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The Costs of Regulation: Branded Open Supply and Uniform Pricing of Gasoline

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  • William Comanor
  • Jon Riddle

Abstract

This paper examines recent proposals to alter distribution arrangements for gasoline within California. Specifically, these proposals would permit a company's branded dealer to obtain supplies from any point in its affiliated refiner's distribution network. Furthermore, the prices charged by refiners at each distribution point would be the same for dealers and distributors alike. In this analysis, we consider how the major oil companies would likely react to such changes, and how their expected reactions would affect the prices that California drivers pay for gasoline. For this purpose, we construct an economic model of a hypothetical distribution system that might arise if these proposals were enacted. The primary finding of this study is that imposing uniform prices on the leading refiners in California would lead to higher delivered prices of gasoline, on average, than those found currently. This result follows from the presence of competitive markets in some local markets that would not otherwise exist. By eliminating geographic price discrimination, these proposals would suppress competitive pressures and promote higher prices.

Suggested Citation

  • William Comanor & Jon Riddle, 2003. "The Costs of Regulation: Branded Open Supply and Uniform Pricing of Gasoline," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 10(2), pages 135-155.
    • Handle: RePEc:taf:ijecbs:v:10:y:2003:i:2:p:135-155
    DOI: 10.1080/13571510305060
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    References listed on IDEAS

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    1. Blass, Asher A & Carlton, Dennis W, 2001. "The Choice of Organizational Form in Gasoline Retailing and the Cost of Laws That Limit That Choice," Journal of Law and Economics, University of Chicago Press, vol. 44(2), pages 511-524, October.
    2. Barron, John M & Umbeck, John R, 1984. "The Effects of Different Contractual Arrangements: The Case of Retail Gasoline Markets," Journal of Law and Economics, University of Chicago Press, vol. 27(2), pages 313-328, October.
    3. Vita, Michael G, 2000. "Regulatory Restrictions on Vertical Integration and Control: The Competitive Impact of Gasoline Divorcement Policies," Journal of Regulatory Economics, Springer, vol. 18(3), pages 217-233, November.
    4. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    5. Holmes, Thomas J, 1989. "The Effects of Third-Degree Price Discrimination in Oligopoly," American Economic Review, American Economic Association, vol. 79(1), pages 244-250, March.
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    Cited by:

    1. James Langenfeld & Wenqing Li & George Schink, 2003. "Economic Literature on Price Discrimination and its Application to the Uniform Pricing of Gasoline," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 10(2), pages 179-193.
    2. Amy Schultheis & Daniel N.K. Johnson & Kristina M. Lybecker & Devin Nadar, 2016. "Buy Here, or Keep Driving? The Effect of Geographic Market Density on Retail Gas Prices," Journal of Business, LAR Center Press, vol. 1(1), pages 12-20, March.
    3. Howard Marvel, 2003. "On the Economics of Branded Open Supply," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 10(2), pages 213-223.
    4. Michael Keeley & Kenneth Elzinga, 2003. "Uniform Gasoline Price Regulation: Consequences for Consumer Welfare," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 10(2), pages 157-168.
    5. Christopher Taylor & Jeffrey Fischer, 2003. "A Review of West Coast Gasoline Pricing and the Impact of Regulations," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 10(2), pages 225-243.
    6. Roger Blair & Laura Daugherty, 2003. "Florida's Motor Fuel Marketing Practices Act," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 10(2), pages 205-212.

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