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

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  • Matthew Lewis

    (Ohio State University)

  • Michael Noel

    (University of California, San Diego)

Abstract

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.

Suggested Citation

  • Matthew Lewis & Michael Noel, 2011. "The Speed of Gasoline Price Response in Markets with and without Edgeworth Cycles," The Review of Economics and Statistics, MIT Press, vol. 93(2), pages 672-682, May.
  • Handle: RePEc:tpr:restat:v:93:y:2011:i:2:p:672-682
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    References listed on IDEAS

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    1. Doyle, Joseph & Muehlegger, Erich & Samphantharak, Krislert, 2010. "Edgeworth cycles revisited," Energy Economics, Elsevier, vol. 32(3), pages 651-660, May.
    2. Matthew S. Lewis, 2011. "Asymmetric Price Adjustment and Consumer Search: An Examination of the Retail Gasoline Market," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(2), pages 409-449, June.
    3. 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.
    4. Zhongmin Wang, 2008. "Collusive Communication and Pricing Coordination in a Retail Gasoline Market," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 32(1), pages 35-52, February.
    5. George Deltas, 2008. "RETAIL GASOLINE PRICE DYNAMICS AND LOCAL MARKET POWER -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 613-628, September.
    6. 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.
    7. Severin Borenstein & A. Colin Cameron & Richard Gilbert, 1997. "Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 305-339.
    8. 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.
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