Market power and second degree price discrimination in retail gasoline markets

摘要

Empirical evidence of 'quality-based' second degree price discrimination is scarce. The co-existence of regular-grade 10% ethanol-blended gasoline (E10) and regular-grade non-blended gasoline (E0) in a major metropolitan city allows for second degree price discrimination to be examined while eliminating the issue of endogenous product differentiation because the two blends of gasoline are near-perfect substitutes. Using a unique data set including daily price information for 402 retailers that sell only E0 gasoline, only ethanol-blended E10 gasoline, or both blends simultaneously, I find evidence that retailers use second degree price discrimination to segment the population between perceived lower and higher quality gasoline; despite the fact that both blends can safely be used in nearly all vehicles. Additionally, I uncover two elasticities of demand for gasoline and discuss the welfare effects of price changes and market segmentation. (C) 2019 Elsevier B.V. All rights reserved.