Does social capital discipline markets? Evidence from Italian gasoline pricing

Social capital arising among members of local communities manifests itself through mutual trust, shared identity and values, solidarity, and cooperation. This paper hypothesizes that social capital enhances market efficiency by raising consumer awareness and discouraging firms from opportunistic behaviors. In the study, a novel dataset that includes all gas stations in Italy is used, detailing their prices over an 11-month period, their commercial characteristics, their location relative to infrastructure, and the socio-economic characteristics of their local communities. Voter turnout is used as a proxy for social capital. Results indicate that higher social capital correlates with lower average gasoline prices. Additionally, a case of asymmetric cost pass-through is leveraged as a natural experiment, revealing that gas stations in areas with higher social capital reduced prices more quickly following a negative commodity price shock. In contrast, during a subsequent commodity price uptrend, stations in high social capital areas raised prices more swiftly, suggesting that social capital pushes stations to align closer with commodity cost benchmarks. These findings remain robust across a range of robustness checks, supporting the conclusion that social capital improves market efficiency and transparency.