IDEAS home Printed from https://ideas.repec.org/a/phs/prejrn/v51y2014i2p1-20.html
   My bibliography  Save this article

Market competition in the downstream oil industry: is there evidence of price asymmetry?

Author

Listed:
  • Ma. Joy Abrenica

    (UP School of Economics)

  • Rolando Danao

    (UP School of Economics)

  • Ma. Nimfa Mendoza

    (UP School of Economics)

Abstract

Casual observation that domestic gasoline prices increase immediately and more than proportionately when global prices rise, while they tend to decrease slowly and less than proportionately when global prices decline, has fuelled speculation that the major oil industry players are engaging in collusion. This perception has persisted despite three independent probes into the state of market competition in the industry none of which found direct evidence of collusion. However, the third inquiry has found some evidence of price asymmetry in a recent period. Applying a standard price asymmetry model with error correction term on weekly price data, this study finds no evidence of price asymmetry. Instead, local pump prices are confirmed to be tracking global prices symmetrically and with only a weekÕs lag. This finding is robust for different fuel types.

Suggested Citation

  • Ma. Joy Abrenica & Rolando Danao & Ma. Nimfa Mendoza, 2014. "Market competition in the downstream oil industry: is there evidence of price asymmetry?," Philippine Review of Economics, University of the Philippines School of Economics and Philippine Economic Society, vol. 51(2), pages 1-20, December.
    • Handle: RePEc:phs:prejrn:v:51:y:2014:i:2:p:1-20
    as

