Working Paper: NBER ID: w22289
Authors: Jeffrey R. Campbell; Thomas Hubbard
Abstract: Interstate Highway openings were permanent, anticipated demand shocks that increased gasoline demand and sometimes shifted it spatially. We investigate supply responses to these demand shocks, using county-level observations of service station counts and employment and data on highway openings' timing and locations. When the new highway was close to the old route, average producer size increased, beginning one year before it opened. If instead the interstate substantially displaced traffic, the number of producers increased, beginning only after it opened. These dynamics are consistent with Hotelling-style oligopolistic competition with free entry and sunk costs and inconsistent with textbook perfect competition.
Keywords: industry dynamics; demand shocks; interstate highways; gasoline retailing; sunk costs
JEL Codes: L13; L22; L81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| anticipated demand increase (J23) | average producer size increases (D20) |
| anticipated demand increase (J23) | number of producers increases (O13) |
| new highway proximity to old route (R42) | average producer size increases (D20) |
| new highway proximity to old route (R42) | number of producers increases (O13) |