Flex Cars and Competition in Ethanol and Gasoline Retail Markets

Juliano Assuncao, João Paulo Pessoa and Leonardo Rezende

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: In Brazil, gasoline and ethanol coexist as automotive fuels and are becoming closer substitutes as flex cars become more widely adopted. We employ this source of variation in a large panel of weekly prices at the station level to show that fuel prices have fallen in response to this change. This finding is evidence of market power in fuel retail and indicates that innovations that increase consumer choice benefit even those who choose not to adopt them. We also propose a model of price competition in this market and use it to estimate demand from price response functions.

Keywords: Flex-fuel vehicles; Gasoline; Ethanol; Price competition; Spatial Competition; Discrete equilibrium price dispersion (search for similar items in EconPapers)
JEL-codes: L11 L13 L62 L71 (search for similar items in EconPapers)
Date: 2013-12
New Economics Papers: this item is included in nep-com, nep-dcm, nep-ene, nep-ind, nep-tre and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp1251

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