Station level gasoline demand in an Australian market with regular price cycles
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Regular and frequent gasoline price cycles are being observed in many Australian and
Canadian markets. What is driving these price cycles has been the subject of academic
studies and government investigations. The existing explanations for these price cycles
all rely on the presumption that drivers are intensively sensitive to gasoline price differentials
at the station level. However, no empirical evidence exists in the literature to
support this presumption. This paper provides the first piece of empirical evidence.
This paper uses a unique price and quantity data set and novel instruments to estimate
the station level gasoline demand in the cycling market of Perth, Australia. The elasticity
estimates confirm that drivers in the Perth area are indeed very sensitive to gasoline
price differentials.