Analysis of Ownership Models and Price Fluctuations in Retail Gasoline Industry

Charles A. Izuakor, Mohamad A. Saouli, Bhaskar Raj Sinha

Abstract


There are two broad categories of ownership models in retail gasoline industry: the branded and the unbranded models. In the branded model an employee of the refinery operates the station and receives wages while the refiner such as Exxon, Mobile, or Shell is the proprietor of the station. Another is the leased lease option. In both cases, the station is bound in contract with the refiner for the supply of gasoline. In the unbranded model, the dealers, also referred to as independent dealers or simply independent retailers, are independent stations and are not tied into a contract with any refiner. Such independent gasoline stations as Gas City, USA Gas, Conoco, and even Costco may purchase gasoline anywhere and resell. With different models and ownership arrangements in retail gasoline industry, the big question is what factors prospective gas station investors and proprietors consider when deciding on an ownership model. Gasoline prices at the pump fluctuates seasonally, daily, and often by the hour. Many empirical studies show that such price fluctuations may inversely impact family budgets, gasoline station owners’ bottom line, and high gasoline-dependent companies’ operating margins. Studies have examined the effects of some factors such as crude oil prices and sudden disruptions at refineries and delivery channels. This study adopts an analysis of time series to evaluate the dealer cost factors for branded and unbranded gasoline stations and their impact, if any, on price fluctuations and the choice of ownership models. An analysis of results from the study shows there is no significant difference between the branded and unbranded 5-year average dealer cost of gasoline in Southern California given all the cost factors.  This study found that dealer and consumer cost changes (fluctuations) vary according to gasoline station’s ownership models in branded or unbranded dealerships. Overall, branded gasoline stations were found to be more cost effective operating models in Southern California retail gasoline market.

Keywords


ANOVA, company operated station, dealer operated station, dealer tank wagon, gasoline island, jobber, lessee dealer, oil price information services, rack price, reformulated gasoline, secondary data, vertical integration

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References


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