The BP Amoco/ARCO Merger: Alaskan Crude Oil

The merger of British Petroleum and Atlantic Richfield as proposed would have made BP the sole operator and 70 percent owner of Alaskas oil fields. The Federal Trade Commission challenged the merger partly out of concern for higher West Coast gasoline prices, and required a divestiture ARCOs entire Alaskan business. However, West Coast crude prices are governed by the cost of the marginal source of supply to the region, imported oil. Because any cutback in sales of Alaskan oil on the West Coast could be offset with higher imports, with minimal impact on the import price, the merger would have raised crude prices by tenths of a penny per gallon at the most. The impact on consumer prices was even more tenuous. More serious concerns, which were given less attention, were that BP might gain monopsony power in bidding for oil leases and perhaps in negotiating with suppliers.