Rev Ind Organ (2010) 37:141–159
Common Knowledge Reference Price and Asymmetric
Evidence from the Retail Gasoline Market in Colombia
Marc Hofstetter · Jorge Tovar
Published online: 22 September 2010
© Springer Science+Business Media, LLC. 2010
Abstract There is abundant empirical evidence showing that asymmetric price
adjustments exist in a wide variety of markets. Prices tend to rise faster when costs rise,
relative to the rate at which prices drop when costs fall. This paper argues that a com-
mon knowledge reference price—a government suggested retail price—eases the exis-
tence of asymmetric price adjustments in a scenario where costs are ever-increasing.
Our analysis of the Colombian retail gasoline market suggests that when costs rise by
more than the reference price, prices tend to rise more slowly relative to when costs
grow by less than the reference price.
Keywords Asymmetric price adjustments · Gasoline retail markets ·
Price transparency · Reference prices
A recent and abundant empirical literature suggests that asymmetric price adjustment
is common to a wide variety of markets. The pattern found is that prices tend to
grow faster when costs rise relative to the rate at which prices drop when costs fall.
A previous version of the paper circulated under the title “Asymmetric price adjustments under
ever-increasing costs: Evidence from the Retail Gasoline Market in Colombia”.
M. Hofstetter · J. Tovar (
Department of Economics and CEDE, Universidad de los Andes,
Calle 19A No. 1, 37 Este. Ediﬁcio W. Of. 825, Bogota, Colombia