Working Paper: CEPR ID: DP12879
Authors: Mai Nguyenones; Frode Steen
Abstract: Applying detailed consecutive daily micro data at the gasoline station level from Sweden we estimate a structural model to uncover the degree of competition in the gasoline retail market. We find that retailers do exercise market power, but despite the high upstream concentration, the market power is very limited on the downstream level. The degree of market power varies with both the distance to the nearest station and the local density of gasoline stations. A higher level of service tends to raise a seller’s market power; self-service stations have close to no market power. Contractual form and brand identity also seem to matter. We find a clear result: local station characteristics significantly affect the degree of market power. Our results indicate that local differences in station characteristics can more than offset the average market power found for the whole market.
Keywords: gasoline markets; market power; markup estimation; local market competition
JEL Codes: D22; L13; L25; L81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Retailers exercise market power (D49) | Degree of market power varies with distance to the nearest station (D49) |
| Distance to the nearest station (R53) | Degree of market power (D42) |
| Local density of gasoline stations (L95) | Degree of market power (D42) |
| Higher service levels at stations (L92) | Market power (L11) |
| Self-service stations (L81) | Market power (L11) |
| Contractual form (L14) | Market power (L11) |
| Brand identity (M37) | Market power (L11) |
| Local station characteristics (R53) | Degree of market power (D42) |