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Asymmetric Price Adjustments Under Ever-Increasing Costs. Evidence from the Retail Gasoline Market in Colombia

Author

Listed:
  • Marc Hofstetter

    ()

  • Jorge Tovar

    ()

Abstract

There is abundant empirical evidence showing that asymmetric price adjustments exist in a wide variety of markets. Prices tend to grow faster when costs rise relative to the rate at which prices drop when costs fall. The objective of this paper is to empirically test whether asymmetric price adjustments exist in a scenario where costs are increasing every period.The Colombian retail gasoline market offers an excellent case study due to a specific regulation, something discussed further in this paper. Our results suggest that when costs rise above the reference price -a government suggested retail price- retail prices tend to rise less relative to when costs grow below the reference price. Thus, asymmetry does exist.

Suggested Citation

  • Marc Hofstetter & Jorge Tovar, 2007. "Asymmetric Price Adjustments Under Ever-Increasing Costs. Evidence from the Retail Gasoline Market in Colombia," DOCUMENTOS CEDE 005146, UNIVERSIDAD DE LOS ANDES-CEDE.
  • Handle: RePEc:col:000089:005146
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    File URL: http://economia.uniandes.edu.co/publicaciones/dcede2008-21.pdf
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    References listed on IDEAS

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    1. Duffy-Deno, Kevin T., 1996. "Retail price asymmetries in local gasoline markets," Energy Economics, Elsevier, vol. 18(1-2), pages 81-92, April.
    2. Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles," Econometrica, Econometric Society, vol. 56(3), pages 571-599, May.
    3. Godby, Rob & Lintner, Anastasia M. & Stengos, Thanasis & Wandschneider, Bo, 2000. "Testing for asymmetric pricing in the Canadian retail gasoline market," Energy Economics, Elsevier, vol. 22(3), pages 349-368, June.
    4. Jochen Meyer & Stephan Cramon-Taubadel, 2004. "Asymmetric Price Transmission: A Survey," Journal of Agricultural Economics, Wiley Blackwell, vol. 55(3), pages 581-611.
    5. Stephen P. A. Brown & Mine K. Yücel, 2000. "Gasoline and crude oil prices: why the asymmetry?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q3, pages 23-29.
    6. Huanxing Yang & Lixin Ye, 2008. "Search with learning: understanding asymmetric price adjustments," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 547-564.
    7. Nathan S. Balke & Stephen P. A. Brown & Mine Yücel, 1998. "Crude oil and gasoline prices: an asymmetric relationship?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q 1, pages 2-11.
    8. Mariano Tappata, 2009. "Rockets and feathers: Understanding asymmetric pricing," RAND Journal of Economics, RAND Corporation, vol. 40(4), pages 673-687.
    9. Andrew Eckert, 2002. "Retail price cycles and response asymmetry," Canadian Journal of Economics, Canadian Economics Association, vol. 35(1), pages 52-77, February.
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    Cited by:

    1. Juan Ricardo Perilla Jiménez, 2010. "El impacto de los precios del petróleo sobre el crecimiento económico en Colombia," REVISTA DE ECONOMÍA DEL ROSARIO, UNIVERSIDAD DEL ROSARIO, May.
    2. Wittmann, Nadine, 2014. "Regulating gasoline retail markets: The case of Germany," Economics Discussion Papers 2014-17, Kiel Institute for the World Economy (IfW).

    More about this item

    Keywords

    Asymmetric price adjustments; Gasoline retail markets; Search; Reference Prices.;

    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
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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