Gasoline Price Changes - Federal Trade Commission

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GASOLINE PRICE CHANGES: high-volume gasoline sellers in San Francisco. The study also noted that “zoning and other regulations make it harder for station owners in San Francisco to operate convenience stores on the same property as gasoline stations and therefore [these regulations] eliminate profitable secondary sales.” 7 In regions such as San Francisco, with high land prices and strict zoning regulations, entry by new competitors tends to be more difficult than in areas that lack those factors. B. The Growing Role of Convenience Stores and Hypermarkets in Gasoline Sales May Lower Prices. Differences in local retail prices may occur not only because of different numbers and density of gas stations within a vicinity, but also because of differences in the types of retailers selling gasoline in particular areas. Gasoline retailing in Northern California offers an illustration of how retail prices diverged between neighboring regions when one area evolved toward a high-volume, low-cost retail format, while the other maintained a more traditional format. The entry of high-volume discount stations and hypermarkets in one California county appears to have lowered retail gasoline prices there. Hypermarkets are large retailers of general merchandise and grocery items, such as Wal-Mart and Safeway, that have begun to sell gasoline. 8 1. Examples suggest that hypermarket competition tends to lower local retail gasoline prices. During late 2002 and early 2003, a number of local news articles drew attention to increasing gasoline price differences between Siskiyou County, California, and its neighboring counties of Shasta and Butte. 9 Figure 5-3 compares annual average retail prices for regular grade gasoline in Siskiyou County with prices in the city of Redding in Shasta County from 1998 to 2003. 106 FEDERAL TRADE COMMISSION, JUNE 2005
Retail Price (cents per gallon) 220 200 180 160 140 120 1000 Source: OPIS THE DYNAMIC OF SUPPLY, DEMAND, AND COMPETITION Figure 5-3: Average Retail Gasoline Prices, with Taxes, for Siskiyou County, Redding, and San Francisco (1998-2003) Siskiyou County Redding San Francisco 1998 1999 2000 2001 2002 2003 During the late 1990s, the average gap between Siskiyou and Redding was approximately $0.03 per gallon – a difference that apparently arose in large part from the additional cost of transporting petroleum products to Siskiyou from the local terminal rack in Chico, Butte County. 10 Retail markets in Redding are approximately 75 miles from the rack in Chico, whereas retail markets in Siskiyou County are approximately 150 miles from that rack. During 2001, the price gap between Siskiyou and Redding began to widen and ultimately grew to an annual average of more than $0.15 per gallon. Understandably, consumers in Northern California asked what might have caused these changes. Two possible answers were (1) competitive conditions changed in Siskiyou, leading to higher relative prices, or (2) competitive conditions changed in Redding, leading to lower relative prices. Figure 5-3 helps demonstrate which answer is correct. It shows that prices in Redding became lower relative to San Francisco, while Siskiyou prices remained stable relative to San Francisco. 11 Thus, it appears that the widened gap in prices between Siskiyou and Redding stemmed from an increase in the efficiency of gasoline retailing in Redding and not from decreased competitiveness in Siskiyou. This increased efficiency was associated with the entry of new retail formats in Redding. Starting some time in 2000 and continuing into 2001, retail gasoline competition in Redding began to change relative to competition in Siskiyou. The Redding area had experienced CHAPTER 5: STATE & LOCAL POLICIES, & VERTICAL INTEGRATION 107
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Federal Trade Commission DEBORAH PL
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GASOLINE PRICE CHANGES: The vast ma
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GASOLINE PRICE CHANGES: $ The World
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GASOLINE PRICE CHANGES: expect incr
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GASOLINE PRICE CHANGES: Figure 3-6:
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GASOLINE PRICE CHANGES: $ Increased
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GASOLINE PRICE CHANGES: $ Since 199
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GASOLINE PRICE CHANGES: increase lo
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GASOLINE PRICE CHANGES: England and
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Table of Contents EXECUTIVE SUMMARY
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C. In 2004, the Geopolitical Outloo
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CHAPTER 4: SUPPLY, DEMAND, AND COMP
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3. Gasoline prices in the East Coas
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CHAPTER 1. SUPPLY (INFLUENCED BY OP
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To obtain the additional supply the
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THE DYNAMIC OF SUPPLY, DEMAND, AND
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Price (Cents per Gallon) 220 200 18
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words, short-run demand for gasolin
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Endnotes THE DYNAMIC OF SUPPLY, DEM
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CHAPTER 2. WORLDWIDE SUPPLY, DEMAND
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Thousand Barrels per Day 18,000 16,
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Million Barrels per Day 0.9 0.8 0.7
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such as ethane, ethylene, and propa
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CHAPTER 3. SUPPLY, DEMAND, AND COMP
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Year-over-year Percentage Change in
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Capacity (Million Barrels per Calen
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Page 99 and 100: Price Difference (Cents per Gallon)
Page 107 and 108: Millions of Barrels 1,500 1,250 1,0
Page 111 and 112: Millions of Barrels per Day 9 8 7 6
Page 131 and 132: CHAPTER 5. STATE AND LOCAL POLICIES
Page 133: Percentage of Customers Lost to 1%
Page 137 and 138: Share (Percent) 80 70 60 50 40 30 2
Page 141 and 142: Price (Cents per Gallon) 200 190 18
Page 157 and 158: 6. GAO, supra note 5, at 20. 7. Id.
Page 165: Herfindahl-Hirschman Index (HHI) Th
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Gasoline Price Changes - Federal Trade Commission

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