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Asymmetries in the adjustment of motor diesel and gasoline pump prices in Europe

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Jorge Rodrigues () (Autoridade da Concorrência)
Abstract

Gasoline prices are said to take longer to decrease and at a slower rate when crude oil prices fall than they do to increase when crude oil prices rise. In this paper I analyze to what extent this asymmetry phenomenon can be identified across all EU15 Member States, plus the EU15 average, and I allow for a comparative analysis between IO95 gasoline and motor diesel. I follow previous approaches by disentangling between the two major channels of pump price formation in Europe, namely the international channel from Brent to Platts (ex-refinery) prices and the domestic channels from Platts to average pump prices before tax. I consider weekly data over the period 2004-2008 and follow a previously proposed co-integration based econometric approach. Results strongly suggest the existence of asymmetries in the international channel for diesel, where there is also evidence of overshooting, but not for gasoline. On the domestic channels, the evidence in favour of asymmetries depends on the considered Member State and type of fuel.

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File URL: http://www.concorrencia.pt/download/WP37_Asymmetries_in_Europe.pdf
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Paper provided by Portuguese Competition Authority in its series Working Papers with number 37.

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Length: 55 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:pca:wpaper:37

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  1. M. Galeotti & Alessandro Lanza & M. Manera, 2001. "Rockets and feathers revisited: an international comparison on European gasoline markets," Working Paper CRENoS 200112, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia. [Downloadable!]
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  2. Severin Boreinstein & Andrea Shepard, 1996. "Dynamic Pricing in Retail Gasoline Markets," RAND Journal of Economics, The RAND Corporation, vol. 27(3), pages 429-451, Autumn. [Downloadable!] (restricted)
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  3. Andrew Eckert, 2002. "Retail price cycles and response asymmetry," Canadian Journal of Economics, Canadian Economics Association, vol. 35(1), pages 52-77, February. [Downloadable!] (restricted)
  4. Bacon, Robert W., 1991. "Rockets and feathers: the asymmetric speed of adjustment of UK retail gasoline prices to cost changes," Energy Economics, Elsevier, vol. 13(3), pages 211-218, July. [Downloadable!] (restricted)
  5. Borenstein, Severin & Cameron, A Colin & Gilbert, Richard, 1997. "Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 305-39, February.
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  6. Dana, James D, Jr, 1994. "Learning in an Equilibrium Search Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(3), pages 745-71, August. [Downloadable!] (restricted)
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  7. Huanxing Yang & Lixin Ye, 2008. "Search with learning: understanding asymmetric price adjustments," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 547-564. [Downloadable!] (restricted)
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