Asymmetric price adjustment and the effects of structural reforms in a low income environment: the case of the gasoline market in Greece

Zacharias Bragoudakis () and Dimitrios Sideris ()
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Dimitrios Sideris: Bank of Greece and Panteion University

No 274, Working Papers from Bank of Greece

Abstract: The pricing mechanism in the gasoline market has often been the subject of public debate in Greece during the crisis years. Inefficient pricing could imply oligopolistic practices in the market and losses to consumers’ welfare in a period characterised by a dramatic fall in consumers’ income and standard of living. A way to test whether pricing is efficient in the market is by testing for asymmetries in the adjustment of domestic gasoline prices to world oil price changes. The present paper has two aims: (a) the first is to investigate the existence of asymmetric adjustment of gasoline prices to oil price variations in the Greek market, thus contributing to the relevant literature; (b) the second is to examine whether the structural reforms that took place in the gasoline market and the large fall in income, which characterise consumers’ behaviour in the recent period, had any impact on the pricing dynamics in the market. To this end, the analysis: (i) applies the TAR-ECM threshold cointegration technique, which assumes asymmetric adjustment towards the long-run equilibrium; (ii) makes use of observations at the highest frequency available; and (iii) uses the most recent data. The results provide evidence in favour of symmetric behaviour just for the crisis period. This may reflect competitive behaviour by suppliers who had to interact in a low demand environment and under a new institutional framework following the reforms, along with a change in consumers’ search behaviour who had to deal with a severe fall in their income.

Keywords: Price asymmetry; Gasoline prices; Crude oil; Threshold cointegration. (search for similar items in EconPapers)
JEL-codes: D43 Q41 Q43 Q48 (search for similar items in EconPapers)
Pages: 27
Date: 2019-12
New Economics Papers: this item is included in nep-com and nep-ene
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