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Should I Buy Here, or Keep Driving? The Effect of Geographic Market Density on Retail Gas Prices

Colorado College Working Paper No. 2011-15

17 Pages Posted: 11 Dec 2011 Last revised: 12 Apr 2015

Amy Schultheis

Bankrate Insurance

Daniel K. N. Johnson

Colorado College - Department of Economics and Business

Kristina M. Lybecker

Colorado College - Department of Economics & Business

Devin Nadar

Colorado College - Department of Economics and Business

Date Written: December 10, 2011

Abstract

The effect of spatial factors on competition and the price of gasoline have been sparsely explored by previous studies. Existing work examines how gasoline prices differ based on distance from the distribution site as well as how cost factors influence gasoline prices. Using market data from six midsized U.S. metro areas with similar isolation from neighboring retail markets, this paper examines the effects of location on retail price, while controlling for brand effects. Spatial regression analysis accommodates the potential of spatially correlated errors, and sensitivity analysis tests for several measures of retail location concentration. Results point to reproducible brand premiums and some location-based price differences, but also show the counterintuitive finding that areas with more market competition do not show significantly lower retail gas prices.

Keywords: gas, geography, spatial, concentration, competition

JEL Classification: N7, R32

Suggested Citation

Schultheis, Amy and Johnson, Daniel K. N. and Lybecker, Kristina M. and Nadar, Devin, Should I Buy Here, or Keep Driving? The Effect of Geographic Market Density on Retail Gas Prices (December 10, 2011). Colorado College Working Paper No. 2011-15. Available at SSRN: https://ssrn.com/abstract=1970709 or http://dx.doi.org/10.2139/ssrn.1970709

Amy Schultheis

Bankrate Insurance ( email )

Daniel Kent Neil Johnson (Contact Author)

Colorado College - Department of Economics and Business ( email )

14 E Cache La Poudre Street
Colorado Springs, CO 80903
United States
719-389-6654 (Phone)
719-389-6927 (Fax)

HOME PAGE: http://faculty1.coloradocollege.edu/~djohnson

Kristina M. Lybecker

Colorado College - Department of Economics & Business ( email )

14 E Cache La Poudre Street
Colorado Springs, CO 80903
United States
719-389-6445 (Phone)
719-389-6927 (Fax)

Devin Nadar

Colorado College - Department of Economics and Business ( email )

14 E Cache La Poudre Street
Colorado Springs, CO 80903
United States

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