004201-0067

Extended Essay
Economics

To what extent is the retail fuel industry in Houstons Energy Corridor district operating as a
monopolistically competitive market?

Name: Devika Manish Kumar

Supervisor: Mr. Benjamin Yakobu
Session: May 2016
Word Count: 4000
Citation Style: Chicago/Turabian

Acknowledgements: Thank you to my parents, who have never doubted that one day I would
finish my Extended Essay. Thank you to the countless consumers and retailers who agreed to
partake in my investigation. And finally, thank you to Mr. Yakobu for making me become a
better student of Economics.
Stay Hungry. Stay Foolish.

TABLE OF CONTENTS
Page
Cover Page.. 1
Acknowledgements. 2
Abstract... 3
Table of Contents 4

Introduction. 5
Methodology6
Condition I...8
Condition II.13
Condition III19
Conclusion.. 21
Works Cited.23
Appendix..25

Abstract
In the last one hundred years, no commodity has been as important to the everyday consumer
than fuel. Its value to society cannot be understated, and with over one billion cars on the roads
worldwide, the price of fuel is closely watched by both households and firms,
The purpose of the investigation is to determine the extent to which the retail fuel industry in
Houstons Energy Corridor District operates as a monopolistically competitive market. The
paper is centered on proving the extent to which the three conditions below, which are
characteristic of such a market, are shown in the Energy Corridors market:
1. Firms sell relatively heterogeneous products to differentiate themselves from
competition. This may be accentuated through advertising.
2. The number of sellers must be large enough that changing one firms output will have
little effect on the market price.
3. Barriers to enter and exit the industry are relatively low.
To investigate the existence of these conditions, a consumer survey and a retailer interview were
conducted to determine how firms could achieve the most inelastic demand, and thus greater
price-setting ability. The Energy Corridors high-income, price inelastic consumers prioritized
location and convenience when choosing a firm. Thus, firms could use their location to create an
inelastic demand curve. Interestingly, firms were already taking advantage of their location and
the existence of nearby competition; firms that were isolated has highly inelastic demand and
operated like a monopoly in their geographical region while firms in a cluster or group, often
deliberately set the same prices to evenly split competition, behaving like an oligopoly.
Additional supporting evidence from national and local consumer reports and industry analysis
were used to support the final conclusion; the retail fuel industry in Houstons Energy Corridor
district operates as a monopolistically competitive market to some extent.

Word Count: 300

Introduction
The Energy Corridor district in West Houston is commonly known as the Energy Capital of the
World because it is home to the headquarters of many petroleum extracting and refining
companies. These five massive, multinational businesses, known collectively as Big Oil, are
vertically integrated and dominate every sector of the petroleum industry, notably excluding the
retail industry. In fact, Big Oil companies own less than 0.4% of gas stations in the United
States, the majority being operated by single-store owners or franchises (NACS, 2015).
This surprising discovery, coupled with the researchers ongoing study of microeconomics led to
the topic of research: to determine the market structure of the local retail fuel industry in relation
to a monopolistically competitive market. For a market to be categorized as such, a set of
conditions (Maley and Welker, 2011) must be met:
4. Firms sell relatively heterogeneous products to differentiate themselves from
competition. This may be accentuated through advertising.
5. The number of sellers must be large enough that changing one firms output will have
little effect on the market price.
6. Barriers to enter and exit the industry are relatively low.
The research paper will be focused around the extent to which these three conditions are met in
the market in the Energy Corridor. From the research gathered, a holistic analysis and judgment
will place the industry on the market structure spectrum below.
Figure 1: Market Spectrum

In general, average retail fuel industries are considered to be examples of monopolistic

competition, however the researcher believes the uniqueness of the Energy Corridors
consumers: high income, high mobility, and high concentration of oil and gas employees, could
provide a different conclusion as consumers have different objectives and needs.
In the United States, 5% of overall consumer expenditure is spent on fuel expenses, according to
the U.S. Energy Information Administration. As a derivative of crude oil, gas is the most
commonly traded commodity in the world. The price of oil is an indicator of future growth or
contraction of a national or global economy. As consumers, it is important to understand the
5

local retail fuel industry to help make informed consumer decisions, such as the factors involved
in price or the real extent of differentiation among firms.

