Munich Personal RePEc Archive

What do one hundred million transactions tell us about demand elasticity of gasoline?

Rahmati, Mohammad Hossein and Tavakoli, Amirhossein and Vesal, Mohammad (2019): What do one hundred million transactions tell us about demand elasticity of gasoline?

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Abstract

The price elasticity of gasoline demand is a key parameter in evaluation of various policy options. However, most of the literature uses aggregate data to identify this elasticity. Temporal and spatial aggregation make elasticity estimates unreliable. We employ a unique dataset of all gasoline transactions in Iran during a four-month period around an unexpected exogenous price change to identify price elasticity. After controlling for date and individual fixed effects we estimate a robust significant price elasticity of -0.077. Aggregation of the same data by week, month, and city yields an estimate of -0.3 indicating a significant bias in earlier studies. We also identify a significant withholding behavior by consumers in response to anticipated price changes.

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