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Estimating the Impacts of Outlet Rationalization on Retail Prices, Industry Concentration, and Sales: Empirical Evidence from Canadian Gasoline Markets

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  • The authors thank the following people for their insightful comments: Jean-Pierre Dube, Doug West, Henry Thille, Andy Baziliauskas, Stan Kardasz, Marc Duhamel, Ken Corts, Ralph Winter, Don McFetridge, Tom Ross, Zhiqi Chen, the editor, and two anonymous referees. The usual disclaimer applies.

Abstract

The retail gasoline industry in both Canada and the United States experienced a significant rationalization of outlets from the late 1970s through the 1990s. We estimate the impacts of reduced outlet density by exploiting the 27% decline in retail gasoline outlets across 10 Canadian cities between 1991 and 1997. Ordinary least squares and instrumental variables estimates suggest that rationalization resulted in a significant increase in retail prices, market concentration, and average outlet sales. The decline in retail outlets led to a 9% increase in retail prices, a rise in market concentration between 16% and 22%, and a 22% increase in average outlet sales.

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