The Effect of Spatial Competition on Retail Gasoline Prices[Оценка Влияния Пространственной Конкуренции На Розничные Цены На Бензин]

This paper explores the nature of retail gasoline market competition in the Russian Federation by applying a detailed panel structure database at the level of individual filling stations. This market is a highly concentrated one, which theoretically enables companies to exercise market power. Furthermore, in most of the administrative districts of the Russian Federation, one vertically integrated oil company will dominate; this is often the company located nearest to its own refinery. Spatial econometric analysis has yielded some interesting empirical results concerning how the local market is affected. First, there is no confirmation of the hypothesis that gas stations compete only with the nearest gas stations. Second, there is strong evidence that stations compete with other filling stations located within five kilometers, and the intensity of competition decreases as the distance between stations increases. A relationship between certain characteristics of filling stations and the price behavior of individual filling stations also became evident. These results suggest that retail fuel prices are influenced by such features of filling stations as brand name and services provided. The conclusion is that the brand name of competing stations and even the geographical distribution of these specific brands are more important determinants of the retail price of gasoline than the number of competing stations.