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Estimating Vertical Foreclosure in U.S. Gasoline Supply


Aydemir, Zava; Buehler, Stefan (2002). Estimating Vertical Foreclosure in U.S. Gasoline Supply. Working paper series / Socioeconomic Institute No. 212, University of Zurich.

Abstract

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.

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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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Socioeconomic Institute (former)
Dewey Decimal Classification:330 Economics
JEL Classification:L13, L22, L49, L71
Language:English
Date:November 2002
Deposited On:29 Nov 2011 22:32
Last Modified:05 Apr 2016 15:11
Series Name:Working paper series / Socioeconomic Institute
Official URL:http://www.econ.uzh.ch/wp.html
Permanent URL: http://doi.org/10.5167/uzh-52170

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