Changing Market Structure and Evolving Ways to Compete: Evidence from Retail Gasoline

This paper examines the pricing behavior of sellers in a market undergoing a significant restructuring, using data from the ongoing introduction of self-service technology in the Korean gasoline market in the 2000s. I provide evidence that full-service premium increased during the market transition. I further show that a monopolistic competition model is not enough to explain the increasing premium. The pricing behavior of sellers differs by product position: self-service sellers compete for price-sensitive consumers, whereas full-service sellers differentiate their product by offering a variety of bundled products and services, such as coffee, carwash or even nail salons, to compete for less-price-sensitive consumers. Taken together, the strategic choices of sellers evolve in different ways when the market structure changes, with each type of seller using its unique position, resulting in an increase in full-service premium during the market transition from full-service to self-service.