Asymmetries in Retail Gasoline Price Dynamics and Local Market Power PDF Download
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Author: George Deltas
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Using monthly data from the 48 contiguous states (except Nevada) for the 1988-2002 period, it is shown that retail gasoline prices respond faster to wholesale price increases than to equivalent wholesale price decreases. Moreover, markets with high average retail-wholesale margins experience a slower adjustment and a higher degree of asymmetry. These results are robust to whether or not an error correction term is used, and to a number of other specifications. Since gasoline is the only variable input, one could reasonably assume that average margins in a state reflect the degree of market power at the retail level. This suggests that sticky prices and response asymmetries in the gasoline market are, at least partially, a consequence of retail market power, raising the possibility that slow price adjustments and asymmetric price responses could be used as an indicator of potential departure from perfect competition. It is also shown that out-of-sample forecasts based on asymmetric models yield substantially better predictions for the path of retail prices than forecasts based on the symmetric models. This result is robust to different measures of forecast accuracy. The higher accuracy of the out-of-sample forecasts based on asymmetric models indicates that these asymmetries are not just an outcome of fitting to a particular sample but represent the underlying data generating process.
Author: George Deltas
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Using monthly data from the 48 contiguous states (except Nevada) for the 1988-2002 period, it is shown that retail gasoline prices respond faster to wholesale price increases than to equivalent wholesale price decreases. Moreover, markets with high average retail-wholesale margins experience a slower adjustment and a higher degree of asymmetry. These results are robust to whether or not an error correction term is used, and to a number of other specifications. Since gasoline is the only variable input, one could reasonably assume that average margins in a state reflect the degree of market power at the retail level. This suggests that sticky prices and response asymmetries in the gasoline market are, at least partially, a consequence of retail market power, raising the possibility that slow price adjustments and asymmetric price responses could be used as an indicator of potential departure from perfect competition. It is also shown that out-of-sample forecasts based on asymmetric models yield substantially better predictions for the path of retail prices than forecasts based on the symmetric models. This result is robust to different measures of forecast accuracy. The higher accuracy of the out-of-sample forecasts based on asymmetric models indicates that these asymmetries are not just an outcome of fitting to a particular sample but represent the underlying data generating process.
Author: George Deltas
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Using monthly data from the 48 contiguous states (except Nevada) for the 1988-2002 period, it is shown that retail gasoline prices respond faster to wholesale price increases than to equivalent wholesale price decreases. Moreover, markets with high average retail-wholesale margins experience a slower adjustment and a more asymmetric response. Since gasoline is the only variable input, average margins in a state likely reflect the degree of retail market power. This suggests that sticky prices and response asymmetries in the gasoline market are, at least partially, a consequence of retail market power.
Author: Jeremy A. Verlinda
Publisher: BiblioGov
ISBN: 9781289031015
Category :
Languages : en
Pages : 62
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Book Description
This study explores the possibility that local market power influences the observed asymmetric relationship between changes in wholesale gasoline costs and changes in retail gasoline prices. I exploit an original data set of weekly gas station prices in Southern California from September 2002 to May 2003, and take advantage of detailed station and local market level characteristics to determine the extent to which spatial differentiation influences price response asymmetry. I find that brand identity, proximity to rival stations, bundling and advertising, operation type, and local market features and demographics each influence a station's predicted price-response asymmetry.
Author: Jeremy A. Verlinda
Publisher:
ISBN:
Category : Gasoline
Languages : en
Pages : 64
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Book Description
Author: Felipe Balmaceda
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Asymmetric-price adjustment is a common phenomenon in many markets around the world, particularly in retail gasoline markets. This paper studies the existence of this phenomenon in the retail gasoline market in the city of Santiago, Chile, using a data set of weekly gas station prices that covers a period of almost four years. We found that prices adjust asymmetrically, and the asymmetry is different for branded gas stations and unbranded stations. In addition, we found that the asymmetry for high-margin stations is statistically equivalent to that for low-margin stations. This evidence is suggestive of collusion as a rationale for the asymmetric pricing policy observed.
