Vertical Contracts in Petrol Retailing

The purpose of this paper is to describe the variety of contractual arrangements in use in the UK petrol industry between refiners/wholesalers and their retailers, and assess their respective properties. Section
2 provides a brief account of the evolution of the main contractual options over the past two decades, emphasizing both the process of dynamic change which characterized the choice of organizational form, and the competitive element in such choice (i.e. how changes by one company appear to set in motion a process of adjustment by other companies). The profile of each contract type is outlined in Section 3; the main differences across types are then analysed in an agency framework, with emphasis on the risk-sharing and the incentive properties – explicit and implicit – of each format (Sections 4 and 5).

By: C. Caffarra

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