1. ON THE EXTENT OF THE MARKET: WHOLESALE GASOLINE IN THE NORTHEASTERN UNITED STATES.
- Author
-
Spiller, Pablo T. and Huang, Cliff J.
- Subjects
GASOLINE ,TRANSACTION costs ,ARBITRAGE ,GAS prices ,PROBABILITY theory ,WHOLESALE trade ,DISTRIBUTORS (Commerce) - Abstract
We develop a methodology to estimate the transaction costs required to arbitrage among a set of products and the probability of observing binding arbitrage. The estimation is based on a switching regimes model, identified by a truncation in the error structure. We analyze its antitrust implications, and apply it to wholesale gasoline in the Northeastern United States. The main findings are: Transaction costs are below 5% of price, increasing with distance and depend on the direction of arbitrage; arbitrage probabilities fall with distance and with transaction costs. Finally, the model discriminates well between regimes, suggesting its usefulness for other applications. [ABSTRACT FROM AUTHOR]
- Published
- 1986
- Full Text
- View/download PDF