Do resident discounts benefit consumers? Unintended consequences of cross-border energy policies

This study examines the impact of resident fuel discounts on gasoline prices and market competition in cross-border regions. Using a spatial competition model, we explore how these discounts influence fuel station pricing strategies and consumer be- havior. Although resident discounts may initially benefit consumers, they can also lead to unintended price increases and consumer harm by reducing competitive pres- sure among local fuel stations. To validate these insights, we analyze gasoline prices from the Friuli-Venezia Giulia region in Italy, where resident fuel discounts aim to coun- teract fuel tourism. Employing a fixed-effects regression approach, we find a significant positive relationship between discount levels and gasoline prices, suggesting that fuel stations adjust prices upward in response to the policy. Price sensitivity varies by proximity to the Slovenian border, with stations closer to the border exhibiting greater responsiveness. Our findings highlight the complexities of fuel pricing policies and their unintended consequences, and stress the importance for policymakers to take into ac- count the possible reduction in competition that can stem from residential discounts.