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Journal article
Flex cars and competition in fuel retail markets
Juliano Assuncao, Joao Paulo Pessoa and Leonardo Rezende
March 2019
Paper No' :

JEL Classification: L11;L13;L62;L71

Tags: productivity; discrete equilibrium price dispersion; ethanol; flex-fuel vehicles; gasoline; price competition; spatial competition

We study how the diffusion of flex (bi-fuel) cars affected competition on ethanol and gasoline retail markets. We propose a model of price competition in which the two fuels become closer substitutes as flex cars penetration grows. We use a large panel of weekly prices at the station level to show that fuel prices and margins have fallen in response to this change. This finding is evidence of market power in fuel retail and indicates that innovations that increase consumer choice benefit even those who choose not to adopt them.