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Price Cycles and Price Leadership in Gasoline Markets: New Evidence from Canada

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  • David P.Byrne
  • Roger Ware

Abstract

This paper studies the determinants of Edgeworth Cycles, price leadership and coordination in retail gasoline markets using daily station-level price data for 110 markets in Ontario, Canada for 2007-2008. We find an “inverse-U” relationship between markets’ propensity to exhibit price cycles and their size. More concentrated markets are less likely to exhibits cycles and we highlight regional clustering among cycling and non-cycling markets. Within cycling markets, we find brands’ stations (Esso, Shell,Petro-Canada, Sunoco) lead price jumps and coordinate market prices, while independents (Ultramar, Pioneer, Olco, MacEwen) aggressively undercut prices over the cycle.

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Bibliographic Info

Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 1124.

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Length: 40 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:mlb:wpaper:1124

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Web page: http://www.economics.unimelb.edu.au
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Keywords: Retail gasoline prices; Edgeworth Cycles; Price leadership; Coordination;

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References

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  1. Eckert, Andrew & West, Douglas S., 2005. "Price uniformity and competition in a retail gasoline market," Journal of Economic Behavior & Organization, Elsevier, vol. 56(2), pages 219-237, February.
  2. Andrew Eckert & Douglas S. West, 2004. "A tale of two cities: Price uniformity and price volatility in gasoline retailing," The Annals of Regional Science, Springer, vol. 38(1), pages 25-46, 03.
  3. Michael D. Noel, 2011. "Edgeworth price cycles," The New Palgrave Dictionary of Economics, Palgrave Macmillan.
  4. Matthew S. Lewis, 2009. "Temporary Wholesale Gasoline Price Spikes Have Long-Lasting Retail Effects: The Aftermath of Hurricane Rita," Journal of Law and Economics, University of Chicago Press, vol. 52(3), pages 581-605, 08.
  5. 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 qt8j36j1s1, Department of Economics, UC San Diego.
  6. Hirschberg, Joseph G. & Maasoumi, Esfandiar & Slottje, Daniel & Arize, Augustine C., 2003. "Antitrust issues in international comparisons of market structure," Journal of Econometrics, Elsevier, vol. 113(1), pages 129-158, March.
  7. 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.
  8. Matthew S. Lewis & Howard P. Marvel, 2011. "When Do Consumers Search?," Journal of Industrial Economics, Wiley Blackwell, vol. 59(3), pages 457-483, 09.
  9. Eckert, Andrew, 2003. "Retail price cycles and the presence of small firms," International Journal of Industrial Organization, Elsevier, vol. 21(2), pages 151-170, February.
  10. Aguirregabiria, Victor, 1999. "The Dynamics of Markups and Inventories in Retailing Firms," Review of Economic Studies, Wiley Blackwell, vol. 66(2), pages 275-308, April.
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