Saturday, December 15, 2007
Posted by D. Daniel Sokol
Retail gasoline is one of the most interesting sectors for the public. In an interesting working paper Christopher Taylor, Paul Zimmerman and Nicholas Kreisle of the FTC's Bureau of Economics discuss Vertical Relationships and Competition in Retail Gasoline Markets: Comment.
ABSTRACT: In a paper in the March 2004 AER, Justine Hastings concludes that the acquisition of an independent gasoline retailer, Thrifty, by a vertically integrated firm, ARCO, is associated with sizable price increases at competing stations. To better understand the novel mechanism to which she attributes this effect - which combines vertical integration and rebranding - we attempted but ultimately failed to reproduce the results using alternative data. In addition, we show that the welfare effects of the transaction are ambiguous in the theoretical model which she posits as underlying the empirical results.