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The effects of price competition on firms' operations and market price: Evidence from a retail gasoline market

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  • Koh, Kanghyok
  • Jeon, Sungho
  • Lee, Jinhyuk

Abstract

We study the effects of price competition induced by entries of thrifty gas stations on incumbent gas stations' operational probabilities and gasoline prices. Using administrative panel data of the entire population of retail gas stations in South Korea, we document that entries of thrifty gas stations decreased incumbent gas stations' operational probability but marginally reduced gasoline prices. Our heterogeneity analysis indicates that the operational probability impacts were greater when the market competition was already intense or when the pre-entry profit margins were low. The previous studies mainly focused only on price impacts of market competition. This study provides novel evidence that price competition might not always decrease market prices if incumbent firms stop operating their business. The results imply that a more complete understanding of the effects of price competition can be possible by jointly estimating its impacts on incumbent firms' operational probabilities and product prices.

Suggested Citation

  • Koh, Kanghyok & Jeon, Sungho & Lee, Jinhyuk, 2022. "The effects of price competition on firms' operations and market price: Evidence from a retail gasoline market," Energy Economics, Elsevier, vol. 108(C).
    • Handle: RePEc:eee:eneeco:v:108:y:2022:i:c:s0140988322000718
    DOI: 10.1016/j.eneco.2022.105889
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    More about this item

    Keywords

    Price competition; Entry effect; Thrifty gas station policy; Operational probability; Gasoline price; Retail gasoline market;
    All these keywords.

    JEL classification:

    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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