Market power in the liquid fuels wholesale chain in Argentina: an empirical analysis

This paper studies the demand for liquid fuels at the wholesale level, using the discrete choice approach. Demand is conditioned by the presence of wholesale competitors, the existence of a reward card, and the percentage of flagged outlets kept by each firm. Using a novel dataset from Argentina, we provide new empirical evidence that quantifies market power across firms and regions. We find differences among markups estimated at regional levels, based both on different presence of the firms within each region and on price elasticity of demand of each region itself. Even though leading firms tend to have higher markups on the whole, there are specific niche markets where small firms reach higher markups than those they could have obtained in more crowded markets, exceeding markups obtained by larger competitors. Price elasticity of demand is different among regions, partly because it reflects the variability that coexists in the productive structure of each economy and because of different income levels and consumption patterns in these geographic areas.