Cross-border competition in the gasoline retail market: Impact of proximity at the German-Polish border

In this article, I analyze how persistently lower gasoline prices in Poland affect the prices set in the German border region. Based on a complete dataset of German gasoline prices and an assessment of driving distances between gasoline stations, I estimate the impact of one additional kilometer of distance to the nearest Polish competitor on the price charged by German gasoline stations. Following the fixed effects filtered estimator approach proposed by Pesaran and Zhou (2018) and controlling for various station characteristics, I find no evidence that German gasoline stations enter price competition with their Polish counterparts. My descriptive analysis of gasoline station infrastructure in the German border region reveals increasingly sparse gasoline station density when approaching the Polish border, along with an increasing share of premium brands. These results may reflect the effect of substantially lower taxes in Poland, discouraging German gasoline stations from locating near the border and effectively ruling out cross-border price competition. Although indirect, my findings suggest the presence of fuel tourism.