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Dynamic pricing and asymmetries in retail gasoline markets: What can they tell us about price stickiness?

  • Douglas, Christopher C.
  • Herrera, Ana María

Theoretical explanations for price stickiness used in businesses cycle models are diverse (e.g., information processing delays, rational inattention and fair pricing), with each theory resulting in a different implication for inflation dynamics. Using an autoregressive conditional binomial model and a data set consisting of daily observations of price and cost for 15 Philadelphia retail gasoline stations, we test which of these theories is most consistent with the observed pattern of price adjustment. Our findings of time dependence, asymmetry and the role of cost volatility are consistent with a combination of fairness considerations and rational inattention by producers.

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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 122 (2014)
Issue (Month): 2 ()
Pages: 247-252

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Handle: RePEc:eee:ecolet:v:122:y:2014:i:2:p:247-252
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  9. Christopher Douglas & Ana Mar�a Herrera, 2010. "Why are gasoline prices sticky? A test of alternative models of price adjustment," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(6), pages 903-928.
  10. Christopher A. Sims, 1992. "Interpreting the Macroeconomic Time Series Facts: The Effects of Monetary Policy," Cowles Foundation Discussion Papers 1011, Cowles Foundation for Research in Economics, Yale University.
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