Empirical essays on demand complementarity and competition in gas retailing

Economists have paid scant attention to a widespread phenomenon in the retail gas market: the presence of nongas offerings at stations. This dissertation brings a rich new data set to bear on the role of convenience retailing in competition in this industry.; The first chapter broadly assesses competition in gasoline retailing. The positive correlation between a station's gas sales and the average price of nearby stations supports the generally maintained hypothesis that stations compete in geographically localized oligopolies. A station's gas sales are positively correlated with offering a broad line of convenience goods. This observation motivates this dissertation's research agenda.; The second chapter investigates the relationship between a station's gas demand and its other amenities, in particular its convenience offerings. Under demand complementarity, the time and travel costs of shopping induce a consumer preference for "one-stop" shopping. A substantial convenience offering may complement a station's gas demand while rendering it more elastic.; My empirical model of station gas demand possesses this flexibility. A plausible model of competition yields instruments for station prices and convenience offerings. A substantial convenience offering raises a station's gas demand as much as fifteen percent at the median. Demand indeed becomes more elastic. This suggests that convenience retailing may benefit gas customers.; The third chapter addresses this issue more conclusively. I argue that station operators compete in the prices of gas and their convenience offering. The absence of data on station's convenience sales is a major challenge. A model of market equilibrium in prices links observed prices to demand and cost primitives.; Strong evidence emerges that the gas price influences sales of a station's other offerings. Counterfactual analysis reveals that a station charging five cents more for gas than its neighbors would charge roughly five cents less in market equilibrium after introducing a substantial convenience offering. The elasticity effect drives the unilateral incentive to lower the gas price. Even if complementarity conferred market power with respect to gas, product-line extension might be procompetitive on balance because of the incentive to internalize the influence of the gas price on convenience profits.