WAPO Concludes that Vertical Efficiencies Trump Horizontal Market Power

Cite this Article
Steve Salop, WAPO Concludes that Vertical Efficiencies Trump Horizontal Market Power, Truth on the Market (May 30, 2011), https://truthonthemarket.com/2011/05/30/wapo-concludes-that-vertical-efficiencies-trump-horizontal-market-power/

A Washington Post editorial last week reached the surprising conclusion that a series of vertical and horizontal acquisitions that led to a firm owning about 40% of the gas stations in the District of Columbia was procompetitive.  The editorial apparently concluded that the vertical integration efficiencies were more important than the adverse horizontal effects.  The editorial cited to an FTC report on the efficiencies of vertical integration.  This is a very counterintuitive conclusion for an allegedly liberal newspaper.   Even more counterintuitive, however, is the fact that the editorial also reports the results of a natural experiment that concluded that prices have risen as a result of the acquisitions.  The gap between prices in DC and Maryland/Virginia rose from 10 cents to 17 cents.  According to the numbers in the editorial, tax increases account for about half of the gap.  Does this mean that WAPO has bought on to the Aggregate Welfare Standard over the Consumer Welfare Standard?  Or, is this just one more example of skillful advocacy by the gas station owner combined with poor understanding of economics by the editorial board?  I vote for the latter.  Do others disagree?