Exploring the life of fuel price responses in retail markets. The effect of cross-sectional aggregation

Jacint Balaguer and Jordi Ripollés

Energy Policy, 2018, vol. 119, issue C, 495-501

Abstract: Empirical studies on vertical price transmission in retail fuel markets commonly use average group data of petrol stations. In this paper a simulation approach is employed to illustrate that, in this case, the persistence of price responses tends to be overestimated. To explore the real extent of the problem, we apply the mean group (MG) and the mean group with common correlated effects (MG-CCE) estimators to individual data from petrol stations. When heterogeneity in the pricing dynamics is captured by MG and MG-CCE estimators, persistence of retail price responses becomes considerably lower than the typical OLS estimations from average group data would suggest.

Keywords: Fuel price responses; Cross-sectional aggregation; Dynamic persistence; Overestimation (search for similar items in EconPapers)
JEL-codes: C23 C51 L71 Q41 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:119:y:2018:i:c:p:495-501

DOI: 10.1016/j.enpol.2018.05.013

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