Methodology
In the map below, the boundaries of the Energy Corridor District are defined in red. For the
exploration of the research question, seven of the Energy Corridors thirty-three firms (shown on
the map as red pins) were chosen to provide a diverse representation of the whole market. These
firms are differentiated in location, brand and number of nearby competitors. The seven firms
were divided into four clusters based on proximity to other firms to determine the effect of
geographical competition or isolation on a firms pricing strategy. Thus, firms within a cluster
were further analyzed as a smaller market to better understand the complex market dynamics
within the whole Energy Corridor market.
Figure 2: Energy Corridor (Google Maps, 2015)

Primary evidence includes a price breakdown of four common products sold at the seven firms,
the analysis directed towards proving Condition 2, or what factors affect market price. Primary
evidence also includes the answers to a three-question long Retailer Interview (Figure 3)
conducted by this researcher, primarily used towards proving Condition 2, how firms set prices
and what strategies they used to remain competitive.

Figure 3: Energy Corridor Retailer Interview (Manish Kumar, 2015)

Primary evidence also includes the responses to a five-question Consumer Survey (Figure 4)
conducted by this researcher to prove Condition 1, or what factors firms can differentiate their
products with to achieve the most inelastic demand curve. Sixty-nine consumers, who were
between the ages of 20 to 60 years, who must have been living or working in the Energy
Corridor, were asked to respond to the survey. A significant amount of consumers were
employed full-time in the oil and gas industry; many were foreign nationals or expatriates,
generally from middle to high-income households.
Secondary sources consist of national-level consumer and producer reports and investigative
articles on the industry, which supported some of the inferences made pertaining to the local
market. Price data was collected through third-party data bases.
Figure 4: Energy Corridor Consumer Survey (Manish Kumar, 2015)

Condition I - Firms sell relatively heterogeneous products to differentiate themselves from

competition. This may be accentuated through advertising.
In the Energy Corridor, firms most commonly sell diesel and gasoline. Gasoline is differentiated
by quality into three grades or octanes. Higher octane numbers are recommended for high
performance engines, and thus, are more expensive. Therefore, for this investigation, it can be
assumed there are four products sold in the market: Diesel, Octane 87, Octane 89, and Octane
91/93. It can be assumed that consumers will, at the time of purchase, only buy one product.
Figure 5: Types of Products

In a perfectly competitive market, the demand curve would be perfectly elastic since all goods
are identical substitutes of each other. However, in a monopolistically competitive market where
goods are differentiated, firms face an inelastic, downward-sloping demand curve (Figure 6).
Since the market does not have close substitutes of products; firms are able to gain more market
control and price-making ability.
Figure 6: Inelastic and Elastic Demand Curves

In a perfectly competitive market (DELASTIC), if a firm changes price from PE to P1, it loses all
demand. However, in a monopolistically competitive market, it retains some demand (Q1).
To gain market control, retail fuel firms may choose to differentiate themselves through product
quality, reputation, location, and service. However, consumers do not value all of these
differentiating factors equally, so some factors do not effect the elasticity of the demand curve as
others. The more inelastic the demand curve, the greater the price-making ability of the firm.
Thus, firms need to differentiate themselves and their products based on what consumers values
most in a product.
Question 1 of the Energy Corridor Consumer Survey (Manish Kumar, 2015) conducted for this
paper, aimed to determine what factors consumers prioritized when looking for a firm. Firms that
are able to differentiate themselves in factors that consumers cared most about would be capture
the greatest market power. The survey options included location, product quality, and price.
Also, since the Energy Corridor has a high concentration of oil and gas employees, a fourth
option, Employee Benefits was included for consumers who shopped based on employee
loyalty.
1. What is the most important factor for you when choosing a gas station?
a. Location

51 %

b. Employee Benefits

9%

c. Price

27 %

d. Product Quality or Reputation

13 %

Only 9% of consumers stated that Product Quality or Reputation attracted them to a firm.
13% of consumers cited Employee Benefits as their priority when choosing a gas station; a
result expected considering the demographics of Energy Corridor. Roughly a quarter of
consumers (27%) said lower, more competitive pricing was the most important factor, including
promotions or discount initiatives. However, the majority of consumers (51%) responded that the
location of the firm is the most important factor; in fact, when prompted, numerous consumers
were able to list the intersection of the retail fuel firm closest to their home or daily commute.
The results of Question 1 indicate that consumer demand for fuel will be most inelastic when
firms differentiate themselves based on location; firms could therefore gain price-making power
by operating in a location with a lack of nearby competition, access to new markets or highincome consumers. Firms with such inelastic demand can set prices above the market average,
increasing their margin of economic profit. See Condition II for further analysis.

