The Speed of Gasoline Price Response in Markets with and without Edgeworth Cycles
AbstractRetail gasoline prices are known to respond fairly slowly to wholesale price changes. This does not appear to be true for markets with Edgeworth price cycles. Recently many retail gasoline markets in the midwestern United States and other countries have been shown to exhibit price cycles in which competition generates rapid cyclical retail price movements. We show that cost changes in cycling markets are passed on two to three times faster than in markets without cycles. We argue that the constant price movement inherent within the Edgeworth cycle eliminates price frictions and allows firms to pass on cost fluctuations more easily. © 2011 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.
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Bibliographic InfoArticle provided by MIT Press in its journal Review of Economics and Statistics.
Volume (Year): 93 (2011)
Issue (Month): 2 (May)
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Other versions of this item:
- Lewis, Matt & Noel, Michael, 2009. "The Speed of Gasoline Price Response in Markets With and Without Edgeworth Cycles," University of California at San Diego, Economics Working Paper Series, Department of Economics, UC San Diego qt8j36j1s1, Department of Economics, UC San Diego.
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