The speed of gasoline price response in markets with and without edgeworth cycles

Matthew Lewis, Michael Noel

Research output: Contribution to journalArticlepeer-review

46 Scopus citations

Abstract

Retail gasoline prices are known to respond fairly slowly to wholesale price changes. This does not appear to be true for markets with Edgeworth price cycles. Recently many retail gasoline markets in the midwestern United States and other countries have been shown to exhibit price cycles in which competition generates rapid cyclical retail pricemovements. We show that cost changes in cycling markets are passed on two to three times faster than in markets without cycles. We argue that the constant price movement inherent within the Edgeworth cycle eliminates price frictions and allows firms to pass on cost fluctuations more easily.

Original languageEnglish
Pages (from-to)672-682
Number of pages11
JournalReview of Economics and Statistics
Volume93
Issue number2
DOIs
StatePublished - May 2011

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