In 2015, The National Association for Convenience and Fuel Retailing (NACS) released its
annual Retail Fuels Report, which included a detailed national survey on consumer habits and
purchasing behaviors.
The report concluded that more than two-thirds of consumers nationally, 71% list price as the
most important factor when purchasing gas, whereas only 18% of consumers cite location as
their top priority. This contradicts the findings of the primary consumer survey: 27% and 51% of
consumers chose price and location respectively. The report further explains this price-sensitivity
is because fuel expenses account for around 5% of customer spending.
In 2013, the median household income in the United States was $51 939 compared to the Energy
Corridors $70 533 in 2014, placing the region in the 93rd percentile nationally (DeNavas-Walt
and Proctor, 2014). It can be assumed that because of consumers high disposable income, this
region appears to be less price-sensitive and more inelastic than the average national consumer.
Question 2 of the EC Consumer Survey (Manish Kumar, 2015) shows that an overwhelming
majority of consumers have a tendency to visit the same station more than eighty percent of the
time.
2. What percentage of the time do you purchase gasoline from the same location?
a. > 80 %

79 %

b. 40 to 79%

14 %

c. < 39 %

7%

This supports the findings of Question 1; consumers who prioritize the location of a firm are
more likely to visit the same firm out of convenient, whether it be on the commute home or to
work.

10

Question 3 of the EC Consumer Survey (Manish Kumar, 2015) found that 54% of consumers
purchase Octane-87 gasoline, the largest share of the market among all products.
3. What product do you purchase?
a. Gasoline 87

54 %

b. Gasoline 89

15 %

c. Gasoline 91 or 93

27 %

d. Diesel

4%

In the following section, Condition II, the prices of these four products in the market are
examined across the seven sample firms. Interestingly, the prices of Octane 87 are the most
similar among firms, whereas prices of Octane 91 are the most different. Firms in the same
cluster may have no difference in price for Octane 87, but may have $0.10 difference in Octane
91.
Octane 87 is most frequently needed by economy vehicles, which are relatively inexpensive
compared to other car models requiring higher-octane fuel. Additionally, the factor most
important to the majority of consumers who bought Octane 87 was Price, according to the
Energy Corridor Consumer Survey (Manish Kumar, 2015). Alternately, only 22% of consumers
who purchased Octane 91 responded Price. Consumers in the Octane 91 market tend to place
more importance on brand and quality (11%) than those in the Octane 87 market (2%). Thus,
increased price sensitivity among customers in the market for lower-grade fuel is displayed on
the close price competition among firms.
A characteristic of firms in a monopolistically competitive market is that they utilize advertising
to differentiate their products from that of competitors. Through advertising, firms hope to gain
market power and price-setting ability by creating a niche, impenetrable market for a product.
According to the U.S. Energy Information Administration, 11% of the retail price of gasoline is
incurred from distribution and marketing costs, including advertising, however, major oil
companies, whose brands under which half of all retail fuel firms in the United States operate
(NACS, 2015), provide financial reimbursements to display and maintain advertisements on the
firms premises. Thus, the majority of costs incurred by firms for advertising is minimal.
According to the EC Consumer Survey, 94% of consumers state that advertising does not
influence their purchasing decisions (Manish Kumar, 2015). Therefore, most consumers do not
perceive a fundamental difference between products sold in competing firms, essentially
eliminating any potential price-setting ability derived from product quality or brand reputation.

11

4. Does advertising play a role in the type of gasoline you purchase or where you buy it from?
a. Yes

94 %

b. No

6%

Off the record from the EC Consumer Survey (Manish Kumar, 2015), one customer who
answered Product Quality in Question 1, explained, If weve used [a] brand for years, we
know well get our moneys worth so [advertising from other firms] doesnt influence us.
Alternately, another customer who answered Price thinks that, There is no difference in the
gas sold by different companies, but [advertising] makes it look like there is.
The results of the Energy Corridor have indicated that firms are able to differentiate themselves
primarily through location, a factor the majority of the consumers in the Energy Corridor value,
thus giving firms more inelastic demand. However, advertising is not a strong feature of this
market.

