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The Role of Content Regulation On Pricing and Market Power in Regional Retail and Wholesale Gasoline Markets

Erich Muehlegger

November 2002

Erich Muehlegger, November 2002

Since 1999, regional retail and wholesale gasoline markets in the United States have experienced significant price volatility, both intertemporally and across geographic markets. This paper focuses on one potential explanation for regional variations in price levels and volatility, gasoline content regulation. Implemented regionally to address local mobile-source emissions, gasoline content regulations increase cost to refiners, transporters and distributors of gasoline, in addition to reducing the fungibility of gasoline across different regions. This paper first provides a summary of the regional gasoline content regulations and a primer on the refining industry. In addition, this paper specifies the costs regional content regulation imposes on refiners, transporters and distributors of gasoline and the role increasing heterogeneity of gasoline may play in regional price volatility. Finally, this paper surveys the previous literature looking at the effect of gasoline content regulation on prices and price volatility and suggests directions for future research.

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