Gasoline Price Changes - Federal Trade Commission

THE DYNAMIC OF SUPPLY, DEMAND, AND COMPETITION
3. Facilitate anticompetitive coordination.
Under some circumstances, vertical integration may facilitate anticompetitive
coordination. ng
ly
il
fy than
67 In this example, suppose again that wids are a required input for maki
widgets. Wids are homogeneous, and the number of manufacturers selling wids is relative
limited. However, because the prices of wids are generally not known, the wid manufacturers
are unable to coordinate their prices. A large number of companies sell widgets, and those reta
prices are easily available. Therefore, if the wid makers want to agree to coordinate prices, they
might integrate downstream into widgets, so they would have a greater ability to identify firms
that deviated from an agreed-upon supracompetitive price. This integration would make
monitoring an anticompetitive agreement easier, because widget prices are easier to identi
wid prices.
4. Make entry more difficult.
Finally, vertical integration may make entry by new competitors more costly and
difficult, if a would-be entrant has to enter both the upstream and downstream markets
simultaneously to be successful. get
e
.
ple,
68 For example, suppose a firm wished to enter the wid
market on a large scale, and wids are a required input. In this example, however, most of th
firms in the widget industry are vertically integrated between manufacturing and marketing –
that is, they make and sell both wids and widgets. Additionally, there is a limited independent
supply of wids, other than from the vertically integrated firms that make both wids and widgets
In this situation, a potential widget entrant might have to enter the wids industry to ensure that it
has all the wids it needs to make its widgets. If such “two-level” entry is more risky, more
difficult, or more time-consuming than entry into the entrant’s primary market – in this exam
widgets – a merger that would further increase vertical integration could create barriers to entry.
5. Two studies suggest that vertical integration between refining and
marketing were associated with higher wholesale or retail gasoline
prices.
69
The 2003 report also evaluated two case studies of vertical integration between refining
and marketing
on the West Coast. The first study asked whether refiner Tosco’s acquisition of
Unocal’s West Coast refining and marketing assets raised wholesale gasoline prices.
fining, it
e
rices
70
According to the authors’ theory, now that Tosco participated in marketing as well as re
would raise rivals’ input costs by increasing wholesale prices to its independent jobber
competitors. Due to a relatively high degree of integration between wholesale and retail on th
West Coast, jobbers or independent retailers may have fewer options to switch brands in
response to wholesale price increases. Indeed, the study showed that Tosco’s wholesale p
increased by $0.07 to $0.17 per gallon in certain areas. The study did not examine what
happened to other firms’ wholesale prices or to retail prices to consumers, however. 71
The second study examined ARCO’s long-term lease of 260 retail gas stations from
Thrifty, an unintegrated retailer in Southern California. ty
72 Prior to the lease agreement, Thrif
CHAPTER 5: STATE & LOCAL POLICIES, & VERTICAL INTEGRATION 123