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A Spatial Econometric Analysis of the Effect of Vertical Restraints and Branding on Retail Gasoline Pricing

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  • Stephen Hogg
  • Stan Hurn

    ()
    (QUT)

  • Stuart McDonald
  • Alicia Rambaldi

    ()

Abstract

This paper builds an econometric model of retail gas competition to explain the pricing decisions of retail outlets in terms of vertical management structures, input costs and the characteristics of the local market they operate within. The model is estimated using price data from retail outlets from the South-Eastern Queensland region in Australia, but the generic nature of the model means that the results will be of general interest. The results indicate that when the cost of crude oil and demographic variations across different localities are accounted for, branding (i.e. whether the retail outlet is affiliated with one of the major brand distributers - Shell, Caltex, Mobil or BP) has a statistically significant positive effect on prices at nearby retail outlets. Conversely, the presence of an independent (non-branded) retailer within a locality has the effect of lowering retail prices. Furthermore, the results of this research show that service stations participating in discount coupon schemes with the two major retail supermarket chains have the effect of largely off-setting the price increase derived from branding affiliation. While, branding effects are not fully cancelled out, the overall effect is that prices are still higher than if branding did not occur.

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File URL: http://www.ncer.edu.au/papers/documents/WP86.pdf
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Bibliographic Info

Paper provided by National Centre for Econometric Research in its series NCER Working Paper Series with number 86.

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Length: 25 pages
Date of creation: 27 Aug 2012
Date of revision:
Handle: RePEc:qut:auncer:2012_9

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Related research

Keywords: Retail Gasoline Pricing; Vertical Restraints; Shop-a-Docket Discount Scheme; Spatial Econometrics; Australia;

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  1. G.F. Mathewson & R.A. Winter, 1984. "An Economic Theory of Vertical Restraints," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 27-38, Spring.
  2. Joshua S. Gans & Stephen P. King, 2004. "Supermarkets and Shopper Dockets: The Australian Experience," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 37(3), pages 311-316, 09.
  3. Susan Athey & Kyle Bagwell & Chris Sanchirico, 2002. "Collusion and price rigidity," Discussion Papers 0102-38, Columbia University, Department of Economics.
  4. Gerhard Clemenz & Klaus Gugler, 2006. "Locational choice and price competition: some empirical results for the austrian retail gasoline market," Empirical Economics, Springer, vol. 31(2), pages 291-312, June.
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