Until the end of 2007, more than 99% of retail gasoline stations are of
full-service type in Korea. After a gasoline price hike in mid-2008, however,
the proportion of self-service stations increased gradually to attract price
sensitive consumers amid soaring gas prices. Using a difference-in-differences
approach with a panel of station-specific prices, we examine the effect of new
self-service stations on the price of their competing stations. Controlling for
station-level characteristics that could affect retail gasoline price, we find that
the entry of self-service stations in the Korean retail gasoline market is
associated with a sizable price drop, 12 won per liter or 4 cents per gallon, at
their competing stations. Our empirical results suggest that consumers are
willing to search for lower gasoline prices in making their gasoline
consumption decision, and therefore policies to promote new entries of gas
stations with lower prices could bring down retail gasoline prices.