The Effects of Gasoline Price Regulations: Experimental Evidence

Justus Haucap and Hans Christian Müller

No 47, DICE Discussion Papers from Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE)

Abstract: Economic theory suggests that gasoline retail markets are prone to collusive behavior. Oligopoly market structures prevail, market interactions occur frequently, prices are highly transparent, and demand is rather inelastic. A recent sector inquiry in Germany backed suspicions of tacit collusion and suggested to adopt regulatory pricing rules for gas stations similar to those implemented in Austria, parts of Australia, Luxembourg or parts of Canada. In order to increase consumer welfare these rules either restrict the number of price changes per day or they limit the mark‐up for gasoline retail prices. As theoretical predictions about the impact of these measures are mixed and empirical studies rare, we analyze the effects, using an experimental gasoline market in the lab. Our results reveal that two of the suggested rules rather decrease consumer welfare: The Austrian rule which only allows one price increase per day (while price cuts are always possible) and the Luxembourg rule which introduces a maximum markup for retailers. While no rule tends to induce lower retail prices, the Western Australian rule which allows at most one daily price change (no matter whether up or down) does at least not harm consumers.

Keywords: Gasoline Prices; Fuel Prices; Experimental Gasoline Market; Fuel Price Regulation; Retail Price Regulation; Gas Stations (search for similar items in EconPapers)
JEL-codes: C90 K23 L13 L71 L81 L88 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-com, nep-ene, nep-exp, nep-mkt, nep-reg and nep-tre
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:dicedp:47

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