    Download full text from publisher

    File URL: http://pre.econ.upd.edu.ph/index.php/pre/article/view/907/807
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Michael Noel, 2009. "Do retail gasoline prices respond asymmetrically to cost shocks? The influence of Edgeworth Cycles," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 582-595, September.
    2. Lutz Kilian, 2010. "Explaining Fluctuations in Gasoline Prices: A Joint Model of the Global Crude Oil Market and the U.S. Retail Gasoline Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 87-112.
    3. Richard Rosen, 2002. "What Goes Up Must Come Down? Asymmetries and Persistence in Bank Deposit Rates," Journal of Financial Services Research, Springer;Western Finance Association, vol. 21(3), pages 173-193, June.
    4. David Neumark & Steven A. Sharpe, 1992. "Market Structure and the Nature of Price Rigidity: Evidence from the Market for Consumer Deposits," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(2), pages 657-680.
    5. Al-Gudhea, Salim & Kenc, Turalay & Dibooglu, Sel, 2007. "Do retail gasoline prices rise more readily than they fall?: A threshold cointegration approach," Journal of Economics and Business, Elsevier, vol. 59(6), pages 560-574.
    6. Wlazlowski, Szymon, 2001. "Petrol and Crude Oil Prices: Asymmetric Price Transmission," MPRA Paper 1486, University Library of Munich, Germany, revised 2001.
    7. Hannan, Timothy H & Berger, Allen N, 1991. "The Rigidity of Prices: Evidence from the Banking Industry," American Economic Review, American Economic Association, vol. 81(4), pages 938-945, September.
    8. Justine S. Hastings, 2004. "Vertical Relationships and Competition in Retail Gasoline Markets: Empirical Evidence from Contract Changes in Southern California," American Economic Review, American Economic Association, vol. 94(1), pages 317-328, March.
    9. Radchenko, Stanislav, 2005. "Lags in the response of gasoline prices to changes in crude oil prices: The role of short-term and long-term shocks," Energy Economics, Elsevier, vol. 27(4), pages 573-602, July.
    10. Bolotova, Yuliya & Connor, John M. & Miller, Douglas J., 2008. "The impact of collusion on price behavior: Empirical results from two recent cases," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1290-1307, November.
    11. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, vol. 52(1), pages 87-100, January.
    12. Michael Polemis, 2012. "Competition and price asymmetries in the Greek oil sector: an empirical analysis on gasoline market," Empirical Economics, Springer, vol. 43(2), pages 789-817, October.
    13. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June.
    14. Severin Borenstein & A. Colin Cameron & Richard Gilbert, 1997. "Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(1), pages 305-339.
    15. Chen, Li-Hsueh & Finney, Miles & Lai, Kon S., 2005. "A threshold cointegration analysis of asymmetric price transmission from crude oil to gasoline prices," Economics Letters, Elsevier, vol. 89(2), pages 233-239, November.
    16. Radchenko, Stanislav & Shapiro, Dmitry, 2011. "Anticipated and unanticipated effects of crude oil prices and gasoline inventory changes on gasoline prices," Energy Economics, Elsevier, vol. 33(5), pages 758-769, September.
    17. Nathan S. Balke & Stephen P. A. Brown & Mine K. Yücel, 1998. "Crude oil and gasoline prices: an asymmetric relationship?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q 1, pages 2-11.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Brewer, Jedidiah & Nelson, David M. & Overstreet, George, 2014. "The economic significance of gasoline wholesale price volatility to retailers," Energy Economics, Elsevier, vol. 43(C), pages 274-283.
    2. Perdiguero-García, Jordi, 2013. "Symmetric or asymmetric oil prices? A meta-analysis approach," Energy Policy, Elsevier, vol. 57(C), pages 389-397.
    3. Jordi Perdiguero-García, 2010. "“Symmetric or asymmetric gasoline prices? A metaanalysis approach”," IREA Working Papers 201013, University of Barcelona, Research Institute of Applied Economics, revised Nov 2010.
    4. Michael Fung, 2014. "Ocean Carriers’ Collusion Under Antitrust Immunity: Evidence of Asymmetric Pass-Through," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 45(1), pages 59-77, August.
    5. Kang, Wensheng & de Gracia, Fernando Perez & Ratti, Ronald A., 2019. "The asymmetric response of gasoline prices to oil price shocks and policy uncertainty," Energy Economics, Elsevier, vol. 77(C), pages 66-79.
    6. Robert Socha, 2014. "Asymetria relacji cen paliw płynnych w Polsce i cen ropy naftowej," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 5, pages 133-160.
    7. María Torrado & Álvaro Escribano, 2020. "European gasoline markets: price transmission asymmetries in mean and variance," Applied Economics, Taylor & Francis Journals, vol. 52(42), pages 4621-4638, September.
    8. Polemis, Michael L. & Fotis, Panagiotis N., 2014. "The taxation effect on gasoline price asymmetry nexus: Evidence from both sides of the Atlantic," Energy Policy, Elsevier, vol. 73(C), pages 225-233.
    9. Phaisan Pattanakooha & Pongsa Pornchaiwisetgul, 2015. "The Effect of Stock, Government Policy, and Monopoly on Asymmetric Price Transmission in Thailand," International Journal of Energy Economics and Policy, Econjournals, vol. 5(4), pages 926-933.
    10. Mariano Tappata, 2009. "Rockets and feathers: Understanding asymmetric pricing," RAND Journal of Economics, RAND Corporation, vol. 40(4), pages 673-687, December.
    11. Kristoufek, Ladislav & Lunackova, Petra, 2015. "Rockets and feathers meet Joseph: Reinvestigating the oil–gasoline asymmetry on the international markets," Energy Economics, Elsevier, vol. 49(C), pages 1-8.
    12. Bragoudakis, Zacharias & Degiannakis, Stavros & Filis, George, 2019. "Oil and pump prices: Is there any asymmetry in the Greek oil downstream sector?," MPRA Paper 95407, University Library of Munich, Germany.
    13. Bragoudakis, Zacharias & Degiannakis, Stavros & Filis, George, 2020. "Oil and pump prices: Testing their asymmetric relationship in a robust way," Energy Economics, Elsevier, vol. 88(C).
    14. Szymon Wlazlowski & Monica Giulietti & Jane Binner & Costas Milas, 2008. "Smooth Transition Models in Price Transmission," Working Paper series 04_08, Rimini Centre for Economic Analysis.
    15. Chen, Hao & Sun, Zesheng, 2021. "International crude oil price, regulation and asymmetric response of China's gasoline price," Energy Economics, Elsevier, vol. 94(C).
    16. Ederington, Louis H. & Fernando, Chitru S. & Hoelscher, Seth A. & Lee, Thomas K. & Linn, Scott C., 2019. "A review of the evidence on the relation between crude oil prices and petroleum product prices," Journal of Commodity Markets, Elsevier, vol. 13(C), pages 1-15.
    17. Zhang, Tao & Ma, Guofeng & Liu, Guangsheng, 2015. "Nonlinear joint dynamics between prices of crude oil and refined products," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 419(C), pages 444-456.
    18. Koopmans, Carl & Lieshout, Rogier, 2016. "Airline cost changes: To what extent are they passed through to the passenger?," Journal of Air Transport Management, Elsevier, vol. 53(C), pages 1-11.
    19. Balaguer, Jacint & Ripollés, Jordi, 2016. "Asymmetric fuel price responses under heterogeneity," Energy Economics, Elsevier, vol. 54(C), pages 281-290.
    20. Obradovits, Martin, 2014. "Asymmetric Pricing Caused by Collusion," MPRA Paper 58889, University Library of Munich, Germany.

    More about this item

    Keywords

    collusion; price asymmetry; downstream oil industry;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:phs:prejrn:v:51:y:2014:i:2:p:1-20. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: RT Campos (email available below). General contact details of provider: https://edirc.repec.org/data/seupdph.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.