A comparison of price-cost margins in the Canadian and United States petroleum refining industries

This thesis compares industrial concentration and profitability in the Canadian and U.S. refining industries. The approach taken is an eclectic one; in its focus on a single industry it is reminiscent of the case study approach which first dominated the literature until the late fifties and has been recently rejuvenated in the literature. But it also relies heavily on the empirical methods of analysis which developed during the sixties and seventies.;The performance measure employed in the analysis in the price-cost margin which is a proxy dot the so-called Lerner Index of monopoly power. Using national aggregate data and aggregate product revenue, the study period extends from the 1973 oil crisis through to 1991. The study includes a discussion of measurement issues and an empirical analysis of the primary determinants of price-cost margins. The variables examined included average cost and its relationship to marginal cost, capacity utilization, economies of scale, x-inefficiency, capital intensity, technology, market demand growth and demand elasticity.;The analysis concludes that the refining industry in the two markets is similar in many respects and that the observed aggregate price-cost margins in the two countries are of a similar order of magnitude. This latter finding contradicts the a priori expectation that the Canadian refining margin would be lower than that of its U.S. counterpart because of the lower proportion of high-value products in the Canadian product slate. The evidence suggests that the higher than expected Canadian margin is consistent with the higher level of industry concentration in Canada, which is expected to facilitate collusion. Because capital costs could not be dealt with adequately, only tentative conclusions were drawn regarding industry profitability.