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Driving competition in local markets with near-perfect substitutes: an application on the Spanish retail gasoline market

Author

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  • Jordi Perdiguero

    (Universitat Autònoma de Barcelona)

  • Joan Ramon Borrell

    (Universitat de Barcelona)

Abstract

Relevant market definition remains a key element in the economic analysis of competition in the gasoline market. However, this is particularly difficult to undertake when competition is local and market power is geographically constrained, as they are in the case of the gasoline market. We analyse how the hypothetical monopolist or Small but Significant Non-Transitory Increase in Prices test performs when defining isochrones based solely on price information and the distance between competitors. We conclude that geographic information systems can be successfully employed in the precise definition of relevant geographic markets in the gasoline retail sector. Their application to the Spanish gasoline market indicates that the relevant geographic market is delineated by a 5- to 6-min travel-time isochrone around each station. Localized market power needs to be taken into account when analysing the adverse effects of mergers and entry regulations on gasoline retailing. To drive competition in these local circumstances, markets need to be delineated on the basis of sufficiently small isochrones since only close rivals seem to compete effectively with each other.

Suggested Citation

  • Jordi Perdiguero & Joan Ramon Borrell, 2019. "Driving competition in local markets with near-perfect substitutes: an application on the Spanish retail gasoline market," Empirical Economics, Springer, vol. 57(1), pages 345-364, July.
    • Handle: RePEc:spr:empeco:v:57:y:2019:i:1:d:10.1007_s00181-018-1427-6
    DOI: 10.1007/s00181-018-1427-6
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    References listed on IDEAS

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    Cited by:

    1. Balaguer, Jacint & Ripollés, Jordi, 2020. "Do classes of gas stations contribute differently to fuel prices? Evidence to foster effective competition in Spain," Energy Policy, Elsevier, vol. 139(C).
    2. Leonardo C. B. Cardoso & Carlos Frederico A. Uchôa & Williams Huamani & David R. Just & Raúl V. Gomez, 2022. "Price effects of spatial competition in retail fuel markets: the impact of a new rival nearby," Papers in Regional Science, Wiley Blackwell, vol. 101(1), pages 81-105, February.
    3. Balaguer, Jacint & Ripollés, Jordi, 2021. "Does multimarket contact affect prices in the retail fuel industry? First empirical evidence," Energy Economics, Elsevier, vol. 93(C).
    4. José Manuel Ordóñez-de-Haro & Jordi Perdiguero & Juan-Luis Jiménez, 2020. "Fuel prices at petrol stations in touristic cities," Tourism Economics, , vol. 26(1), pages 45-69, February.
    5. Valadkhani, Abbas & Anwar, Sajid & Ghazanfari, Arezoo & Nguyen, Jeremy, 2021. "Are petrol retailers less responsive to changes in wholesale or crude oil prices when they face lower competition? The case of Greater Sydney," Energy Policy, Elsevier, vol. 153(C).

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    More about this item

    Keywords

    Gasoline retailing; Market definition; Competition; Simulation;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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