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Edgeworth cycles revisited

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  • Doyle, Joseph
  • Muehlegger, Erich
  • Samphantharak, Krislert

Abstract

Some gasoline markets exhibit remarkable price cycles, where price spikes are followed by a series of small price declines: a pattern consistent with a model of Edgeworth cycles described by Maskin and Tirole. We extend the model and empirically test its predictions with a new dataset of daily station-level prices in 115 US cities. Consistent with the theory, and often in contrast with previous empirical work, we find the least and most concentrated markets are much less likely to exhibit cycling behavior both within and across cities; areas with more independent convenience-store gas stations are also more likely to cycle.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 32 (2010)
Issue (Month): 3 (May)
Pages: 651-660

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Handle: RePEc:eee:eneeco:v:32:y:2010:i:3:p:651-660

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Web page: http://www.elsevier.com/locate/eneco

Related research

Keywords: Gasoline prices Edgeworth cycles Retail competition;

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References

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  1. Severin Borenstein & A. Colin Cameron, 1992. "Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?," NBER Working Papers 4138, National Bureau of Economic Research, Inc.
  2. Michael D. Noel, 2008. "Edgeworth Price Cycles and Focal Prices: Computational Dynamic Markov Equilibria," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(2), pages 345-377, 06.
  3. Michael D. Noel, 2007. "Edgeworth Price Cycles, Cost-Based Pricing, and Sticky Pricing in Retail Gasoline Markets," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 324-334, May.
  4. Eckert, Andrew, 2003. "Retail price cycles and the presence of small firms," International Journal of Industrial Organization, Elsevier, vol. 21(2), pages 151-170, February.
  5. George Deltas, 2008. "RETAIL GASOLINE PRICE DYNAMICS AND LOCAL MARKET POWER -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 613-628, 09.
  6. Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles," Econometrica, Econometric Society, vol. 56(3), pages 571-99, May.
  7. J. Isaac Brannon, 2003. "The effects of resale price maintenance laws on petrol prices and station attrition: empirical evidence from Wisconsin," Applied Economics, Taylor & Francis Journals, vol. 35(3), pages 343-349.
  8. Slade, Margaret E, 1998. "Strategic Motives for Vertical Separation: Evidence from Retail Gasoline Markets," Journal of Law, Economics and Organization, Oxford University Press, vol. 14(1), pages 84-113, April.
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Citations

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Cited by:
  1. Wills-Johnson, Nick & Bloch, Harry, 2010. "A simple spatial model for Edgeworth Cycles," Economics Letters, Elsevier, vol. 108(3), pages 334-336, September.
  2. Leufkens, Kasper & Peeters, Ronald, 2011. "Price dynamics and collusion under short-run price commitments," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 134-153, January.
  3. Fonseca, Miguel A. & Normann, Hans-Theo, 2012. "Excess capacity and pricing in Bertrand-Edgeworth markets: Experimental evidence," DICE Discussion Papers 67, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  4. Paul Zimmerman & John Yun & Christopher Taylor, 2013. "Edgeworth Price Cycles in Gasoline: Evidence from the United States," Review of Industrial Organization, Springer, vol. 42(3), pages 297-320, May.
  5. Lewis, Matthew S., 2012. "Price leadership and coordination in retail gasoline markets with price cycles," International Journal of Industrial Organization, Elsevier, vol. 30(4), pages 342-351.
  6. Martin Hahn, 2012. "An Evolutionary Analysis of Varian’s Model of Sales," Dynamic Games and Applications, Springer, vol. 2(1), pages 71-96, March.
  7. Noel, Michael D., 2012. "Edgeworth Price Cycles and intertemporal price discrimination," Energy Economics, Elsevier, vol. 34(4), pages 942-954.
  8. Juan Luis Jiménez & Jordi Perdiguero, 2013. "“One more lie: the ‘Monday effect’ in Spain’s retail petrol market”," IREA Working Papers 201324, University of Barcelona, Research Institute of Applied Economics, revised Dec 2013.
  9. Matthew Lewis & Michael Noel, 2011. "The Speed of Gasoline Price Response in Markets with and without Edgeworth Cycles," The Review of Economics and Statistics, MIT Press, vol. 93(2), pages 672-682, May.

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