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Retail Pricing under Contract Self-Selection: An Empirical Exploration

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DOI: 10.4236/ti.2013.41B007    2,770 Downloads   4,031 Views  

ABSTRACT

Using cross-sectional survey data on prices, station and market characteristics for 730 gasoline stations in the Greater Saint Louis area, we estimate a switching regression model of station decisions. We employ a binary probit choice model to study a station’s decision to enter a contract relationship with greater control from the upstream refinery, or a contract relationship with greater degree of independence, as a function of market and station characteristics. We then estimate stations’ pricing decisions with self-selectivity corrections for the station’s contract decision. We show that incorrect inferences about retail gasoline station’s pricing behavior would result if the endogeneity in the choice of con-tract type were treated as exogenous condition in the estimation.

Conflicts of Interest

The authors declare no conflicts of interest.

Cite this paper

Y. Lin and L. Li, "Retail Pricing under Contract Self-Selection: An Empirical Exploration," Technology and Investment, Vol. 4 No. 1B, 2013, pp. 31-35. doi: 10.4236/ti.2013.41B007.

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