edgeworth price cycles cost based pricing and sticky pricing in retail gasoline markets abstract this paper examines dynamic pricing behavior in canadian retail gasoline markets i find three distinct pricing patterns cost based pricing sticky pricing and sharp asymmetric retail price cycles that resemble the edgeworth cycles of maskin and tirole 1988 i use a markov switching regression to estimate the prevalence of the regimes and the structural characteristics of the cycles themselves i find cycles are more prevalent when there are more small firms and are accelerated and amplified with very many small firms in markets with few small firms sticky pricing dominates the findings are consistent with the theory of edgeworth cycles

default risk and the effective duration of bonds default risk creates difficulties for fixed income portfolio managers in measuring a portfolio s exposure to interest rate risk it also heightens the anxiety of traders and arbitragers who are hedging their investments and it compounds financial institutions problem of matching assets and liabilities the consensus among researchers is that credit risk shortens the effective duration of corporate bonds this paper provides estimates of how much shorter durations become because of credit risk these estimates are based on observable data and easily estimated bond pricing parameters because the duration measures are taken with respect to movements in a common reference rate of interest they can be used with greater confidence than can other measures when attempting to compute the duration of a portfolio of bonds subject to varying degrees of credit risk

temporary wholesale gasoline price spikes have long lasting retail effects the aftermath of hurricane rita abstract i study u s gasoline prices following hurricane rita to show that short lived geographical differences in the severity of wholesale gasoline price spikes are associated with long lasting geographical differences in retail prices in most u s cities wholesale prices spiked significantly for roughly 2 weeks following the hurricane however in cities where this spike was particularly large retail margins remained higher than in other cities for nearly 2 months high retail margins dissipated more quickly after the hurricane in cities where competition between stations tends to generate cyclical retail price fluctuations independent of wholesale cost movements i discuss why prices may have fallen faster in cities exhibiting retail price cycles and present additional results identifying differences in market characteristics between cities with and without price cycles i find that cycling cities tend to have higher population density and have independent nonrefinery brand stations that are mor

edgeworth price cycles and intertemporal price discrimination in a retail gasoline market exhibiting edgeworth price cycles prices change asymmetrically with many small decreases interrupted by occasional large increases the result is a de facto menu of prices from which consumers can choose based on exactly when they buy this article introduces four classes of purchase timing strategies designed to systematically shift consumer purchases towards the cycle troughs it shows in the study market of toronto canada the monetary gains to consumers from optimized timing strategies are as high as 3 9 markups earned from these consumers fall up to 82 in spite of the gains from timing strategies surprisingly few consumers use them evidence is presented that a main reason is that consumers are not well informed about the cycles policy implications are discussed

retail price cycles and the presence of small firms abstract in many canadian cities retail gasoline prices remain unchanged for weeks at a time while in other cities retail prices cycle increasing sharply and declining slowly in maskin and tirole econometrica 56 1988 571 both price cycles and rigid prices can exist in equilibrium in this article i demonstrate that the existence of these equilibria is dependent on the number of retail outlets operated by the firms constant price equilibria are found to exist only when firms are of similar size however cycle equilibria can be constructed for a wide range of relative sizes

crises and human capital accumulation this paper studies the effects of crises on human capital formation theoretically a crisis undermines total factor productivity which reduces the return to working and to accumulating physical capital if the crisis is temporary young agents will study now and work later human capital rises to test our model we rely on inflation crises as our main empirical proxy using gmm panel procedures our analysis for 86 countries in 1970 2000 confirms the positive effects of crises on human capital our main findings survive several robustness tests jel classification e31 d90 ce memoire etudie les effets des crises sur la formation de capital humain theoriquement une crise mine la productivite totale des facteurs de production ce qui reduit le rendement sur le travail et l accumulation du capital physique si la crise est temporaire les jeunes agents vont alors se mettre aux etudes et decident de travailler plus tard le capital humain s accroit pour mettre au test ce modele on etudie les crises inflationnistes comme reference a l aide des procedures d analyse de donnees de panels a la gmm l etude de 86 pays pour la periode 1970 2000 confirme les effets positifs des crises sur le capital humain les principaux resultats survivent bien a divers tests de robustesse

