Competition in U.S. Petroleum Refining and Marketing: Part I - Industry Trends

Abstract

Perceptions about high U.S. gasoline prices or inexplicable differentials in prices between geographic areas have prompted a range of disparate policy proposals. However, there is a distinct lack of consensus on the cause of undesirable price dynamics. These dynamics are likely to be the product of a complex set of factors. It is thus important that any intervention in domestic markets recognize both the unique characteristics of petroleum products, the more recent changes in the underlying structure of refining and marketing markets, and the behavioral incentives created by those changes. This paper analyzes the three major areas where the most significant changes in U.S. refining and marketing have occurred: (1) merger activity; (2) refining; and (3) gasoline marketing. The analysis indicates substantial consolidation (and concentration), largely involving integrated assets in the downstream refining and marketing segment. The profile of wholesale transactions has also changed in fairly complex ways as the integrated "majors" have restructuring and formerly unintegrated "independents" have expanded their market reach. These changes are important to consider in making intervention decisions and crafting policy approaches.

Keywords: competition, market power, market definition, merger, enforcement agencies, regulation, economic analysis, concentration