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How Competitive is the Argentine Gasoline Market ? A Differentiated Product Model

After the deregulation of gasoline markets in Argentina in 1991, gasoline prices have not reacted to crude oil price changes as much as they have done in the United States. Not only have price responses been different, but also the level of prices in Argentina has remained higher than that in the US. In this paper, I study the extent to which a higher degree of market power in Argentina explains these differences in pricing behavior. To this end, I model demand and supply in a discrete choice framework treating gasoline as a differentiated product. Using firm-level data for five Argentine markets, I construct a likelihood ratio test to select among alternative supply relations. The supply relation obtained under Cournot competition provides the best fit to the data. JEL classification: L1, L6, C3