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Asymmetric price adjustment and the effects of structural reforms in a low income environment: the case of the gasoline market in Greece

Author

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  • Zacharias Bragoudakis

    (Bank of Greece and National and Kapodistrian University of Athens)

  • Dimitrios Sideris

    () (Bank of Greece and Panteion University)

Abstract

The pricing mechanism in the gasoline market has often been the subject of public debate in Greece during the crisis years. Inefficient pricing could imply oligopolistic practices in the market and losses to consumers’ welfare in a period characterised by a dramatic fall in consumers’ income and standard of living. A way to test whether pricing is efficient in the market is by testing for asymmetries in the adjustment of domestic gasoline prices to world oil price changes. The present paper has two aims: (a) the first is to investigate the existence of asymmetric adjustment of gasoline prices to oil price variations in the Greek market, thus contributing to the relevant literature; (b) the second is to examine whether the structural reforms that took place in the gasoline market and the large fall in income, which characterise consumers’ behaviour in the recent period, had any impact on the pricing dynamics in the market. To this end, the analysis: (i) applies the TAR-ECM threshold cointegration technique, which assumes asymmetric adjustment towards the long-run equilibrium; (ii) makes use of observations at the highest frequency available; and (iii) uses the most recent data. The results provide evidence in favour of symmetric behaviour just for the crisis period. This may reflect competitive behaviour by suppliers who had to interact in a low demand environment and under a new institutional framework following the reforms, along with a change in consumers’ search behaviour who had to deal with a severe fall in their income.

Suggested Citation

  • Zacharias Bragoudakis & Dimitrios Sideris, 2019. "Asymmetric price adjustment and the effects of structural reforms in a low income environment: the case of the gasoline market in Greece," Working Papers 274, Bank of Greece.
  • Handle: RePEc:bog:wpaper:274
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    References listed on IDEAS

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    More about this item

    Keywords

    Price asymmetry; Gasoline prices; Crude oil; Threshold cointegration.;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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