Regulation Via Threats: Politics, Media Coverage, and Oil Pricing Decisions

Using the oil crisis of the late 1970s as a case study, we examine the intertwined influences of public opinion and media attention on the credibility of regulatory threats. We focus on three factors: the intensity of public demands for regulatory intervention, the extent to which there are other competing de-mands on legislative attention, and the availability of scapegoats external to the industry. We use television news coverage of various topics to measure these three factors. We hypothesize that firms threatened with potential regulation restrained price increases, with the largest and most publicly visible firms exercis-ing the greatest restraint. We find that large, visible oil firms restrained price increases for the most important decontrolled products (diesel fuel oil) when media coverage of the oil industry was extensive. These firms exercised less restraint when the gov-ernment was busy with other issues or when political instability in the Middle East offered an external rationale for oil price in-creases. Under what circumstances will a government intervene to impose emergency price controls on a given commodity? Erfle, McMillan, and