Does Increasing the Market Share of Smaller Firms Result in Lower Prices? Empirical Evidence from the Canadian Retail Gasoline Industry

Some recent policy initiatives aimed at preserving the market share of smaller or independent gasoline retailers have either been implemented or proposed in both Canada and the United States. Employing monthly data on average retail prices and market shares across eleven Canadian cities between 1991 and 1997, I find that more aggregate market share in the hands of independent retailers is correlated with higher retail prices, but indirectly associated with lower prices through the corresponding fall in market concentration among vertically integrated firms. The sum of these impacts is negative as indirect effects are larger in magnitude than corresponding direct effects.