Empirical Investigation of Product Differentiation in the Retail Gasoline Industry

摘要

This Trident project constructed and estimated a model of product differentiation in the retail gasoline industry. Retail gasoline stations product differentiate by choosing location and offering amenities such as pay at the pump, full service, car washes, service stations and food markets. Using daily price data from the Minneapolis retail gasoline market, the effect for spatial and quality differentiation was empirically investigated. Spatial differentiation was measured by creating three degrees of neighbors (competing stations) around each individual gasoline station. Each successive neighborhood had an area of increasing size around the station; this differentiated between closer directly competitive neighbors and indirectly competitive neighbors that were away from a station. Quality differentiation was measured by a binary variable when gasoline stations offer additional amenities. The estimation procedure accounted for spatial autocorrelation and market characteristics specific to the retail gasoline industry. The results indicated that spatial location of firms had the largest and most significant effect on firm price. The spatially lagged autoregressive coefficient was found to be positive and significant; indicating that gasoline firm prices move together and firms that are closer in neighborhood degree have a more significant effect on price. In addition, stations decreased price when the number of competitors in its closest neighborhood increased and when the number of independent stations (stations not connected with a major refiner) increased in the closest neighborhood. Price also increased when stations of the same brand overlapped into each other s neighborhood areas. Quality differentiation had less effect on price than spatial competition.