An Estimation Of The Survival Of Retail Gasoline Prices

This paper studies how competition works in the fuel industry, by estimating the survival prices for the Chilean retail gasoline markets. We use a rich data set of prices available online that tracks changes in fuel costs. Every Thursday at zero hour, publicly announced new costs are in effect, thus gas-stations react by changing their prices. We estimate a piecewise exponential model, separating for the different gasoline qualities (93, 95 or 97) and for diesel. The evidence shows that retail prices slowly change during the following days to the announcement, and that this behavior is asymmetric regarding the sign and the magnitude in costs changes. The asymmetric pricing response is explained by characteristics at the gasstation level, such as brand, country’s geographic region, and some amenities offered by gasstations. Given the structure of these markets, the most reasonable explanation for this asymmetric behavior is the strategic use of pricing as a reaction to soft competition.