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Exploring the life of fuel price responses in retail markets. The effect of cross-sectional aggregation

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  • Balaguer, Jacint
  • Ripollés, Jordi

Abstract

Empirical studies on vertical price transmission in retail fuel markets commonly use average group data of petrol stations. In this paper a simulation approach is employed to illustrate that, in this case, the persistence of price responses tends to be overestimated. To explore the real extent of the problem, we apply the mean group (MG) and the mean group with common correlated effects (MG-CCE) estimators to individual data from petrol stations. When heterogeneity in the pricing dynamics is captured by MG and MG-CCE estimators, persistence of retail price responses becomes considerably lower than the typical OLS estimations from average group data would suggest.

Suggested Citation

  • Balaguer, Jacint & Ripollés, Jordi, 2018. "Exploring the life of fuel price responses in retail markets. The effect of cross-sectional aggregation," Energy Policy, Elsevier, vol. 119(C), pages 495-501.
  • Handle: RePEc:eee:enepol:v:119:y:2018:i:c:p:495-501
    DOI: 10.1016/j.enpol.2018.05.013
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    More about this item

    Keywords

    Fuel price responses; Cross-sectional aggregation; Dynamic persistence; Overestimation;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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