Vertical Integration in Gasoline Supply: An Empirical Test of Raising Rivals' Costs

UC Berkeley Competition Policy Center Working Paper No. CPC01-21

Stanford University Graduate School of Business Research Paper No. 507083

54 Pages Posted: 27 Feb 2004

See all articles by Richard Gilbert

Richard Gilbert

University of California, Berkeley - Department of Economics

Justine S. Hastings

Brown University; National Bureau of Economic Research (NBER)

Date Written: June 2001

Abstract

This paper explores the relationship between the structure of the market for the refining and distribution of gasoline and the wholesale price of unbranded gasoline sold to independent gasoline retailers. Theoretically, the effect of an increase in vertical integration is ambiguous because opposing forces act to increase and decrease wholesale prices. We empirically examine the effects of vertical and horizontal market structures on wholesale prices using both a broad panel and an event analysis. The panel covers twenty-six metropolitan areas from January 1993 through June 1997. The event is a merger of Tosco and Unocal in 1997 that changed the vertical and horizontal structure of thirteen West Coast metropolitan areas. Both data sets show that an increase in the degree of vertical integration is associated with higher wholesale prices.

Keywords: vertical integration, oligopoly, market power, gasoline

JEL Classification: L13, L72, L22

Suggested Citation

Gilbert, Richard J. and Hastings, Justine, Vertical Integration in Gasoline Supply: An Empirical Test of Raising Rivals' Costs (June 2001). UC Berkeley Competition Policy Center Working Paper No. CPC01-21, Stanford University Graduate School of Business Research Paper No. 507083, Available at SSRN: https://ssrn.com/abstract=507083 or http://dx.doi.org/10.2139/ssrn.507083

Richard J. Gilbert (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

Justine Hastings

Brown University ( email )

Box 1860
Providence, RI 02912
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States