Sticky Prices, Inventories, and Market Power in Wholesale Gasoline Markets
We present and test an explanation for lags in the adjustment of wholesale gasoline prices to changes in crude oil prices. Our simple model with costly adjustment of production and inventories implies that output prices will respond with a lag to cost shocks even in the absence of menu costs, imperfect information, and long- term buyer/seller relationships. The model predicts that futures prices for gasoline will adjust incompletely to crude oil price shocks occurring close to the expiration date of the futures contract. We test and confirm this implication. The model also predicts that firms with market power will choose a different price adjustment path than would perfectly competitive firms. We examine the responses of prices in 188 local wholesale gasoline markets and find evidence that greater market power leads to slower output price adjustment.
|Date of creation:||Feb 1996|
|Date of revision:|
|Contact details of provider:|| Postal: 545 Student Services Building # 1900, Berkeley, CA 94720-1900|
Web page: http://www.haas.berkeley.edu/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Carlton, Dennis W, 1991. "The Theory of Allocation and Its Implications for Marketing and Industrial Structure: Why Rationing Is Efficient," Journal of Law and Economics, University of Chicago Press, vol. 34(2), pages 231-62, October.
- Dahl, Carol & Sterner, Thomas, 1991. "Analysing gasoline demand elasticities: a survey," Energy Economics, Elsevier, vol. 13(3), pages 203-210, July.
- Roland Bénabou & Robert Gertner, 1993. "Search with Learning from Prices: Does Increased Inflationary Uncertainty Lead to Higher Markups?," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 69-93.
- Robert S. Pindyck, 1992.
"The Present Value Model of Rational Commodity Pricing,"
NBER Working Papers
4083, National Bureau of Economic Research, Inc.
- Pindyck, Robert S, 1993. "The Present Value Model of Rational Commodity Pricing," Economic Journal, Royal Economic Society, vol. 103(418), pages 511-30, May.
- Pindyck, Robert S., 1991. "The present value model of rational commodity pricing," Working papers 3354-91., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Pindyck, Robert S., 1990.
"Inventories and the short-run dynamics of commodity prices,"
3133-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Robert S. Pindyck, 1994. "Inventories and the Short-Run Dynamics of Commodity Prices," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 141-159, Spring.
- Robert S. Pindyck, 1990. "Inventories and the Short-Run Dynamics of Commodity Prices," NBER Working Papers 3295, National Bureau of Economic Research, Inc.
- Laurence Ball & N. Gregory Mankiw, 1994.
"A Sticky-Price Manifesto,"
NBER Working Papers
4677, National Bureau of Economic Research, Inc.
- Ball, Laurence & Mankiw, N. Gregory, 1994. "A sticky-price manifesto," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 41(1), pages 127-151, December.
- Laurence Ball & N. Gregory Mankiw, 1994. "A sticky-price manifesto," Proceedings, Federal Reserve Bank of Dallas, issue Apr.
- Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
- Severin Borenstein & A. Colin Cameron & Richard Gilbert, 1997.
"Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 112(1), pages 305-339.
- Severin Borenstein & A. Colin Cameron, 1992. "Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?," NBER Working Papers 4138, National Bureau of Economic Research, Inc.
- 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.
- 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.
- Fama, Eugene F & French, Kenneth R, 1987. "Commodity Futures Prices: Some Evidence on Forecast Power, Premiums,and the Theory of Storage," The Journal of Business, University of Chicago Press, vol. 60(1), pages 55-73, January.
- Dennis W. Carlton, 1986.
"The Rigidity of Prices,"
NBER Working Papers
1813, National Bureau of Economic Research, Inc.
- N. Gregory Mankiw, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 100(2), pages 529-538.
When requesting a correction, please mention this item's handle: RePEc:wop:calbha:_001. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel)
If references are entirely missing, you can add them using this form.