Environmental and Resource Economics Review (자원ㆍ환경경제연구)

Korean Resource Economics Association (한국자원경제학회)
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Spatial Price Competition in the Korean Retail Gasoline Market

  • Kim, Donghun (Graduate School of International Studies, Yonsei University) ;
  • Lee, Jiyon (Korea Energy Economics Institute)
  • Received : 2014.09.17
  • Accepted : 2014.11.27
  • Published : 2014.12.31
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Abstract

This paper analyzes competition among service stations in the Korean gasoline market. We consider spatial differentiation as a source of product differentiation as well as the characteristics of the stations and vertical contracts between refiners and retailers as factors causing changes in equilibrium prices in the Korean gasoline retail market. The effect of the government's price disclosure policy on the retail market competition is also analyzed. Moran's I test indicates that the prices of neighboring gas stations are spatially correlated in the market. It is also found that gasoline prices for vertically integrated stations are much lower than those for independent stations. In addition, unbranded stations charge lower prices than branded stations but also induce branded stations to price more competitively. Meanwhile, the government's price disclosure policy did intensify price competition in the retail gasoline market. It is inferred that the price disclosure policy contributed to retailers gaining more bargain power in price negotiation with refiners, causing an eventual increase in retail prices.

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References

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