To the editor:

Your November issue quoted extensively from a report by Citizen Action which claimed - inaccurately - that motorists are paying more for gasoline in areas where large oil companies have allegedly gained market control.

The report has been examined for the American Petroleum Institute by two experts - Dr. Edward W. Erickson, a professor of economics at North Carolina State University in Raleigh, and Dr. Craig M. Newmark, an associate professor of economics at the same university.

"The report by Citizen Action," the professors found, "is fundamentally wrong. It examines only a few pieces of information. It discusses these pieces of information entirely out of context. It then analyzes this information superficially. ...

"Market-driven pricing in gasoline retailing is more complicated than Citizen Action acknowledges. The assumption that prices in some cities were higher because of the major oil companies' ęcontrol' overlooks many other possible explanations. Land prices and labor costs vary widely among cities. Transportation costs vary by locality. So do local regulations regarding pollution, which affect the cost of retailing gasoline."

Indeed, the professors' comprehensive statistical analysis for states shows that differences in costs as reflected in regional cost of living indices explain most of the regional variation in gasoline prices. Measures of gasoline market share explain almost none of the regional variation in gasoline prices. The professors also pointed out that "many of the numbers in the Citizen Action report are actually inconsistent with the conclusions they wish to draw.

"For example, in their State Appendices they report market share data for eight states that are discussed in the report. In six of the eight states, independents' (smaller oil companies) market shares actually increased. In 1985, the average market share of independents was 27.2 percent. By 1990, the average market share of independents increased to 29.3 percent. These data contradict the assertion that reduced market shares for independents have led to reduced competition in gasoline markets."

The professors concluded that the Citizen Action report is "selective, superficial and flawed" and therefore "is not an appropriate guide for public policy."

I believe the consuming public should know that U.S. gasoline markets have served them well. In 1991, when adjusted for excise taxes and inflation, average pump prices paid were near the low end of the range of prices paid since 1920. Moreover, in the period since 1967, the increase in the price of gasoline as measured by the Consumer Price Index is much less than the average for all items.

Leonard Bower,
Director, Policy Analysis,
American Petroleum Institute
Washington, D.C.