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On the Dynamics of Gasoline Market Integration in the United States: Evidence from a Pair-wise Approach

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  • Mark J. Holmes

    ()
    (Department of Economics, Waikato University)

  • Jesus Otero

    ()
    (Facultad de Economía, Universidad del Rosario)

  • Theodore Panagiotidis

    ()
    (Department of Economics, University of Macedonia)

Abstract

This paper employs a pair-wise approach to examine regional integration in the US gasoline market. Using gasoline price data at the state level over a period of more than two decades, we find strong support for the view that the law of one price holds in regional markets, as more than 80% of bivariate price differentials turn out to be stationary. Furthermore, we uncover evidence that the speed at which prices converge to the long-run equilibrium depends upon the distance between states. Asymmetries are also present in this relationship. Our findings suggest that the more similar are states with respect to taxation, gas stations and refining capacity, the faster is the speed of adjustment towards the long-run equilibrium.

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Bibliographic Info

Paper provided by Koc University-TUSIAD Economic Research Forum in its series Koç University-TUSIAD Economic Research Forum Working Papers with number 1230.

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Length: 28 pages
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:koc:wpaper:1230

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Keywords: Panel data; pair-wise approach; market integration; gasoline; speed of adjustment.;

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