Edgeworth price cycles, cost-based pricing, and sticky pricing in retail gasoline markets

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Abstract

This paper examines dynamic pricing behavior in Canadian retail gasoline markets. I find three distinct pricing patterns: cost-based pricing, sticky pricing, and sharp asymmetric retail price cycles that resemble the Edgeworth cycles of Maskin and Tirole (1988). I use a Markov-switching regression to estimate the prevalence of the regimes and the structural characteristics of the cycles themselves. 1 find cycles are more prevalent when there are more small firms and are accelerated and amplified with very many small firms. In markets with few small firms, sticky pricing dominates. The findings are consistent with the theory of Edgeworth cycles.

Original languageEnglish
Pages (from-to)324-334
Number of pages11
JournalReview of Economics and Statistics
Volume89
Issue number2
DOIs
StatePublished - May 2007

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