Flex cars and competition in ethanol and gasoline retail markets

Juliano Assuncao, Joao Paulo Cordeiro De Noronha Pessoa and Leonardo Rezende

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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)
Pages: 42 pages
Date: 2013-12-13
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:121791

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