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Flex cars and competition in fuel retail markets |
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| Institution: | 1. Sao Paulo School of Economics - FGV, São Paulo, Brazil;2. Centre for Economic Performance, London, UK;3. PUC-Rio, Rio de Janeiro, Brazil;4. PUC-Rio, Rio de Janeiro, Brazil;1. MAPP, France;2. Toulouse School of Economics, CNRS, University of Toulouse Capitole, France;3. Toulouse School of Economics, IAST, University of Toulouse Capitole, France;1. Economics Department, University of Mannheim, L7, 3–5, Mannheim D-68131, Germany;2. Department of Economics, Monash University, Building 11, Room E977 Wellington Road, Clayton Vic 3800, Australia |
| Abstract: | We study how the diffusion of flex (bi-fuel) cars affected competition on ethanol and gasoline retail markets. We propose a model of price competition in which the two fuels become closer substitutes as flex cars penetration grows. We use a large panel of weekly prices at the station level to show that fuel prices and margins have fallen in response to this change. This finding is evidence of market power in fuel retail and indicates that innovations that increase consumer choice benefit even those who choose not to adopt them. |
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