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

[1]   A. Shepard, “Contractual Form, Retail Price, and Asset Characteristics in Gasoline Retailing,” The RAND Jour-nal of Economics, Vol. 24, No. 1, 1993, pp58-77.

[2]   G. Iyer and P.B. Seetharaman, “To Price Discriminate or Not: Product Choice and the Selection Bias Problem,” Quantitative Marketing and Economics, Vol. 1, 2003, pp155-178.

[3]   G.S. Maddala, “Limited-Dependent and Qualitative Variables in Econometrics,” Cambridge University Press, 1983.

[4]   J. A. Dubin and D.L. McFadden, “An Econometric Analysis of Residential Appliance Holdings and Consumption,” Econometrica, Vol. 52, No. 2, 1984, pp345-362.

[5]   J. Pinkse and M. E. Slade, “Contracting in Space: An Application of Spa-tial Statistics to Discrete-Choice Models,” Journal of Econometrics, Vol. 85, No. 1, 1998, pp125-154.

[6]   M. E. Slade, “Multitask Agency and Contract Choice: An Empirical Exploration,” International Economic Review, Vol. 37, No. 2, 1996, pp465-486.

[7]   M. E. Slade, “Strategic Motives for Vertical Separation: Evidence from Retail Gasoline Market,” Journal of Law, Econom-ics and Organization, Vol. 14, No. 1, 1998, pp84-113.

[8]   M.W. Hanemann, “Discrete/Continuous Models of Consumer Demand,” Econometrica, Vol. 52, No. 3, 1984, pp541-562.

[9]   P. K. Chintagunta, “Inves-tigating Purchase Incidence, Brand Choice and Purchase Quantity Decisions of Households,” Marketing Science, Vol. 12, No. 2, 1993, pp184-208.

[10]   R.P. Trost, “De-mand for Housing: A Model Based on Inter-Related Choices between Owing and Renting,” Unpublished Ph.D dissertation, University of Florida, 1977.

[11]   T. McGuire and R. Staelin, “An Industry Equilibrium Analysis of Downstream Vertical Integration,” Market-ing Science, 2 (Spring), 161-192.

[12]   Y. Lin and P.B. Seetharaman, “The Gasoline Industry: A Review for Marketing Research,” The Marketing Review, forthcom-ing, 2012.

 
 
Top