Estimating the Impacts of Outlet Rationalization on Retail Prices, Industry Concentration, and Sales: Empirical Evidence from Canadian Gasoline Markets

Abstract

The retail gasoline industry in both Canada and the United States experienced a significant rationalization of outlets from the late 1970s through the 1990s. We estimate the impacts of reduced outlet density by exploiting the 27% decline in retail gasoline outlets across 10 Canadian cities between 1991 and 1997. Ordinary least squares and instrumental variables estimates suggest that rationalization resulted in a significant increase in retail prices, market concentration, and average outlet sales. The decline in retail outlets led to a 9% increase in retail prices, a rise in market concentration between 16% and 22%, and a 22% increase in average outlet sales.