(1) Independent dealers

By far the greatest number of service stations are operated by independent dealers. These dealers purchase their gasoline requirements at some form of dealer price from refiners or from jobbers and resell the gasoline to the motoring public at the dealers' so-called pump prices. Many of the refiners supplying these independent dealers own service stations which they lease to dealers. This type of dealer is frequently referred to as a "lessee" or "lessee-dealer."

Other dealers who own their own facilities, or lease them from someone other than a supplying refiner, are often referred to as "contract dealers" or "direct dealers" or "open dealers."

A third type of dealer is the "jobber-dealer" or "distributor-dealer" who, as the name implies, purchases his requirements from a jobber or distributor rather than from a refiner. All three types of dealers are the same in that each is an independent businessman. Each determines the types of products and services he will sell, his hours of operation, the retail price of the product; and each hires and is responsible for his own employees.

(2) Refiners

A very small portion of the total service station outlets are operated by the supplying refiners' salaried or commission employees. Although there are some exceptions, generally, refiners' company-operated stations are used for training purposes-to train prospective dealers and those who already have their own locations, and to train company personnel. They are also used for experimental purposes; and they are sometimes company operated solely because a suitable dealer is not available and the station would otherwise be closed. At the end of 1964, 63 Conoco brand service stations were being operated by salaried or commission employees. This is less than 1 percent of the outlets selling Conoco gasoline.

(3) Jobbers

Although the jobbers' prime function in the marketing structure is in the wholesale distribution of gasoline, they are included in this classification of retail outlets since many of them own and operate their own service stations in addition to selling to independent dealer

customers.

(4) Private brand chain retailers

A fourth type of retail outlet are those stations operated by the private brand chain retailers who purchase unbranded gasoline from refiners or some other wholesaler, and retail it under their own brand. These chain retailers, like the dealers described above, generally have full control of their outlets, including the setting of retail prices.

II. DEALER LEVEL OR MARKET

Refiners and jobbers, and in some instances private brand marketers, compete for the business of supplying the requirements of dealers. Customarily, the price to the dealer is a tank wagon dealer price, the name coming from the type of tank truck originally used to deliver products to service stations. A supply refiner or jobber may have a lease arrangement with its dealers or it may supply gasoline under

a gasoline sales contract, or it may have both types of contractual arrangement with some of its dealers. In any event, the dealer will usually purchase from his same supplier during the term of the lease

or contract.

III. JOBBER LEVEL OR MARKET

Refiners, and in some instances other large wholesalers, compete for the business of supplying the jobber's requirements. Typically, a jobber operates in a relatively local market and his main concern in the marketing of gasoline is in wholesale distribution. As previously indicated, many jobbers integrate the wholesale and retail functions and operate their own stations.

The majority of jobbers are branded jobbers who purchase gasoline from a refiner and resell it to dealers under the same brand. There is another category of jobber who buys unbranded gasoline in bulk from a refiner, or in some instances, from some other large wholesaler, and resells it to retail outlets under his own brand. Both types are independent businessmen who have complete control of their operations. They acquire title to the gasoline purchased and determine the price at which it will be resold.

The refiner's price for the gasoline sold to a branded jobber is usually computed by a set differential below the prevailing tank wagon dealer price. In an area of disturbed price conditions where the jobber must lower his resale price to his dealers, it is customary for the supplying refiner to share such price reduction with its jobber. Unbranded jobbers customarily purchase gasoline on a "spot" price basis, which is generally lower than the price paid by branded jobbers.

IV. BULK SALES LEVEL OR MARKET

A market that the retail customer is rarely cognizant of is where a refiner sells large volumes of motor gasoline to other refiners, to brokers, and to large unbranded wholesalers or private brand marketers. These deliveries may be made by tanker, barge, or pipeline into the purchaser's storage and from that point on the purchaser assumes the further distribution of the product. If the bulk sale encompasses delivery in smaller quantities over a period of time, the purchaser usually takes delivery of product directly from the suppliers' refinery or terminal. Such bulk sales are customarily made on "spot" or bulk market prices, which are the lowest prices in the marketing structure.

