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Edgeworth Price Cycles, Cost-Based Pricing, and Sticky Pricing in Retail Gasoline Markets

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Author Info
Michael D Noel (University of California, San Diego)
Abstract

This paper examines dynamic pricing behavior in Canadian retail gasoline markets. I find three distinct pricing patterns: cost-based pricing, sticky pricing, and sharp asymmetric retail price cycles that resemble the Edgeworth cycles of Maskin and Tirole (1988). I use a Markov-switching regression to estimate the prevalence of the regimes and the structural characteristics of the cycles themselves. I find cycles are more prevalent when there are more small firms and are accelerated and amplified with very many small firms. In markets with few small firms, sticky pricing dominates. The findings are consistent with the theory of Edgeworth cycles. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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File URL: http://www.mitpressjournals.org/doi/pdfplus/10.1162/rest.89.2.324
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Publisher Info
Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 89 (2007)
Issue (Month): 2 (03)
Pages: 324-334
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Handle: RePEc:tpr:restat:v:89:y:2007:i:2:p:324-334

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  1. Wlaslowski, Szymon & Binner, Jane & Guiletti, Monica & Joseph, Nathan & Nilsson, Birger, 2007. "New York mark-ups on petroleum products," Working Papers 2008:2, Lund University, Department of Economics. [Downloadable!]
  2. Leufkens, Kasper & Peeters, Ronald, 2008. "Focal prices and price cycles in an alternating price duopoly experiment," Research Memoranda 021, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
  3. Joseph J. Doyle, Jr. & Erich Muehlegger & Krislert Samphantharak, 2008. "Edgeworth Cycles Revisited," NBER Working Papers 14162, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Michael Noel, 2007. "Do Gasoline Prices Resond Asymmetrically to Cost Shocks? The Confounding Effect of Edgeworth Cycles," University of California at San Diego, Economics Working Paper Series 2007-04, Department of Economics, UC San Diego. [Downloadable!]
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