Iranian Economic Review

Iranian Economic Review

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

Document Type : Research Paper

Authors
Faculty of Agriculture, University of Tabriz, Tabriz, Iran.
Abstract
The economic growth and development of countries rely on energy; however, the limited and non-renewable nature of underground resources and petroleum products such as gasoline, along with the environmental pollution caused by their high consumption, calls for efficient utilization. Gasoline, of which Iran 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, which does not reflect its true value and is not determined by a competitive market, hinders market efficiency. To address this, the present study estimated the relevant parameters by identifying the factors influencing supply and demand, using simultaneous equations for the period 2004–2018. Based on the results, the real price coefficient of gasoline is not statistically significant for demand, but the price coefficient of liquefied petroleum gas is significant, with the highest value at 0.2 in Kurdistan. The per capita income coefficient averages 0.7, being highest in Sistan and Baluchestan at 1 and lowest in Yazd at 0.3. For supply, the real price coefficient of gasoline indicates a decrease in supply despite a price increase, while technology has a positive effect. Through a cooperative game that models the players’ objective functions, a Nash equilibrium was obtained for a simulated competitive market. Based on the competitive market prices, gasoline consumption was then determined. Given the potential for global supply and the significant difference between competitive and monopoly prices, liberalizing the gasoline market and supplying it globally are recommended, allowing market demand and supply to dictate its price. This approach would help control consumption, minimize welfare losses, and alleviate the government's budget pressures arising from subsidizing gasoline and distributing it unfairly among income deciles.
Keywords
Subjects

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