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The Effects of Gasoline Price Regulations: Experimental Evidence

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  • Haucap, Justus
  • Müller, Hans Christian

Abstract

Economic theory suggests that gasoline retail markets are prone to collusive behavior. Oligopoly market structures prevail, market interactions occur frequently, prices are highly transparent, and demand is rather inelastic. A recent sector inquiry in Germany backed suspicions of tacit collusion and suggested to adopt regulatory pricing rules for gas stations similar to those implemented in Austria, parts of Australia, Luxembourg or parts of Canada. In order to increase consumer welfare these rules either restrict the number of price changes per day or they limit the mark‐up for gasoline retail prices. As theoretical predictions about the impact of these measures are mixed and empirical studies rare, we analyze the effects, using an experimental gasoline market in the lab. Our results reveal that two of the suggested rules rather decrease consumer welfare: The Austrian rule which only allows one price increase per day (while price cuts are always possible) and the Luxembourg rule which introduces a maximum markup for retailers. While no rule tends to induce lower retail prices, the Western Australian rule which allows at most one daily price change (no matter whether up or down) does at least not harm consumers.

Suggested Citation

  • Haucap, Justus & Müller, Hans Christian, 2012. "The Effects of Gasoline Price Regulations: Experimental Evidence," DICE Discussion Papers 47, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  • Handle: RePEc:zbw:dicedp:47
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    References listed on IDEAS

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    1. Deck, Cary A. & Wilson, Bart J., 2008. "Experimental gasoline markets," Journal of Economic Behavior & Organization, Elsevier, vol. 67(1), pages 134-149, July.
    2. Siegfried Berninghaus & Michael Hesch & Andreas Hildenbrand, 2012. "Zur Wirkung regulatorischer Preiseingriffe auf dem Tankstellenmarkt," Wirtschaftsdienst, Springer;German National Library of Economics, vol. 92(1), pages 46-50, January.
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    Cited by:

    1. repec:taf:applec:v:49:y:2017:i:57:p:5740-5752 is not listed on IDEAS
    2. Dewenter, Ralf & Heimeshoff, Ulrich, 2012. "Less pain at the pump? The effects of regulatory interventions in retail gasoline markets," DICE Discussion Papers 51, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    3. Srikant Devaraj & Pankaj C Patel, 2016. "Gas Prices and Red light Violations in Chicago," Economics Bulletin, AccessEcon, vol. 36(3), pages 1844-1853.
    4. Obradovits, Martin, 2014. "Austrian-style gasoline price regulation: How it may backfire," International Journal of Industrial Organization, Elsevier, vol. 32(C), pages 33-45.
    5. Hakan Yilmazkuday, 2017. "Geographical dispersion of consumer search behaviour," Applied Economics, Taylor & Francis Journals, vol. 49(57), pages 5740-5752, December.
    6. Thomas Wein, 2014. "Preventing Margin Squeeze: An Unsolvable Puzzle for Competition Policy? The Case of the German Gasoline Market," Working Paper Series in Economics 309, University of Lüneburg, Institute of Economics.
    7. Wittmann, Nadine, 2014. "Regulating gasoline retail markets: The case of Germany," Economics Discussion Papers 2014-17, Kiel Institute for the World Economy (IfW).
    8. Wittmann, Nadine, 2014. "Regulating gasoline retail markets: The case of Germany," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 8, pages 1-33.
    9. Noel, Michael D. & Chu, Lanlan, 2015. "Forecasting gasoline prices in the presence of Edgeworth Price Cycles," Energy Economics, Elsevier, vol. 51(C), pages 204-214.
    10. Justus Haucap & Willi Diez & Hans-Joachim Otto & Heinz-J. Bontrup, 2012. "Steigende Benzinpreise: Fehlende Transparenz auf dem Öl- und Kraftstoffmarkt?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 65(11), pages 03-15, June.

    More about this item

    Keywords

    Gasoline Prices; Fuel Prices; Experimental Gasoline Market; Fuel Price Regulation; Retail Price Regulation; Gas Stations;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • L88 - Industrial Organization - - Industry Studies: Services - - - Government Policy
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General

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