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Edgeworth Price Cycles and intertemporal price discrimination

  • Noel, Michael D.
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    In a retail gasoline market exhibiting Edgeworth Price Cycles, prices change asymmetrically with many small decreases interrupted by occasional large increases. The result is a de facto menu of prices from which consumers can choose based on exactly when they buy. This article introduces four classes of purchase timing strategies designed to systematically shift consumer purchases towards the cycle troughs. It shows in the study market of Toronto, Canada, the monetary gains to consumers from optimized timing strategies are as high as 3.9%. Markups earned from these consumers fall up to 82%. In spite of the gains from timing strategies, surprisingly few consumers use them. Evidence is presented that a main reason is that consumers are not well informed about the cycles. Policy implications are discussed.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0140988311001095
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    Article provided by Elsevier in its journal Energy Economics.

    Volume (Year): 34 (2012)
    Issue (Month): 4 ()
    Pages: 942-954

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    Handle: RePEc:eee:eneeco:v:34:y:2012:i:4:p:942-954
    Contact details of provider: Web page: http://www.elsevier.com/locate/eneco

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    1. Matthew Lewis & Michael Noel, 2011. "The Speed of Gasoline Price Response in Markets with and without Edgeworth Cycles," The Review of Economics and Statistics, MIT Press, vol. 93(2), pages 672-682, May.
    2. Benjamin Atkinson, 2009. "Retail Gasoline Price Cycles: Evidence from Guelph, Ontario Using Bi-Hourly, Station-Specific Retail Price Data," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 85-110.
    3. Fershtman, C. & Fishman, A., 1989. "Price Cycles And Booms Dynamic Search Equilibrium," Papers 8922, Tilburg - Center for Economic Research.
    4. Conlisk, John & Gerstner, Eitan & Sobel, Joel, 1984. "Cyclic Pricing by a Durable Goods Monopolist," The Quarterly Journal of Economics, MIT Press, vol. 99(3), pages 489-505, August.
    5. 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.
    6. Michael D. Noel, 2007. "Edgeworth Price Cycles, Cost-Based Pricing, and Sticky Pricing in Retail Gasoline Markets," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 324-334, May.
    7. 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.
    8. Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles," Econometrica, Econometric Society, vol. 56(3), pages 571-99, May.
    9. Wang, Zhongmin, 2009. "Station level gasoline demand in an Australian market with regular price cycles," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 53(4), December.
    10. Adonis Yatchew & Joungyeo Angela No, 2001. "Household Gasoline Demand in Canada," Econometrica, Econometric Society, vol. 69(6), pages 1697-1709, November.
    11. Joseph J. Doyle, Jr. & Erich Muehlegger & Krislert Samphantharak, 2008. "Edgeworth Cycles Revisited," NBER Working Papers 14162, National Bureau of Economic Research, Inc.
    12. Andrew Eckert, 2002. "Retail price cycles and response asymmetry," Canadian Journal of Economics, Canadian Economics Association, vol. 35(1), pages 52-77, February.
    13. 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.
    14. Zhongmin Wang, 2008. "Collusive Communication and Pricing Coordination in a Retail Gasoline Market," Review of Industrial Organization, Springer, vol. 32(1), pages 35-52, February.
    15. 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.
    16. Nicol, C. J., 2003. "Elasticities of demand for gasoline in Canada and the United States," Energy Economics, Elsevier, vol. 25(2), pages 201-214, March.
    17. 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, 06.
    18. Eckert, Andrew & West, Douglas S, 2004. "Retail Gasoline Price Cycles across Spatially Dispersed Gasoline Stations," Journal of Law and Economics, University of Chicago Press, vol. 47(1), pages 245-73, April.
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