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Pricing and Margins in the Retail Automotive Fuel Market: Empirical Evidence from Spain

Abstract:
This paper analyses the evolution of gross retail margins for automotive fuels in Spain between January 2001 and February 2013. We firstly empirically test for breaks in the time series of gross margins. Our results indicate that there is only one break-point, in mid-2008, just when the demand for automotive fuels drops due to the economic crisis and the difference between the Spanish and the European retail margins increase notably. In addition, a regression analysis shows that the gross retail margins were higher during the recessive period of the Spanish economy (2008-2013) than before. Furthermore, we examine the causes of the break-point and of the subsequent evolution of margins. We find no evidence to support either the prohibition of using retail price maintenance (RPM) and recommended prices in the supply contracts or a supply cost change of automotive fuels as the cause of the evolution of retail margins. In addition, empirical evidence indicates that retail prices respond symmetrically to changes in wholesale prices. Instead, we show that the data are consistent with some firms exercising market power during the recessive period of the Spanish economy.

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Energy Specializations: Transportation; Petroleum – Refining and Products

JEL Codes: Q41: Energy: Demand and Supply; Prices, Q40: Energy: General, L71: Mining, Extraction, and Refining: Hydrocarbon Fuels

Keywords: Gasoline, diesel, competition, Spain

DOI: 10.5547/01956574.39.SI1.abel

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Published in Volume 39, Special Issue 1 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.