12

Condition II - The number of sellers must be large enough that changing one firms
output will have little effect on the market price.
The Energy Corridor has thirty-three retail fuel firms in total, spread out predominantly on major
roadways and intersections. These firms vary in size and retailing capacities; firms may have
anywhere from ten to twenty-four gas pumps. In theory, these larger firms have an advantage
over smaller firms because they have the infrastructure and resources to produce (and retail)
beyond the markets equilibrium output. Thus, these larger firms should have a larger market
share, which increases their power to influence market price, which is indicative of an imperfect
market. However, in reality, retail fuel firms experience a phenomenon known as excess
capacity, when demand in the market for a product is below what the firm could potentially
supply to the market (Lipsey and Harbury, 1992). This is observable: at any given time, retail
fuel firms have fuel pumps that are not in use. Therefore, some potential output is lost because
the resources of the firms are not being used to maximize output. Excess capacity is
characteristic of monopolistic competition since firms produce at an output where profit is
maximized but not average total cost (Figure 7).
Figure 7: Excess Capacity

Firms are not producing at Q1, where they could be minimizing average total cost. Instead, firms
are producing at QE, where firms are maximizing profit. Firms are not producing to their full
potential: Q1 is greater than QE.
The following price analysis of the seven sample firms, conducted for this paper in August 2015,
was to determine the extent to which firms in the market are price-makers; firms who are able to
set a retail price above or below the market equilibrium demonstrate disproportional market
control, either due to absence of competition or uniqueness of product.
13

In the graphs below, the retail prices for the seven firms are listed, grouped by their numbered
location (see Figure). Additionally, the Energy Corridor average, calculated from the prices of all
thirty-three firms in the area, is also listed.
Figure 8: Retail Prices of Product
Retail Price - Octane 87
3.25

Price /$

3.

2.99

2.75
2.55
2.5

2.35

2.35

2.32

2.32

2.48

2.29

2.25
2.
Location 1 Location 2

Location 3

Location 4

Average

Firms

Retail Price - Octane 89

3.4

Price /$

3.2

3.19

3.
2.85
2.75

2.8
2.66

2.78

2.73

2.65

2.6
2.4
Location 1 Location 2

Location 3

Location 4

Average

Firms

14

Retail Price - Octane 91

3.48

Price /$

3.3

3.29
3.2
3.09

3.13

3.09

3.05

3.02

2.99
2.95
2.78
2.6
Location 1 Location 2

Location 3

Location 4

Average

Firms

Retail Price - Diesel

2.9

2.85
2.79

2.78
Price /$

2.7
2.65

2.59

2.7

2.69

2.59

2.53

2.4
Location 1 Location 2

Location 3

Location 4

Average

Firms

For the following analysis, the price of Octane 87 will be primarily referenced to, since it is the
most demanded product in the market (54%), and because the observed trend among all products
can be seen more clearly in the price of Octane 87.
There exists a wide range of prices among the firms, up to twenty percent higher or lower than
the Energy Corridor average. However, it should be noted that firms in the same location have a
tendency to set nearly identical prices. Similarly, firms that are isolated tend to set the highest
prices.

15

Figure 9: Price Map

To understand the former observation, the incentive of firms to cluster in the same location must
be explored; Hotellings Location Model (De Haan and Roswell, 2012) can explain this. For the
purposes of this model, assume firms are only differentiated based on location, and a consumers
travel time is a scare resource. Thus, consumers favor firms that are closer to them.

Imagine a road with length equaling one (1) unit where consumers are equally distributed
throughout. Firm A and B distance themselves at a socially optimum level where all consumers
are within 0.25 units away from a firm; the scare resource of travel time is conserved. At this
position, Firms A and B have an equal market share of 0.5. However, given that the other firm
remains stationary, either firm has incentive to move towards the middle of the road (0.5) to
capture a larger market share. As both firms more towards the middle, the maximum distance
consumers have to travel increases to 0.5 units, this position is no longer socially optimal.
However, when both firms are clustered at 0.5, they are in a position of Nash Equilibrium, or a
point of optimal benefit where there is no incentive to change position; both firms have
maximized their potential market share (0.5).

