Price-Response Asymmetry and Spatial Differentiation in Local Retail Gasoline Markets
Jeremy A. Verlinda, EAG 07-4, January 2007
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Abstract:
This study explores the possibility that local market power influences
the observed asymmetric relationship between changes in wholesale gasoline
costs and changes in retail gasoline prices. I exploit an original data
set of weekly gas station prices in Southern California from September
2002 to May 2003, and take advantage of detailed station and local market
level characteristics to determine the extent to which spatial differentiation
influences price response asymmetry. I find that brand identity, proximity
to rival stations, bundling and advertising, operation type, and local
market features and demographics each influence a station's predicted
price-response asymmetry.