Gasoline Price Cycles Under Discrete Time Pricing

19 Pages Posted: 19 Jun 2013

See all articles by Nicolas de Roos

Nicolas de Roos

University of Sydney

Hajime Katayama

Waseda University - School of Commerce

Date Written: June 2013

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.

Suggested Citation

de Roos, Nicolas and Katayama, Hajime, Gasoline Price Cycles Under Discrete Time Pricing (June 2013). Economic Record, Vol. 89, Issue 285, pp. 175-193, 2013, Available at SSRN: https://ssrn.com/abstract=2281691 or http://dx.doi.org/10.1111/1475-4932.12036

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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