Edgeworth Price Cycles: Evidence from the Toronto Retail Gasoline Market

Michael Noel

University of California at San Diego, Economics Working Paper Series from Department of Economics, UC San Diego

Abstract: In this article, I exploit a new station-level, twelve-hourly price dataset to examine the strong retail price cycles in the Toronto gasoline market. The cycles are visually similar to the theoretical Edgeworth Cycles of Maskin & Tirole [1988]: strongly asymmetric, tall, rapid, and highly synchronous across stations. I test a series of predictions made by the theory about how firm behaviors would differentially evolve over the path of a cycle. The evidence is consistent with the existence of Edgeworth Cycles and inconsistent with competing hypotheses. One finding is that smaller firms are more likely than larger firms to initiate rounds of price undercutting but the reverse is true for rounds of price increases. While the cycles are an interesting phenomenon for study in their own right, the evidence has important implications for understanding market power in both cycling and non-cycling gasoline markets.

Keywords: Edgeworth Cycles; Price Wars; Retail Gasoline (search for similar items in EconPapers)
Date: 2004-01-01
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Citations: View citations in EconPapers (4)

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