Pricing and Searching in the Retail Gasoline Market

Abstract

The paper studies consumers' search behavior and firm's pricing strategies in an economy with differential location among retail gasoline stations. The main findings are: (1) The consumer group in self-service gasoline markets searches more than that in full-service gasoline markets. (2) The consumer group in the regular gasoline market searches most among all gasoline markets. (3) A rapid price change raised the degree of consumers' search in most of the six gasoline markets, however the increase in the consumers' search index was more significant in full-service markets than that in self-service gasoline markets. (4) The average interval of credible pricing for each gasoline market that we studied is about two months. (5) A search index can be used to compare the intensity of consumers' search between different quality of gasoline markets. The successful application of this index suggests its usefulness in studying other monopolistic competitive markets