Regulatory Restrictions on Vertical Integration and Control: The Competitive Impact of Gasoline Divorcement Policies

Authors:
Michael G. Vita
Working Paper:
227

Gasoline "divorcement" regulations restrict the integration of gasoline refiners and retailers. Theoretically, vertical integration can harm competition, making it possible that divorcement policies could increase welfare; alternatively, these policies may reduce welfare by sacrificing efficiencies. This paper attempts to differentiate between these possibilities by estimating a reduced form equation for the real retail price of unleaded regular gasoline. I find that divorcement regulations raise the price of gasoline by about 2.7¢ per gallon, reducing consumers' surplus by over $100 million annually. This finding suggests that current proposals to further separate gasoline retailing from refining will be harmful to gasoline consumers.