Even if it's right—which it probably isn't—a new report by the US General Accounting Office on oil-industry mergers amounts to whistling in a storm.
The report concludes that consolidation of the refining and marketing industry in the 1990s raised the price of gasoline in the latter part of the decade.
According to a summary statement, six of eight mergers studied led to wholesale-price increases in the mid-1990s through 2000 averaging 1-2¢/gal. Changes in conventional gasoline prices due to "increased market concentration" ranged from a decrease of 1¢/gal to an increase of 5¢/gal, GAO said.
"For boutique fuels sold in the East Coast and Gulf Coast regions, wholesale prices increased by about 1¢/gal, while prices for boutique fuels sold in California increased by over 7¢/gal."
GAO arrives at those numbers through correlation analysis. As the Federal Trade Commission notes in an uncomplimentary prepublication critique, correlation doesn't mean causation.
How does GAO distinguish the supposed price consequence of mergers from the welter of other changes the refining industry underwent in the 1990s?
Refiners were introducing reformulated and oxygenated gasolines and fighting—and usually losing—a series of regulatory battles on subjects ranging from how deeply to cut sulfur concentrations in diesel to bans on preferred oxygenates.
They were spending billions of dollars a year to meet environmental requirements and generally losing money. They somehow managed to raise refining capacity anyway—without, of course, building any new refineries.
Yes, a number of them merged. But mergers restrain prices by creating scale efficiencies.
GAO says its models took all that into account. Sure they did.
And it's just coincidence that this myopic report comes out in the middle of a presidential election campaign while gasoline prices are setting records.
The hazard is that policy-makers will fixate on industry consolidation as a prime cause of price elevation and target for governmental response.
Other price influences are, in fact, vastly more important. And many of them—such as restraints on oil supply and environmental standards stricter and more clumsily timed than they should be—involve improvements the government could make if it only would.
(Online May 28, 2004; author's e-mail: [email protected])
