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Do pump prices really follow Edgeworth cycles? Evidence from the German retail fuel market

Author

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  • Samuel de Haas

    (Justus-Liebig-University Giessen)

Abstract

Most of the literature on retail fuel markets find high-frequency and asymmetric price cycles. This is typically explained by the model of Edgeworth price cycles. A key element of this model is that prices fall to marginal costs during a cycle. It seems challenging to address this assumption empirically. However, I use a natural experiment in the German fuel market to analyze the effects of an external cost shock. I find strong evidence that prices do not fall to marginal costs. This is not in line with Edgeworth cycles and thus, should be taken into account when analyzing fuel markets.

Suggested Citation

  • Samuel de Haas, 2019. "Do pump prices really follow Edgeworth cycles? Evidence from the German retail fuel market," MAGKS Papers on Economics 201913, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    • Handle: RePEc:mar:magkse:201913
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    File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/paper_2019/13-2019_de_haas.pdf
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    References listed on IDEAS

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    3. Michael Noel, 2009. "Do retail gasoline prices respond asymmetrically to cost shocks? The influence of Edgeworth Cycles," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 582-595, September.
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    11. Siekmann, Manuel, 2017. "Characteristics, causes, and price effects: Empirical evidence of intraday Edgeworth cycles," DICE Discussion Papers 252, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
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    Cited by:

    1. Arezoo Ghazanfari & Armin Razmjoo, 2022. "The Effect of Market Isolation on Competitive Behavior in Retail Petrol Markets," Sustainability, MDPI, vol. 14(13), pages 1-33, July.

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    More about this item

    Keywords

    Edgeworth price cycles; Retail gasoline; Price effects; Natural experiment; Coordination;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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