Abstract
Relevant market definition is still a key element of economic analysis of competition in the gasoline market. It is particularly difficult to handle when competition is local and market power is geographically constrained like is the case in the gasoline market. We analyse how the application of the hypothetical monopolist or Small but Significant Non-Transitory Increase in Prices (SSNIP) test performs for defining isochrones using only information on prices and distance among competitors. We conclude that geographic information systems can be very successfully used to define more precisely relevant geographic market in the gasoline retailing. The application to the Spanish gasoline market concludes that geographic relevant market is composed by 5-6 minutes of travel time. Localised market power should be taken into account when analysing the adverse effects of mergers and entry regulations in gasoline retailing. Only drawing small enough isochrones will drive competition in local markets because it is just close rivals that compete effectively with each other.
Highlights
Market definition is a key element for competition policy enforcement in the gasoline market, especially for the retailing segment
We conclude that geographic information systems can be very successfully used to define more precisely relevant geographic markets
We have estimated 15 linear regressions to infer the impact of rivalry on equilibrium prices, that is the coefficient α1 in the following equation: Pi 0 1Nir 2 Nio 3Nio2 i (5)
Summary
Market definition is a key element for competition policy enforcement in the gasoline market, especially for the retailing segment. Estimations and simulation of market power will be used together with more traditional market definition and concentration analysis for the time to come. Exists some papers in the economic literature that try to approximate the relevant markets in different industries. For the gasoline market we only find papers that analyze the geographic relevant market on the wholesale segment. Spiller and Huang (1986) show like the refineries in the northeast of United States compete in a different relevant market. These refineries that were more isolated can exercise market power. Audy and Erutku (2005) apply different price test to define the relevant market in the wholesale gasoline market of Canada. Results show the existence of more than two markets inside Canada
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
