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Asymmetric pricing dynamics with market power: investigating island data of the retail gasoline market

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  • Woo-Hyung Hong

    (Hansung University)

  • Daeyong Lee

    (Iowa State University)

Abstract

This paper investigates how and why a link between market power and asymmetric pricing occurs. Analyzing unique island panel data of the Korean gasoline market, we exploit geographic separation as a reliable measure of market power. Our findings confirm a positive correlation between market power and price-response asymmetry. The empirical results on sticky pricing behaviors suggest that tacit collusion is the main channel through which market power influences asymmetric pricing. In addition, we examine the effect of station heterogeneity on asymmetric pricing to provide further evidence of tacit collusion in a localized market.

Suggested Citation

  • Woo-Hyung Hong & Daeyong Lee, 2020. "Asymmetric pricing dynamics with market power: investigating island data of the retail gasoline market," Empirical Economics, Springer, vol. 58(5), pages 2181-2221, May.
  • Handle: RePEc:spr:empeco:v:58:y:2020:i:5:d:10.1007_s00181-018-1614-5
    DOI: 10.1007/s00181-018-1614-5
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    2. Julie Bennett & Michael T. Owyang & E. Katarina Vermann, 2021. "Regional Gasoline Price Dynamics," Review, Federal Reserve Bank of St. Louis, vol. 103(3), pages 289-314, July.

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    More about this item

    Keywords

    Asymmetric pricing; Market power; Geographic separation; Tacit collusion; Consumer search; Sticky pricing;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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