Testimony 

Before the Subcommittee on Energy 

Policy, Natural Resources and Regulatory 

Affairs, Committee on Government 

Reform, House of Representatives

United States General Accounting Office 

GAO

For Release on Delivery 

Expected at 9:30 a.m. EDT 

Wednesday, July 7, 2004 ENERGY MARKETS 

Mergers and Many Other 

Factors Affect U.S. Gasoline 

Markets 

Statement of Jim Wells, Director 

Natural Resources and Environment 

GAO-04-951T 
www.gao.gov/cgi-bin/getrpt?GAO-04-951T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Jim Wells at 

(202) 512-3841 or wellsj@gao.gov. 

Highlights of GAO-04-951T, a report to 

Subcommittee on Energy Policy, Natural 

Resources and Regulatory Affairs, 

Committee on Government Reform, 

House of Representatives 

July 7, 2004

ENERGY MARKETS

Mergers and Many Other Factors Affect 

U.S. Gasoline Markets 

One of the many factors that can impact gasoline prices is mergers within 

the U.S. petroleum industry. Over 2,600 such mergers have occurred since 

the 1990s. The majority occurred later in the period, most frequently among 

firms involved in exploration and production. Industry officials cited various 

reasons for the mergers, particularly the need for increased efficiency and 

cost savings. Economic literature also suggests that firms sometimes merge 

to enhance their ability to control prices. 

Partly because of the mergers, market concentration has increased in the 

industry, mostly in the downstream (refining and marketing) segment. For 

example, market concentration in refining increased from moderately to 

highly concentrated on the East Coast and from unconcentrated to 

moderately concentrated on the West Coast. Concentration in the wholesale 

gasoline market increased substantially from the mid-1990s so that by 2002, 

most states had either moderately or highly concentrated wholesale gasoline 

markets. On the other hand, market concentration in the upstream 

(exploration and production) segment remained unconcentrated by the end 

of the 1990s. Anecdotal evidence suggests that mergers also have changed 

other factors affecting competition, such as firms’ ability to enter the market.

Two major changes have occurred in U.S. gasoline marketing related to 

mergers, according to industry officials. First, the availability of generic 

gasoline, which is generally priced lower than branded gasoline, has 

decreased substantially. Second, refiners now prefer to deal with large 

distributors and retailers, which has motivated further consolidation in 

distributor and retail markets. 

Based on data from the mid-1990s through 2000, GAO’s econometric 

analyses indicate that mergers and increased market concentration generally 

led to higher wholesale gasoline prices in the United States. Six of the eight 

mergers GAO modeled led to price increases, averaging about 2 cents per 

gallon. Increased market concentration, which reflects the cumulative 

effects of mergers and other competitive factors, also led to increased prices 

in most cases. For conventional gasoline, the predominant type used in the 

country, the change in wholesale price due to increased market 

concentration ranged from a decrease of about 1 cent per gallon to an 

increase of about 5 cents per gallon. For boutique fuels sold in the East 

Coast and Gulf Coast regions, wholesale prices increased by about 1 cent per

gallon, while prices for boutique fuels sold in California increased by over 7 

cents per gallon. GAO also identified price increases of one-tenth of a cent to 

7 cents that were caused by other factors included in the models—

particularly low gasoline inventories relative to demand, high refinery 

capacity utilization rates, and supply disruptions in some regions. 

FTC disagreed with GAO’s methodology and findings. However, GAO 

believes its analyses are sound. 

Gasoline is subject to dramatic price 

swings. A multitude of factors cause 

volatility in U.S. gasoline markets, 

including world crude oil costs, 

limited refining capacity, and low 

inventories relative to demand. 

Since the 1990s, another factor 

affecting U.S. gasoline markets has 

been a wave of mergers in the 

petroleum industry, several of them 

between large oil companies that had 

previously competed with each other. 

For example, in 1999, Exxon, the 

largest U.S. oil company, merged with

Mobil, the second largest. 