16

Thus, when retail fuel firms cluster, they are in a position of Nash Equilibrium. However, the
side effect is the creation of an environment where firms are operating within close proximity of
each other. Firms have the opportunity to directly observe the actions of others and react
accordingly. This is characteristic of a non-collusive oligopoly.
One of the main objectives of the Energy Corridor Retailer Interview (Manish Kumar, 2015)
conducted for this paper was to determine how firms set daily prices. In response to the question
Retailers in Locations 2 and 3, clusters with two or more firms, indicated that price level of a
product was dependent on two factors: the cost of the product bought from a supplier or
wholesaler, and the selling price of nearby firms. Mr. Mustafa, Mr. Patel and Ms. Karla admitted
that they would routinely conduct price surveys of surrounding stations and set prices equal to
their competitors. According to Mr. Patel and Ms. Karla, both retailers in Location 2, setting
equal prices is more beneficial to them because they split the market evenly instead of engaging
in a price war to fight for consumers. Mr. Patel and Ms. Karla have reached Nash Equilibrium; a
price war would simply drive down the margin of profit for both firms without increasing the
market share of either firms. Therefore, retail fuel firms in clusters engage in an aspect of a noncollusive oligopoly; the close-proximity environment forces firms to take into account the
behaviors of competitors and act appropriately.
On the other hand, isolated, single firms, such as the ones in Location 1 and 4 tend to set prices
well above other competitors in the market, because of a very inelastic demand curve.
Recall that firms in a monopolistically competitive market can sell heterogeneous products to
differentiate themselves from competition. In Condition 1, it was shown all retail fuel firms
fundamentally sell identical products, and any market power derived from product differentiation
in quality or reputation is minimal since consumers place little emphasis on these areas when
deciding on a firm. Instead, the majority of consumers (51%) in the Energy Corridor prioritize
location (Manish Kumar, 2015), and therefore value convenience over price (27%).
The firms in Location 1 and 4 have abnormal control over their respective retail prices because
of their location; since consumers in the Energy Corridor are more likely to go to the nearest firm
over the cheapest one, firms who have no nearby competition, like those in Location 1 and 4,
have an incentive to set higher prices and still maintain demand. Additionally, Location 1 is
situated beside a prestigious Houston golf course, so this firm faces a high proportion of
17

consumers who are higher-income earners and less-price sensitive than the average consumer.
Interestingly, Location 1 is also situated on the most congested roadway in the Energy Corridor
Region, according to data from the Texas Department of Transportation in 2015. Thus, the firm
in Location 1 has a demand-wise advantage over other Energy Corridor firms because Location 1
has direct access to a larger market beyond the consumers in the Energy Corridor. This firm,
facing no nearby competition, and exclusive access to increased demand, can take advantage of
its price-setting ability and set their retail price well above the market average without facing a
decrease in demand. Mr. Jubi, the sole retailer in Location 1, stated that despite the high prices,
his firms supply ran out very quickly, and needed to be replenished every few days, which
reiterates the point made above: firms who are in a geographically-favorable condition, either
from lack of nearby competition or access to new or high-income demand, face price inelastic
demand, and thus can set prices above the market average, increasing their margin of economic
profit. Thus, isolated firms behave like a monopoly within their relative location, single-sellers
who experience significant price-making ability.

18

Condition III - Barriers to enter and exit the industry are relatively low.
Barriers to entry and exit are obstacles that make it difficult for firms to enter or leave a market,
such as high costs of production or control of essential resources. Barriers to entry are an
indication of how competitive an industry is and how profits are equally achieved among firms.
The incentive for a firm to enter or exit an industry is the existence of economic profits. If all
firms in a market are experiencing economic profit (Figure 10), then new firms are incentivized
to enter the market until a point where all firms experience only normal profits. Monopolistically
competitive markets experience economic profits in the short run and normal profits in the long
run because low barriers to entry allow new firms to enter the market, distributing profits evenly.
Figure 10: Economic Profits in Monopolistic Competition (Short Run)

