The Impact of Upstream Mergers on Retail Gasoline Markets,” mimeo

In recent years, a number of mergers have occurred in the petroleum in-dustry involving upstream firms that are imperfectly integrated into retail markets. In order to empirically evaluate the competitive effects of such mergers, this paper proposes a structural model of supply and demand that reflects divisions between upstream producers and downstream re-tailers. Neither downstream costs including wholesale prices nor upstream costs are observed. A standard differentiated products oligopoly model of retail competition provides an expression for downstream costs including wholesale prices as the difference between observed prices and downstream mark-ups. The downstream model is combined with a model of upstream competition that relates wholesale prices and upstream costs to upstream mark-ups. The supply model is estimated along with a demand model re-flecting downstream product differentiation using data from the Hawaiian islands in the early 1990s