Gasoline demand in the United States: An asymmetric economic analysis

Gasoline price in the United States has been characterized by extreme instability throughout the last two decades. Empirical literature commonly presumes a perfect symmetric reaction from consumers. However, there are reasons to believe that gasoline demand reductions following the price increases will not be entirely reversed by a price cut or vice versa. Using U.S. aggregate data and data of nine U.S. states’ gasoline consumers during the period 1986–2021, we examine gasoline demand’s asymmetry or imperfect reversibility to changes in gasoline prices. Instrumental variables are used to correct the potential endogeneity of gasoline prices. The finding indicates that at the national level, the demand of gasoline responds asymmetrically to price changes, suggesting possible imperfect reversibility in consumer behavior. However, the results differ across the states analyzed. This finding helps predict energy consumption and assist tax policy decisions and pricing strategy.