Assessing the Impact of Gasoline Sales-Below-Cost Laws on Retail Price and Market Structure: Implications for Consumer Welfare

The effectiveness of gasoline-specific sales-below-cost (SBC) laws designed to limit firms' predatory behavior is yet to be determined. To provide policy makers with conceptual and empirical insights into this issue, the authors propose and empirically test a simultaneous equations model grounded in the structure–conduct–performance framework that assesses the direct and indirect impacts that SBC laws have on market structure (number of sellers) and on the wholesale and retail prices of gasoline. Unlike other SBC studies, which are more cross-sectional in nature and focus on a limited number of areas, the authors use monthly gasoline wholesale and retail prices from 1983 to 2010 for all 50 states. This approach is advantageous because it includes the opportunity to assess the long-term impact of SBC laws and transitional effects as states enact or repeal SBC legislation. The results suggest that SBC laws reduce retail prices directly and indirectly by increasing the number of sellers, thus improving customer welfare.

[1]  David Godes,et al.  Sequential and Temporal Dynamics of Online Opinion , 2012, Mark. Sci..

[2]  Lakshman Krishnamurthi,et al.  Demand Dynamics in the Seasonal Goods Industry: An Empirical Analysis , 2012, Mark. Sci..

[3]  Paul R. Zimmerman.  The Competitive Impact of Hypermarket Retailers on Gasoline Prices , 2012, The Journal of Law and Economics.

[4]  Diana L. Moss,et al.  Systems Competition and Challenges to Antitrust Thinking: An Introduction , 2011 .

[5]  Dinesh K. Gauri,et al.  An Empirical Investigation of the Impact of Gasoline Prices on Grocery Shopping Behavior , 2011 .

[6]  Anindya Sen,et al.  Estimating the Impacts of Outlet Rationalization on Retail Prices, Industry Concentration, and Sales: Empirical Evidence from Canadian Gasoline Markets , 2010 .

[7]  Gregory T. Gundlach.  Overview of the Special Issues: Antitrust Analysis of Resale Price Maintenance after Leegin , 2010 .

[8]  Joseph P. Cannon,et al.  Free Riding and Resale Price Maintenance: Insights from Marketing Research and Practice , 2010 .

[9]  R. C. Campbell,et al.  Do Pharmaceutical Marketing Activities Raise Prices? Evidence from Five Major Therapeutic Classes , 2009 .

[10]  J. Jeffrey Inman,et al.  Daily, Week-Part, and Holiday Patterns in Consumers’ Caloric Intake , 2009 .

[11]  Dieter Pennerstorfer.  Spatial price competition in retail gasoline markets: evidence from Austria , 2009 .

[12]  Avi Goldfarb,et al.  Measuring Brand Value in an Equilibrium Framework , 2007, Mark. Sci..

[13]  Pravin K. Trivedi,et al.  Microeconometrics Using Stata , 2009 .

[14]  Ting Zhu,et al.  Pricing and Market Concentration in Oligopoly Markets , 2008, Mark. Sci..

[15]  J. K. Ashton,et al.  Regulatory Perceptions of Marketing: Interpreting U.K. Competition Authority Investigations from 1950 to 2005 , 2008 .

[16]  C. Moorman,et al.  Cross-Sectional versus Longitudinal Survey Research: Concepts, Findings, and Guidelines , 2008 .

[17]  Vineet Padmanabhan,et al.  An Econometric Model of Location and Pricing in the Gasoline Market , 2007 .

[18]  M. Noel,et al.  Edgeworth Price Cycles, Cost-Based Pricing, and Sticky Pricing in Retail Gasoline Markets , 2005, The Review of Economics and Statistics.

[19]  J. T. Jones,et al.  Asymmetric Competition on Commuter Routes: The Case of Gasoline Pricing , 2007 .

[20]  Gregory T. Gundlach,et al.  Aggressive and Predatory Pricing: Insights and Empirical Examination in the Airline Industry , 2006 .

[21]  G. Panagiotou,et al.  The impact of managerial cognitions on the structure‐conduct‐performance (SCP) paradigm: A strategic group perspective , 2006 .

[22]  K. Gugler,et al.  Conference Paper : Locational Choice and Price Competition : Some Empirical Results for the Austrian Retail Gasoline Market , 2004 .

