Competition and Cooperation in Retail Gasoline Markets: An Empirical Study

Local retail gasoline markets offer a relatively low cost opportunity to test a number of hypotheses from the industrial organization literature regarding the interdependence of pricing choices. Is there tacit collusion among retailers? Or does the strong correlation of prices represent the natural workings of a highly competitive market (i.e. the law of one price)? Is there evidence of price leadership? Do customers perceive gasoline from competing brands as differentiated products? Is there greater price dispersion among spatially differentiated outlets? Are there persistent price differences between independent and branded stations? We argue that repeating these tests at the local level may be a useful exercise for undergraduate industrial organization classes.