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Selling Costs and Switching Costs: Explaining Retail Gasoline Margins

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  • Severin Borenstein

Abstract

Recent theoretical work has shown that price discrimination can take place in imperfectly competitive, as well as monopoly, markets. The persistence of higher retail margins on unleaded than on leaded gasoline during the 1980s suggests that discrimination may occur even in very competitive markets. This article studies a number of cost-based explanations for such gasoline pricing, as well as the possibility of price discrimination. The analysis indicates that gas stations discriminate against groups of customers who are less likely to switch to another station. The conclusions highlight the influence of shopping or search costs on pricing decisions, even in markets thought to be quite competitive.

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File URL: http://links.jstor.org/sici?sici=0741-6261%28199123%2922%3A3%3C354%3ASCASCE%3E2.0.CO%3B2-%23&origin=repec
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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 22 (1991)
Issue (Month): 3 (Autumn)
Pages: 354-369

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Handle: RePEc:rje:randje:v:22:y:1991:i:autumn:p:354-369

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Competition in the Georgian Retail Gasoline Market
    by Michael Fuenfzig in The ISET Economist on 2012-10-05 10:14:58
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Cited by:
  1. Robert Gagné & Simon van Norden & Bruno Versaevel, 2006. "Testing Optimal Punishment Mechanisms under Price Regulation: the Case of the Retail Market for Gasoline," Cahiers de recherche 06-12, HEC Montréal, Institut d'économie appliquée.
  2. Mortimer, Julie Holland, 2007. "Price Discrimination, Copyright Law, and Technological Innovation: Evidence From The Introduction of DVDs," Scholarly Articles 3425914, Harvard University Department of Economics.
  3. Rod Anderson & Ronald Johnson, 1999. "Antitrust and Sales-Below-Cost Laws: The Case of Retail Gasoline," Review of Industrial Organization, Springer, vol. 14(3), pages 189-204, May.
  4. Nathan S. Balke & Stephen P. A. Brown & Mine Yücel, 1998. "Crude oil and gasoline prices: an asymmetric relationship?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q 1, pages 2-11.
  5. Lance J. Bachmeier & James M. Griffin, . "New Evidence on Asymmetric Gasoline Price Responses," Working Papers 0208, East Carolina University, Department of Economics.
  6. Michael Polemis, 2012. "Competition and price asymmetries in the Greek oil sector: an empirical analysis on gasoline market," Empirical Economics, Springer, vol. 43(2), pages 789-817, October.
  7. Stephen P. A. Brown & Mine K. Yücel, 2000. "Gasoline and crude oil prices: why the asymmetry?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q3, pages 23-29.
  8. Jeremy A. Verlinda, 2007. "Price-Response Asymmetry and Spatial Differentiation in Local Retail Gasoline Markets," EAG Discussions Papers 200704, Department of Justice, Antitrust Division.
  9. Aaron S. Edlin and Eric R. Emch., 1997. "The Welfare Losses from Price Matching Policies," Economics Working Papers 97-257, University of California at Berkeley.

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