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
Date Written: December 10, 2011
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: Suggested Citation