Rockets and Feathers Revisited: Asymmetric Retail Fuel Pricing in the Era of Market Transparency

Emmanuel Asane-Otoo () and Bernhard Dannemann
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Emmanuel Asane-Otoo: University of Oldenburg, Department of Economics

No V-426-19, Working Papers from University of Oldenburg, Department of Economics

Abstract: In this paper, we revisit the empirical observation that prices rise like rockets when input costs increase but fall like feathers when input costs decrease. The analysis draws on a novel dataset that include daily retail prices of gasoline and diesel from virtually all fuel stations in Germany over the period from January 1, 2014 to December 31, 2018. Our findings from the national, state-specific and station-level analyses based on an asymmetric error correction model indicate that asymmetric pricing is the norm rather than exception. Specifically, we find empirical evidence that points to a pervasive rockets-and-feathers pattern. We also find that asymmetric pricing in the German retail fuel market might partly be the consequence of tacit collusion among competitors as well as disparate search intensity on the part of consumers. We further show that temporal aggregation of station-level price data might lead to inaccurate inferences and could account for the contradictory findings in the extant literature.

Keywords: Asymmetric Pricing; Market Transparancy; Search Intensity; Tacit Collusion (search for similar items in EconPapers)
Date: 2019-10, Revised 2019-10
New Economics Papers: this item is included in nep-com, nep-eur and nep-tre
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Published in Oldenburg Working Papers V-426-19

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Persistent link: https://EconPapers.repec.org/RePEc:old:dpaper:426

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