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Estimating the Cross-price Elasticity of Regular Gasoline with Respect to the Price of Premium Gasoline

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Gasoline demand has been extensively researched, yet there has been no attempt to estimate cross-price elasticities of different grades of gasoline. Such knowledge will allow accurate determination of the impact of a fuel pricing policy that has different rates of tax or subsidy depending on the gasoline grade. Using monthly data on the Mexican gasoline market from 1999 to 2014, regular gasoline demand is estimated with an ARDL model. Endogeneity of the price and structural break are also investigated. The cross-price elasticity between regular and premium gasoline is found to be 0.875, confirming high substitutability among gasoline with different grades.
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Document Type: Research Article

Publication date: April 1, 2018

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