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The Effects of Gasoline Price Regulations: Experimental Evidence

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  • Haucap, Justus
  • Müller, Hans Christian

Abstract

Economic theory suggests that gasoline retail markets are prone to collusive behavior. Oligopoly market structures prevail, market interactions occur frequently, prices are highly transparent, and demand is rather inelastic. A recent sector inquiry in Germany backed suspicions of tacit collusion and suggested to adopt regulatory pricing rules for gas stations similar to those implemented in Austria, parts of Australia, Luxembourg or parts of Canada. In order to increase consumer welfare these rules either restrict the number of price changes per day or they limit the mark‐up for gasoline retail prices. As theoretical predictions about the impact of these measures are mixed and empirical studies rare, we analyze the effects, using an experimental gasoline market in the lab. Our results reveal that two of the suggested rules rather decrease consumer welfare: The Austrian rule which only allows one price increase per day (while price cuts are always possible) and the Luxembourg rule which introduces a maximum markup for retailers. While no rule tends to induce lower retail prices, the Western Australian rule which allows at most one daily price change (no matter whether up or down) does at least not harm consumers. --

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Bibliographic Info

Paper provided by Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) in its series DICE Discussion Papers with number 47.

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Date of creation: 2012
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Handle: RePEc:zbw:dicedp:47

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Keywords: Gasoline Prices; Fuel Prices; Experimental Gasoline Market; Fuel Price Regulation; Retail Price Regulation; Gas Stations;

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References

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  1. Siegfried Berninghaus & Michael Hesch & Andreas Hildenbrand, 2012. "Zur Wirkung regulatorischer Preiseingriffe auf dem Tankstellenmarkt," Wirtschaftsdienst, Springer, vol. 92(1), pages 46-50, January.
  2. Deck, Cary A. & Wilson, Bart J., 2008. "Experimental gasoline markets," Journal of Economic Behavior & Organization, Elsevier, vol. 67(1), pages 134-149, July.
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Cited by:
  1. Wittmann, Nadine, 2014. "Regulating gasoline retail markets: The case of Germany," Economics Discussion Papers 2014-17, Kiel Institute for the World Economy.
  2. Obradovits, Martin, 2014. "Austrian-style gasoline price regulation: How it may backfire," International Journal of Industrial Organization, Elsevier, vol. 32(C), pages 33-45.
  3. Dewenter, Ralf & Heimeshoff, Ulrich, 2012. "Less pain at the pump? The effects of regulatory interventions in retail gasoline markets," DICE Discussion Papers 51, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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