IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/4489.html
   My bibliography  Save this paper

Dynamic Pricing in Retail Gasoline Markets

Author

Listed:
  • Severin Borenstein
  • Andrea Shepard

Abstract

This paper tests for price patterns in retail gasoline markets consistent with those predicted by models of implicit collusion among firms. Recent supergame models show that the highest supportable collusive price is a function of today's profit relative to expected future profit: collusive prices are higher when predictable changes in demand or cost lead firms to expect that collusive profits are increasing rather than declining. Ceteris paribus, collusive profits will be expected to increase when demand is expected to increase and/or costs are expected to decline. Using panel data on sales volume, and retail and wholesale prices in 59 cities over 72 months, we find results consistent with these predictions. Controlling for current demand and input price, the elasticity of current retail margins with respect to expected next-month demand is about 0.37. The elasticity of current margins with respect to next-month wholesale price is about -0.37. The results are inconsistent with inventory effects.

Suggested Citation

  • Severin Borenstein & Andrea Shepard, 1993. "Dynamic Pricing in Retail Gasoline Markets," NBER Working Papers 4489, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:4489
    Note: IO
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w4489.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Richard J. Gilbert and David M. Newbery., 1988. "Regulation Games," Economics Working Papers 8879, University of California at Berkeley.
    2. Shepard, Andrea, 1991. "Price Discrimination and Retail Configuration," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 30-53, February.
    3. John Haltiwanger & Joseph E. Harrington Jr., 1991. "The Impact of Cyclical Demand Movements on Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 89-106, Spring.
    4. 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.
    5. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
    6. Severin Borenstein, 1991. "Selling Costs and Switching Costs: Explaining Retail Gasoline Margins," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 354-369, Autumn.
    7. Severin Borenstein & A. Colin Cameron & Richard Gilbert, 1997. "Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(1), pages 305-339.
    8. Robert H. Porter, 1983. "A Study of Cartel Stability: The Joint Executive Committee, 1880-1886," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 301-314, Autumn.
    9. Dahl, Carol & Sterner, Thomas, 1991. "Analysing gasoline demand elasticities: a survey," Energy Economics, Elsevier, vol. 13(3), pages 203-210, July.
    10. Porter, Robert H, 1985. "On the Incidence and Duration of Price Wars," Journal of Industrial Economics, Wiley Blackwell, vol. 33(4), pages 415-426, June.
    11. Jeffrey D. Karrenbrock, 1991. "The behavior of retail gasoline prices: symmetric or not?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 19-29.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jeremy A. Verlinda, 2007. "Price-Response Asymmetry and Spatial Differentiation in Local Retail Gasoline Markets," EAG Discussions Papers 200704, Department of Justice, Antitrust Division.
    2. Jeremy A. Verlinda, 2008. "Do Rockets Rise Faster And Feathers Fall Slower In An Atmosphere Of Local Market Power? Evidence From The Retail Gasoline Market," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 581-612, September.
    3. Robert Gagné & Simon van Norden & Bruno Versaevel, 2003. "Testing Optimal Punishment Mechanisms Under Price Regulation: the Case of the Retail Market for Gasoline," CIRANO Working Papers 2003s-57, CIRANO.
    4. 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.
    5. 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.
    6. Bello, Alejandro & Contín-Pilart, Ignacio, 2012. "Taxes, cost and demand shifters as determinants in the regional gasoline price formation process: Evidence from Spain," Energy Policy, Elsevier, vol. 48(C), pages 439-448.
    7. Zhang, Xiao-Bing & Fei, Yinxin & Zheng, Ying & Zhang, Lei, 2020. "Price ceilings as focal points to reach price uniformity: Evidence from a Chinese gasoline market," Energy Economics, Elsevier, vol. 92(C).
    8. Severin Borenstein & Andrea Shepard, 2002. "Sticky Prices, Inventories, and Market Power in Wholesale Gasoline Markets," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 116-139, Spring.
    9. Eriksson, Rickard, 2001. "Price Responses to Seasonal Demand Changes in the Swedish Gasoline Market," SSE/EFI Working Paper Series in Economics and Finance 473, Stockholm School of Economics, revised 20 Dec 2001.
    10. John Michael Ian S. Salas, 2002. "Price Adjustments and Asymmetry in the Philippine Retail Gasoline Market," Industrial Organization 0209001, University Library of Munich, Germany.
    11. Joshua Sherman & Avi Weiss, 2015. "Price Response, Asymmetric Information and Competition," Economic Journal, Royal Economic Society, vol. 125(589), pages 2077-2115, December.
    12. Georg Müller & Sourav Ray, 2007. "Asymmetric price adjustment: evidence from weekly product-level scanner price data," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 723-736.
    13. Polemis, Michael L. & Fotis, Panagiotis N., 2014. "The taxation effect on gasoline price asymmetry nexus: Evidence from both sides of the Atlantic," Energy Policy, Elsevier, vol. 73(C), pages 225-233.
    14. Rickard Eriksson, 2000. "Market Structure and Price Responses to Seasonal Demand Changes," Econometric Society World Congress 2000 Contributed Papers 1864, Econometric Society.
    15. Nathan S. Balke & Stephen P. A. Brown & Mine K. 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.
    16. Erich J. Muehlegger, 2004. "Gasoline Price Spikes and Regional Gasoline Content Regulations - A Structural Approach," Working Papers 0421, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
    17. Hosken, Daniel S. & McMillan, Robert S. & Taylor, Christopher T., 2008. "Retail gasoline pricing: What do we know?," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1425-1436, November.
    18. Juan‐Pablo Montero & Juan Ignacio Guzman, 2010. "Output‐Expanding Collusion In The Presence Of A Competitive Fringe," Journal of Industrial Economics, Wiley Blackwell, vol. 58(1), pages 106-126, March.
    19. Fullerton, Thomas M. & Jiménez, Alan A. & Walke, Adam G., 2015. "An econometric analysis of retail gasoline prices in a border metropolitan economy," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 450-461.
    20. Sylwester Bejger, 2019. "Wholesale fuel price adjustment in Poland: examination of competi-tive performance," Ekonomia i Prawo, Uniwersytet Mikolaja Kopernika, vol. 18(4), pages 385-412, December.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:4489. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.