Rockets and Feathers in the Gasoline Market: Evidence from South Korea

Kyungsoo Cha and Chul-Yong Lee ()
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Kyungsoo Cha: Department of Economics, Pusan National University, 2, Busan Daehak-ro 63beon-gil, Geumjeong-gu, Busan 46241, Republic of Korea
Chul-Yong Lee: School of Business, Pusan National University, 2, Busan Daehak-ro 63beon-gil, Geumjeong-gu, Busan 46241, Republic of Korea

Sustainability, 2023, vol. 15, issue 4, 1-15

Abstract: This study analyzes how changes in oil prices are transmitted to gasoline prices in Korea. We attempt to identify the main causes of the observed price asymmetry and offer plausible theories by investigating price transmission at different levels of the distribution process. Retail prices react faster to increases in the Singapore spot market prices than decreases. We also find asymmetry in the price transmission from spot gasoline to wholesale gasoline, but in the opposite direction. Additionally, there is little evidence of asymmetry in the pass-through from wholesale prices to retail prices. Therefore, the observed asymmetry of retail prices is due mainly to the transmission of prices from spot gasoline to retail gasoline, and theories related to the cost of search for consumers seem to be the most relevant in explaining the asymmetry. Finally, the results indicate that the asymmetric pricing results in a substantial loss to consumers.

Keywords: carbon neutral city; gasoline price response; price asymmetry; cumulative response function; partial adjustment model (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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