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The Speed of Gasoline Price Response in Markets with and without Edgeworth Cycles

  • Matthew Lewis

    (Ohio State University)

  • Michael Noel

    (University of California, San Diego)

Retail gasoline prices are known to respond fairly slowly to wholesale price changes. This does not appear to be true for markets with Edgeworth price cycles. Recently many retail gasoline markets in the midwestern United States and other countries have been shown to exhibit price cycles in which competition generates rapid cyclical retail price movements. We show that cost changes in cycling markets are passed on two to three times faster than in markets without cycles. We argue that the constant price movement inherent within the Edgeworth cycle eliminates price frictions and allows firms to pass on cost fluctuations more easily. © 2011 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/REST_a_00176
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Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 93 (2011)
Issue (Month): 2 (May)
Pages: 672-682

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Handle: RePEc:tpr:restat:v:93:y:2011:i:2:p:672-682
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  1. 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.
  2. Joseph J. Doyle, Jr. & Erich Muehlegger & Krislert Samphantharak, 2008. "Edgeworth Cycles Revisited," NBER Working Papers 14162, National Bureau of Economic Research, Inc.
  3. Zhongmin Wang, 2008. "Collusive Communication and Pricing Coordination in a Retail Gasoline Market," Review of Industrial Organization, Springer, vol. 32(1), pages 35-52, February.
  4. Lewis, Matt, 2004. "Asymmetric Price Adjustment and Consumer Search: An Examination of the Retail Gasoline Market," Competition Policy Center, Working Paper Series qt9pv2d9fn, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  5. 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.
  6. George Deltas, 2008. "RETAIL GASOLINE PRICE DYNAMICS AND LOCAL MARKET POWER -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 613-628, 09.
  7. 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.
  8. 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.
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