This testimony is based primarily on 

Energy Markets: Effects of Mergers 

and Market Concentration in the 

U.S. Petroleum Industry (GAO-04-96, 

May 17, 2004). This report examined 

mergers in the U.S. petroleum 

industry from the 1990s through 2000, 

the changes in market concentration 

(the distribution of market shares 

among competing firms) and other 

factors affecting competition in the 

U.S. petroleum industry, how U.S. 

gasoline marketing has changed since 

the 1990s, and how mergers and 

market concentration in the U.S. 

petroleum industry have affected U.S. 

gasoline prices at the wholesale level. 

To address these issues, GAO 

purchased and analyzed a large body 

of data and developed state-of-the art 

econometric models for isolating the 

effects of eight specific mergers and 

increased market concentration on 

wholesale gasoline prices. Experts 

peer-reviewed GAO’s analysis. 
Page 1 GAO-04-951T Energy Markets 

Mr. Chairman and Members of the Subcommittee: 

We are pleased to be here today to participate in discussing issues related 

to the volatility of U.S. gasoline markets. According to data from the 

Energy Information Administration (EIA), the average nationwide price 

paid for regular gasoline (the type of gasoline used most in the United 

States) at the pump was as high as $2.06 cents/gallon by the end of May 

2004, an increase of about 58 cents/gallon or 39 percent over the same time 

last year. On the West Coast, gasoline prices reached an average of $2.34 

cents/gallon by the end of May 2004, an increase of about 65 cents/gallon 

or 38 percent over the same time last year. Although prices have recently 

begun to fall, elevated gasoline prices can be an economic burden to 

American consumers and the economy. 

A broad range of factors affects the volatility of gasoline prices. These 

factors typically include changes in crude oil costs, limited refinery 

capacity, inventory levels relative to demand, supply disruptions, and 

regulatory factors—such as the many different gasoline formulations that 

are required to meet varying federal and state environmental laws. Federal 

and state taxes are also a component of U.S. gasoline prices, but these do 

not fluctuate often. We have addressed many of these issues in several 

studies on energy markets. Among other things, our past studies showed 

that 

• the U.S. economy is vulnerable to oil supply disruptions that can impose 

significant economic costs, and in our report options were identified to 

mitigate their effects; 

• the Clean Air Act specifically requires refiners to produce reformulated 

gasoline, and the requirement to provide a specific blend for a specific 

area can present challenges to refiners and other suppliers if there are 

supply disruptions; 

• gasoline price spikes were generally higher in California from January 

1995 through December 1999 than in the rest of the nation, partly because 

of the difficulty in substituting for the loss of supply of CARB, the special 

reformulated gasoline used in California, when there were unplanned 

refinery outages; 

• retail gasoline prices in California rose faster than they fell in response to 

a delayed pass-through in changes in the wholesale price of gasoline; 
Page 2 GAO-04-951T Energy Markets 

• as we testified in 2001, each day vehicles in the United States consume 

about 10 million barrels of petroleum fuels, primarily gasoline and diesel, 

and according to projections, the figure will rise to about 15 million barrels 

per day by 2010, raising concerns about the nation’s ability to satisfy this 

growing demand; 

• the transportation sector is more than 90 percent dependent on petroleumbased fuels, such as gasoline, and this dependence contributes to our 

vulnerability to oil supply disruptions and related price shocks; and 

• existing federal programs to promote alternative fuel vehicles and 

alternative fuel use in the transportation sector have faced significant 

barriers. 

Market consolidation is another factor that can affect the price of gasoline. 

Our testimony today will focus on our recent study that examined the 

effects of market consolidation and other factors on the U. S. petroleum 

industry.1

Since the 1990s, the U.S. petroleum industry has experienced a wave of 

mergers, acquisitions, and joint ventures, several of them between large oil 

companies that had previously competed with each other for the sale of 

petroleum products.2

 A few examples include the merger between British 

Petroleum (BP) and Amoco in 1998 to form BPAmoco, which later merged 

with ARCO, and the merger in 1999 between Exxon, the largest U.S. oil 

company, and Mobil, the second largest. In general, mergers raise 

concerns about potential anticompetitive effects on the U.S. petroleum 

industry and ultimately on gasoline prices because mergers could result in 

greater market power for the merged companies, potentially allowing 

 1

See U.S. General Accounting Office, Energy Markets: Effects of Mergers and Market 

Concentration in the U.S. Petroleum Industry, GAO-04-96 (Washington, D.C., May 17, 

