Last week I discussed the important new FTC Report that was released studying the causes of high gas prices. One of the factors discussed at length there was that of wide variance in fuel standards across the country, which creates varying fuel reformulation mixtures for different regions of the country. These different fuel standards can thus increase the variability of gasoline prices by making it more difficult to redirect gasoline from one part of the country to another to in response to local supply and demand shocks. Thus, these differences in local environmental regulations can lead to higher local gas prices by reducing market flexibility.
Andrew Samwick of Vox Baby points to this nifty map supplied by economist James Hamilton that shows the many different standards in place across the country. Each of these subregions requires a different gasoline blend from each of the others, thereby chopping up the country into dozens of isolated mini-markets.
Note that the discussion that goes along with the map was posted on June 20, prior to the release of the FTC Report last week. In the post, Professor Hamilton directs a skeptical eyebrow at the GAO’s conclusion that higher prices could be attributed in part to reduced competition from a supposedly overly-lax merger policy. As Professor Hamilton would not be surprised to learn, I’m sure, the FTC Report quite persuasively supports his raised eyebrow.
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