HIGH GASOLINE PRICES

High gasoline prices

High gasoline prices

Theisis Statement

This paper investigates the effect of instability in oil prices on the degree of asymmetry in the response of gasoline charges to oil cost increases and decreases. Several time series assesses of the asymmetry between the responses of gasoline costs to oil cost rises and declines and some assesses of the oil price instability are constructed. In all models, the degree of asymmetry in gasoline prices turns down with an boost in oil price volatility. The outcomes support the oligopolistic coordination idea as a likely interpretation of the discerned asymmetry and are not reliable with the benchmark seek idea and the seek idea with Bayesian updating.

Introduction

There has been a lot of vigilance and argument from economists to the asymmetric answer of petrol charges to changes in crude oil prices. Karrenbrock (1991) finds that wholesale gasoline cost rises for leaded normal petrol are passed on to the buyer much quicker than cost decreases. In an influential paper, Borenstein et al. (1997) present clues that petrol charges reply asymmetrically to oil cost increases and decreases. That is, petrol prices adapt faster when oil prices increase than when they decrease. This is further verified by Galeotti et al. (2003) who article clues of prevalent differences in the adjustment of gasoline cost to alterations in input cost.

Godby et al. (2000) are skeptical of this view. Applying a threshold regression form, the authors are incapable to find evidence of the asymmetric adjustment in the Canadian gasoline market. Bachmeier and Griffin (2003) find no evidence of asymmetry between every day location gasoline charges and crude oil charges. Bettendorf et al. (2003) study the retail price change in the Dutch gasoline market. These authors argue that deductions on the asymmetry are dependent on the alternative of the day ...