Does multimarket contact affect prices in the retail fuel industry? First empirical evidence

Abstract

Abstract Although multimarket competition is a fairly common characteristic in the retail fuel industry, its effect on the corresponding prices remains unexplored. By using a large dataset of service stations in Spain, a first set of empirical results for this industry is provided. It is consistently found that multimarket contact among chain stations increases prices, which adds support to the classical mutual forbearance hypothesis. However, it is further revealed that such an effect is critically dependent on the degree of concentration of each local market. Since the impact becomes more relevant in markets where concentration is lower, it also seems advisable to closely monitor these cases. Findings also suggest that, in those models where multimarket contact information is ignored, the specific effect of local concentration on prices could be significantly underestimated.