Estimating Vertical Foreclosure in U.S. Gasoline Supply

University of Zurich, Socieconomic Institute Working Paper No. 0212

38 Pages Posted: 20 Dec 2002

See all articles by Stefan Buehler

Stefan Buehler

University of St. Gallen - SEPS: Economics and Political Sciences

Zava Aydemir

University of Zurich - Socioeconomic Institute - Department of Economics

Date Written: November 2002

Abstract

We examine the competitive effects of the vertical integration of gasoline refineries and retailers in the U.S. Adapting the first-order condition approach of static oligopoly games to the analysis of vertically related oligopolies, we develop a novel framework for directly evaluating the strategic foreclosure effect and the efficiency benefits associated with vertical integration. Applying this framework, we find significant evidence for both vertical foreclosure and efficiency benefits. The foreclosure effect dominates the efficiency benefits for more than half of the refining firms in the sample. Vertical foreclosure is found to increase the wholesale price of refined gasoline by 0.2 to 0.6 cents per gallon.

Keywords: vertical integration, separation, foreclosure, market conduct, petroleum industry

JEL Classification: L13, L22, L49, L71

Suggested Citation

Buehler, Stefan and Aydemir, Zava, Estimating Vertical Foreclosure in U.S. Gasoline Supply (November 2002). University of Zurich, Socieconomic Institute Working Paper No. 0212, Available at SSRN: https://ssrn.com/abstract=350480 or http://dx.doi.org/10.2139/ssrn.350480

Stefan Buehler (Contact Author)

University of St. Gallen - SEPS: Economics and Political Sciences ( email )

FGN-HSG
Varnbuelstr. 19
CH-9000 St. Gallen
Switzerland
+41-71-224-2303 (Phone)

Zava Aydemir

University of Zurich - Socioeconomic Institute - Department of Economics ( email )

Zuerich
Switzerland
+41 1 634 39 96 (Phone)
+41 1 634 49 87 (Fax)

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