The present problems of petroleum industry are the stability of product price and the improvement of market efficiency. The latter can be solved through the increase of competition in the downstream, while the former through the stability in the supply of crude oil. The petroleum policy has been less focused on the distribution structures than the refining oil departments.
The pending problems in relation to distribution structure are as follows,
-To improve the permission criteria for new establishment of a gas station
-To introduce the direct deal between gas station and refinery
-To sell same product as pole-sign
-To release the prohibition of the downstream vertical integration of refiners.
This study investigates the effects of the above changes in distribution structures where refiners sell their products through gas stations. A noncooperative Nash game duopoly model are assumed.
Four vertical configurations are possible.
(a) Integrated Structure:both refiners integrated
(b) Disintegrated Structure:both refiners disintegrated
(c) Mixed Structure:Refiner 1 integrated, Refiner 2 disintegrated
and (d) Symmetric structure with (C)
The major findings of this study are summarized as follows.
Case I : When a gas station cannot switch to a lower-priced refiner.
-Consumer surplus : Integrated>Mixed>Disintegrated
-Refiner's Profit : IntegratedMixed>Disintegrated
-Total channel profit & : Integrated=Mixed=disintegrated
-Disintegrated refiner's profit < gas station profit
One potentially limiting assumption used in this study must be pointed out-that each economic agent uses Nash strategy. This assumption may not be valid, For more valid results, more generalized rules about players' expectations of competitor's behavior are encouraged.