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Market Fragmenting Regulation - Why Gasoline Costs So Much (And Why It's Going to Cost More)
Andrew P. Morriss, Nathaniel Stewart
May 24, 2007
Brooklyn Law Review
Highlights
The Issue
- Recent gasoline price spikes have once again put gasoline markets on the regulatory agenda. EPA, the FTC, Congress, and state legislatures have all investigated gasoline pricing in the recent past.
Our Findings
- Gasoline markets in the United States are fragile, subject to regional price disparities, due to a combination of incomplete pipeline networks, restrictions on refinery expansion, operation, and construction, and gasoline formulation requirements. These regulatory burdens are imposed by multiple layers of government.
- The long history of federal and state regulation of energy markets contributes to this fragility, as market distortions caused by earlier regulatory schemes persist.
- The lack of a true national market for gasoline threatens to raise costs for consumers and undermine productivity gains built on a cheap, reliable transportation network.
- Regulators' failure to recognize this vulnerability means that future regulatory efforts are likely to cause additional problems.
Recommendations
- Regulators must address the cumulative impact of regulatory burdens.
- Regulators need to consider the impact of rules on market structure, refraining from taking measures that limit the scope of markets.
- Regulations restricting market growth need to be streamlined and reassessed.
