Edgeworth Price Cycles: Evidence from the Toronto Retail Gasoline Market

UCSD Economics Working Paper No. 2004-03

29 Pages Posted: 1 Oct 2004

Date Written: January 2004


In this article, I exploit a new station-level, twelve-hourly price dataset to examine the strong retail price cycles in the Toronto gasoline market. The cycles are visually similar to the theoretical Edgeworth Cycles of Maskin & Tirole [1988]: strongly asymmetric, tall, rapid, and highly synchronous across stations. I test a series of predictions made by the theory about how firm behaviors would differentially evolve over the path of a cycle. The evidence is consistent with the existence of Edgeworth Cycles and inconsistent with competing hypotheses. One finding is that smaller firms are more likely than larger firms to initiate rounds of price undercutting but the reverse is true for rounds of price increases. While the cycles are an interesting phenomenon for study in their own right, the evidence has important implications for understanding market power in both cycling and non-cycling gasoline markets.

JEL Classification: L13, L41, L81

Suggested Citation

Noel, Michael D., Edgeworth Price Cycles: Evidence from the Toronto Retail Gasoline Market (January 2004). UCSD Economics Working Paper No. 2004-03, Available at SSRN: https://ssrn.com/abstract=597803 or http://dx.doi.org/10.2139/ssrn.597803

Michael D. Noel (Contact Author)

Texas Tech University ( email )

237 Holden Hall
Box 41014
Lubbock, TX 79407
United States