Author: Woo-Hyung Hong
Publisher:
ISBN:
Category :
Languages : en
Pages : 89
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Book Description
This dissertation studies the role of information in market performance, and pricing dynamics observed in the retail gasoline market. In Chapter 1, we empirically test whether smartphones, as information-providing devices, can improve market performance and reduce price dispersion. We treat the introduction of smartphones in the Korean gasoline market as a natural experiment to investigate the impact of smartphones on competition among gas stations. Smartphones provided consumers with direct access to price information through OPINET, a government-sponsored Internet website. Our results indicate that the adoption of smartphones is associated with dramatic decreases in price dispersion and average price-cost margins, thereby creating consumer gains. Additionally, we found a sudden decline in entries and a slow increase in exits after the introduction of smartphones. Chapter 2 investigates how and why a link between market power and asymmetric pricing occurs. Exploiting unique island panel data from the Korean gasoline market, we propose geographical separation as a reliable measure of market power. Our findings confirm a positive correlation between market power and price-response asymmetry. We provide direct evidence of tacit collusion by investigating sticky pricing behaviors and suggest that the tacit collusion is the main channel through which market power influences asymmetric pricing. Additionally, we examine the effect of station heterogeneity on asymmetric pricing to provide further evidence of tacit collusion even in relatively competitive environments.
Author: Jeremy A. Verlinda
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
This study explores the possibility that local market power influences the observed asymmetric relationship between changes in wholesale gasoline costs and changes in retail gasoline prices. I exploit an original data set of weekly gas station prices in Southern California from September 2002 to May 2003, and take advantage of detailed station and local market level characteristics to determine the extent to which geographic and product differentiation influences price response asymmetry. I find that brand identity, proximity to rival stations, and local market features and demographics each influence a station's predicted price-response asymmetry. Web Appendix available at: http://ssrn.com/abstract=1000964.
Author: Federal Trade Commission
Publisher: CreateSpace
ISBN: 9781502478474
Category :
Languages : en
Pages : 44
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Book Description
This book presents new evidence of asymmetric pass-through, the notion that upward cost shocks are passed through faster than downward cost shocks, in U.S. gasoline prices. Much of the extant literature comes to seemingly contradictory conclusions about the existence of an asymmetry, though the differences may be due to different aggregation (both over time and geographic markets) and the use of different price series including crude oil, wholesale, and retail gasoline prices. I utilize a large and detailed dataset to determine where evidence of a pass-through asymmetry exists, and how it depends on the aggregation and price series chosen by the researcher. Using the standard error correction model, I find evidence of pass-through asymmetry in the response of daily and weekly retail prices to wholesale rack price changes, though the magnitude varies by geographic market. On average, retail prices rise more than four times as fast as they fall. Branded gasoline features significantly more asymmetry with respect to rack prices compared with unbranded gasoline. Over time, nation-wide asymmetry varies significantly from year to year peaking in 2005. Midwest cities, like Louisville and Minneapolis, feature more asymmetry compared with other parts of the country. F-tests broadly confirm the results and illustrate that data selection and aggregation, as well as model specification, can have important implications on the findings of asymmetric pass-through.
Author:
Publisher: DIANE Publishing
ISBN: 1428918760
Category : Gasoline
Languages : en
Pages : 52
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Book Description
This report examines a recurring question about gasoline markets: why, especially in times of high price volatility, do retail gasoline prices seem to rise quickly but fall back more slowly? Do gasoline prices actually rise faster than they fall, or does this just appear to be the case because people tend to pay more attention to prices when they`re rising? This question is more complex than it might appear to be initially, and it has been addressed by numerous analysts in government, academia and industry. The question is very important, because perceived problems with retail gasoline pricing have been used in arguments for government regulation of prices. The phenomenon of prices at different market levels tending to move differently relative to each other depending on direction is known as price asymmetry. This report summarizes the previous work on gasoline price asymmetry and provides a method for testing for asymmetry in a wide variety of situations. The major finding of this paper is that there is some amount of asymmetry and pattern asymmetry, especially at the retail level, in the Midwestern states that are the focus of the analysis. Nevertheless, both the amount asymmetry and pattern asymmetry are relatively small. In addition, much of the pattern asymmetry detected in this and previous studies could be a statistical artifact caused by the time lags between price changes at different points in the gasoline distribution system. In other words, retail gasoline prices do sometimes rise faster than they fall, but this is largely a lagged market response to an upward shock in the underlying wholesale gasoline or crude oil prices, followed by a return toward the previous baseline. After consistent time lags are factored out, most apparent asymmetry disappears.
Author: David P. Byrne
Publisher:
ISBN:
Category :
Languages : en
Pages : 37
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Book Description
In many markets, prices adjust quickly when costs rise, yet adjust sluggishly when costs fall. Such asymmetric pricing has received particular attention in retail gasoline where, worryingly, larger asymmetry has been related to greater market power. Using novel data from urban and rural gasoline markets, I document new evidence on this relationship by providing the first estimates of asymmetric pricing from rural towns. I find substantial asymmetry in these markets, show local market concentration is positively related to asymmetry, and highlight the role collusion potentially plays in generating these patterns.