retail gasoline price dynamics and local market power using monthly data from the 48 contiguous states except nevada for the 1988 2002 period it is shown that retail gasoline prices respond faster to wholesale price increases than to equivalent wholesale price decreases moreover markets with high average retail wholesale margins experience a slower adjustment and a more asymmetric response since gasoline is the only variable input average margins in a state likely reflect the degree of retail market power this suggests that sticky prices and response asymmetries in the gasoline market are at least partially a consequence of retail market power

the japanese deflation has it had real effects could it have been avoided has deflation contributed to the long lasting stagnation of the japanese economy could the bank of japan have stopped deflation by implementing a more expansionary monetary policy tentative answers are probably not to the first question and probably yes to the second question it is found that the total cost of deflation over the period 1995 2003 has been close to a 1 1 rate of lost gdp yet on the basis of statistical significance and robustness to specification choices this evidence is not compelling on the other hand the estimated positive linkage between nominal base money growth and inflation is significant and robust even given current economic conditions however in order to be inflationary monetary policy should have been more expansionary than what actually observed even since the launch of the quantitative easing in 2001

a theory of dynamic oligopoly ii price competition kinked demand curves and edgeworth cycles we provide game theoretic foundations for the classic kinked demand curve equilibrium and edgeworth cycle we analyze a model in which firms take turns choosing prices the model is intended to capture the idea of reactions based on short run commitment in a markov perfect equilibrium mpe a firm s move in any period depends only on the other firm s current price there are multiple mpe s consisting of both kinked demand curve equilibria and edgeworth cycles in any mpe profit is bounded away from the bertrand equilibrium level we show that a kinked demand curve at the monopoly price is the unique symmetric renegotiation proof equilibrium when there is little discounting we then endogenize the timing by allowing firms to move at any time subject to short run commitments we find that firms end up alternating thus vindicating the ad hoc timing assumption of our simpler model we also discuss how the model can be enriched to provide explanations for excess capacity and market sharing keiiwords tacit collusion markov perfect equilibrium kinked demand curve edgeworth cycle excess capacity market sharing endogenous timing

gas wars retail gasoline price fluctuations this paper examines the retail gasoline price fluctuations known as gas wars weekly prices for the los angeles area were examined for the period from january 2 1968 through december 23 1975 the observed fluctuations were remarkably regular and apparently large ly predictable the data appear consistent with the recent game theory model of e maskin and j tirole in which competing firms produce edgeworth cycles by undercutting each other and eventually relenting copyright 1993 by mit press

when do consumers search this paper provides empirical evidence relating search to price movements we measure consumer search directly from traffic statistics for web sites that report gasoline prices we show empirically that consumers search more as prices rise than they do when prices fall asymmetric search patterns have consequences for price behavior our findings indicate that retail margins are squeezed by increased search in addition we show that there is more price dispersion when prices are falling than when prices are either stable or rising our results provide a search based explanation for the rockets and feathers phenomenon of asymmetric price adjustment

the speed of gasoline price response in markets with and without edgeworth cycles retail gasoline prices are known to respond fairly slowly to wholesale price changes this does not appear to be true for markets with edgeworth price cycles recently many retail gasoline markets in the midwestern u s and in other countries have been shown to exhibit price cycles in which competition generates rapid cyclical retail price movements we show that cost changes in cycling markets are passed on 2 to 3 times faster than in markets without cycles we argue that the constant price movement inherent within the edgeworth cycle eliminates price frictions and allows firms to pass on cost fluctuations more easily

do edgeworth price cycles lead to higher or lower prices abstract a recent literature seeks to understand the causes of the high frequency asymmetric retail price cycles observed in many retail gasoline markets however much less attention has been given to the effects of the cycles in particular whether the cycles lead to higher or lower prices and margins the leading theory for the underlying cause of the price cycles edgeworth price cycles is silent on the issue the challenge in addressing this most important question has been the difficulty in isolating cycle effects from other confounding factors especially market structure in this article i exploit a unique natural experiment to isolate the effect of cycles a refinery fire that in a matter of days halted cycles that had previously persisted for decades i find that edgeworth price cycles lead to lower prices and lower margins i conclude with implications for competition policy

mixed strategy in oligopoly pricing evidence from gasoline price cycles before and under a timing regulation this paper studies oligopoly firms dynamic pricing strategies in a gasoline market before and after the introduction of a unique law that constrains firms to set price simultaneously and only once per day the observed gasoline pricing behavior both before and under the law is well captured by the edgeworth price cycle equilibrium in the maskin and tirole dynamic oligopoly model my results highlight the importance of price commitment in tacit collusion i also find evidence that the price leadership outcome under the law is better predicted by mixed strategies play than by alternative hypotheses

