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Asymmetric Price Adjustments Under Ever-Increasing Costs. Evidence from the Retail Gasoline Market in Colombia

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  • Marc Hofstetter
  • Jorge Tovar

Abstract

There is abundant empirical evidence showing that asymmetric price adjustments exist in a wide variety of markets. Prices tend to grow faster when costs rise relative to the rate at which prices drop when costs fall. The objective of this paper is to empirically test whether asymmetric price adjustments exist in a scenario where costs are increasing every period.The Colombian retail gasoline market offers an excellent case study due to a specific regulation, something discussed further in this paper. Our results suggest that when costs rise above the reference price -a government suggested retail price- retail prices tend to rise less relative to when costs grow below the reference price. Thus, asymmetry does exist.

Suggested Citation

  • Marc Hofstetter & Jorge Tovar, 2007. "Asymmetric Price Adjustments Under Ever-Increasing Costs. Evidence from the Retail Gasoline Market in Colombia," Documentos CEDE 5146, Universidad de los Andes, Facultad de Economía, CEDE.
    • Handle: RePEc:col:000089:005146
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    File URL: https://repositorio.uniandes.edu.co/bitstream/handle/1992/8079/dcede2008-21.pdf
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    References listed on IDEAS

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    6. Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles," Econometrica, Econometric Society, vol. 56(3), pages 571-599, May.
    7. Godby, Rob & Lintner, Anastasia M. & Stengos, Thanasis & Wandschneider, Bo, 2000. "Testing for asymmetric pricing in the Canadian retail gasoline market," Energy Economics, Elsevier, vol. 22(3), pages 349-368, June.
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    Cited by:

    1. Juan Ricardo Perilla Jiménez, 2010. "El impacto de los precios del petróleo sobre el crecimiento económico en Colombia," Revista de Economía del Rosario, Universidad del Rosario, May.
    2. Wittmann, Nadine, 2014. "Regulating gasoline retail markets: The case of Germany," Economics Discussion Papers 2014-17, Kiel Institute for the World Economy (IfW Kiel).
    3. Sergio González & Edwin Hernández, 2016. "Indirect impacts of oil prices on economic growth in Colombia," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 84, pages 103-141, Enero - J.

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    More about this item

    Keywords

    Asymmetric price adjustments; Gasoline retail markets; Search; Reference Prices.;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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