Abstract
On March 31, 1999 Atlantic Richfield (ARCO) agreed to be acquired by British Petroleum (BP) for $27 billion. The merger raised a number of antitrust concerns, including whether the merged company would raise the price of crude oil produced on the Alaskan North Slope (ANS). The combined output of the firms exceeded 70% of total production of ANS crude oil, suggesting that if ANS crude oil were a distinct market the merged firm would possess power over price. We estimate a model of demand for ANS crude oil based on a simple theoretic model of pricing arbitrage to identify the relevant market in which ANS crude oil trades. The dramatic decline in production of ANS crude oil during the 1990s, as the North Slope passed its peak production, provides an excellent natural experiment to assess the effects on prices of declining output. We find no evidence that ANS is a distinct market and argue it is highly unlikely the merged company could have raised the price of ANS.
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