retail gasoline price cycles across spatially dispersed gasoline stations abstract studies of volatility in retail gasoline prices have used either weekly averages of the prices at a small subset of stations in a city or daily observations on prices at a small number of stations this paper uses daily observations on station specific prices within a large canadian metropolitan area to address whether weekly average prices or prices for a small number of stations provide an accurate description of pricing in a market with volatility this paper considers whether researchers using restricted data can draw meaningful conclusions about the appropriate theoretical model and the policy response to allegations of anticompetitive behavior

new evidence on asymmetric gasoline price responses in a 1997 paper borenstein cameron and gilbert bcg claim that gasoline prices rise quickly following an increase in the price of crude oil but fall slowly following a decrease this note estimates an error correction model with daily spot gasoline and crude oil price data over the period 1985 1998 and finds no evidence of asymmetry in wholesale gasoline prices the sources of the difference in results are twofold first we use the standard engle granger two step estimation procedure whereas bcg used a nonstandard estimation methodology second even using bcg s nonstandard specification the use of daily rather than weekly data yields little evidence of price asymmetry

do retail gasoline prices respond asymmetrically to cost shocks the influence of edgeworth cycles asymmetric price cycles similar to edgeworth cycles are appearing in increasingly many retail gasoline markets in the united states and worldwide the asymmetry in the cycles can give rise to a finding of asymmetric price responses to cost shocks asymmetric passthrough this article estimates asymmetric passthrough for the market of toronto which exhibits cycles and decomposes it into two components that part explainable by the cycles and that part driven by other unknown sources significant asymmetric passthrough is found with increases passed through more quickly than decreases a significant cause of the finding is the presence of the cycles themselves

inflation crises deflation and growth further evidence bruno and easterly 1998 provide a simple historical description of per capita gdp growth rates before during and after periods of high inflation crises the pattern of growth shows resurgence in after crisis growth to above the before crisis level the robustness of this finding is tested against justifiable changes in the data sample used and against different crisis definitions the results show that after crisis growth rates do not recover to a level above those experienced before crisis in contrast to bruno and easterly the important distinction between open and closed economies is emphasized only in the former case are their results that growth deviations from the world average after crisis improve relative to the before crisis periods confirmed finally the pattern of growth before during and after deflationary periods is analysed the data reveal a potentially important asymmetry in the correlation between deflation and growth and inflation and growth low rates of deflation are associated

vertical control and price cycles in gasoline retailing we examine norwegian gasoline pump prices using daily station specific observations from 2003 to 2006 the four big gasoline companies use a vertical restraint that is adopted industry wide labeled price support this moves price control from the hands of independent retailers into the hands of the headquarters retail gasoline prices follow a fixed weekly pattern where we observe de facto simultaneous decision making by the headquarters without knowledge of their rivals prices when every monday around noon they decide to increase pump prices to the same level the price level on mondays corresponds to the recommended prices published by the headquarters of the gasoline companies

price leadership and coordination in retail gasoline markets with price cycles abstract this study examines the coordination mechanism used by gasoline stations in the midwestern united states where prices exhibit highly cyclical fluctuations known as edgeworth cycles stations in these markets repeatedly coordinate large marketwide price increases following periods of aggressive price undercutting by studying these periodic price jumps both over time and across cities i find that a particular retail chain in each city acts as a price leader initiating each price restoration the leader signals the new price level to competitors by simultaneously jumping prices at all its stations to a single price competitors follow quickly with a large majority of stations jumping to the exact same price within a 24 hour period the characteristics of the leading firms and the nature of observed price coordination suggest that successful price jumps may be facilitated by the existence of a retailer controlling the prices of a significant number of stations in a city identifying the important role of these firms in the market contributes to a broader understanding of price leadership and coordination and highlights another potential reason why price cycles exist in some in retail gasoline markets and not others

do gasoline prices respond asymmetrically to crude oil price changes the authors test and confirm that retail gasoline prices respond more quickly to increases than to decreases in crude oil prices among the possible sources of this asymmetry are production inventory adjustment lags and market power of some sellers by analyzing price transmission at different points in the distribution chain the authors attempt to shed light on these theories spot prices for generic gasoline show asymmetry in responding to crude oil price changes which may reflect inventory adjustment effects asymmetry also appears in the response of retail prices to wholesale price changes possibly indicating short run market power among retailers