Does Increasing Concentration Hit Poorer Areas More? A Study of Retail Petroleum Markets*

Abstract

A central tenet in the field of industrial organisation is that increasing/decreasing market concentration is associated with increased/reduced markups. But does this variation affect every consumer to the same extent? Previous literature finds price dispersion exists even for homogeneous goods, at least partially as a result of heterogeneity in consumer engagement with the market. We study this question by linking demographic and income heterogeneity across local areas to the impact of changing market concentration on markups. With 15 years of station‐level motor fuel price data from Western Australia and information on instances of local market exit and entry, we apply a non‐parametric causal forest approach to explore the heterogeneity in the effect of exit/entry. The paper provides evidence of the distributional effect of changing market concentration. Areas with lower income experience a larger increase in petrol stations' price margin as a result of market exit. On the other hand, entry does not benefit the same low‐income areas with a larger reduction in the margin than in high‐income areas. Policy implications include a need to further focus on increasing engagement by low‐income consumers.