Locational choice and price competition: Some empirical results for the Austrian retail gasoline market

Abstract

Using data from the Austrian retail gasoline market we test the following two hypotheses derived from spatial economics: (i) Retail shops are more densely located in areas with a higher population density. (ii) Spatial competition equilibrium prices are decreasing in the density of seller locations. Both hypotheses are well supported by the data. Population density explains more than 95% of the cross-district variation in the density of gasoline stations. With respect to the relationship between prices and gas station density the coefficient has the predicted sign and is significant at the 5% level or better in all specifications. Estimation as simultaneous equations does not alter our conclusions, and suggests causality running from station density to price.