[23]  Anindya Sen.  Does Increasing the Market Share of Smaller Firms Result in Lower Prices? Empirical Evidence from the Canadian Retail Gasoline Industry , 2005 .

[24]  Andrew Eckert,et al.  Price uniformity and competition in a retail gasoline market , 2005 .

[25]  M. Skidmore,et al.  Do state motor fuel sales-below-cost laws lower prices? , 2005 .

[26]  John M. Barron,et al.  Number of sellers, average prices, and price dispersion , 2004 .

[27]  Chris Manolis,et al.  The Moderating Effect of Solidarity as Conduct: A Theoretical and Empirical Perspective , 2004 .

[28]  Douglas S. West,et al.  A tale of two cities: Price uniformity and price volatility in gasoline retailing , 2004 .

[29]  Wim Van Meerbeeck.  COMPETITION AND LOCAL MARKET CONDITIONS ON THE BELGIAN RETAIL GASOLINE MARKET , 2003 .

[30]  R. Town,et al.  Are All the Good Men Married? Uncovering the Sources of the Marital Wage Premium , 2003 .

[31]  D. Friedman,et al.  Buyer search and price dispersion:a laboratory study , 2003 .

[32]  Anindya Sen.  Higher prices at Canadian gas pumps: international crude oil prices or local market concentration? An empirical investigation , 2003 .

[33]  J. Brannon.  The effects of resale price maintenance laws on petrol prices and station attrition: empirical evidence from Wisconsin , 2003 .

[34]  Andrew Eckert,et al.  Retail price cycles and the presence of small firms , 2003 .

[35]  Mary W. Sullivan.  The Role of Marketing in Antitrust , 2002 .

[36]  D. Scheffman.  Antitrust Economics and Marketing , 2002 .

[37]  Gregory T. Gundlach,et al.  Marketing in Antitrust: Contributions and Challenges , 2002 .

[38]  N. Hawker.  The Public Policy of Antitrust and Strategy: An Overview , 2002 .

[39]  Gregory T. Gundlach,et al.  Antitrust and Marketing: A Primer and Call to Research , 2002 .

[40]  Jeffrey M. Wooldridge,et al.  Solutions Manual and Supplementary Materials for Econometric Analysis of Cross Section and Panel Data , 2003 .

[41]  Edward J. López.  New Anti-Merger Theories: A Critique , 2001 .

[42]  A. Edlin.  Stopping Above-Cost Predatory Pricing , 2001 .

[43]  Justine S. Hastings.  Vertical Relationships and Competition in Retail Gasoline Markets: An Empirical Evidence from Contract Changes in Southern California , 2000 .

[44]  M. Vita.  Regulatory Restrictions on Vertical Integration and Control: The Competitive Impact of Gasoline Divorcement Policies , 2000 .

[45]  Ronald N. Johnson,et al.  Antitrust and Sales-Below-Cost Laws: The Case of Retail Gasoline , 1999 .

[46]  Dhruv Grewal,et al.  Pricing and Public Policy: A Research Agenda and an Overview of the Special Issue , 1999 .

[47]  Sheila E. Murray,et al.  Education-Finance Reform and the Distribution of Education Resources , 1998 .

[48]  Gregory T. Gundlach,et al.  Aggressive and Predatory Pricing: A Framework for Analysis , 1996 .

[49]  S. Borenstein,et al.  Sticky Prices, Inventories, and Market Power in Wholesale Gasoline Markets , 1996 .

[50]  Gregory T. Gundlach.  Price Predation: Legal Limits and Antitrust Considerations , 1995 .

[51]  S. Borenstein,et al.  Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes , 1997 .

[52]  Margaret E. Slade,et al.  Vancouver's Gasoline-Price Wars: An Empirical Exercise in Uncovering Supergame Strategies , 1992 .

[53]  L. Weiss.  Concentration and price , 1989 .

[54]  M. Slade.  Interfirm Rivalry in a Repeated Game: An Empirical Test of Tacit Collusion , 1987 .

[55]  C. Hsiao.  Analysis of Panel Data , 1989 .

[56]  Joe S. Bain,et al.  Relation of Profit Rate to Industry Concentration: American Manufacturing, 1936–1940 , 1951 .

[57]  Edward Sagendorph Mason,et al.  The Current Status of the Monopoly Problem in the United States , 1949 .