Competitive Effects of Entry in Gasoline Markets

ABSTRACT We use panel data on the location, prices, and quality of the universe of gas stations in Mexico to study the competitive effects of entry on incumbent firms. Using more than 1000 entry events and defining local markets based on the road network, we find that the entry of a new station within 3 min driving time decreases regular gasoline prices by 6% of the retail price spread. Competitive effects decline with travel time and are largest in markets that previously had only one station. Entry of stations with the same owner as the incumbent has near‐zero effects. The effect of competition on quality is less clear, with suggestive evidence of improved service quality in some specifications.