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On the Economics of Branded Open Supply

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  • Howard Marvel

Abstract

Branded open supply regulations permit gasoline dealers to incur transportation costs to arbitrage price differences among terminal locations. This arbitrage increases the overall cost of transporting gasoline from refinery to consumer by substituting high-cost truck transport for cheap bulk transportation. This paper provides a simple model of how arbitrage can lead either to a less dense terminal network or, in some instances, to a less dense network of dealers than refiners would prefer. Enforceable exclusive supply agreements can increase inventory holding, provide protection against excessive price volatility, and reduce transportation costs. An end to such agreements will likely impair the ability of branded dealers to differentiate themselves from unbranded rivals.

Suggested Citation

  • 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.
    • Handle: RePEc:taf:ijecbs:v:10:y:2003:i:2:p:213-223
    DOI: 10.1080/13571510305064
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    References listed on IDEAS

    as
    1. Marvel, Howard P, 1976. "The Economics of Information and Retail Gasoline Price Behavior: An Empirical Analysis," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 1033-1060, October.
    2. 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.
    3. Raymond Deneckere & Howard P. Marvel & James Peck, 1996. "Demand Uncertainty, Inventories, and Resale Price Maintenance," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(3), pages 885-913.
    4. Deneckere, Raymond & Marvel, Howard P & Peck, James, 1997. "Demand Uncertainty and Price Maintenance: Markdowns as Destructive Competition," American Economic Review, American Economic Association, vol. 87(4), pages 619-641, September.
    5. Marvel, Howard P, 1978. "Competition and Price Levels in the Retail Gasoline Market," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 252-258, May.
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