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European gasoline markets: price transmission asymmetries in mean and variance

Author

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  • María Torrado
  • Álvaro Escribano

Abstract

The main objective of this article is to analyse the different sources of asymmetric price transmissions in the fuel market for France, Germany and Spain. During the last decades, the EU has carried out several common energy policies to achieve more efficient and competitive markets. However, given the specific characteristics of each country, the question we want to address is if fuel prices across EU members behave differently in response to different market structures. Oil operators have been targeted by competition authorities for conducting non-competitive practices. To figure out whether the common complaint that gasoline prices adjust differently to positive or negative input price changes, dynamic asymmetric models for the mean and variance are developed for each country. Several asymmetric specifications for the mean and variance are considered. The best specification combines double threshold error correction models (DT-ECM) for the mean with asymmetric EGARCH plus an asymmetric dummy variable for the conditional variance. We show that French gasoline prices behave more competitively, adjusting quicker to the long-run equilibrium and with more price volatility. This outcome is consistent with the strong presence of hypermarkets following low-cost pricing strategies in France.

Suggested Citation

  • María Torrado & Álvaro Escribano, 2020. "European gasoline markets: price transmission asymmetries in mean and variance," Applied Economics, Taylor & Francis Journals, vol. 52(42), pages 4621-4638, September.
    • Handle: RePEc:taf:applec:v:52:y:2020:i:42:p:4621-4638
    DOI: 10.1080/00036846.2020.1739224
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    Cited by:

    1. Kyungsoo Cha & Chul-Yong Lee, 2023. "Rockets and Feathers in the Gasoline Market: Evidence from South Korea," Sustainability, MDPI, vol. 15(4), pages 1-15, February.
    2. Szomolányi, Karol & Lukáčik, Martin & Lukáčiková, Adriana, 2023. "Relation of Retail Gasoline and Diesel Prices in Croatia with Crude Oil Prices on World Markets," Proceedings of the ENTRENOVA - ENTerprise REsearch InNOVAtion Conference (2023), Hybrid Conference, Dubrovnik, Croatia, in: Proceedings of the ENTRENOVA - ENTerprise REsearch InNOVAtion Conference, Hybrid Conference, Dubrovnik, Croatia, 4-6 September, 2023, pages 51-59, IRENET - Society for Advancing Innovation and Research in Economy, Zagreb.
    3. Escribano, Álvaro & Wang, Dandan, 2021. "Mixed random forest, cointegration, and forecasting gasoline prices," International Journal of Forecasting, Elsevier, vol. 37(4), pages 1442-1462.

    More about this item

    JEL classification:

    • B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels

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