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Flex cars and competition in fuel retail markets

Author

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  • Pessoa, João Paulo
  • Rezende, Leonardo
  • Assunção, Juliano

Abstract

We study how the diffusion of flex (bi-fuel) cars affected competition on ethanol and gasoline retail markets. We propose a model of price competition in which the two fuels become closer substitutes as flex cars penetration grows. We use a large panel of weekly prices at the station level to show that fuel prices and margins have fallen in response to this change. This finding is evidence of market power in fuel retail and indicates that innovations that increase consumer choice benefit even those who choose not to adopt them.

Suggested Citation

  • Pessoa, João Paulo & Rezende, Leonardo & Assunção, Juliano, 2019. "Flex cars and competition in fuel retail markets," International Journal of Industrial Organization, Elsevier, vol. 63(C), pages 145-184.
    • Handle: RePEc:eee:indorg:v:63:y:2019:i:c:p:145-184
    DOI: 10.1016/j.ijindorg.2018.07.005
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    References listed on IDEAS

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    Cited by:

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    2. Jiranyakul, Komain, 2022. "Ethanol Use and Gasoline Consumption in Thailand," MPRA Paper 115503, University Library of Munich, Germany.
    3. Roberto Amaral-Santos & Ariaster Chimeli & Joao Paulo Pessoa, 2023. "Natural Gas Vehicles: Consequences to Fuel Markets and the Environment," Working Papers, Department of Economics 2023_07, University of São Paulo (FEA-USP).
    4. Thiago B. Murari & Aloisio S. Nascimento Filho & Eder J.A.L. Pereira & Paulo Ferreira & Sergio Pitombo & Hernane B.B. Pereira & Alex A.B. Santos & Marcelo A. Moret, 2019. "Comparative Analysis between Hydrous Ethanol and Gasoline C Pricing in Brazilian Retail Market," Sustainability, MDPI, vol. 11(17), pages 1-12, August.
    5. Georgios Nalbantis & Tim Pawlowski & Dominik Schreyer, 2023. "Substitution Effects and the Transnational Demand for European Soccer Telecasts," Journal of Sports Economics, , vol. 24(4), pages 407-442, May.

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    More about this item

    Keywords

    Flex-fuel vehicles; Gasoline; Ethanol; Price competition; Spatial competition; Discrete equilibrium price dispersion;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels

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