Our main goal in this paper is to understand the fuel market's spatial price competition. While most of the literature uses the density of gas stations and proximity to rivals as proxies for spatial competition, we measured the marginal increase in spatial competition by the entrance of a new rival nearby. The empirical results indicate that a new firm's entrance reduces prices, and the reduction is more significant the closer the new rival is. A new rival less than 100 meters away is related to a reduction of 2.6% on the typical incumbent firm price. When the new rival is located farther than 250 meters, the incumbent response is lower than 1%. For even greater distances, the effects were significant only when incumbents are unbranded. The extent of spatial competition matters for the outcome; while firms that already faced intense spatial competition are not impacted by having an entrant seller nearby, those facing low spatial competition had a significant price reduction.The pattern, entry of rivals closer matters more, remains when investigating the gasoline price, the ethanol price, and the gasoline wholesale-retail margins in Brazil.
The upward pricing pressure (UPP) proposed by Farrell and Shapiro (2010a) is a significant advance in the horizontal merger literature and practice. However, the indicator is designed for a particular pre-merger scenario: the Bertrand-type competition. Here, we propose an indicator for a Bertrand-Cournot duopoly pre-merger scenario, shedding light on this assumption's role in the UPP. Besides, we assess the effect of the degree of product differentiation on UPP. Results indicated that the upward pricing pressure caused by a merger depends on the pre-merger competition, with the Bertrand-Cournot having a higher UPP than the Bertrand scenario. The degree of product differentiation also matters for the UPP -merged firms that produce more homogeneous products have a higher probability of causing upward pricing pressure in post-merger. Our findings help the antitrust authority analyze firms' mergers, indicating that these two features need to be better observed: the pre-merger competition scenario and firms' product differentiation.
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