Gasoline Price Wars: Spatial Dependence Awakens

Eleftheriou, Konstantinos and Polemis, Michael (2016): Gasoline Price Wars: Spatial Dependence Awakens.

Abstract

We build an Asymmetric Spatial Error Correction Model (ASpECM) to investigate the role of spatial dependence at the retail gasoline price adjustment mechanism. We find evidence that the symmetric price pattern is fully reversed when we account for spatial spillover effects, indicating that retail prices adjust more rapidly in an upward than a downward direction. This finding raises the possibility that retailers are more likely to engage in anti-competitive practices which may be ignored when the regulators bypass the role of spatial dependence.

• Item Type: MPRA Paper
• Language: English
• Keywords: ASpECM; Spatial dependence; Asymmetric gasoline price adjustment
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets

References

Beenstock, M., Felsenstein, D. (2010) Spatial error correction and cointegration in nonstationary panel data: Regional house prices in Israel. Journal of Geographical Systems 12(2), 189-206.

Borenstein, S, Cameron, C. A., Gilbert, R. (1997) Do gasoline prices respond asymmetrically to crude oil price changes? Quarterly Journal of Economics 112, 305-339.

Chamberlin, E. (1948) The Theory of Monopolistic Competition. 6th ed. Harvard University Press, Cambridge.

Deltas, G. (2008) Retail gasoline price dynamics and local market power. Journal of Industrial Economics 56, 613-628.

Firgo, M., Pennerstorfer, D., Weiss, C.R. (2015) Centrality and pricing in spatially differentiated markets: The case of gasoline. International Journal of Industrial Organization 40, 81-90.

Galeotti, M., Lanza, A., Manera, M. (2003) Rockets and feathers revisited: An international comparison on European gasoline markets. Energy Economics 25, 175-190.

Greenwood-Nimmo, M., Shin, Y. (2013) Taxation and the asymmetric adjustment of selected retail energy prices in the UK. Economics Letters 121, 411-416.

Judson, R., Owen, A. (1999) Estimating dynamic panel data models: A guide for macroeconomists. Economics Letters 65(1), 9-15.

OECD (2011) Annual report on competition policy developments in Norway.

Pedroni, P. (1999) Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and Statistics 61, 653-670.

Pesaran, M.H. (2004) General diagnostic tests for cross section dependence in panels. Cambridge Working Papers in Economics 0435, Faculty of Economics, University of Cambridge.

Radchenko, S. (2005) Oil price volatility and the asymmetric response of gasoline prices to oil price increases and decreases. Energy Economics 27, 708-730.

Remer, M. (2015) An empirical investigation of the determinants of asymmetric pricing. International Journal of Industrial Organization 42, 46-56.

Slade, M. (1992) Vancouver's gasoline-price wars: An empirical exercise in uncovering supergame strategies. The Review of Economic Studies 59(2), 257-276.

Wooldridge, J.M. (2002) Econometric Analysis of Cross Section and Panel Data. MIT Press, Cambridge, MA.