The metropolitan area has seen more changes in gasoline marketing in the last decade than it probably has in the entire history of service stations prior to the 1970s. These changes have led to allegations of conspiracy by refiners to reduce competition and proposals for remedial government action. In fact, the retail gasoline market of 1982 reflects normal economic responses to current supply and to a business environment that, up until Jan. 28, 1981, was grossly distorted by government regulations.
Certainly the most visible change has been the reduction in the number of traditional service stations. There are many reasons, but perhaps the greatest factor has been inflation, which has forced retailers to be more efficient and consumers to be more price-conscious. Whereas in the early 1970s only about 15 percent of all customers nationwide patronized self-service outlets, today more than 55 percent use them. Marketers who operate the self-service stations tend to emphasize lower prices and higher volumes. The high volume of self- service sales clearly indicates that consumers like this system.
Other factors include: 1) the growth in the number of convenience stores with self-service gasoline pumps; 2) the growth in auto products and services stores that, by specializing, can often underprice service stations; and 3) the nature of automobiles and their service requirements. For example, oil change intervals have grown longer and maintenance-free batteries have been introduced.
In 1973, Congress enacted legislation that resulted in complicated and often unworkable regulations on the price and allocation of motor fuel. Even though one of the stated purposes was to preserve the competitive viability of independent marketers, studies by several government agencies have shown that they had a harmful effect on the traditional branded service stations. Also, environmental regulations requiring the installation of expensive equipment have contributed to the demise of marginally profitable stations. Much of this regulatory burden was lifted when President Reagan ended price and allocation controls.
But while there have been many changes in the national retail gasoline market since 1972, one element has remained fairly constant. In 1972, the year before the oil embargo, refiners sold 82.3 percent of the gasoline they manufactured to independently owned companies. These companies include both branded and unbranded retail dealers and branded and unbranded jobbers. In 1980, 82.8 percent was sold to independent marketers. Thus the hundreds of thousands of independent companies that sell products were, and continue to be, the major force in the retail gasoline market. Although the number of these companies has declined, the proportion of products they sell has increased.
The local retail gasoline market mirrors the market in the rest of the nation. In one significant respect, however, it is different, which appears to make local consumers pay more. The District, Maryland and Virginia all have laws (though Virginia's is less stringent) preventing companies that refine gasoline from operating stations. This is called divorcement. The effect is not to protect consumers, but to protect a selected class of businesses from competition.
During hearings on retail marketing divorcement legislation now pending in Congress, a study of the retail gasoline market in Baltimore was presented. It showed that, following divorcement, gasoline price increases in Baltimore have been significantly greater than price increases in the United States generally. For instance, while the average price for self-service leaded regular in the United States increased 30.14 cents from June 1978 through 1980, the average price in Baltimore increased 35.09 cents.
Demand for gasoline, which has decreased in the District area since 1975, most likely will continue to decrease. If inflation continues, there will be continued pressures to reduce the costs of marketing products. Competition, if it is encouraged, will ensure that needed services are provided. The danger in the next few years is that more of our legislators will seek to protect particular segments of businesses from the effects of competition in a shrinking market, and that consumers will be made to pay for legislated inefficiencies. With decontrol and fewer regulations, the industry has started on a course that allows the market to determine gasoline prices and distribution.