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Spatial Pricing in Interdependent Markets: Testing Assumptions and Modeling Price Variation. A Case Study of Gasoline Retailing in St Cloud, Minnesota

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  • P Plummer

    (Department of Geography, University of Wisconsin-Madison, 384 Science Hall, 550 North Park Street, Madison, WI 53706-1491, USA)

  • R Haining

    (Department of Geography, University of Sheffield, Geography Building, Winter Street, Sheffield S10 2TN, UK)

  • E Sheppard

    (Department of Geography, University of Minnesota, Twin Cities, Minneapolis, MN 55455, USA)

Abstract

In this paper we present an empirical evaluation of assumptions about consumer purchasing behavior for gasoline. Previous research has developed a theoretical model of spatial pricing in oligopolistically competitive markets in which it is hypothesized that retail prices vary because of both consumer price sensitivity and the choice sets available to consumers as well as awareness of prices at competing locations. With the use of household survey data collected from St Cloud, Minnesota we evaluate the plausibility of these assumptions, finding evidence to support the consumer purchasing behavior assumed in the theoretical model. By means of a spatial time series of gasoline price data for the same metropolitan area, we develop an empirical model of spatial price variation that incorporates some of the hypotheses of the original model. The results suggest support for the proposition that spatial price variations depend on the service characteristics of individual retailers and the accessibility or locational advantage of individual gasoline stations within the spatial configuration of the urban market. There also is empirical support for the conjecture that those sites which are more accessible, have larger choice sets, and charge lower prices tend to be those which attract the most sales from other retailers.

Suggested Citation

  • P Plummer & R Haining & E Sheppard, 1998. "Spatial Pricing in Interdependent Markets: Testing Assumptions and Modeling Price Variation. A Case Study of Gasoline Retailing in St Cloud, Minnesota," Environment and Planning A, , vol. 30(1), pages 67-84, January.
    • Handle: RePEc:sae:envira:v:30:y:1998:i:1:p:67-84
    DOI: 10.1068/a300067
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    References listed on IDEAS

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    1. Wojciech W. Charemza & Derek F. Deadman, 1992. "New Directions In Econometric Practice," Books, Edward Elgar Publishing, number 84.
    2. Patrick T. Harker, 1986. "Alternative Models of Spatial Competition," Operations Research, INFORMS, vol. 34(3), pages 410-425, June.
    3. Robert Raining & Paul Plummer & Eric Sheppard, 1996. "Spatial Price Equilibrium In Interdependent Markets: Price And Sales Configurations," Papers in Regional Science, Wiley Blackwell, vol. 75(1), pages 41-64, January.
    4. R J Bennett & R P Haining & A G Wilson, 1985. "Spatial Structure, Spatial Interaction, and Their Integration: A Review of Alternative Models," Environment and Planning A, , vol. 17(5), pages 625-645, May.
    5. Margaret E. Slade, 1992. "Vancouver's Gasoline-Price Wars: An Empirical Exercise in Uncovering Supergame Strategies," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(2), pages 257-276.
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    Cited by:

    1. Shaoling Chen & Susheng Wang & Haisheng Yang, 2015. "Spatial Competition and Interdependence in Strategic Decisions: Empirical Evidence from Franchising," Economic Geography, Clark University, vol. 91(2), pages 165-204, April.
    2. Kelley, Scott & Kuby, Michael, 2013. "On the way or around the corner? Observed refueling choices of alternative-fuel drivers in Southern California," Journal of Transport Geography, Elsevier, vol. 33(C), pages 258-267.
    3. Kuby, Michael, 2019. "The opposite of ubiquitous: How early adopters of fast-filling alt-fuel vehicles adapt to the sparsity of stations," Journal of Transport Geography, Elsevier, vol. 75(C), pages 46-57.
    4. Kelley, Scott & Kuby, Michael, 2017. "Decentralized refueling of compressed natural gas (CNG) fleet vehicles in Southern California," Energy Policy, Elsevier, vol. 109(C), pages 350-359.

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