The pricing behavior of Italian gas stations: Some evidence from the Cuneo retail fuel market

- The one-price law is approximately satisfied in the Cuneo (Italy) retail fuel market.
- Spatial price propagation in Cuneo is slow and incomplete, and shows a complex propagation pattern.
- Spatial dependence between gas stations is up to about 1.1 km.
- The propagation effect on diesel prices is stronger than the corresponding effect on gasoline prices.

This paper studies how gas stations adjust their gasoline and diesel prices in response to their neighboring competitors. The empirical analysis relies on data collected from January to August 2011 on the daily prices of 20 gas stations located in Cuneo, Italy. These data show significant price uniformity, especially within the same geographical area of the town. Approximately one-third of gas stations responded within a day to targeted competitors' price changes, indicating some evidence of price matching behavior in the industry. Additionally, there is some, but discontinuous, geographical price propagation, testifying to the presence of a weak domino effect. Finally, spatial econometric analysis suggests that there is spatial dependence between gas stations up to about 1.1 km.