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Asymmetric Price Responses of Gasoline Stations: Evidence for Heterogeneity of Retailers

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  • Riemer P. Faber

    (Erasmus University Rotterdam)

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    Abstract

    This paper studies asymmetric price responses of individual firms, via daily retail prices of almost all gasoline stations in the Netherlands and suggested prices of the five largest oil companies over more than two years. I find that 38% of the stations respond asymmetrically to changes in the spot market price. Hence, asymmetric pricing is not a feature of the market as a whole, but of individual firms. For asymmetrically pricing stations, the asymmetry is substantial directly after a change but disappears after one or two days. I study station-specific characteristics and conclude that asymmetric pricing seems to be a phenomenon that is randomly distributed across stations. I also find that none of the five largest oil companies adjust their suggested prices asymmetrically.

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    Bibliographic Info

    Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 09-106/1.

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    Date of creation: 19 Nov 2009
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    Handle: RePEc:dgr:uvatin:20090106

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    Web page: http://www.tinbergen.nl

    Related research

    Keywords: price setting; asymmetric price responses; gasoline markets;

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    References

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    1. Radchenko, Stanislav, 2005. "Oil price volatility and the asymmetric response of gasoline prices to oil price increases and decreases," Energy Economics, Elsevier, vol. 27(5), pages 708-730, September.
    2. Maarten Janssen & Paul Pichler & Simon Weidenholzer, 2009. "Sequential Search with Incompletely Informed Consumers: Theory and Evidence from Retail Gasoline Markets," Vienna Economics Papers 0914, University of Vienna, Department of Economics.
    3. Leon Bettendorf & Stephanie van der Geest & Gerard Kuper, 2005. "Do Daily Retail Gasoline Prices adjust Asymmetrically?," Tinbergen Institute Discussion Papers 05-040/2, Tinbergen Institute.
    4. Felipe Balmaceda & Paula Soruco, 2008. "ASYMMETRIC DYNAMIC PRICING IN A LOCAL GASOLINE RETAIL MARKET -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 629-653, 09.
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    6. Matt Lewis, 2004. "Asymmetric Price Adjustment and Consumer Search: An Examination of the Retail Gasoline Market," Industrial Organization 0407010, EconWPA.
    7. Ambarish Chandra & Mariano Tappata, 2011. "Consumer search and dynamic price dispersion: an application to gasoline markets," RAND Journal of Economics, RAND Corporation, vol. 42(4), pages 681-704, December.
    8. John C. Driscoll & Aart C. Kraay, 1998. "Consistent Covariance Matrix Estimation With Spatially Dependent Panel Data," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 549-560, November.
    9. Sam Peltzman, 1998. "Prices Rise Faster Than They Fall," University of Chicago - George G. Stigler Center for Study of Economy and State 142, Chicago - Center for Study of Economy and State.
    10. George Deltas, 2008. "RETAIL GASOLINE PRICE DYNAMICS AND LOCAL MARKET POWER -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 613-628, 09.
    11. Huanxing Yang & Lixin Ye, 2008. "Search with learning: understanding asymmetric price adjustments," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 547-564.
    12. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
    13. Matteo Manera & Giliola Frey, 2005. "Econometric Models of Asymmetric Price Transmission," Working Papers 2005.100, Fondazione Eni Enrico Mattei.
    14. Bettendorf, Leon & van der Geest, Stephanie A. & Varkevisser, Marco, 2003. "Price asymmetry in the Dutch retail gasoline market," Energy Economics, Elsevier, vol. 25(6), pages 669-689, November.
    15. Nathan S. Balke & Stephen P. A. Brown & Mine YĆ¼cel, 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.
    16. Mariano Tappata, 2009. "Rockets and feathers: Understanding asymmetric pricing," RAND Journal of Economics, RAND Corporation, vol. 40(4), pages 673-687.
    17. Matthew Lewis & Michael Noel, 2011. "The Speed of Gasoline Price Response in Markets with and without Edgeworth Cycles," The Review of Economics and Statistics, MIT Press, vol. 93(2), pages 672-682, May.
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    Cited by:
    1. Polemis, Michail & Fotis, Panagiotis, 2011. "The gasoline Industry in European Union and the USA," MPRA Paper 35097, University Library of Munich, Germany.

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