The Korean Journal of Economic Studies
The Effects of the “Thrifty Station” Policy on the Market Competition in the Korean Retail Gasoline
Woo-Hyung Hong (Hansung University)Year 2017Vol. 65No. 2
The Korean government has performed an interesting experiment in theretail gasoline market that intentionally introduce low-cost gas station so-called“Thrifty gas station” into the market. By doing so, the government expectedthat the entry of Thrifty stations would stimulate competition in a local marketand thus improve consumers’ welfare. This paper investigates the ‘average’ and‘dynamic’ effects of Thrifty stations on gasoline prices of both Thrifty stationsand nearby competitors. To identify the pure competition effects, we adoptpanel data analysis to control for various unobserved economic factors thatpossibly affect gasoline prices. Our results support that prices of Thriftystations decreased permanently by 15-17 KRW per liter after their conversion.In contrast, prices of nearby stations within 1 and 2 km radius remainunchanged after the entry of a Thrift station. For this reason, we concludethat the “Thrifty gas station” policy has little effect on the competition amongstations located in the capital area.