Centrality and Pricing in Spatially Differentiated Markets: The Case of Gasoline

We highlight the importance of 'centrality' for pricing. Firms characterized by a more central position in a spatial network are more powerful in terms of having a stronger impact on their competitors' prices and on equilibrium prices. These propositions are derived from a simple theoretical model and investigated empirically for the retail gasoline market of Vienna, Austria. We compute a measure of network centrality based on the locations of gasoline stations in the road network. Results from a spatial autoregressive model show that prices of gasoline stations are more strongly correlated with prices of central competitors.