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

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.