Heterogeneity of Edgeworth Cycle Period in Retail Gasoline Prices

Abstract

Some retail gasoline markets exhibit Edgeworth cycles where a sharp price increase is followed by a series of gradual price decreases. We empirically analyzed retail gasoline prices in New South Wales (Australia) and showed what factors affect periods of Edgeworth cycles. First, we found that (A) an EC in an area tends to become longer as the number of stores per population in the area is larger. Next, to explain the generation mechanism of (A), we estimated stores’ behavior in pricing for each area. The estimation result showed that (B1) as the number of stores per population in an area is larger, stores in the area give more weight in pricing to “state average price” than “area average price” and (B2) as stores in an area give more weight in pricing to “state average price”, the EC in the area tends to become longer. Furthermore, we showed that (B1) and (B2) can explain (A)