Do the Poor Pay Disproportionately More for Increasing Market Concentration? A Study of Retail Petroleum Markets

Abstract

A central tenet of industrial organisation is that increasing/decreasing market concentration is associated with increased/reduced markups. But do these variations affect every consumer to the same extent? Previous literature finds price dispersion exists even for homogeneous goods, at least partially as a result of heterogeneity in consumer engagement with the market. We link this heterogeneity to the impact of changing market concentration on markups. With 18 years of station-level motor fuel price data from Western Australia and information on instances of local market exit and entry, we apply a non-parametric causal forest approach to explore the heterogeneity in the effect of exit/entry. The paper provides evidence of the distributional effect of changing market concentration. Areas with lower income experience a larger increase in petrol stations' price margin as a result of market exit. On the other hand, entry does not benefit the same low-income areas with a larger reduction in the margin than in high-income areas. Policy implications include further focus on increasing engagement by low income consumers.

Keywords: inequality, market concentration, income, consumer search, causal forests

JEL Classification: L11, L40, L81, C14