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Retail price cycles and response asymmetry

Retail price cycles and response asymmetry Weekly retail gasoline prices in Windsor, Ontario, from 1989 to 1994 appear to respond faster to wholesale price increases than to decreases, but exhibit a cyclic pattern inconsistent with a common explanation of response asymmetry. I reconcile these observations through a model of price cycles. Prices on the downward portion of the cycle appear insensitive to costs, compared with price increases, supporting the theory that price decreases result from battles over market share. This pattern resembles a faster response to cost increases than to decreases, and the conclusion that asymmetry indicates a role for competition policy may be inappropriate. JEL Classification: L13, L71 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Canadian Journal of Economics/Revue Canadienne D'économique Wiley

Retail price cycles and response asymmetry

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References (27)

Publisher
Wiley
Copyright
Copyright © 2002 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0008-4085
eISSN
1540-5982
DOI
10.1111/1540-5982.00120
Publisher site
See Article on Publisher Site

Abstract

Weekly retail gasoline prices in Windsor, Ontario, from 1989 to 1994 appear to respond faster to wholesale price increases than to decreases, but exhibit a cyclic pattern inconsistent with a common explanation of response asymmetry. I reconcile these observations through a model of price cycles. Prices on the downward portion of the cycle appear insensitive to costs, compared with price increases, supporting the theory that price decreases result from battles over market share. This pattern resembles a faster response to cost increases than to decreases, and the conclusion that asymmetry indicates a role for competition policy may be inappropriate. JEL Classification: L13, L71

Journal

Canadian Journal of Economics/Revue Canadienne D'économiqueWiley

Published: Feb 1, 2002

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