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Market power and second degree price discrimination in retail gasoline markets

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  • Roach, Travis

Abstract

Empirical evidence of ‘quality-based’ second degree price discrimination is scarce. The co-existence of regular-grade 10% ethanol-blended gasoline (E10) and regular-grade non-blended gasoline (E0) in a major metropolitan city allows for second degree price discrimination to be examined while eliminating the issue of endogenous product differentiation because the two blends of gasoline are near-perfect substitutes. Using a unique data set including daily price information for 402 retailers that sell only E0 gasoline, only ethanol-blended E10 gasoline, or both blends simultaneously, I find evidence that retailers use second degree price discrimination to segment the population between perceived lower and higher quality gasoline; despite the fact that both blends can safely be used in nearly all vehicles. Additionally, I uncover two elasticities of demand for gasoline and discuss the welfare effects of price changes and market segmentation.

Suggested Citation

  • Roach, Travis, 2019. "Market power and second degree price discrimination in retail gasoline markets," Energy Economics, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:eneeco:v:84:y:2019:i:c:s0140988319303032
    DOI: 10.1016/j.eneco.2019.104514
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    References listed on IDEAS

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    More about this item

    Keywords

    Price discrimination; Gasoline; Ethanol; Renewable Fuel Standard;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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