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European gasoline markets: price transmission asymmetries in mean and variance

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  • Escribano, Álvaro
  • Torrado, María

Abstract

The main objective of this paper 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 and the best specification combines double threshold error correction models (DT-ECM) for the mean with asymmetric EGARCH plus dummy variables for the conditional variance. We show that French gasoline prices behave more competitively, adjusting quicker to the long-run equilibrium and with higher price volatility. This outcome is consistent with the strong presence of hypermarkets following low-cost pricing strategies in France.

Suggested Citation

  • Escribano, Álvaro & Torrado, María, 2020. "European gasoline markets: price transmission asymmetries in mean and variance," UC3M Working papers. Economics 29633, Universidad Carlos III de Madrid. Departamento de Economía.
  • Handle: RePEc:cte:werepe:29633
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    References listed on IDEAS

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    Keywords

    Log-GARCH;

    JEL classification:

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

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