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Price ceilings as focal points to reach price uniformity: Evidence from a Chinese gasoline market

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  • Zhang, Xiao-Bing
  • Fei, Yinxin
  • Zheng, Ying
  • Zhang, Lei

Abstract

This paper studies the price uniformity in the Chinese gasoline market, using station-level data of Hohhot city, Inner Mongolia. We first document that the mode prices of the gasoline stations are consistent with the price ceilings set by the government, implying that the price ceiling regulation in the Chinese gasoline market may serve as a focal point for the gasoline stations to reach price uniformity. We corroborate the focal point hypothesis by providing evidence showing that some stations would “jump” to the ceilings as their prices approach the ceilings. Also, we find that local market structure, distance between stations, station capacity, market characteristics, and past pricing behavior could affect the probability of gas stations to price at the ceilings. Moreover, a higher price ceiling would reduce the probability that stations reach price uniformity. Our results provide another piece of evidence to the literature regarding the unintended effect of price ceiling regulation.

Suggested Citation

  • Zhang, Xiao-Bing & Fei, Yinxin & Zheng, Ying & Zhang, Lei, 2020. "Price ceilings as focal points to reach price uniformity: Evidence from a Chinese gasoline market," Energy Economics, Elsevier, vol. 92(C).
    • Handle: RePEc:eee:eneeco:v:92:y:2020:i:c:s0140988320302905
    DOI: 10.1016/j.eneco.2020.104950
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    2. Brueckner, Marcus & Hong, Haidi & Vespignani, Joaquin, 2023. "Regulation of petrol and diesel prices and their effects on GDP growth: evidence from China," Working Papers 2023-02, University of Tasmania, Tasmanian School of Business and Economics.
    3. Xu, Jiayi & Zhang, Xiao-Bing & Liu, Yang, 2024. "Asymmetric search behavior for gasoline prices: Evidence from the Chinese gasoline market," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 699-712.
    4. Markus Brueckner & Haidi Hong & Joaquin Vespignani, 2023. "Effects of Government Regulation of Diesel and Petrol Prices on GDP Growth: Evidence from China," ANU Working Papers in Economics and Econometrics 2023-690, Australian National University, College of Business and Economics, School of Economics.
    5. Cui, Jian & Yang, Hanfang & Wang, Yifan & Yang, Caili, 2023. "Dynamics of the gas retail market under China's price cap regulation," Energy Policy, Elsevier, vol. 174(C).

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