Retail gasoline pricing: What do we know?
We use a data set consisting of a three year panel of prices from a sample of gasoline stations located in suburban Washington DC and a corresponding census of the region's stations to develop three new empirical findings about retail gasoline pricing. First, while average retail margins vary substantially over time (by more than 50% over the three years we analyze), the shape of the margin distribution remains relatively constant. Second, there is substantial heterogeneity in pricing behavior: stations charging very low or very high prices are more likely to maintain their pricing position than stations charging prices near the mean. Third, retail gasoline pricing is dynamic. Despite the heterogeneity in station pricing behavior, stations frequently change their relative pricing position in this distribution, sometimes dramatically. We then relate these three findings to relevant theories of retail pricing. While many models of retail pricing are consistent with some of our findings, we find that all have serious shortcomings.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Saul Lach, 2002.
"Existence And Persistence Of Price Dispersion: An Empirical Analysis,"
The Review of Economics and Statistics,
MIT Press, vol. 84(3), pages 433-444, August.
- Saul Lach, 2002. "Existence and Persistence of Price Dispersion: an Empirical Analysis," NBER Working Papers 8737, National Bureau of Economic Research, Inc.
- 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.
- Barron, John M & Taylor, Beck A & Umbeck, John R, 2000. "A Theory of Quality-Related Differences in Retail Margins: Why There Is a "Premium" on Premium Gasoline," Economic Inquiry, Western Economic Association International, vol. 38(4), pages 550-69, October.
- 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.
- Margaret E. Slade, 1992. "Vancouver's Gasoline-Price Wars: An Empirical Exercise in Uncovering Supergame Strategies," Review of Economic Studies, Oxford University Press, vol. 59(2), pages 257-276.
- Galeotti, Marzio & Lanza, Alessandro & Manera, Matteo, 2003.
"Rockets and feathers revisited: an international comparison on European gasoline markets,"
Elsevier, vol. 25(2), pages 175-190, March.
- M. Galeotti & A. 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.
- Michael D. Noel, 2007. "EDGEWORTH PRICE CYCLES: EVIDENCE FROM THE TORONTO RETAIL GASOLINE MARKET -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 55(1), pages 69-92, 03.
- Justine S. Hastings, 2004. "Vertical Relationships and Competition in Retail Gasoline Markets: Empirical Evidence from Contract Changes in Southern California," American Economic Review, American Economic Association, vol. 94(1), pages 317-328, March.
- Al-Gudhea, Salim & Kenc, Turalay & Dibooglu, Sel, 2007. "Do retail gasoline prices rise more readily than they fall?: A threshold cointegration approach," Journal of Economics and Business, Elsevier, vol. 59(6), pages 560-574.
- Daniel Hosken & David Reiffen, 2004. "How Retailers Determine Which Products Should Go on Sale: Evidence From Store-Level Data," Journal of Consumer Policy, Springer, vol. 27(2), pages 141-177, June.
- 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, 03.
- Lal, Rajiv & Matutes, Carmen, 1994. "Retail Pricing and Advertising Strategies," The Journal of Business, University of Chicago Press, vol. 67(3), pages 345-70, July.
- Shepard, Andrea, 1990. "Pricing Behavior and Vertical Contracts in Retail Markets," American Economic Review, American Economic Association, vol. 80(2), pages 427-31, May.
- Severin Borenstein & A. Colin Cameron, 1992.
"Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?,"
NBER Working Papers
4138, National Bureau of Economic Research, Inc.
- Severin Borenstein & A. Colin Cameron & Richard Gilbert, 1997. "Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 305-339.
- Baye, Michael R. & Kovenock, Dan & de Vries, Casper G., 1992. "It takes two to tango: Equilibria in a model of sales," Games and Economic Behavior, Elsevier, vol. 4(4), pages 493-510, October.
- 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.
- Severin Borenstein & Andrea Shepard, 1993. "Dynamic Pricing in Retail Gasoline Markets," NBER Working Papers 4489, National Bureau of Economic Research, Inc.
- Borenstein, S. & Shepard, A., 1993. "Dynamic Pricing in Retail Gazoline Markets," Papers 93-22, California Davis - Institute of Governmental Affairs.
- Lance J. Bachmeier & James M. Griffin, 2003. "New Evidence on Asymmetric Gasoline Price Responses," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 772-776, August.
- Andrea Shepard, 1993. "Contractual Form, Retail Price, and Asset Characteristics in Gasoline Retailing," RAND Journal of Economics, The RAND Corporation, vol. 24(1), pages 58-77, Spring.
- 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.
- Andrew Eckert, 2002. "Retail price cycles and response asymmetry," Canadian Journal of Economics, Canadian Economics Association, vol. 35(1), pages 52-77, February.
- 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.
- Shepard, Andrea, 1991. "Price Discrimination and Retail Configuration," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 30-53, February.
- Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
- Pashigian, B Peter, 1988. "Demand Uncertainty and Sales: A Study of Fashion and Markdown Pricin g," American Economic Review, American Economic Association, vol. 78(5), pages 936-53, December.
- Barron, John M. & Taylor, Beck A. & Umbeck, John R., 2004. "Number of sellers, average prices, and price dispersion," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1041-1066, November.
- 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.
- Slade, Margaret E, 1987. "Interfirm Rivalry in a Repeated Game: An Empirical Test of Tacit Collusion," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 499-516, June.
- John Conlisk & Eitan Gerstner & Joel Sobel, 1984. "Cyclic Pricing by a Durable Goods Monopolist," The Quarterly Journal of Economics, Oxford University Press, vol. 99(3), pages 489-505.
When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:26:y:2008:i:6:p:1425-1436. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.