This dissertation studies price-setting behavior in the retail gasoline industry. The main questions addressed are: How important is a retail station's brand and proximity to competitors when retail stations set price? How do retailers adjust their pricing when they cater to consumers who are less aware of competing options or have less discretion over where they purchase gasoline? These questions are explored in two separate analyses using a unique datasets containing retail pricing behavior of stations in California and in 24 different metropolitan areas.

The evidence suggests that brand and location generate local market power for gasoline stations. After controlling for market and station characteristics, the analysis finds a spread of 11 cents per gallon between the highest and the lowest priced retail gasoline brands. The analysis also indicates that when the nearest competitor is located over 2 miles away as opposed to next door, consumers will pay an additional 1 cent per gallon of gasoline.

In order to quantify the significance of local market power, data for stations located near major airport rental car locations are utilized. The presumption here is that rental car users are less aware or less sensitive to fueling options near the rental car return location and are to some extent "captured consumers". Retailers located near rental car locations have incentives to adjust their pricing strategies to exploit this. The analysis of pricing near rental car locations indicates that retailers charge prices that are 4 cent per gallon higher than other stations in the same metropolitan area.

This analysis is of interest to regulators who are concerned with issues of consolidation, market power, and pricing in the retail gasoline industry. This dissertation concludes with a discussion of the policy implications of the empirical analysis.