Gasoline Price Changes - Federal Trade Commission

THE DYNAMIC OF SUPPLY, DEMAND, AND COMPETITION
Boutique fuels and differential access to gasoline supplies also can contribute to the
variability of gasoline prices — that is, the fluctuation of gasoline prices — in particular
circumstances.
To address concerns about the variability in gasoline prices, FTC staff analyzed the
impact of boutique fuel requirements, access to pipelines, substitutable gasoline supplies and
local refinery capacity on gasoline price variability. The FTC staff economic analysis reports the
following results:
$ Gulf Coast boutique fuel gasoline prices are not more variable than
conventional gasoline prices on the Gulf Coast. Thus, boutique fuel
requirements do not, in and of themselves, cause greater price variability.
$ CARB gasoline prices in California are significantly more variable than
conventional gasoline prices on the Gulf Coast. Boutique fuels may exacerbate
price variability in areas, such as California, that are not interconnected with large
refining centers in other areas. Among other things, California’s inability to
substitute gasoline from other refinery regions in the U.S. or to obtain gasoline
imports without significant delay makes it vulnerable to the types of unforeseen
circumstances, such as pipeline or refinery outages, that can cause price
variability.
$ Gasoline prices in the East Coast, the Midwest, and the Rocky Mountain
states are significantly more variable than Gulf Coast gasoline prices. The
importance of excess local refining capacity in reducing local gasoline price
variability appears in the significantly lower gasoline price variability in the Gulf
Coast. The Gulf Coast has a large refining base that produces much more
gasoline than is used locally, in contrast to the East Coast, the Midwest, and the
Rocky Mountain states.
$ Pipeline access to gasoline supplies can significantly reduce price variability,
particularly when adjacent areas along the pipeline are using the same type
of fuel. To have adjacent areas using the same type of fuel may reduce the time it
takes to reallocate supplies in case of a supply disruption.
V. STATE AND LOCAL FACTORS, AS WELL AS THE EXTENT OF VERTICAL
INTEGRATION AMONG FIRMS, CAN AFFECT RETAIL GASOLINE PRICES.
$ Other Things Being Equal, Retail Gasoline Prices Are Likely to Be Lower When
Consumers Can Choose, and Switch Purchases, among a Greater Number of Gas
Stations.
A small number of empirical studies have examined gasoline station density in relation to
prices. One study found that stations in southern California that imposed a 1 percent price
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