Automotive fuel prices at branded and unbranded service stations: differences in the impact of seller density, brand concentration and search costs

Abstract

This paper analyses the impact of local competition on gasoline and diesel pricing at branded and unbranded independent service stations. Based on our theory-driven discussion we derive a number of hypotheses, which are empirically tested on a sample of service stations in Spain. In Spain, retail prices of motor fuels have been under the spotlight since the dismantling of the state monopoly in the 1990s. The concentration of the retail market and the behavior of the main oil operators are of constant concern to the competition authorities. Our empirical analysis provides evidence for the existence of different competitive dynamics between branded and unbranded stations, and between gasoline and diesel retail pricing. Specifically, the results show that (i) fuel prices at branded (unbranded) service station are positively (negatively) associated with the number of stations operating in the same local market, (ii) prices of both motor fuels at a branded station are higher the larger the share of stations carrying the same brand in its local market, (iii) diesel price at an unbranded station is lower the larger the share of unbranded stations in its local market, and (iv) unbranded service stations undercut the price of diesel more than that of gasoline compared with prices at branded stations.