Gasoline Price Changes - Federal Trade Commission

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5. Most empirical studies indicate that vertical integration between refining and marketing can save costs and lower gasoline prices ........................ 120 B. Potential Anticompetitive Effects of Vertical Integration .................................. 121 1. Raise rivals’ costs ................................................................................... 121 2. Evade price regulation ............................................................................ 122 3. Facilitate anticompetitive coordination................................................... 123 4. Make entry more difficult ....................................................................... 123 5. Two studies suggest that vertical integration between refining and marketing were associated with higher wholesale or retail gasoline prices ................................................................................................................. 123 C. Since 1990, the Degree of Vertical Integration Between Various Levels in the U.S. Gasoline Industry Has Decreased............................................................... 124 IV. MARKETING PRACTICES.................................................................................... 125 A. Zone Pricing........................................................................................................ 126 B. Territorial Restrictions........................................................................................ 127 APPENDIX A: GLOSSARY OF TERMS AND ACRONYMS......................................... A-1 TOC-8
CHAPTER 1. SUPPLY (INFLUENCED BY OPEC), 1 DEMAND, AND COMPETITION DETERMINE GASOLINE PRICES. Many factors can influence the prices that consumers pay for gasoline at the pump every day. We begin with a case example: a pipeline rupture that significantly reduced gasoline supplies in Phoenix, Arizona in August 2003. The subsequent gasoline shortage led to sharply increased gasoline prices, which then fell gradually over the next six weeks. This event illustrates several of the competitive dynamics at work in gasoline markets. I. PHOENIX: A STORY OF SUPPLY, DEMAND, AND COMPETITION. At the beginning of August 2003, the average price of regular gasoline in Phoenix was $1.52 per gallon. By the third week of August, however, it had risen to a peak of $2.11 per gallon. 2 Over the next few weeks, the price then dropped $0.31 per gallon, falling back to $1.80 by the end of September. 3 Through its Gasoline Price Monitoring project, the FTC staff observed this price increase and examined its causes. Los Angeles Price (Cents per Gallon) 220 200 180 160 140 120 100 0 7/1/2003 Figure 1-1: Phoenix Retail Gasoline Prices, Regular Unleaded (Daily OPIS; includes taxes) 7/8/2003 Source: OPIS A. Phoenix and Other Parts of Arizona Rely on Pipeline Deliveries for Gasoline. Figure 1-2: Arizona Pipeline Map Tucson Phoenix El Paso 7/15/2003 7/22/2003 7/29/2003 8/5/2003 Arizona has no refineries of its own; it obtains gasoline primarily through two pipelines. One pipeline starts in Los Angeles and supplies gasoline from West Coast refineries to the majority of Phoenix’s gasoline terminals. The other pipeline starts in El Paso and supplies gasoline from refineries in Texas and New Mexico. Upon entering Arizona, that pipeline travels first to terminals in Tucson, and then to terminals in Phoenix; it delivers the remainder of Phoenix’s gasoline. 4 On July 30, 2003, the Tucson-to-Phoenix section of the pipeline from El Paso ruptured. Temporary repairs initially failed, closing the Tucson-to-Phoenix section of the line from August 8 until August 23, when partial service resumed. The outage reduced the volume of gasoline delivered to Phoenix by 30 percent. 5 8/12/2003 8/19/2003 8/26/2003 9/2/2003 9/9/2003 9/16/2003 9/23/2003 9/30/2003
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Capacity (Million Barrels per Calen
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THE DYNAMIC OF SUPPLY, DEMAND, AND
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Endnotes THE DYNAMIC OF SUPPLY, DEM
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CHAPTER 4. SUPPLY, DEMAND, AND COMP
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Price Difference (Cents per Gallon)
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Millions of Barrels 1,500 1,250 1,0
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Millions of Barrels per Day 9 8 7 6
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CHAPTER 5. STATE AND LOCAL POLICIES
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Percentage of Customers Lost to 1%
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Retail Price (cents per gallon) 220
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Share (Percent) 80 70 60 50 40 30 2
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Price (Cents per Gallon) 200 190 18
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6. GAO, supra note 5, at 20. 7. Id.
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Herfindahl-Hirschman Index (HHI) Th
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