POWER BALANCE AND EQUILIBRIUM CHANNEL STRUCTURE IN THE KOREAN GASOLINE MARKET

Abstract

This study analyzes how power balance in a vertical channel affects equilibrium channel structure and channel members' profits in an oligopolistic gasoline market. Using a game theoretic analysis, we study an equilibrium channel structure under different power balance scenarios. We show that refiners cannot increase their profits by strategic disintegration when their intermediaries retain more power than they do. We also investigate power balance issues in three-level, unintegrated channels. Finally, we apply our results to the gasoline market in Korea, and discuss policy implications.