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CEP discussion paper

Flex Cars and Competition in Ethanol and Gasoline Retail Markets


In Brazil, gasoline and ethanol coexist as automotive fuels and are becoming closer substitutes as flex cars become more widely adopted. We employ this source of variation in a large panel of weekly prices at the station level to show that fuel prices have fallen in response to this change. This finding is evidence of market power in fuel retail and indicates that innovations that increase consumer choice benefit even those who choose not to adopt them. We also propose a model of price competition in this market and use it to estimate demand from price response functions.


Juliano Assuncao, Joao Paulo Pessoa and Leonardo Rezende

13 December 2013     Paper Number CEPDP1251

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This CEP discussion paper is published under the centre's Growth programme.