Gasoline price control in Quebec

Since 1998, Quebec has confirmed its status of “distinct society” in the realm of policy. As all the other provinces debated price ceilings on gasoline (some have in fact adopted such price controls), Quebec opted for a price floor on gasoline. When that measure was adopted, Quebec had just experienced a decade long price-war in which the real price of gasoline at the pump dropped 36% (from January 1987 to to December 1997). At that time, it was feared that integrated oil refiners and retailers were attempting to exclude independent retailers from the markets by lowering prices below their cost so as to drive the latter out of the market. Hence, a price floor was adopted. The price is modulated on a weekly basis and policy markets decide of the price upon how the price of a barrel of oil evolves.

So what has happened since then? Well, I took the time of composing a data set of average real retail prices of gasoline in U.S. and Canadian cities (from Kent Marketing and from the Energy Information Agency). I managed to compose an average retail price price of gasoline in Quebec on a monthly basis from January 1987 to April 2011. Then I analyzed the gap between Quebec and the average of U.S. cities in order to see how Quebec evolved relative to the United States before the adoption of the price floor and after the adoption.

As you can see, before 1996 prices drop considerably relative (the bottom half of the gap signifies that prices are lower in Quebec than in the U.S. average) to the United States, then they stabilize for three years only to keep on increasing relative to the United States from the 2001 recession up to now. The black line represents the date at which the floor price came into effect. Is there a relation between the presence of a control price and the decline in the relative position of Quebec? This is something worth testing and could shed light on how costly (through the prevention of price wars) this policy has been to drivers in Quebec? 


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