Price Regulation and Fraud—with Special Emphasis on Gasoline Retailing

In this paper, we study fraud and price regulation in gasoline retailing: We model the incentives that retail stations have to dispense less gasoline than the amount that consumers pay for: both under fixed and flexible price regimes. The results of the model indicate that competition, cheating fines, and law enforcement efforts reduce incentives to cheat regardless of the price regime. Interestingly, price-cap regulation itself creates additional incentives to cheat and reduces welfare. Nevertheless, its effect on consumers’ surplus is ambiguous.