Essays on vertical relationships, competition and regulation in the gasoline industry

This dissertation examines vertical relationships between retail gasoline stations and upstream petroleum refiners, and their influence on retail and wholesale gasoline prices. The first chapter focuses on vertical contracts, their regulation, and their impact on retail gasoline prices. The second chapter examines the strategic relationship between vertical integration and wholesale gasoline prices. In both chapters, the empirical framework emphasizes research design as the key mechanism to credibly identifying the impacts of vertical contracts on retail and wholesale prices.; The first chapter examines how much, if any, of the differences in retail gasoline prices between markets is attributable to differences in the composition of vertical contract types at gasoline stations in each market. The purchase of the independent retail gasoline chain, Thrifty, by ARCO provides a unique opportunity to examine the effects of changes in different vertical contract types on local retail prices. This event caused sharp changes in the market share of (i) fully vertically integrated stations, and (ii) independent stations; differentially affecting local markets in the Los Angeles and San Diego Metropolitan areas. Using unique and detailed station-level data, this study examines how these sharp changes affected local retail prices. The detailed data and the research design based on the Thrifty station conversions allow for credible estimation of the effects of the market share of independent retailers and vertically integrated retailers on local market prices, controlling for any omitted factors at the station level, and the city level over time.; The second chapter empirically tests if the degree of vertical integration is a significant determinant of wholesale gasoline prices. Integrated wholesale refiners can increase retail profits by raising wholesale prices to rival, unintegrated retailers, thereby forcing them to raise their retail prices. This strategic incentive to increase rival's costs implies that wholesale prices will be positively related to integrated firm's retail market share, and the intensity of competition between the integrated firm's retail component and rival unintegrated retailers. In order to empirically identify the impact of the degree of vertical integration on wholesale prices, this section focuses on the acquisition of Unocal's West Coast refining and marketing assets by Tosco Corporation. This event generated discrete and differential changes in Tosco's integration into thirteen West Coast metropolitan areas. (Abstract shortened by UMI.)...