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Petrol Price Cycles


  • David P. Byrne


I never owned a car as a student. If I had to go somewhere, I walked or took public transport. I paid little attention to petrol prices because they did not affect my weekly budget. However, if you talk to someone who owns a car or drives to work, you will likely find they pay attention to prices at the pump.They may tell you which are the cheap petrol stations in their market, what the cheap day of the week for buying petrol is, or express concern that petrol prices rise around weekends and holidays.Consumers’ interest in petrol prices is likely driven by three facts: (1) petrol prices are displayed on large signs, making them highly visible; (2) in the short-run, consumers are unable to substitute from petrol to other fuels or modes of transportation when petrol prices rise; and (3) consumers spend a large share of their income on petrol. In 2009, the average Australian spent $51.02 per week on petrol, or 4.1% of their total weekly expenditures (ACCC 2011). Moreover, petrol is a relatively homogeneous good, which leaves consumers questioning why its price varies so much over time and across stations. Given the impact petrol costs have on consumers’ budgets, the Australian Competition and Consumer Commission (ACCC) monitors competition in Australian petrol markets. In fact, the ACCC has an entire branch solely dedicated to petrol markets! A striking finding the ACCC has documented for at least the past five years is that petrol price cycles exist in Australian cities. Figure 1, taken from an ACCC (2010) monitoring report, illustrates petrol price cycles for Adelaide, Brisbane, Melbourne, Perth, and Sydney. In these cities, the average daily petrol price drastically increases once a week (“price restorations”), followed by a sequence of daily price decreases (the “undercutting phase”), until the next price restoration occurs.1 To the extent that drivers purchase petrol from different stations at different parts of the cycle, petrol price cycles may explain why consu
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Suggested Citation

  • David P. Byrne, 2012. "Petrol Price Cycles," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 45(4), pages 497-506, December.
  • Handle: RePEc:bla:ausecr:v:45:y:2012:i:4:p:497-506
    DOI: j.1467-8462.2012.00702.x

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    References listed on IDEAS

    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. Jonathan E. Hughes & Christopher R. Knittel & Daniel Sperling, 2008. "Evidence of a Shift in the Short-Run Price Elasticity of Gasoline Demand," The Energy Journal, International Association for Energy Economics, vol. 29(1), pages 113-134.
    3. 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;Western Regional Science Association, vol. 38(1), pages 25-46, March.
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    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. Oystein Foros & Frode Steen, 2008. "Gasoline Prices Jump Up on Mondays: An Outcome of Aggressive Competition?," Working Papers 08-20, Centre for Competition Policy, University of East Anglia.
    9. Michael D. Noel, 2008. "Edgeworth Price Cycles and Focal Prices: Computational Dynamic Markov Equilibria," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(2), pages 345-377, June.
    10. Zhongmin Wang, 2009. "(Mixed) Strategy in Oligopoly Pricing: Evidence from Gasoline Price Cycles Before and Under a Timing Regulation," Journal of Political Economy, University of Chicago Press, vol. 117(6), pages 987-1030, December.
    11. 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, August.
    12. 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.
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    Cited by:

    1. Haucap, Justus & Heimeshoff, Ulrich & Siekmann, Manuel, 2015. "Price dispersion and station heterogeneity on German retail gasoline markets," DICE Discussion Papers 171, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    2. Justus Haucap & Ulrich Heimeshoff & Manuel Siekmann, 2017. "Fuel Prices and Station Heterogeneity on Retail Gasoline Markets," The Energy Journal, International Association for Energy Economics, vol. 0(Number 6).
    3. Haucap, Justus & Heimeshoff, Ulrich & Siekmann, Manuel, 2016. "Selling gasoline as a by-product: The impact of market structure on local prices," DICE Discussion Papers 240, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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