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Alcohol prohibition and pricing at the pump

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  • Fischer, Kai

Abstract

Firms often sell a transparent base product and a valuable add-on product. If only some consumers are aware of the latter, the add-on's effect on the base product's price will be ambiguous. Cross-subsidization between products to bait uninformed consumers might lower, intrinsic utility from the add-on for informed consumers might raise the price. We study this trade-off in the gasoline market by exploiting an alcohol sales prohibition at stations as an exogenous shifter of add-on availability. Gasoline margins drop by 5% during the prohibition. The effect is mediated by shop variety and local competition. Implications for gasoline market definition arise.

Suggested Citation

  • Fischer, Kai, 2022. "Alcohol prohibition and pricing at the pump," DICE Discussion Papers 386, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    • Handle: RePEc:zbw:dicedp:386
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    References listed on IDEAS

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    More about this item

    Keywords

    Off-Premise Alcohol Prohibition; Gasoline Market; Multi-Product Firms;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise

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