Abstract:The gasoline distribution industry has attracted more than its share of legislation to regulate prices and the means of supply. The Petroleum Marketing Practices Act of 1978 restricts the ability of integrated refiners – those oil refining companies that have both company-operated and franchised retail stations – to terminate franchise agreements and prohibits subsidization of gasoline marketing operations with funds from other petroleum-related operations. Five states have enacted laws that entirely prohibit gasoline refiners from directly operating retail gasoline stations. Recently, legislation has been proposed in the House and Senate to "enhance" competition in the gasoline distribution industry. These proposals generally require an integrated refiner to set prices at its company-operated retail stations above its wholesale prices by the full cost of retail distribution and marketing. The bills are argued to enhance competition by protecting independent gasoline retailers from alleged predatory behavior by integrated refiners. In the absence of such legislation, the proponents argue, integrated refiners will squeeze retail margins to the point that they will drive the independent retailers out of business. In response to such concerns, these bills would also prohibit any attempt by an integrated refiner to limit or reduce the retail prices that its franchised dealers charge. Are there problems in retail distribution of gasoline that need fixing? Would the legislation currently under consideration in Congress be effective in addressing these problems? We review the evidence and find that claims for needed regulation are at best difficult to substantiate. The arguments made to support the claims are flawed both in their economic reasoning and their interpretation of the facts. Furthermore, the possible disruptions of efficient market operation that could result from the proposed bills range from intermittent inconvenience and above-cost pricing to long run inefficiencies causing higher prices and possible supply disruptions.