The Economic Effects of the Marathon - Ashland Joint Venture: The Importance of Industry Supply Shocks and Vertical Market Structure

FTC Bureau of Economics Working Paper No. 270

57 Pages Posted: 19 Apr 2004  

Christopher T. Taylor

U.S. Federal Trade Commission - Bureau of Economics

Daniel S. Hosken

Government of the United States of America - Federal Trade Commission

Multiple version iconThere are 2 versions of this paper

Date Written: March 17, 2004

Abstract

On January 1, 1998 Marathon and Ashland combined their refining and marketing assets in a joint venture which was unchallenged by U.S. antitrust authorities. Because there were no divestitures, the transaction led to a significant increase in concentration in the wholesale and retail sale of gasoline in some areas of the Midwest. This study focuses on the retail and wholesale pricing of gasoline in the region that was most likely to experience competitive harm as a result of the transaction: Louisville, Kentucky. The results show no increase in the retail price of gasoline in Louisville comparing a year before the transaction to one or two years after the transaction. These results are robust when comparing the price in Louisville to three control markets. When examining wholesale (rack) prices, there is a significant price increase in reformulated gasoline (RFG) in Louisville approximately 15 months after the transaction of 3-5 cents per gallon. This wholesale price (rack) effect, however, does not appear to be due to the transaction but to be the result of a supply shock caused by St. Louis's decision to switch to RFG. These results suggest in this case that a petroleum merger in a moderately concentrated market does not raise consumer prices.

Keywords: Merger retrospectives, Petroleum industry, Vertical

JEL Classification: L1, L41, L71

Suggested Citation

Taylor, Christopher T. and Hosken, Daniel S., The Economic Effects of the Marathon - Ashland Joint Venture: The Importance of Industry Supply Shocks and Vertical Market Structure (March 17, 2004). FTC Bureau of Economics Working Paper No. 270. Available at SSRN: https://ssrn.com/abstract=532427 or http://dx.doi.org/10.2139/ssrn.532427

Christopher T. Taylor (Contact Author)

U.S. Federal Trade Commission - Bureau of Economics ( email )

601 Pennsylvania Avenue, NW
Antitrust Division
Washington, DC 20580
United States

Daniel S. Hosken

Government of the United States of America - Federal Trade Commission ( email )

600 Pennsylvania Ave., NW
Washington, DC 20580
United States

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