The economic significance of gasoline wholesale price volatility to retailers

Jedidiah Brewer, David M. Nelson and George Overstreet

Energy Economics, 2014, vol. 43, issue C, 274-283

Abstract: We show that gasoline retailer profits heavily depend on the direction of wholesale cost movements. Using a unique, firm-level, proprietary sample of 121 U.S. gasoline retailers collectively operating over 4500 stores, we find that it tends to be only in months when wholesale prices are declining that retailers make meaningfully positive profits, and that in spite of the low profits earned when wholesale prices are increasing, over the entire wholesale price cycle, volatility is preferred by retailers to relatively stable wholesale prices. We are the first to our knowledge to link asymmetric price responses directly to firm profits and characterize the economic significance of asymmetric pricing in the retail gasoline industry. Our findings may have important implications for the scores of other industries where asymmetric retail-to-wholesale price responses are found.

Keywords: Industrial organization; Firms; Pricing; Market structure; Energy; Retail gasoline (search for similar items in EconPapers)
JEL-codes: L10 L11 L22 L25 L91 Q40 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:43:y:2014:i:c:p:274-283

DOI: 10.1016/j.eneco.2014.02.008

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