Pay cycles and gasoline price: When low-cost and independent stations take advantage of the needy

Abstract

This paper analyses the daily price behaviour of different types of gasoline stations in the presence of potential temporary demand shocks caused by an increased availability of disposable income, generated by the payment of a subsidy to a specific part of the population (the unemployed). Using 2015–2016 Spanish data on daily fuel prices and a difference-in-difference approach, we show that independent and low-cost gasoline stations take advantage of the neediest consumers. We find that their prices increase on the day the unemployed receive the government subsidy, while, on the same day, major branded companies decrease their prices. This phenomenon underlines the effect of payment cycles on consumer choices and their economic impact. The paper fills an important gap in the knowledge of how gasoline stations strategically exploit the income patterns of low-income motorists. The findings are also relevant for antitrust and for industry regulators, who generally focus on the activities of major branded gasoline stations, giving less emphasis to the activities of other operators, which also cover significant market shares.