Spatial Differentiation and Vertical Contracts in Retail Markets for Gasoline

Posted by D. Daniel Sokol

Jean-francois Houde, University of Wisconsin - Madison - Department of Economics analyzes Spatial Differentiation and Vertical Contracts in Retail Markets for Gasoline.

ABSTRACT: This paper studies an empirical model of spatial competition and evaluates the impact of vertical relations on prices and consumer welfare. The main feature of my approach is to specify commuting paths as the "locations" of consumers in a Hotelling-style model. As a result spatial differentation depends in an intuitive way on the structure of the road network and the direction of traffic flows. The model is estimated using panel data on the Quebec City gasoline market, and used to quantify markups and simulate two important counter-factual policies: elimination of vertical integration, and wholesale price discrimination ban.