2004). Additional related GAO studies include U.S. Ethanol Market: MTBE Ban in 

California, GAO-02-440R (Washington, D.C., Feb. 27, 2002); Alternative Motor Fuels and 

Vehicles: Impact on the Transportation Sector, GAO-01-957T (Washington, D.C., July 10, 

2001); Motor Fuels: California Gasoline Price Behavior, GAO/RCED-96-121 (Washington, 

D.C., Apr. 28, 2000); International Energy Agency: How the Agency Prepares Its World 

Market Statistics, GAO/RCED-99-142 (Washington, D.C., May 7, 1999); and Energy 

Security: Evaluating U.S. Vulnerability to Oil Supply Disruptions and Options for 

Mitigating Their Effects, GAO/RCED-97-6 (Washington, D.C., Dec. 12, 1996). 

2

We refer to all of these transactions as mergers. 
Page 3 GAO-04-951T Energy Markets 

them to increase prices above competitive levels.3 On the other hand, 

mergers could also yield cost savings and efficiency gains, which may be 

passed on to consumers in lower prices. Ultimately, the impact depends 

on whether market power or efficiency dominates. 

Our report examined mergers in the U.S. petroleum industry from the 

1990s through 2000, the changes in market concentration (the distribution 

of market shares among competing firms) and other factors affecting 

competition in the U.S. petroleum industry, how U.S. gasoline marketing 

has changed since the 1990s, and how mergers and market concentration 

in the U.S. petroleum industry have affected U.S. gasoline prices at the 

wholesale level. 

To address these issues, we purchased and analyzed a large body of data 

on mergers and wholesale gasoline prices, as well as data on other 

relevant economic factors. We also developed econometric models for 

examining the effects of eight specific mergers and increased market 

concentration on U.S. wholesale gasoline prices nationwide. It is 

noteworthy that using econometric models allowed us to measure the 

effects of mergers and market concentration while isolating the effects of 

several other factors that could influence wholesale gasoline prices, such 

as world crude oil costs, limited refining capacity, or low inventories 

relative to demand. 

In the course of our work, we consulted with Dr. Severin Borenstein,4

 a 

recognized expert in the modeling of gasoline markets; interviewed 

officials across the industry spectrum; and reviewed relevant economic 

literature and numerous related studies. We also used an extensive peer 

review process to obtain comments from experts in academia and relevant 

government agencies. We conducted our work in accordance with 

generally accepted government auditing standards. 

In summary, we found the following: 

 3

The Federal Trade Commission and Department of Justice have defined market power for 

a seller as the ability to profitably maintain prices above competitive levels for a significant 

period of time. 

4

Dr. Borenstein is E.T. Grether Professor of Business Administration and Public Policy at 

the Haas School of Business, University of California, Berkeley. He is also the Director of 

the University of California Energy Institute. 
Page 4 GAO-04-951T Energy Markets 

• Over 2,600 mergers occurred in the petroleum industry from 1991 through 

2000. The majority of the mergers occurred during the second half of the 

decade, most frequently in the upstream (exploration and production) 

segment of the industry. Petroleum industry officials cited various reasons 

for this wave of mergers, particularly the need for increased efficiency and 

cost savings. Economic literature suggests that firms also sometimes use 

mergers to enhance their market power. Ultimately, the reasons cited by 

both sources generally relate to the merging companies’ desire to 

maximize profit or shareholder wealth. 

• Market concentration, which is commonly measured by the HerfindahlHirschman Index (HHI), has increased in the downstream (refining and 

marketing) segment of the U.S. petroleum industry since the 1990s, partly 

as a result of merger activities, while changing very little in the upstream 

(exploration and production) segment. In the downstream segment, 

market concentration in refining increased from moderately to highly 

concentrated on the East Coast and from unconcentrated to moderately 

concentrated on the West Coast; it increased but remained moderately 

concentrated in the Rocky Mountain region. Concentration in the 

wholesale gasoline market increased substantially from the mid-1990s so 

that by 2002, most states had either moderately or highly concentrated 

wholesale gasoline markets. On the other hand, market concentration 

decreased somewhat in the upstream segment and remained 

unconcentrated by the end of the 1990s. Anecdotal evidence suggests that 

mergers also have affected other factors that impact competition, such as 

the ability of new firms to enter the market. 

