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Competition in Retail Petrol Markets
Author(s) -
Tappata Mariano,
Yan Jing
Publication year - 2017
Publication title -
australian economic papers
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 15
eISSN - 1467-8454
pISSN - 0004-900X
DOI - 10.1111/1467-8454.12100
Subject(s) - endogeneity , market power , economics , market structure , competition (biology) , competitor analysis , market concentration , oligopoly , factor market , product differentiation , product market , product (mathematics) , econometrics , monetary economics , microeconomics , monopoly , incentive , cournot competition , ecology , management , biology , geometry , mathematics
We study the relationship between prices and market structure in geographically isolated markets that are exposed to large demand shocks. The temporal variation in market size allows us to overcome the classical endogeneity bias in standard concentration‐performance regressions. We find evidence of local market power in petrol markets due to product differentiation. Additionally, the high margins that characterise concentrated markets dissipate quickly with the number of competitors. Ignoring market structure endogeneity leads to underestimating the effect of market concentration on prices between 55 and 70%.