Nationally, the average profit from a gallon of gasoline or diesel was three to five cents (NACS,
2015). Retailers surveyed in the Energy Corridor (Manish Kumar, 2015) stated that those firms
who operate in clusters (location with two or more firms), make only a few cents (Mr.
Mustafa, 2015) of profit per gallon, whereas firms that have no nearby competition, are able to
make eight to nine times (Mr. Moe, 2015) this amount. However, due to the volatility of global
crude oil prices, which accounts for 65% of the retail price (EIA, 2014), economic profits in the
long run are uncertain and overall minimal.
Firms in this industry have high start-up and operating costs (Hall, 2013), largely due to the
specialized infrastructure, capital investment, and real estate required to start operations. An
estimate of the initial start-up cost and operating costs reaches around $330 000, including
building purchase and initial inventory while operating costs are roughly $275 000 per annum,
includes wages, utilities and maintenance (Hall, 2013). Especially in a market with minimal
profits to gain from fuel sales, these costs represent a significant starting barrier for firms.
19

Additionally, many firms choose to enter long-term contracts with suppliers, the average length
lasting ten years (NACS, 2015). These contracts have a tendency to stabilize a firms retail price
as well as the amount and frequency of supply. Furthermore, firms who choose to sell a specific
brand of fuel enter into exclusivity contracts with Big Oil companies that cover additional
marketing and fuel premium costs. The existence of these pre-existing, contractual supply
agreements gives established firms an advantage in the market because they have experience and
a stable reputation in the wholesale market that newer firms need time to gain.
As established in Condition 1 and 2, location is the most important differentiating factor in the
among retail fuel firms in the Energy Corridor, since it leads to the most inelastic demand.
However, despite retail space in the Energy Corridor forecast to increase 40% over the next two
decades (CDS Market Research, 2014), the prime real estate at most major intersections with
high volumes of consumers is already occupied. As new development expands outwards beyond
the Energy Corridors current boundaries, consumer traffic will ultimately flow through these
areas, however, within the short-run period, there is little viable retail space available for new
firms to begin operations, significantly restricting opportunities to enter the market.
Extensive statutory or legal barriers, primarily in safety and environmental regulations and
licenses, exist due to the nature of the products sold. The Texas Food & Fuel Association
compiled a list of seventeen state and federal agencies from which a retail fuel firm would
require a license or certificate to operate. Retail fuel firms also face industry-specific taxes such
as the storage of inventory underground, according to the Texas Comptroller of Public Accounts.
Though these regulations exist to ensure consumer and environmental safety is prioritized,
additional legal and insurance costs are incurred to protect the firm from liabilities.
Thus, the retail fuel market on average experiences minimal economic profits but faces
significant barriers to entry, most notably high start-up and operational costs, limited access to
resources (land, supply), and legal requirements and regulations. These are not characteristics of
a monopolistically competitive market, rather a more incontestable, imperfect market.

20

Conclusion
Structured along the three conditions of a monopolistically competitive market, this essay aimed
to prove the extent to which each criterion was true in the Energy Corridors retail fuel industry
to ultimately determine the market structure of the local industry.
Condition I - Firms sell relatively heterogeneous products to differentiate themselves from
competition. This may be accentuated through advertising.
Firms differentiate their products through quality and reputation (brand), but this factor is not of
significant importance to consumers. Instead, firms receive the most inelastic demand when
differentiating by location; considering the nature of the Energy Corridors high-income
consumers who are comparatively less-price sensitive than national figures, consumers value
convenience over price. Regardless, the product with the largest market share, Octane 87, whose
primary consumers were the most price elastic in the Energy Corridor, faced almost identical
prices among firms, proving that firms engaged in neck-to-neck price competition to keep their
demand of elastic customers. These characteristics, overall, point towards a monopolistically
competitive market.
Condition II - The number of sellers must be large enough that changing one firms output will
have little effect on the market price.
The location of a firm in relation to its competitors is an important aspect of its price-setting
behavior; firms that are in a cluster are likely to display characteristics of a non-collusive
oligopoly because firms are in a spatial environment where they can closely monitor other firms
and react to the changes in behaviors of other firms. However, isolated firms behave like
monopolies since consumers, who value location and convenience (Condition I), are likely to be
more price inelastic is there is no nearby competition. Therefore, specific firms are able to set
prices above the market average, thus leading to the conclusion that the market is imperfect, and
not a monopolistic competition.
Condition III - Barriers to enter and exit the industry are relatively low.
With the existence of minimal economic profits as incentive for firms to enter the market, firms
faced high barriers to entry in the form of structural (infrastructure, capital, real estate) and legal
(regulations, licenses).
With all conditions considered, the retail fuel industry in Houstons Energy Corridor district
operates as a monopolistically competitive market to some extent, because it displays market
characteristics such as product differentiation. However, in most other regards, the market is
21

