Reformulating Competition?: Gasoline Content Regulation and Wholesale Gasoline Prices

University of California CUDARE Working Paper No. 1010

37 Pages Posted: 2 Mar 2006  

Jennifer L. Brown

Arizona State University (ASU) - W.P. Carey School of Business

Justine S. Hastings

Brown University; National Bureau of Economic Research (NBER)

Erin T. Mansur

Tuck School of Business at Dartmouth; National Bureau of Economic Research (NBER)

Sofia Berto Villas-Boas

University of California, Berkeley - Agricultural & Resource Economics

Date Written: January 2006

Abstract

The 1990 Clean Air Act Amendments stipulated gasoline content requirements for metropolitan areas with air pollution levels above predetermined federal thresholds. The legislation led to exogenous changes in the type of gasoline required for sale across U.S. metropolitan areas. This paper uses a panel of detailed wholesale gasoline price data to estimate the effect of gasoline content regulation on wholesale prices and price volatility. In addition, we investigate the extent to which the estimated price effects are driven by changes in the number of suppliers versus geographic segmentation resulting from regulation. We find that prices in regulated metropolitan areas increase significantly, relative to a control group, by an average of 3.6 cents per gallon. The price effect, however, varies by ten cents per gallon across regulated markets and the heterogeneity across markets is correlated with the degree of geographic isolation generated by the discontinuous regulatory requirements.

Keywords: environmental content regulation, wholesale gasoline markets

JEL Classification: L13, L51, Q50

Suggested Citation

Brown, Jennifer L. and Hastings, Justine S. and Mansur, Erin T. and Villas-Boas, Sofia Berto, Reformulating Competition?: Gasoline Content Regulation and Wholesale Gasoline Prices (January 2006). University of California CUDARE Working Paper No. 1010. Available at SSRN: https://ssrn.com/abstract=886417 or http://dx.doi.org/10.2139/ssrn.886417

Jennifer L. Brown

Arizona State University (ASU) - W.P. Carey School of Business ( email )

Tempe, AZ 85287-3706
United States
(480)965-6618 (Phone)
(480) 965-8392 (Fax)

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

Erin T. Mansur

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States
603 646 2398 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Sofia Villas-Boas (Contact Author)

University of California, Berkeley - Agricultural & Resource Economics ( email )

310 Giannini Hall # 3310
Berkeley, CA 94720
United States
510-643-6359 (Phone)
510-643-8911 (Fax)

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