Taxes, cost and demand shifters as determinants in the regional gasoline price formation process: Evidence from Spain Alejandro Bello, Ignacio Contı ´n-Pilart n Departamento de Gestio ´n de Empresas, Universidad Pu ´blica de Navarra, Campus de Arrosadia s/n, 31006 Pamplona, Navarra, Spain HIGHLIGHTS c The paper analyzes the impact of all major demand and cost shifters that contribute to regional gasoline price formation. c It shows that the relatively uniform regional gasoline prices persist after the Spanish gasoline market has been liberalized. c It shows that regional tax changes are fully passed on to regional gasoline prices. c It also shows that gasoline spot price changes are fully passed on to consumer prices. article info Article history: Received 2 November 2011 Accepted 19 May 2012 Available online 27 June 2012 Keywords: Determinants of regional gasoline price Regional gasoline price formation Spanish gasoline market abstract This paper examines the pass-through of regional tax changes and spot price variations to regional gasoline prices in Spain. It also analyzes the impact of all major cost and demand shifters that contribute to regional gasoline price formation. To address these research issues, a reduced form price equation using monthly time-series cross-sectional (TSCS) data from January 2004 through December 2008 is estimated. Strong and consistent evidence of full shifting of regional tax changes to regional gasoline prices is found. Gasoline spot price changes are more than proportionally passed through to retail prices. In addition, the empirical evidence shows, on the one hand, that regional gasoline price differences before taxes continue to be quite narrow and, on the other hand, that there is still a margin for larger gasoline price differences among regions. This suggest that ‘‘traditional practices’’ from the monopoly era (i.e. relatively uniform regional gasoline prices) persist after the market has been liberalized, which may have been facilitated by the strong and uniform presence of the major Spanish- based refining companies in the retail sector over the whole country. & 2012 Elsevier Ltd. All rights reserved. 1. Introduction Gasoline prices have always been a matter of public concern. Increases in prices and price differences between regions feature frequently in newspaper, magazine and television news. Research interest in this topic is reflected by a wide range of studies that have focused on price asymmetries, mergers and acquisitions impact on market structure and prices, and the effect of the implementation of contractual and differentiation strategies on competition. This paper examines regional gasoline price formation and price variation across regions and over time, a topic that has received scarce attention in the specialized litera- ture. Overall, it seeks to add new insights into the regional gasoline price formation process, analyzing regional prices for unleaded gasoline 95 RON (Euro-95 1 ) for the period 2004–2008 in Spain. As we will see later on, the Spanish oil industry has experienced one of the most complex processes of restructuring and liberal- ization in the recent history of Europe (Correlje ´ , 1994; Contı ´n et al., 1999), and until January 2004 regional gasoline price differences in Spain were very small (Bello and Contı ´n-Pilart, 2008). This was due, at least in part, to the collaboration between the Spanish-based refiners and the government in setting gasoline retail prices in the name of the ‘‘general interest’’ (inflation control) (Contı ´n-Pilart et al., 2009). The emergence of differences in regional gasoline prices ‘‘coincided’’ with the introduction of different levels of taxation among the Spanish regions, as some charged regional excise taxes. In addition, regional gasoline price differences have remained relatively constant since January 2004. They seem to have their Contents lists available at SciVerse ScienceDirect journal homepage: www.elsevier.com/locate/enpol Energy Policy 0301-4215/$ - see front matter & 2012 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.enpol.2012.05.069 n Corresponding author. Tel.: þ34 948169379; fax: þ34 948169404. E-mail address: contin@unavarra.es (I. Contı ´n-Pilart). 1 Euro-95 is by far the most important type of gasoline in Spain, accounting for about 80% of gasoline sales (Enciclopedia Nacional del Petro ´leo, Petroquı ´mica y Gas, 2007). Energy Policy 48 (2012) 439–448