more imperfect, such as in the existence of long run profits, price-setting ability and high barriers
to entry. Retail fuel firms in the Energy Corridor were able to derive and maximize noticeable
market power through their location, making intelligent use of their surroundings, and creating
price-making ability and some barriers to entry.
This paper came to the above conclusion through the use of primary evidence and secondary
research, and limitations exist on the extent to which the topic could have fully been
investigated. Of the thirty-three firms in the Energy Corridor, only seven were examined; there is
no guarantee that this sample is an accurate representation of the entire market, similarly, only
sixty-nine consumers were chosen to represent the population of the Energy Corridor.
Additionally, information regarding to specific, numerical profits and costs firmed of firms was
not readily available, this information couldve added another dimension to the research. Overall,
the complexity of the retail fuel market is extensive; the various stakeholders involved in the sale
of fuel, as well as an enormous amount of outer-market forces, such as global supply and
demand, play a role in the local industry. Therefore, instead of determining the specific market
structure of the industry, the extent to which the industry was a monopolistically competitive
market was a more appropriate research question; the consumers in the Energy Corridor do not
share the same characteristics as consumers elsewhere, and this fundamental difference leads to
the uncontestable market characteristics seen in the Energy Corridor.

22

Works Cited
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Press, 1992), 154.
2. Ellie Tragakes, Economics for the IB Diploma (Cambridge University Press, 2012), 199.
3. Regulatory Resources, Texas Fuel and Food Association, n.d. Accessed November 7,
2015, http://txfoodandfuel.org/government-affairs/regulatory-resources/
4. Gasoline, Texas Comptroller of Public Accounts, n.d. Accessed November 8, 2015,
http://comptroller.texas.gov/taxinfo/fuels/gasoline.html
5. Robert Sexton, Peter Fortura, and Colin Kovacs, Exploring Microeconomics: Second
Canadian Edition (Nelson Education Ltd., 2010), Ch. 10.
6. National Association of Convenience Stores, 2015 Retail Fuel Reports. Alexandria, VA:
NACS, 2015. Accessed August 10, 2015.
http://www.nacsonline.com/YourBusiness/FuelsReports/2015/Documents/2015-NACSFuels-Report_full.pdf

7. Carmen DeNavas-Walt and Bernadette D. Proctor, Income and Poverty in the United States:
2013. United States Census Bureau, 2014. Accessed August 12, 2015.
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2015, http://www.gasbuddy.com/GasPriceMap

9. The Energy Corridor District Land Use & Demographics Report 2014. Energy Corridor
District: CDS Market Research, 2014. Accessed August 5, 2015.
http://www.scribd.com/doc/233351393/The-Energy-Corridor-District-Land-UseDemographics-Report-2014
10. 2014 Energy Corridor District Commuter Survey. Houston, TX: Energy Corridor District,
2014. Accessed August 15, 2015.
http://www.energycorridor.org/sites/ecd/media/Resource%20Library%20Docs/Commuter_S
urvey_Report_Resource_Library.pdf
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11. William A. McEachern, ECON Micro: Principles of Microeconomics 4th Edition (Cengage
Learning, 2015), 152.
12. Jason Welker, Pearson Baccalaureate Economics for the IB Diploma (Pearson Education
Limited, 2011), 218.
13. Devika Manish Kumar, Energy Corridor Consumer Survey (n.p., 2015) (See Appendix)
14. Devika Manish Kumar, Energy Corridor Retailer Interview (n.p., 2015) (See Appendix)
15. Jac De Haan & Luke Roswell, Why Do Competitors Open Their Stores next to One
Another? (TED-Ed, 2012). Accessed August 6, 2015.
16. Aaron D. Hall, Starting Your Own Gas Station in Minnesota (ThompsonHall.com, n.d.).
Accessed November 7, 2015.

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Appendix
Currently working on formatting with Mr. Yakobu.

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