Sticky Prices, Inventories, and Market Power in Wholesale Gasoline Markets

Posted: 18 Jan 2002

See all articles by Severin Borenstein

Severin Borenstein

University of California, Berkeley - Economic Analysis & Policy Group; National Bureau of Economic Research (NBER)

Andrea Shepard

Independent

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Abstract

A model with costly adjustment of production and costly inventories implies that wholesale gasoline prices will respond with a lag to crude oil cost shocks. Unlike explanations that rely upon menu costs, imperfect information, or long-term buyer/seller relationships, this model predicts that futures prices for gasoline will adjust incompletely to crude oil price shocks that occur close to the expiration date of the futures contract. We test and confirm this implication. Examining wholesale price responses in 188 gasoline markets, we also find that firms with market power adjust prices more slowly than do competitive firms, consistent with the model.

Suggested Citation

Borenstein, Severin and Shepard, Andrea, Sticky Prices, Inventories, and Market Power in Wholesale Gasoline Markets. Available at SSRN: https://ssrn.com/abstract=294548

Severin Borenstein (Contact Author)

University of California, Berkeley - Economic Analysis & Policy Group ( email )

Berkeley, CA 94720
United States
510-642-3689 (Phone)
707-885-2508 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Andrea Shepard

Independent

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