• According to industry officials, two major changes have occurred in U.S. 

gasoline marketing since the 1990s, partly related to mergers. First, the 

availability of unbranded (generic) gasoline has decreased substantially. 

Unbranded gasoline is generally priced lower than branded gasoline, 

which is marketed under the refiner’s trademark. Industry officials 

generally attributed the decreased availability of unbranded gasoline to, 

among other factors, a reduction in the number of independent refiners 

that typically supply unbranded gasoline. Second, industry officials said 

that refiners now prefer dealing with large distributors and retailers. This 

preference, according to the officials, has motivated further consolidation 

in both the distributor and retail markets, including the rise of 

hypermarkets—a relatively new breed of gasoline market participants that 

includes such large retail warehouses as Wal-Mart and Costco. 

• Our econometric analyses, using data from the mid-1990s through 2000, 

show that oil industry mergers generally led to higher wholesale gasoline 

prices (measured in our report as wholesale prices less crude oil prices), 
Page 5 GAO-04-951T Energy Markets 

although prices sometimes decreased. Six of the eight specific mergers we 

modeled—which mostly involved large, fully vertically integrated 

companies—generally resulted in increases in wholesale prices for 

branded and/or unbranded gasoline of about 2 cents per gallon, on 

average. Two of the mergers generally led to price decreases, of about 1 

cent per gallon, on average. For conventional gasoline—the predominant 

type used in the United States except in areas that require special gasoline 

formulations—the change in wholesale price ranged from a decrease of 

about 1 cent per gallon to an increase of about 5 cents per gallon. The 

preponderance of price increases over decreases indicates that the market 

power effects, which tend to increase prices, for the most part outweighed 

the efficiency effects, which tend to decrease prices. 

• Our econometric analyses also show that increased market concentration, 

which captures the cumulative effects of mergers as well as other market 

structure factors, also generally led to higher prices for conventional 

gasoline and for boutique fuels—gasoline that has been reformulated for 

certain areas in the East Coast and Gulf Coast regions and in California to 

lower pollution. The price increases were particularly large in California, 

where they averaged about 7 cents per gallon. Higher wholesale gasoline 

prices were also a result of other factors: low gasoline inventories, which 

typically occur in the summer driving months; high refinery capacity 

utilization rates; and supply disruptions, which occurred in the Midwest 

and on the West Coast. 

• We also identified price increases of one-tenth of 1 cent to 7 cents per 

gallon that were caused by other factors included in our models—

particularly low gasoline inventories relative to demand, high refinery 

capacity utilization rates, and supply disruptions that occurred in some 

regions. 

As I noted earlier, we used extensive peer review to obtain comments 

from outside experts, including the Federal Trade Commission (FTC) and 

EIA, and we incorporated those comments as appropriate. FTC disagreed 

with our methodology and findings and provided extensive comments, 

which we have addressed in our report. Our findings are generally 

consistent with previous studies of the effects of specific oil mergers and 

of market concentration on gasoline prices. We believe, however, that ours 

is the first comprehensive study to model the impact of the industry’s 

1990s wave of mergers on wholesale gasoline prices for the entire United 

States, an effort that required us to acquire large datasets and perform 

complex analyses. 
Page 6 GAO-04-951T Energy Markets 

Many firms of varying sizes make up the U.S. petroleum industry. While 

some firms engage in only limited activities within the industry, such as 

exploration for and production of crude oil and natural gas or refining 

crude oil and marketing petroleum products, fully vertically integrated oil 

companies participate in all aspects of the industry. Before the 1970s, 

major oil companies that were fully vertically integrated controlled the 

global network for supplying, pricing, and marketing crude oil. However, 

the structure of the world crude oil market has dramatically changed as a 

result of such factors as the nationalization of oil fields by oil-producing 

countries, the emergence of independent oil companies, and the evolution 

of futures and spot markets in the 1970s and 1980s. Since U.S. oil prices 

were deregulated in 1981, the price paid for crude oil in the United States 

has been largely determined in the world oil market, which is mostly 

influenced by global factors, especially supply decisions of the 

Organization of Petroleum Exporting Countries (OPEC) and world 

economic and political conditions. 

