Regional finance and competition policy: the Canary Islands petrol market

Abstract

Market competition levels affect all agents of an economy: businesses, consumers and the State. Traditional analysis has evaluated the State's effects on the other agents, but no analysis has been conducted regarding the inverse relationship. Thus, the aim of this study is to estimate the tributary income losses that low levels of competition in the retail petrol market could cause in it, using the data from Canary Islands Autonomous Community. First, we will use Parker and Röller's methodology (1997) to measure the level of competition and confirm a deficiency. Then, using estimated rates, we will determine the differences that would appear in tributary income if the market were to behave as a Cournot's model. Our results show that the lack of competition causes a substantial loss of tributary income for this region, somewhere between 5 and 10% of the real income from the tax on unleaded petrol for the year 2004.