Working Paper: NBER ID: w14162
Authors: Joseph J. Doyle Jr.; Erich Muehlegger; Krislert Samphantharak
Abstract: Some gasoline markets exhibit remarkable price cycles, where price spikes are followed by a string of small price declines until the next price spike. This pattern is predicted from a model of competition driven by Edgeworth cycles, as described by Maskin and Tirole. We extend the Maskin and Tirole model and empirically test its predictions with a new dataset of daily station-level prices in 115 US cities. One innovation is that we also examine cycling within cities, which allows controls for city fixed effects. Consistent with the theory, and often in contrast with previous empirical work, we find that the least and most concentrated markets are much less likely to exhibit cycling behavior; and the areas with more independent retailers that have convenience stores are more likely to cycle. We also find that the average gasoline prices are relatively unrelated to cycling behavior.
Keywords: gasoline markets; Edgeworth cycles; price competition; market concentration; independent retailers
JEL Codes: D4; L11; L70
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| less concentrated markets (L19) | less likely to exhibit cycling behavior (C92) |
| higher proportion of independent retailers (L81) | more likely to engage in cycling behavior (R48) |
| presence of independent stations with convenience stores (L81) | positively correlated with cycling (R41) |
| average gasoline prices (L97) | relatively unrelated to cycling behavior (Y80) |