V. TANK WAGON CONSUMER MARKET

Refiners and jobbers, and in some instances, private brand marketers, compete for sales to consumers in tank wagon quantities and at tank wagon prices. Typical tank wagon consumers are farmers, roadbuilding contractors and small trucking companies. The tank wagon consumer price is usually slightly above the tank wagon dealer price.

VI. TRANSPORT CONSUMER MARKET

Refiners, jobbers, and, in some instances, private brand marketers, compete for the business of large consumers who buy in larger quan

tities than the consumers mentioned above. When the quantity of the consumers' purchase is sufficient, delivery may be made in large gasoline transport trucks directly from a refinery or terminal, with a consequent price saving. Some examples of this type of consumer are larger motor carriers, railroads, large industrial consumers and governmental bodies and agencies. Often the transport sale is made on the basis of bids solicited by this type of consumer.

Complexity intensified by varying methods of distribution.-As can be seen from the foregoing outline, motor gasoline may move in different channels between the refiner and the consumer. In each channel there may be individual, independent components which have complete control of their own operations, including the determination of price. This not only contributes to increased competition but results in the gasoline marketing structure being a complex system. This complexity is further compounded by the various types of dual distribution and functional integration, including the following:

(1) Some refiners supply their own branded retail outlets and also sell to private brand chain retailers.

(2) Some refiners sell to jobbers and also make sales to their own dealers through their own bulk plants.

(3) Some refiners sell to service station dealers while at the same time they operate their own service stations.

(4) Some jobbers sell to service station dealers while at the same time they operate their own service stations.

(5) Some private brand chain retailers operate a relatively large number of service stations in many different local market areas. Such chain retailers have integrated the conventional wholesale and retail functions and, hence, are in effect in competition with jobbers and refiners as well as with independent dealers.

General description of Continental Oil Co.-The company's history dates back to 1875, when an Iowa corporation named Continental Oil & Transport Co. was formed to sell kerosene, axle grease and candles to pioneers in the Rocky Mountain area. Successor "Continental Oil" companies continued to engage chiefly in the marketing of petroleum products in the same part of the country until 1929, when the assets and name of the Continental Oil Co.-Maine-were taken over by a Delaware corporation which had been organized in 1920 as Marland Oil Co. Prior to 1929, the Marland Co., with headquarters in Ponca City, Okla., had been principally a crude oil producer and refiner. Since 1929, the Delaware company has remained a fully integrated petroleum enterprise.

Today, Continental Oil Co. is actively engaged in all phases of the worldwide oil business, including exploration, production, refining, marketing, and transportation of crude oil and refined products, and petrochemical manufacturing. As of December 31, 1964, the company reported total assets of $1,554 million, ranking it 11th among U.S. oil companies.

In its 1964 U.S. operations, Continental produced 154,861 barrels per day of crude oil and condensate, 2 percent of the total domestic industry output. The company and its domestic subsidiaries have nine refineries in the United States with a total crude charging capacity of 256,500 barrels per calendar day, 2.5 percent of total domestic capacity-January 1, 1965-as reported by the Oil & Gas Journal.

Crude runs at these refineries averaged 220,104 barrels per day in 1964, 2.5 percent of the total for the United States.

Domestic gasoline marketing of Continental Oil Co. and its subsidiary companies.-In terms of its domestic operations, Continental Oil Co. can be described as a medium-sized, fully integrated oil company that is a regional refiner-marketer of motor gasoline. In addition, Continental has four wholly owned subsidiary companies which market motor gasoline. Each of the subsidiaries has been an established gasoline marketing company for a number of years and each operates separately from Continental.

The present management of each is almost entirely composed of individuals who have been associated with that subsidiary for an extended period of time. For the most part, the general marketing policies of each subsidiary were established many years ago and have continued up to the present without material change. These subsidiary companies are Kayo Oil Co., Western Oil & Fuel Co., Douglas Oil Co., and Malco Products, Inc.

During 1964 the motor gasoline sales of Continental and its subsidiaries was approximately 100,000 barrels per day or about 2.2 percent of total U.S. demand as estimated by the Bureau of Public Roads, U.S. Department of Commerce.

