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Gasoline and crude oil prices: why the asymmetry?

  • Stephen P. A. Brown
  • Mine K. Yücel

Many consumers complain that gasoline and crude oil prices have an asymmetric relationship in which gasoline prices raise more quickly when crude oil prices are rising than they fall when crude oil prices are falling. Many also regard the asymmetry they observe as evidence of market power in the petroleum industry. Most previous research provides econometric evidence of the asymmetry, confirming at least part of what consumers suspect. In this article Stephen Brown and Mine Yucel extend the inquiry by examining the market conditions underlying the asymmetric relationship between gasoline and crude oil prices. They find the observed asymmetry is unlikely to be the result of monopoly power. The remaining explanations for the asymmetry suggest that policies to prevent an asymmetric relationship between gasoline and crude oil prices are likely to reduce economic efficiency.

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File URL: http://www.dallasfed.org/assets/documents/research/efr/2000/efr0003b.pdf
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Article provided by Federal Reserve Bank of Dallas in its journal Economic and Financial Policy Review.

Volume (Year): (2000)
Issue (Month): Q3 ()
Pages: 23-29

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Handle: RePEc:fip:fedder:y:2000:i:q3:p:23-29
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  1. John Haltiwanger & Joseph E. Harrington Jr., 1991. "The Impact of Cyclical Demand Movements on Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 89-106, Spring.
  2. 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.
  3. Nathan S. Balke & Stephen P. A. Brown & Mine Yücel, 1998. "Crude oil and gasoline prices: an asymmetric relationship?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q 1, pages 2-11.
  4. Samarendu Mohanty & E. Wesley F. Peterson & Nancy Cottrell Kruse, 1995. "Price Asymmetry in the International Wheat Market," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 43(3), pages 355-366, November.
  5. Jeffrey D. Karrenbrock, 1991. "The behavior of retail gasoline prices: symmetric or not?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 19-29.
  6. Bacon, Robert W., 1991. "Rockets and feathers: the asymmetric speed of adjustment of UK retail gasoline prices to cost changes," Energy Economics, Elsevier, vol. 13(3), pages 211-218, July.
  7. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June.
  8. Severin Borenstein & Andrea Shepard, 1993. "Dynamic Pricing in Retail Gasoline Markets," NBER Working Papers 4489, National Bureau of Economic Research, Inc.
  9. David Neumark & Steven A. Sharpe, 1989. "Market structure and the nature of price rigidity: evidence from the market for consumer deposits," Finance and Economics Discussion Series 52, Board of Governors of the Federal Reserve System (U.S.).
  10. Reagan, Patricia B. & Weitzman, Martin L., 1982. "Asymmetries in price and quantity adjustments by the competitive firm," Journal of Economic Theory, Elsevier, vol. 27(2), pages 410-420, August.
  11. Patricia B. Reagan, 1982. "Inventory and Price Behaviour," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 137-142.
  12. Severin Borenstein, 1991. "Selling Costs and Switching Costs: Explaining Retail Gasoline Margins," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 354-369, Autumn.
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