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“Entry Regulation Asymmetries and Gasoline Competition in a Mixed Motorway Network”

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Author Info

  • Daniel Albalate

    ()
    (Faculty of Economics, University of Barcelona)

  • Jordi Perdiguero

    ()
    (Departament d'Economia Aplicada. Universitat Autònoma de Barcelona)

Abstract

Regulatory and funding asymmetries in the Spanish motorway network produce huge differences in the structure of gasoline markets by motorway type: free or toll. While competition is encouraged among gas stations on free motorways, the regulations for toll motorways allow private concessionaires to auction all gas stations to the same provider, thereby limiting competition and consolidating market power. This paper reports how this regulatory asymmetry results in higher prices and fewer gas stations. Specifically, we show that competition is constrained on toll motorways by the granting of geographical monopolies, resulting in a small number of rivals operating in close proximity to each other, and allowing gas stations to operate as local monopolies. The lack of competition would seem to account for the price differential between toll and free motorways. According to available evidence, deregulation measures affecting toll motorway concessions could help to mitigate price inefficiencies and increase consumer welfare.

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File URL: http://www.ub.edu/irea/working_papers/2012/201218.pdf
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Bibliographic Info

Paper provided by University of Barcelona, Research Institute of Applied Economics in its series IREA Working Papers with number 201218.

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Length: 38 pages
Date of creation: Nov 2012
Date of revision: Nov 2012
Handle: RePEc:ira:wpaper:201218

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Postal: Tinent Coronel Valenzuela, Num 1-11 08034 Barcelona
Web page: http://www.ub.edu/irea/
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Related research

Keywords: Geographical competition; Regional Monopolies; Gasoline prices; Motorways JEL classification: L11; L12; L43;

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  1. Gerhard Clemenz & Klaus Gugler, 2002. "Locational choice and price competition: Some empirical results for the Austrian retail gasoline market," Vienna Economics Papers 0206, University of Vienna, Department of Economics.
  2. Philip Bromiley & Chris Papenhausen & Patricia Borchert, 2002. "Why do gas prices vary, or towards understanding the micro-structure of competition," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(4-5), pages 171-186.
  3. Dieter Pennerstorfer, 2009. "Spatial price competition in retail gasoline markets: evidence from Austria," The Annals of Regional Science, Springer, vol. 43(1), pages 133-158, March.
  4. Michael J. Mazzeo, 2002. "Competitive Outcomes in Product-Differentiated Oligopoly," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 716-728, November.
  5. Engel Eduardo M & Fischer Ronald & Galetovic Alexander, 2004. "Toll Competition Among Congested Roads," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-21, March.
  6. Kay, J A & Thompson, D J, 1986. "Privatisation: A Policy in Search of a Rationale," Economic Journal, Royal Economic Society, vol. 96(381), pages 18-32, March.
  7. Joris Pinkse & Margaret E. Slade & Craig Brett, 2002. "Spatial Price Competition: A Semiparametric Approach," Econometrica, Econometric Society, vol. 70(3), pages 1111-1153, May.
  8. Juan Jiménez & Jordi Perdiguero, 2011. "Does Accessibility Affect Retail Prices and Competition? An Empirical Application," Networks and Spatial Economics, Springer, vol. 11(4), pages 677-699, December.
  9. Shepard, Andrea, 1991. "Price Discrimination and Retail Configuration," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 30-53, February.
  10. Barron, John M & Taylor, Beck A & Umbeck, John R, 2000. "A Theory of Quality-Related Differences in Retail Margins: Why There Is a "Premium" on Premium Gasoline," Economic Inquiry, Western Economic Association International, vol. 38(4), pages 550-69, October.
  11. Spiller, Pablo T & Huang, Cliff J, 1986. "On the Extent of the Market: Wholesale Gasoline in the Northeastern United States," Journal of Industrial Economics, Wiley Blackwell, vol. 35(2), pages 131-45, December.
  12. Janet S. Netz & Beck A. Taylor, 2002. "Maximum Or Minimum Differentiation? Location Patterns Of Retail Outlets," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 162-175, February.
  13. Barron, John M. & Taylor, Beck A. & Umbeck, John R., 2004. "Number of sellers, average prices, and price dispersion," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1041-1066, November.
  14. Jordi Perdiguero & Joan-Ramon Borrell, 2012. "Driving competition in local gasoline markets," Working Papers XREAP2012-04, Xarxa de Referència en Economia Aplicada (XREAP), revised Mar 2012.
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