Title: Do retailers set optimal prices in the case of the retail gasoline market?

Authors: Daero Kim; Matt Davison; Fredrik Ødegaard

Addresses: Department of Applied Mathematics, Western University, London, Ontario, N6A 3K7 Canada ' Department of Statistical and Actuarial Science, Western University, London, Ontario, N6A 3K7 Canada ' Ivey School of Business, Western University, London, Ontario, N6A 3K7 Canada

Abstract: How should gasoline retailers respond to other competing retailers and to changes in commodity gasoline prices to set their own prices over time? This question opens the door to an important discussion on price-setting strategies in the retail gasoline market. Retail gasoline price data, both panel and time series, is of great interest in the economic arena since it allows the testing of many theories about price formation, oligopolistic pricing, and consumer search. In this study, we present results from a unique new dataset, including daily sales, cost, and price data from 100 retail gasoline stations in a western European country. With this data, we empirically test various economic models to confirm, in full or in part, some earlier results based on North American data. We discuss a special case in which we empirically fit a model where retailers set prices partly in response to local competitors' prices.

Keywords: gasoline prices; petrol prices; local competitors; competitor prices; asymmetric response; oligopoly; optimal pricing; gasoline retailers; petrol retailers; price setting.

DOI: 10.1504/IJRM.2015.073818

International Journal of Revenue Management, 2015 Vol.8 No.3/4, pp.241 - 259

Received: 07 Oct 2014
Accepted: 29 Mar 2015
Published online: 23 Dec 2015 *

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