Spatial clustering and market power: Evidence from the retail gasoline market

We investigate the impact of local market power and ‘spatial clustering’ on prices in the retail gasoline market. The acquisition of Aral stations from BP in the Austrian gasoline market in 2003 provides a ‘quasi-experiment’ for identification of the causal effects of changes in spatial clustering on retail prices for a panel of gasoline stations. Our econometric analysis suggests that spatial clustering of gasoline stations reduces the degree of competition between firms and increases equilibrium prices. Merger simulations show that ignoring merger-induced changes in spatial characteristics will lead to a significant bias in the evaluation of merger effects.