Pricing (A) symmetries and evolution of margins in the Spanish diesel market

With the restructuring of the Spanish oil sector during the 1980s and early 1990s, a highly concentrated oligopoly emerged in the automotive fuels market. The restructuring ended up with the abolishment of the sate oil monopoly in January 1993. A system of price ceiling replaced administered prices in June 1990, which was abolished for automotive diesel in June 1996. This paper analyzes the price dynamics of the Spanish retail automotive diesel market over the period 1993-2005. Concretely, it deals with the issue of asymmetries in the relation between the retail price of diesel before taxes and its spot price. The paper also analyzes the “collaboration” between the government and the major operators in setting prices. For the period 1993-1998, we find symmetric and full adjustment of the Spanish retail diesel prices before taxes to the Rotterdam prices, whereas from the late 1998 onward the empirical evidence suggests a weak positive price asymmetry. Furthermore, the paper shows how the government and the major operators have effectively “collaborated” in setting retail diesel prices since 1999 in order to control the inflation rate.