Gasoline Price Cycles Under Discrete Time Pricing

26 Pages Posted: 1 May 2010 Last revised: 16 Jun 2012

See all articles by Nicolas de Roos

Nicolas de Roos

University of Sydney

Hajime Katayama

Waseda University - School of Commerce

Date Written: March 29, 2010

Abstract

We characterise petrol pricing dynamics in an unusual policy environment. A timing restriction in the Western Australian market imposes discrete time pricing on petrol retailers, enabling us to observe the exact timing of price changes. We employ a Markov switching regression model, finding the existence of Edgeworth price cycles of a similar nature to those recently observed in some other retail petrol markets. Cycles are frequent, asymmetric, and of substantial amplitude. Importantly, firms change prices almost every period, limiting the relevance of the leading theory of Edgeworth cycles due to Maskin and Tirole (1988). We also discuss episodes of disruption and evolution of the price cycle.

Keywords: price cycles, markov-switching, petroleum

JEL Classification: L13, L41, L81

Suggested Citation

de Roos, Nicolas and Katayama, Hajime, Gasoline Price Cycles Under Discrete Time Pricing (March 29, 2010). Available at SSRN: https://ssrn.com/abstract=1597055 or http://dx.doi.org/10.2139/ssrn.1597055

Nicolas De Roos (Contact Author)

University of Sydney ( email )

University of Sydney
Sydney NSW 2006
Australia

Hajime Katayama

Waseda University - School of Commerce ( email )

School of Commerce, Waseda University
1-6-1 Nishi-Waseda Shinjyuku-ku
Tokyo, Tokyo 169 - 8050
Japan

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