24 Pages Posted: 6 Dec 2016
Date Written: December 4, 2016
The aim of this paper is to quantify the impact on retail prices of the Shell-Terpel merger in the Chilean gasoline market, and to evaluate the effectiveness of gas stations’ divestitures in highly concentrated locations as a tool to mitigate an eventual raise in prices. The identification strategy relies on the fact that a merger between two national retail networks should be independent of previous characteristics of different local markets. Results show a modest but significant increase in margins of gas stations geographically impacted by the merger. The divestitures were effective in mitigating this anticompetitive effect, but only for retail outlets closely located to divested stations, i.e., within a 2 Km. radius. Notably, these effects are symmetric for both merging and non-merging parties. Moreover, the evidence suggests that divested gas stations that use an alternative brand (different from Terpel) set significantly lower prices on average. Finally, the presence of unbranded gas stations and/or small alternative brands within a 1 Km. radius seems to be enough in order to offset the price increase generated by the merger in these specific locations.
Keywords: Divestitures, Gasoline Retail Markets, Merger Evaluation, Merger Remedies
JEL Classification: K21, L13, L41, L81
Suggested Citation: Suggested Citation
Lagos, Vicente, Effectiveness of Merger Remedies: The Case of Chilean Gasoline Retail Markets (December 4, 2016). Available at SSRN: https://ssrn.com/abstract=2880135 or http://dx.doi.org/10.2139/ssrn.2880135