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Consumer search costs, geographical concentration, and retail gasoline pricing: Evidence from inland Japan

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Listed:
  • Satoh, Eiji
  • Iwase, Ryusuke
  • Kamakura, Keita
  • Sawasato, Shinji
  • Tominaga, Saki

Abstract

We examine determinants of retail transaction and list prices for gasoline using cross-sectional data for gas stations in inland Japan. The study makes two original contributions: it examines inland Japan where gasoline prices at proximate stations theoretically should be identical, and it analyzes retail transaction and list prices for gasoline. Empirical analysis yields three results. First, the concentration of stations correlates negatively with gasoline prices, but its effects are attenuated by increased numbers of uninformed consumers. Second, stations should set retail prices that include markups based on location, their service features, and brand affiliation. Third, they should charge different markups for different grades of gasoline based on concentration of stations and location. Our findings suggest that consumers’ search for stations that set lower price could significantly influence pricing and that providing price information could reduce search costs and gasoline prices, thereby raising social welfare.

Suggested Citation

  • Satoh, Eiji & Iwase, Ryusuke & Kamakura, Keita & Sawasato, Shinji & Tominaga, Saki, 2018. "Consumer search costs, geographical concentration, and retail gasoline pricing: Evidence from inland Japan," Japan and the World Economy, Elsevier, vol. 45(C), pages 1-8.
  • Handle: RePEc:eee:japwor:v:45:y:2018:i:c:p:1-8
    DOI: 10.1016/j.japwor.2017.11.002
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    References listed on IDEAS

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    More about this item

    Keywords

    L13; D43; L81; Inland Japan; Geographical concentration; Retail gasoline pricing; Consumer search cost;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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