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Do pump prices really follow Edgeworth cycles? Evidence from the German retail fuel market

Author

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  • Samuel de Haas

    () (Justus-Liebig-University Giessen)

Abstract

Most of the literature on retail fuel markets find high-frequency and asymmetric price cycles. This is typically explained by the model of Edgeworth price cycles. A key element of this model is that prices fall to marginal costs during a cycle. It seems challenging to address this assumption empirically. However, I use a natural experiment in the German fuel market to analyze the effects of an external cost shock. I find strong evidence that prices do not fall to marginal costs. This is not in line with Edgeworth cycles and thus, should be taken into account when analyzing fuel markets.

Suggested Citation

  • Samuel de Haas, 2019. "Do pump prices really follow Edgeworth cycles? Evidence from the German retail fuel market," MAGKS Papers on Economics 201913, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  • Handle: RePEc:mar:magkse:201913
    as

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    File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/paper_2019/13-2019_de_haas.pdf
    File Function: First 201913
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    References listed on IDEAS

    as
    1. repec:spr:wirtsc:v:97:y:2017:i:10:d:10.1007_s10273-017-2204-4 is not listed on IDEAS
    2. Michael Noel, 2009. "Do retail gasoline prices respond asymmetrically to cost shocks? The influence of Edgeworth Cycles," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 582-595, September.
    3. Michael D. Noel, 2007. "Edgeworth Price Cycles: Evidence From The Toronto Retail Gasoline Market," Journal of Industrial Economics, Wiley Blackwell, vol. 55(1), pages 69-92, March.
    4. Michael D. Noel, 2008. "Edgeworth Price Cycles and Focal Prices: Computational Dynamic Markov Equilibria," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(2), pages 345-377, June.
    5. 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.
    6. Bacon, Robert W., 1991. "Rockets and feathers: the asymmetric speed of adjustment of UK retail gasoline prices to cost changes," Energy Economics, Elsevier, vol. 13(3), pages 211-218, July.
    7. Øystein Foros & Frode Steen, 2013. "Vertical Control and Price Cycles in Gasoline Retailing," Scandinavian Journal of Economics, Wiley Blackwell, vol. 115(3), pages 640-661, July.
    8. repec:aea:aecrev:v:109:y:2019:i:2:p:591-619 is not listed on IDEAS
    9. Eckert, Andrew & West, Douglas S, 2004. "Retail Gasoline Price Cycles across Spatially Dispersed Gasoline Stations," Journal of Law and Economics, University of Chicago Press, vol. 47(1), pages 245-273, April.
    10. Siekmann, Manuel, 2017. "Characteristics, causes, and price effects: Empirical evidence of intraday Edgeworth cycles," DICE Discussion Papers 252, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    11. Noel, Michael D., 2015. "Do Edgeworth price cycles lead to higher or lower prices?," International Journal of Industrial Organization, Elsevier, vol. 42(C), pages 81-93.
    12. repec:ebl:ecbull:eb-17-00962 is not listed on IDEAS
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    More about this item

    Keywords

    Edgeworth price cycles; Retail gasoline; Price effects; Natural experiment; Coordination;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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