All but 2.5 percent of 1964 sales of motor gasoline by Continental and its subsidiaries were sold under the Conoco brand or under the secondary brands of its subsidiaries in 38 States.1

In these 38 States, the branded sales of Continental and its subsidiaries amounted to 3 percent of the total motor gasoline consumption as estimated by the Bureau of Public Roads, U.S. Department of Commerce. At the end of 1964, of approximately 8,900 retail outlets dispensing our products in these States, 85 percent were Conoco branded outlets.

Continental Oil Co. has its domestic headquarters in Houston, Tex. It markets Conoco brand gasoline primarily in the Rocky Mountain area, the Midwest and the Southwest. Continental's principal sales of motor gasoline are to jobbers, lessee dealers, direct dealers and to the types of consumers previously referred to.

Kayo Oil Co., headquartered in Chattanooga, Tenn., markets principally in the southeastern part of the United States. All of its stations are operated on a salaried or commission-employee basis. Kayo sells gasoline under the Kayo brand, and its sales are almost exclusively confined to direct retail sales through it stations to the motoring public.

Douglas Oil Co's headquarters are in Los Angeles, Calif. It markets gasoline primarily in California, although it has a few outlets in the other west coast States. Most of its motor gasoline is sold through Douglas branded retail outlets. Douglas stations are company owned or leased and are operated mainly on a lessee-dealer basis, although it has some salaried service stations.

Western Oil & Fuel Co.'s headquarters are in Minneapolis, Minn. It markets gasoline principally in the upper Midwest under three

1 Alabama, Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Mississippi, Missouri, Montana. Nebraska, Nevada, New Mexico, North Carolina. North Dakota, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.

separate brands-Mileage, Direct Service, and Western. Most of its motor gasoline sales are through its branded retail outlets. Approximately half of the Western branded service stations are either lesseedealer, salaried, or commission-employee operated, and the other half of its service station outlets are operated by contract dealers and jobbers. Western also makes sales to tank-wagon consumers and transport consumers.

Malco Products, Inc., has headquarters in Roswell, N. Mex. It makes sales of motor gasoline principally in New Mexico, Arizona, and El Paso County, Tex. With the exception of one salaried service station in Roswell and a few consumer accounts, all of Malco's motor gasoline sales are to independent jobbers or distributors. These purchasers are authorized to use the Malco, Numex or Valley brand, but some of its jobber customers resell under their own individual brand names or under no brand at all.

Product exchanges, gasoline quality, and additives.-Through the years, gasoline and other product exchanges have generally become an integral part of the marketing structure of our industry. Such exchange agreements make good economic sense and, in my opinion, foster competition rather than restrain it. These exchanges are the means by which many companies, large and small, and their respective customers are able to compete in many geographical markets which would otherwise be economically foreclosed to them because of excessive transportation costs.

In my opinion, the existence of such agreements in our industry has no material effect upon the product quality of the parties to such agreements. To maintain product standards or specifications, parties to an exchange agreement provide for the specifications of the gasoline which each party to the exchange shall receive.

In addition, exchange agreements do not prevent a company from utilizing any particular additive or additives that such company may desire to place in its gasolines. The injection of a particular additive or additives used by a receiving party to an exchange is arranged for in various ways: In some instances, the receiving party, at its expense, arranges for this injection to be done by the delivering company at the time of delivery to the receiving party or its customers; in other instances, the receiving company injects its particular additive or additives to its gasolines after receiving the product on an exchange agreement. In either event, the end result is that any part to an exchange is able to, and almost invariably does, maintain the same product quality as to gasoline acquired through an exchange agreement as it does for gasoline initially manufactured by such company at its own refinery. Many marketers, whether they be classified as major or private brand, use some type of additives in their gasoline. I do not feel technically qualified to make a definite statement as to the value of the additives used by other marketers but I am familiar with the additives used in Conoco brand gasolines. In both our regular and premium gasolines we inject a multipurpose additive which has the threefold function of preventing carburetor icing, reducing corrosion, and providing a detergent carburetor cleansing agent. The phosphorous compounds which are also added to our premium gasoline have the additional functions of neutralizing combustion chamber deposits and reducing spark plug fouling.