Gasoline Price Changes - Federal Trade Commission

THE DYNAMIC OF SUPPLY, DEMAND, AND COMPETITION
operates, also known as “company-owned-and-operated stations;” (2) retail outlets that are
owned by the refiner but operated by independent lessee dealers; or (3) retail outlets that are
owned and operated by independent “open” dealers that sell company-branded product. An
integrated refiner’s wholesale price for company-owned-and-operated stations is a non-public,
internal transfer price. When an integrated refiner supplies retail outlets owned by the refiner but
operated by independent “lessee” dealers, or owned and operated by independent “open” dealers,
it charges the “dealer tank wagon” (DTW) price to the dealer.
Alternatively, an integrated or independent refiner may use a jobber distribution system.
A jobber, which may be brand-name, unbranded, or both, 46 buys gasoline at the terminal rack
and then delivers the gasoline to: (1) gas stations that it owns and operates; (2) stations that it
owns but leases to third parties; and (3) stations that are independently owned and operated. 47
Jobbers pay a “wholesale rack price” for their gasoline purchases, although other contractual
terms may also affect the net price.
Essentially, the gasoline distribution system past the terminal boils down to three basic
modes of wholesale distribution to retailers: (1) sales to company-owned-and-operated stations at
an internal transfer price; (2) sales to exclusively supplied retailers on a DTW basis; and (3) sales
at the terminal rack to jobbers at a wholesale rack price, with jobbers then transferring the
gasoline to its own stations or selling it to independent retail stations. In 2003, rack sales were
about 63 percent of distribution nationwide; DTW and company-owned distribution roughly split
the remainder, with 19 percent and 18 percent respectively. 48
The relative importance of each of these three distribution systems, however, differs from
region to region across the country. 49 Compared to the nation as a whole, the Midwest (PADD
II), the Gulf Coast (PADD III), and the Rocky Mountain states (PADD IV) distribute more
wholesale gasoline at the rack through jobbers than through DTW sales or internal transfers. The
East Coast (PADD I), like PADDs II through IV, distributes the majority of its wholesale
gasoline at the rack through jobbers. Within the East Coast itself, however, DTW sales have
greater importance in New England and the Mid-Atlantic states, whereas, rack sales are by far
the most important method of distribution in the Southeast states.
On the West Coast (PADD V), the percentage of DTW distribution is significantly higher
than rack sales. Between 1994 and 2003, DTW sales ranged from 47 percent to 54 percent,
while jobbers’ sales ranged from 26 percent to 30 percent. 50 The relatively high degree of
integration between wholesale and retail on the West Coast dates back to at least 1994, predating
the series of petroleum mergers affecting the West Coast that began in 1997. 51
CHAPTER 5: STATE & LOCAL POLICIES, & VERTICAL INTEGRATION 117