The Speed of Gasoline Price Response in Markets With and Without Edgeworth Cycles

27 Pages Posted: 29 Aug 2015

See all articles by Matthew S. Lewis

Matthew S. Lewis

Clemson University - John E. Walker Department of Economics

Michael D. Noel

Texas Tech University

Date Written: October 2, 2010

Abstract

Retail gasoline prices are known to respond fairly slowly to wholesale price changes. This does not appear to be true for markets with Edgeworth price cycles. Recently, many retail gasoline markets in the midwestern U.S. and other countries have been shown to exhibit price cycles, in which competition generates rapid cyclical retail price movements. We show that cost changes in cycling markets are passed on 2 to 3 times faster than in markets without cycles. We argue that the constant price movement inherent within the Edgeworth cycle eliminates price frictions and allows firms to pass on cost fluctuations more easily.

Suggested Citation

Lewis, Matthew S. and Noel, Michael D., The Speed of Gasoline Price Response in Markets With and Without Edgeworth Cycles (October 2, 2010). Available at SSRN: https://ssrn.com/abstract=2653067 or http://dx.doi.org/10.2139/ssrn.2653067

Matthew S. Lewis

Clemson University - John E. Walker Department of Economics ( email )

Clemson, SC 29634
United States

Michael D. Noel (Contact Author)

Texas Tech University ( email )

237 Holden Hall
Box 41014
Lubbock, TX 79407
United States

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