Understanding Gasoline Price Dispersion

Abstract:     
This paper models and estimates the gasoline price dispersion across time and space by introducing and using a unique gasoline price data set at the gas-station level within the U.S. Nationwide effects (measured by time fixed effects or crude oil prices) explain up to about 51% of the gasoline price dispersion followed by the contributions of refinery-specific costs up to about 33%, state taxes about 12%, markups through Bertrand competition about 10%, and spatial factors (such as local agglomeration externalities, land prices, distribution costs of gasoline) up to about 4%. The contribution of brand-specific factors are relatively minor. A welfare analysis further suggests that the elasticities of individual welfare with respect to gasoline prices vary significantly across space, indicating redistributive welfare effects of spatially distributed gasoline prices.

Number of Pages in PDF File: 43

Keywords: Gasoline Prices, Gas-Station Level Analysis, Nighttime Lights, Land Prices, the United States

JEL Classification: L11, L81, R32, R41

working papers series