Monday, December 12, 2011
Posted by D. Daniel Sokol
Julio Cesar Arteaga and Daniel Flores (both Facultad de Economia, Universidad Autonoma de Nuevo Leon) discuss Regulation, competition and fraud: evidence from retail gas stations in Mexico.
ABSTRACT: Mexican gas stations across the country buy and sell gasoline at regulated common prices. Therefore, authorities that set these prices do not take into account competition conditions of each market. In this paper we establish the effect of a regulated mark-up price as well as competition on the incentives that gas stations in Mexico have to dispense less amount of gasoline than what consumers pay for. The results of theoretical and empirical work indicate that a higher regulated mark-up price reduces the incentives of gas stations to cheat. Similarly, more intense competition among the retailers of a given market decreases the average shortage.