Working Paper Revision

The Effects of Competition in the Retail Gasoline Industry

Abstract: We estimate the effect of competition on incumbent firm pricing by using high frequency price data and the precise geographic location for all gas stations in California. Using an event study design, we find that the entry of a new station is associated with a 2.7 cent decrease in prices at incumbent stores, which equates to a 7 percent reduction in estimated retail markups. The effects are immediate, persistent. In contrast, nearby exit results in precisely estimated null effects on prices. We show that these results are consistent across all fuel blends, dissipate with distance and are driven by less concentrated markets. Finally, we explore the asymmetric effects, showing that the difference cannot be attributed to differences in branding, proximity to highway or data quality idiosyncrasies, although we find suggestive evidence that exit tends to happen in more competitive markets and among less heavily trafficked stations.

JEL Classification: D40; L11; L81; Q41; R32;

https://doi.org/10.24149/wp2509r1

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Working Papers

Publication Date: 2025-10-31

Number: 2509

Related Works

• Working Paper Revision (2025-10-31) : You are here.
• Working Paper Original (2025-03-05) : The Effects of Competition in the Retail Gasoline Industry