Asymmetric cost transmission and market power in retail gasoline markets

Ritvana Rrukaj () and Frode Steen
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Ritvana Rrukaj: School of Economics and Business, Norwegian University of Life Sciences, Postal: NMBU, School of Economics and Business, Elizabeth Stephansens vei 15, 1433 Ås, Norway, https://www.nmbu.no/om/ansatte/ritvana-rrukaj

No 8/2024, Discussion Paper Series in Economics from Norwegian School of Economics, Department of Economics

Abstract: Estimating non-linear autoregressive distributed lag models, we establish shortrun cost pass-through in the Swedish retail gasoline market. Our findings reveal a slower correction of disequilibrium error in volume-adjusted prices compared to average pump prices, suggesting that oil companies are more focused on pricing on days and at stations with larger sales. Our results also suggest that earlier studies of pass-through using average prices underestimates the price asymmetry. Exploring heterogeneity in price responses we find that gasoline stations less exposed to local competition impose larger and more prolonged asymmetry on retail gasoline prices. Full-service stations have a higher and more prolonged asymmetry in pricing than automated self-service stations. Despite indicating only roughly three percent rise in consumer prices, this asymmetry accounts for nearly 40% of firms’ gross margins, carrying significant implications for market regulation and business strategies.

Keywords: Gasoline markets; asymmetric short- and long-run cost pass-through; market power; volume-adjusted prices; station heterogeneity; local competition (search for similar items in EconPapers)
JEL-codes: C12 C13 F14 L11 L71 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2024-05-30
New Economics Papers: this item is included in nep-com, nep-ene and nep-ind
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