The Korean government has performed an interesting experiment in the
retail gasoline market that intentionally introduce low-cost gas station so-called
“Thrifty gas station” into the market. By doing so, the government expected
that the entry of Thrifty stations would stimulate competition in a local market
and thus improve consumers’ welfare. This paper investigates the ‘average’ and
‘dynamic’ effects of Thrifty stations on gasoline prices of both Thrifty stations
and nearby competitors. To identify the pure competition effects, we adopt
panel data analysis to control for various unobserved economic factors that
possibly affect gasoline prices. Our results support that prices of Thrifty
stations decreased permanently by 15-17 KRW per liter after their conversion.
In contrast, prices of nearby stations within 1 and 2 km radius remain
unchanged after the entry of a Thrift station. For this reason, we conclude
that the “Thrifty gas station” policy has little effect on the competition among
stations located in the capital area.