The United States currently imports over 60 percent of its crude oil supply. 

In contrast, the bulk of the gasoline used in the United States is produced 

domestically. In 2001, for example, gasoline refined in the United States 

accounted for over 90 percent of the total domestic gasoline consumption. 

Companies that supply gasoline to U.S. markets also post the domestic 

gasoline prices. Historically, the domestic petroleum market has been 

divided into five regions: the East Coast region, the Midwest region, the 

Gulf Coast region, the Rocky Mountain region, and the West Coast region.5

Proposed mergers in all industries, including the petroleum industry, are 

generally reviewed by federal antitrust authorities—including FTC and the 

Department of Justice (DOJ)—to assess the potential impact on market 

competition. According to FTC officials, FTC generally reviews proposed 

mergers involving the petroleum industry because of the agency’s 

expertise in that industry. FTC analyzes these mergers to determine if they 

would likely diminish competition in the relevant markets and result in 

harm, such as increased prices. To determine the potential effect of a 

merger on market competition, FTC evaluates how the merger would 

change the level of market concentration, among other things. 

Conceptually, the higher the concentration, the less competitive the 

market is and the more likely that firms can exert control over prices. The 

 5

These regions are known as Petroleum Administration for Defense Districts (PADDs). 

Background 
Page 7 GAO-04-951T Energy Markets 

ability to maintain prices above competitive levels for a significant period 

of time is known as market power. 

According to the merger guidelines jointly issued by DOJ and FTC, market 

concentration as measured by HHI is ranked into three separate 

categories: a market with an HHI under 1,000 is considered to be 

unconcentrated; if HHI is between 1,000 and 1,800 the market is 

considered moderately concentrated; and if HHI is above 1,800, the market 

is considered highly concentrated. 6

While concentration is an important aspect of market structure—the 

underlying economic and technical characteristics of an industry—other 

aspects of market structure that may be affected by mergers also play an 

important role in determining the level of competition in a market. These 

aspects include barriers to entry, which are market conditions that provide 

established sellers an advantage over potential new entrants in an 

industry, and vertical integration. 

Over 2,600 merger transactions occurred from 1991 through 2000 involving 

all three segments of the U.S. petroleum industry. Almost 85 percent of the 

mergers occurred in the upstream segment (exploration and production), 

while the downstream segment (refining and marketing of petroleum) 

accounted for about 13 percent, and the midstream segment 

(transportation) accounted for over 2 percent. The vast majority of the 

mergers—about 80 percent—involved one company’s purchase of a 

segment or asset of another company, while about 20 percent involved the 

acquisition of a company’s total assets by another so that the two became 

one company. Most of the mergers occurred in the second half of the 

decade, including those involving large partially or fully vertically 

integrated companies. 

Petroleum industry officials and experts we contacted cited several 

reasons for the industry’s wave of mergers in the 1990s, including 

achieving synergies, increasing growth and diversifying assets, and 

reducing costs. Economic literature indicates that enhancing market 

power is also sometimes a motive for mergers. Ultimately, these reasons 

mostly relate to companies’ desire to maximize profit or stock values. 

 6

HHI is calculated by summing the squares of the market shares of all the firms within a 

given market. 

Mergers Occurred in 

All Segments of the 

U.S. Petroleum 

Industry in the 1990s 

for Several Reasons 
Page 8 GAO-04-951T Energy Markets 

Mergers in the 1990s contributed to increases in market concentration in 

the downstream segment of the U.S. petroleum industry, while the 

upstream segment experienced little change overall. We found that market 

concentration, as measured by the HHI, decreased slightly in the upstream 

segment, based on crude oil production activities at the national level, 

from 290 in 1990 to 217 in 2000. Moreover, based on benchmarks 

established jointly by DOJ and FTC, the upstream segment of the U.S. 

petroleum industry remained unconcentrated at the end of the 1990s. 

The increases in market concentration in the downstream segment varied 

by activity and region. 

