Cost pass-through to higher ethanol blends at the pump: Evidence from Minnesota gas station data |
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| Institution: | 1. MIT Sloan School, USA;2. Department of Economics and Harvard Kennedy School, Harvard University, The National Bureau of Economic Research, USA;1. Department of Agricultural and Resource Economics, University of Maryland, 2200 Symons Hall, College Park, MD 20742, USA;2. NOAA Fisheries, Northeast Fisheries Science Center, 166 Water Street, MB 19, Woods Hole, MA 02543, USA;1. Department of Economics, University of Pittsburgh, Wesley Posvar Hall, Pittsburgh, PA 15260, USA;2. School of Economics, University of Queensland, Colin Clark Building, St. Lucia, Brisbane, QLD 4072, Australia;1. University of Pécs Faculty of Business and Economics, Department of Economics and Econometrics, 80. Rákóczi Street, 7622 Pécs, Hungary;2. Regional Innovation and Entrepreneurship Research Center (RIERC) University of Pécs Faculty of Business and Economics, Hungary;3. Vienna University of Economics and Business, Department of Economics, 1. Welthandelsplatz, 1020 Vienna, Austria |
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| Abstract: | We examine the pass-through of wholesale prices to retail prices in the market for E85, which contains 51%–83% ethanol, and in the much larger market for E10, which contains 10% ethanol. We use a panel dataset consisting of monthly observations from 2007 to March 2015 on wholesale and retail prices for 274 Minnesota gas stations that sell both E10 and E85. Consistent with prior research, the cumulative pass-through coefficient for E10 is 1.00 after one month. In contrast, the E85 market is sparse, and although pass-through increased over time, we estimate it to be only 0.53 statewide from 2012 to 2015. Pass-through is higher at stations with more local E85 competitors. In the Twin Cities, which has a high density of E85 stations, pass-through is nearly complete, but outside the Twin Cities slightly less than half the wholesale discount of E85, relative to E10, is passed on to the consumer. |
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| Keywords: | Fuels markets Energy prices E85 E10 Retail fuel spreads Pass-through Q42 C32 |
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