Flex Cars and Competition in Fuel Retail Markets

The study finds that the penetration of flex-fuel vehicles increased competition among fuel stations, leading to a reduction in retail prices and margins for both ethanol and gasoline. The effect was more pronounced for ethanol. While the price correlation between the two fuels increased, the authors found no strong evidence that the price spread between gasoline and ethanol decreased as flex-fuel adoption grew. Structural estimation suggests that pass-through from costs to prices is approximately 0.5, consistent with oligopoly theory.

• An increase in the market share of flex cars leads to a reduction in retail prices and margins for both ethanol and gasoline, providing evidence of market power in fuel retail.
• The negative impact of flex-fuel vehicle penetration on prices and margins is significantly stronger for ethanol than for gasoline, which the authors attribute to ethanol's smaller market share in the Brazilian automotive fuel market.
• Contrary to some expectations, the penetration of flex cars did not lead to a decrease in the price spread between gasoline and ethanol; instead, linear regressions suggest a positive and significant impact on the absolute spread.
• Flex car penetration is associated with an increase in the correlation between gasoline and ethanol prices, suggesting that fuel stations make pricing decisions for both fuels jointly.
• Structural estimation of price response functions indicates that the pass-through from wholesale costs to retail prices is approximately 0.5, aligning with oligopoly theory for constant marginal costs.
• The study concludes that innovations increasing consumer choice, such as flex-fuel technology, can provide welfare benefits even to consumers who do not adopt the technology themselves.

APA

Assunção, J., Pessoa, J. P., & Rezende, L. (2016). Flex Cars and Competition in Fuel Retail Markets. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2017/08/WorkingPaper-Flex_Cars_and_Competition.pdf

Chicago

Assunção, Juliano, João Paulo Pessoa, and Leonardo Rezende. Flex Cars and Competition in Fuel Retail Markets. Climate Policy Initiative, 2016. https://www.climatepolicyinitiative.org/wp-content/uploads/2017/08/WorkingPaper-Flex_Cars_and_Competition.pdf.

Wikipedia

{{cite report |last1=Assunção |first1=Juliano |last2=Pessoa |first2=João Paulo |last3=Rezende |first3=Leonardo |title=Flex Cars and Competition in Fuel Retail Markets |publisher=Climate Policy Initiative |date=December 2016 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2017/08/WorkingPaper-Flex_Cars_and_Competition.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{assuno2016flex, author = {Assunção, Juliano and Pessoa, João Paulo and Rezende, Leonardo}, title = {{Flex Cars and Competition in Fuel Retail Markets}}, institution = {Climate Policy Initiative}, year = {2016}, month = dec, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2017/08/WorkingPaper-Flex_Cars_and_Competition.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }