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Dynamic pricing and asymmetries in retail gasoline markets: What can they tell us about price stickiness?

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  • Douglas, Christopher C.
  • Herrera, Ana María

Abstract

Theoretical explanations for price stickiness used in businesses cycle models are diverse (e.g., information processing delays, rational inattention and fair pricing), with each theory resulting in a different implication for inflation dynamics. Using an autoregressive conditional binomial model and a data set consisting of daily observations of price and cost for 15 Philadelphia retail gasoline stations, we test which of these theories is most consistent with the observed pattern of price adjustment. Our findings of time dependence, asymmetry and the role of cost volatility are consistent with a combination of fairness considerations and rational inattention by producers.

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  • Douglas, Christopher C. & Herrera, Ana María, 2014. "Dynamic pricing and asymmetries in retail gasoline markets: What can they tell us about price stickiness?," Economics Letters, Elsevier, vol. 122(2), pages 247-252.
    • Handle: RePEc:eee:ecolet:v:122:y:2014:i:2:p:247-252
    DOI: 10.1016/j.econlet.2013.11.025
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    2. Chang, Kai & Zhang, Chao, 2018. "Asymmetric dependence structure between emissions allowances and wholesale diesel/gasoline prices in emerging China's emissions trading scheme pilots," Energy, Elsevier, vol. 164(C), pages 124-136.
    3. Rahman, Sajjadur, 2016. "Another perspective on gasoline price responses to crude oil price changes," Energy Economics, Elsevier, vol. 55(C), pages 10-18.
    4. Yufeng Chen & Guobin Huang & Lihua Ma, 2017. "Rockets and Feathers: The Asymmetric Effect between China’s Refined Oil Prices and International Crude Oil Prices," Sustainability, MDPI, vol. 9(3), pages 1-19, March.
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    6. Apergis, Nicholas & Payne, James E., 2017. "Volatility Modeling of U.S. Metropolitan Retail Gasoline Prices: An Empirical Note," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 48(2), September.
    7. James Ming Chen & Mobeen Ur Rehman, 2021. "A Pattern New in Every Moment: The Temporal Clustering of Markets for Crude Oil, Refined Fuels, and Other Commodities," Energies, MDPI, vol. 14(19), pages 1-58, September.

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    More about this item

    Keywords

    Sticky prices; Price adjustment; Gasoline prices; Discrete valued time series;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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