• For example, the HHI of the refining market in the East Coast region 

increased from a moderately concentrated level of 1136 in 1990 to a highly 

concentrated level of 1819 in 2000. In the Rocky Mountain and the West 

Coast regions, it increased from 1029 to 1124 and from 937 to 1267, 

respectively, in that same period. Thus, while each of these refining 

markets increased in concentration, the Rocky Mountain remained within 

the moderately concentrated range but the West Coast changed from 

unconcentrated in 1990 to moderately concentrated in 2000. The HHI of 

refining markets also increased from 699 to 980 in the Midwest and from 

534 to 704 in the Gulf Coast during the same period, although these 

markets remained unconcentrated. 

• In wholesale gasoline markets, market concentration increased broadly 

throughout the United States between 1994 and 2002. Specifically, we 

found that 46 states and the District of Columbia had moderately or highly 

concentrated markets by 2002, compared to 27 in 1994. 

In both the refining and wholesale markets of the downstream segment, 

merger activity and market concentration were highly correlated for most 

regions of the country. 

Evidence from various sources indicates that, in addition to increasing 

market concentration, mergers also contributed to changes in other 

aspects of market structure in the U.S. petroleum industry that affect 

competition—specifically, vertical integration and barriers to entry. 

However, we could not quantify the extent of these changes because of a 

lack of relevant data. 

Vertical integration can conceptually have both pro- and anticompetitive 

effects. Based on anecdotal evidence and economic analyses by some 

Mergers Contributed 

to Increases in Market 

Concentration and to 

Other Changes That 

Affect Competition 
Page 9 GAO-04-951T Energy Markets 

industry experts, we determined that a number of mergers that have 

occurred since the 1990s have led to greater vertical integration in the U.S. 

petroleum industry, especially in the refining and marketing segment. For 

example, we identified eight mergers that occurred between 1995 and 2001 

that might have enhanced the degree of vertical integration, particularly in 

the downstream segment. 

Concerning barriers to entry, our interviews with petroleum industry 

officials and experts provide evidence that mergers had some impact on 

the U.S. petroleum industry. Barriers to entry could have implications for 

market competition because companies that operate in concentrated 

industries with high barriers to entry are more likely to possess market 

power. Industry officials pointed out that large capital requirements and 

environmental regulations constitute barriers for potential new entrants 

into the U.S. refining business. For example, the officials indicated that a 

typical refinery could cost billions of dollars to build and that it may be 

difficult to obtain the necessary permits from the relevant state or local 

authorities. At the wholesale and retail marketing levels, industry officials 

pointed out that mergers might have exacerbated barriers to entry in some 

markets. For example, the officials noted that mergers have contributed to 

a situation where pipelines and terminals are owned by fewer, mostly 

integrated companies that sometimes deny access to third-party users, 

especially when supply is tight—which creates a disincentive for potential 

new entrants into such wholesale markets. 

According to some petroleum industry officials that we interviewed, 

gasoline marketing in the United States has changed in two major ways 

since the 1990s. First, the availability of unbranded gasoline has 

decreased, partly due to mergers. Officials noted that unbranded gasoline 

is generally priced lower than branded. They generally attributed the 

decreased availability of unbranded gasoline to one or more of the 

following factors: 

• There are now fewer independent refiners, who typically supply mostly 

unbranded gasoline. These refiners have been acquired by branded 

companies, have grown large enough to be considered a brand, or have 

simply closed down. 

• Partially or fully vertically integrated oil companies have sold or 

mothballed some refineries. As a result, some of these companies now 

have only enough refinery capacity to supply their own branded needs, 

with little or no excess to sell as unbranded. 

U.S. Gasoline 

Marketing Has 

Changed in Two 

Major Ways 
Page 10 GAO-04-951T Energy Markets 

• Major branded refiners are managing their inventory more efficiently, 

ensuring that they produce only enough gasoline to meet their current 

branded needs. 

We could not quantify the extent of the decrease in the unbranded 

gasoline supply because the data required for such analyses do not exist. 

The second change identified by these officials is that refiners now prefer 

dealing with large distributors and retailers because they present a lower 

credit risk and because it is more efficient to sell a larger volume through 

fewer entities. Refiners manifest this preference by setting minimum 

volume requirements for gasoline purchases. These requirements have 

motivated further consolidation in the distributor and retail sectors, 

including the rise of hypermarkets. 

