Gasoline Price Differences: Taxes, Pollution Regulations, Mergers, Market Power, and Market Conditions

Abstract

Retail and wholesale gasoline prices vary over time and across geographic locations due to differences in government policies and other factors that affect demand, costs, and market power. We use a two-equation, reduced-form model to determine the relative importance of these various factors. An increase in the price of crude oil has been virtually the only major factor contributing to a general rise in prices over the last couple of decades. Tax variations and mergers contribute substantially more to geographic price differentials than do price discrimination, cost factors, or pollution controls.

On the dynamics of gasoline market integration in the United States: Evidence from a pair-wise approach

“…Cycling cities tend to have higher population density and have independent (non-refinery brand) stations that are more highly concentrated into large retail chains. Chouinard and Perloff (2007) note that retail and wholesale gasoline prices vary over time and across geographic locations due to differences in government policies and other factors that affect demand, costs, and market power. Further support is provided by Deltas (2008) who analyses state-level data which suggests that sticky prices and response asymmetries in Here, we are particularly interested in examining whether a shorter distance is associated with a faster speed of adjustment back towards long-run equilibrium.…”

“…More recently, Adilov and Samavati (2009) provide results which suggest that gasoline prices could change faster when crude oil prices decrease in some geographic areas. Chouinard and Perloff (2007) note that retail and wholesale gasoline prices vary over time and across geographic locations due to differences in government policies and other factors that affect demand, costs, and market power. Brown et al (2008) examine wholesale gasoline market integration in the presence of changes in the number of competitors contrasted with geographic market segmentation induced by regulation.…”

Reformulating competition? Gasoline content regulation and wholesale gasoline prices

“…There are three programs aimed at reducing fuel-related air pollution: the Oxygenated Gasoline Program, the RVP Program, and the Federal RFG Program. 3 Minimum standards are mandated by the EPA, and the program allows regional regulators to impose more stringent requirements through State Implementation Plans (SIPs). Note that the standards apply to all gasoline sold for use in the regulated region, but do not apply to fuel being transported for sale outside of the jurisdiction.…”

Understanding gasoline price dispersion

“…Within this picture, since (i) our primary data set is for retail gasoline prices at the gas station level, (ii) our secondary data set is for the location of re…neries, and (iii) we do not have any data on distribution terminals, we only model the production of gasoline at the re…neries and the distribution of gasoline from re…neries to the gas stations; i.e., we skip modeling local distribution terminals and include the possible injection of additives in the production function of gas stations. Accordingly, as in Chouinard and Perlo¤ (2007) or Doyle and Samphantharak (2008), we assume that each gas station purchases gasoline from the nearest re…ner.…”

“…8 The gas station chooses K g taking the price set by the nearest re…nery as given. The cost minimization results in the following marginal cost of production:…”