Driving competition in local gasoline markets

Jordi Perdiguero and Joan-Ramon Borrell

No XREAP2012-04, Working Papers from Xarxa de Referència en Economia Aplicada (XREAP)

Abstract: Relevant market definition is still a key element of economic analysis of competition in the gasoline market. It is particularly difficult to handle when competition is local and market power is geographically constrained like is the case in the gasoline market. We analyse how the application of the hypothetical monopolist or Small but Significant Non-Transitory Increase in Prices (SSNIP) test performs for defining isochrones using only information on prices and distance among competitors. We conclude that geographic information systems can be very successfully used to define more precisely relevant geographic market in the gasoline retailing. The application to the Spanish gasoline market concludes that geographic relevant market is composed by 5-6 minutes of travel time. Localised market power should be taken into account when analysing the adverse effects of mergers and entry regulations in gasoline retailing. Only drawing small enough isochrones will drive competition in local markets because it is just close rivals that compete effectively with each other.

Keywords: Gasoline; Market definition; Retailing. (search for similar items in EconPapers)
JEL-codes: L11 L12 L14 R12 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2012-03, Revised 2012-03
New Economics Papers: this item is included in nep-com, nep-ind, nep-reg and nep-ure
References: Add references at CitEc
Citations: View citations in EconPapers (8)

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http://www.xreap.cat/RePEc/xrp/pdf/XREAP2012-04.pdf Revised version, 2012 (application/pdf)

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