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How can two physically identical gasoline stations differentiate themselves? In this article we develop and test a model of service time competition: some stations set higher prices and thereby offer shorter queues, whereas others offer lower price and longer queues. We find that retail demand is sensitive to service time: customers are, on average, willing to pay about 1% more for a 6% reduction in congestion. Consistent with the service time hypothesis, prices are more dispersed at stations facing more direct competition.
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Png et al. (1994) studied this question.
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