Posted: 28 Jan 2010
Date Written: January 26, 2010
Hypermarkets are large retail suppliers of general merchandise or grocery items that also sell gasoline, often at very low margins. Using panel data for 1998-2002, this paper estimates the impact of hypermarkets on average state-level retail gasoline prices. The empirical results suggest a robust, economically (and statistically) significant effect of increased competition from hypermarkets. Furthermore, the results also suggest that refiners’ lower the delivered wholesale prices charged to their affiliated lessee-dealer and open-dealer stations in response to increased hypermarket competition, which in turn translates to lower retail (street) prices. The presence of a state motor fuel sales-below-cost (SBC) law may lessen the price-reducing effects from hypermarket competition by 40-67 percent while independently imparting no other offsetting price reductions. Finally, using recently published estimates of the short-run own price elasticity of demand for gasoline, consumer welfare is estimated to have increased in the neighborhood of $488 million over the sample period.
Keywords: Dealer tank wagon, Hypermarkets, Motor fuel SBC laws, Petroleum, Vertical integration
JEL Classification: L11, L22, L71, Q40
Suggested Citation: Suggested Citation
Zimmerman, Paul R., The Competitive Impact of Hypermarket Retailers on Gasoline Prices (January 26, 2010). Available at SSRN: https://ssrn.com/abstract=1542692