The Simulation of a Competitive Market for Gasoline in Iran: Using a Game Theory Approach

Articles in Press

Document Type : Research Paper

Authors

Faculty of Agriculture, University of Tabriz, Tabriz, Iran

10.22059/ier.2024.370903.1007917

Abstract

The economic growth and development of countries rely on energy, but the limited and non-renewable nature of underground resources and petroleum products like gasoline, along with their high consumption causing environmental pollution, call for efficient utilization. Gasoline is the world's twelfth largest consumer with a daily usage of 352,000 barrels, plays an important role in Iran’s economy. However, the regulated price of gasoline, not reflective of its value and not determined by a competitive market, hinders market efficiency. To address this, a study estimated desired parameters by identifying factors influencing supply and demand, using simultaneous equations from 2004 to 2018. Based on the results, the real price coefficient of gasoline is not statistically significant for demand but the price coefficient of liquefied gas is significant, with the highest at 0.2 in Kurdestan. Per capita income coefficient averages 0.7, highest in Sistan and Baluchestan at 1 and lowest in Yazd at 0.3. For supply, real price coefficient of gasoline decreases supply despite price increase, while technology has a positive effect. Through a cooperative game modeling players' objective functions, a Nash equilibrium was achieved for a simulated competitive market. Based on competitive market prices, gasoline consumption was determined. Given the potential for global supply and the significant difference between competitive and monopoly prices, liberalizing and globally supplying gasoline is recommended, allowing market demand and supply to dictate its price. This approach would control consumption, minimize welfare losses, and alleviate the government's budget pressures from subsidizing and unfairly distributing gasoline among income deciles.

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Iranian Economic Review

Articles in Press, Accepted Manuscript
Available Online from 09 April 2024

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