justine Hastings (Contact Author)

Brown University ( email )

Box 1860
Providence, RI 02912
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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