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Price transmission and local market power: empirical evidence from the Austrian gasoline market

Author

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  • Jens-Peter Loy
  • Carsten Steinhagen
  • Christoph Weiss
  • Birgit Koch

Abstract

We analyse the impact of local market power on price margins and different dimensions of price adjustment dynamics (speed and asymmetry of price transmission) using data for a large number of individual gasoline stations in Austria. Specific attention is paid to threshold effects in price adjustment. Our results clearly suggest that the speed of price transmission between the Brent crude oil index and retail diesel prices is higher in a more competitive environment. While evidence on the relationship between local market power and asymmetries in the speed of price adjustment is mixed, our findings regarding asymmetries in price thresholds are clear: in regions where competition from neighbouring rivals is weak and/or consumers’ price elasticity of demand is low (stations located on the highway), positive thresholds significantly exceed negative ones, which corresponds to the ‘rockets and feathers phenomenon’. As expected, we observe that prices are lower in more competitive local markets.

Suggested Citation

  • Jens-Peter Loy & Carsten Steinhagen & Christoph Weiss & Birgit Koch, 2018. "Price transmission and local market power: empirical evidence from the Austrian gasoline market," Applied Economics, Taylor & Francis Journals, vol. 50(53), pages 5728-5746, November.
    • Handle: RePEc:taf:applec:v:50:y:2018:i:53:p:5728-5746
    DOI: 10.1080/00036846.2018.1488063
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    Cited by:

    1. Contreras Astiazarán Benjamín & Leal Vizcaíno René & Mosqueda Jordán & Salcedo Alejandrina, 2020. "Competition and Coordination in the Mexican Retail Market for Gasoline," Working Papers 2020-15, Banco de México.
    2. He, Yongda & Lin, Boqiang, 2023. "Is market power the cause of asymmetric pricing in China's refined oil market?," Energy Economics, Elsevier, vol. 124(C).
    3. Valadkhani, Abbas & Anwar, Sajid & Ghazanfari, Arezoo & Nguyen, Jeremy, 2021. "Are petrol retailers less responsive to changes in wholesale or crude oil prices when they face lower competition? The case of Greater Sydney," Energy Policy, Elsevier, vol. 153(C).
    4. Zhang, Wenbei & Luckert, Marty & Qiu, Feng, 2023. "Asymmetric price transmission and impulse responses from U.S. crude oil to jet fuel and diesel markets," Energy, Elsevier, vol. 283(C).
    5. Kumar, Satish, 2022. "Speed of adjustment in energy and metal prices: Evidence from India," Resources Policy, Elsevier, vol. 78(C).
    6. Dieter Pennerstorfer & Philipp Schmidt‐Dengler & Nicolas Schutz & Christoph Weiss & Biliana Yontcheva, 2020. "Information And Price Dispersion: Theory And Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(2), pages 871-899, May.
    7. Judith Hillen, 2021. "Vertical price transmission in Swiss dairy and cheese value chains," Agricultural and Food Economics, Springer;Italian Society of Agricultural Economics (SIDEA), vol. 9(1), pages 1-21, December.
    8. Koch, Nicolas & Ritter, Nolan & Rohlf, Alexander & Scarazzato, Francesco, 2022. "When is the electric vehicle market self-sustaining? Evidence from Norway," Energy Economics, Elsevier, vol. 110(C).

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