Our econometric modeling shows that the mergers we examined mostly 

led to higher wholesale gasoline prices in the second half of the 1990s. The 

majority of the eight specific mergers we examined—Ultramar Diamond 

Shamrock (UDS)-Total, Tosco-Unocal, Marathon-Ashland, Shell-Texaco I 

(Equilon), Shell-Texaco II (Motiva), BP-Amoco, Exxon-Mobil, and 

Marathon Ashland Petroleum (MAP)-UDS—resulted in higher prices of 

wholesale gasoline in the cities where the merging companies supplied 

gasoline before they merged. The effects of some of the mergers were 

inconclusive, especially for boutique fuels sold in the East Coast and Gulf 

Coast regions and in California. 

• For the seven mergers that we modeled for conventional gasoline, five led 

to increased prices, especially the MAP-UDS and Exxon-Mobil mergers, 

where the increases generally exceeded 2 cents per gallon, on average. 

• For the four mergers that we modeled for reformulated gasoline, two—

Exxon-Mobil and Marathon-Ashland—led to increased prices of about 1 

cent per gallon, on average. In contrast, the Shell-Texaco II (Motiva) 

merger led to price decreases of less than one-half cent per gallon, on 

average, for branded gasoline only. 

• For the two mergers—Tosco-Unocal and Shell-Texaco I (Equilon)—that 

we modeled for gasoline used in California, known as California Air 

Resources Board (CARB) gasoline, only the Tosco-Unocal merger led to 

price increases. The increases were for branded gasoline only and 

exceeded 6 cents per gallon, on average. 

Mergers and 

Increased Market 

Concentration 

Generally Led to 

Higher U.S. Wholesale 

Gasoline Prices 
Page 11 GAO-04-951T Energy Markets 

For market concentration, which captures the cumulative effects of 

mergers as well as other competitive factors, our econometric analysis 

shows that increased market concentration resulted in higher wholesale 

gasoline prices. 

• Prices for conventional (non-boutique) gasoline, the dominant type of 

gasoline sold nationwide from 1994 through 2000, increased by less than 

one-half cent per gallon, on average, for branded and unbranded gasoline. 

The increases were larger in the West than in the East—the increases were 

between one-half cent and one cent per gallon in the West, and about onequarter cent in the East (for branded gasoline only), on average. 

• Price increases for boutique fuels sold in some parts of the East Coast and 

Gulf Coast regions and in California were larger compared to the increases 

for conventional gasoline. The wholesale prices increased by an average of 

about 1 cent per gallon for boutique fuel sold in the East Coast and Gulf 

Coast regions between 1995 and 2000, and by an average of over 7 cents 

per gallon in California between 1996 and 2000. 

Our analysis shows that wholesale gasoline prices were also affected by 

other factors included in the econometric models—particularly, gasoline 

inventories relative to demand, refinery capacity utilization rates, and the 

supply disruptions that occurred in some parts of the Midwest and the 

West Coast. In particular, wholesale gasoline prices were about 1 cent per 

gallon higher, on average, when gasoline inventories were low relative to 

demand, typically in the summer driving months. Also, prices were higher 

by about an average of one-tenth to two-tenths of 1 cent per gallon when 

refinery capacity utilization rates increased by 1 percent. The prices of 

conventional gasoline were about 4 to 5 cents per gallon higher, on 

average, during the Midwest and West Coast supply disruptions. The 

increase in prices for CARB gasoline was about 4 to 7 cents per gallon, on 

average, during the West Coast supply disruptions. 

Mr. Chairman, this concludes my prepared statement. I would be happy to 

respond to any questions that you or other Members of the Subcommittee 

may have. 
Page 12 GAO-04-951T Energy Markets 

For further information about this testimony, please contact me at (202) 

512-3841. Key contributors to this testimony included Godwin Agbara, 

Scott Farrow, John A. Karikari, and Cynthia Norris. 

GAO Contact and 

Staff 

Acknowledgments 

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To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061

To Report Fraud, 

Waste, and Abuse in 

Federal Programs

Contact:

Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470

Congressional 

Relations

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400

U.S. General Accounting Office, 441 G Street NW, Room 7125 

Washington, D.C. 20548

Public Affairs Jeff Nelligan, Managing Director, NelliganJ@gao.gov (202) 512-4800

U.S. General Accounting Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548