Davis, Lucas, McRae, Shaun, and Seira, Enrique “Competitive Effects of Entry in Gasoline Markets” (December 2023) | WP-345 | Blog Post

Abstract:

We use panel data on the location, prices, and quality of the universe of gas stations in Mexico to study the competitive effects of entry on incumbent firms. Using more than 1,000 entry events and defining local markets based on the road network, we find that the entry of a new station within three minutes driving time decreases regular gasoline prices by 6 percent of the retail price spread. Competitive effects decline with travel time and are largest in markets that previously had only one station. Entry of stations with the same owner as the incumbent has near-zero effects on price. In addition, we find that entry increases the service quality of incumbents, with fewer customer complaints.