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Flex cars and competition in ethanol and gasoline retail markets

Author

Listed:
  • Assuncao, Juliano
  • Cordeiro De Noronha Pessoa, Joao Paulo
  • Rezende, Leonardo

Abstract

In Brazil, gasoline and ethanol coexist as automotive fuels and are becoming closer substitutes as flex cars become more widely adopted. We employ this source of variation in a large panel of weekly prices at the station level to show that fuel prices 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. We also propose a model of price competition in this market and use it to estimate demand from price response functions.

Suggested Citation

  • Assuncao, Juliano & Cordeiro De Noronha Pessoa, Joao Paulo & Rezende, Leonardo, 2013. "Flex cars and competition in ethanol and gasoline retail markets," LSE Research Online Documents on Economics 121791, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:121791
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    File URL: http://eprints.lse.ac.uk/121791/
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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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