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Estimating Vertical Foreclosure in U.S. Gasoline Supply

  • Zava Aydemir
  • Stefan Buehler

    ()

    (Socioeconomic Institute, University of Zurich)

We examine the competitive effects of the vertical integration of gasoline refineries and retailers in the U.S. Adapting the first-order condition approach of static oligopoly games to the analysis of vertically related oligopolies, we develop a novel framework for directly evaluating the strategic foreclosure effect and the effciency benefits associated with vertical integration. Applying this framework, we find significant evidence for both vertical foreclosure and effciency benefits. The foreclosure effect dominates the effciency benefits for more than half of the refining firms in the sample. Vertical foreclosure is found to increase the wholesale price of refined gasoline by 0.2 to 0.6 cents per gallon.

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File URL: http://www.soi.uzh.ch/research/wp/2002/wp0212.pdf
File Function: First version, 2002
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Paper provided by Socioeconomic Institute - University of Zurich in its series SOI - Working Papers with number 0212.

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Length: 38 pages
Date of creation: Nov 2002
Date of revision:
Handle: RePEc:soz:wpaper:0212
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  18. McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-30, March.
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  25. Slade, Margaret E, 1998. "Strategic Motives for Vertical Separation: Evidence from Retail Gasoline Markets," Journal of Law, Economics and Organization, Oxford University Press, vol. 14(1), pages 84-113, April.
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