Dynamic Pricing in Retail Gasoline Markets

Retail gasoline pricing: What do we know?

“…We do not find a consistent relationship between expected future rack prices and current margins like that reported in Borenstein and Shepard (1996). Because the empirical test suggested by Borenstein and Shepard is quite involved, we do not report the details of our implementation of their test here.…”

“…In an extension of this model, Haltiwanger and Harrington (1991) show that an increase in expected costs should lower the likelihood of collusion in the current period. Borenstein and Shepard (1996) test this theory using data on retail gasoline margins. Using a panel of city level data, they find current retail margins increase in response to higher anticipated demand and fall in response to an anticipated increase in wholesale prices.…”

Oil price volatility and the asymmetric response of gasoline prices to oil price increases and decreases

“… See Peltzman (2000) for a broad overview of suggested explanations for the observed asymmetry in the response of output prices to input price changes.4 Borenstein and Shepard (1994) present evidence consistent with tacit collusion in retail gasoline markets.5 Green and Porter (1984) study the nature of cartel self-enforcement in the presence of demand uncertainty.…”

Detecting Collusion

“…For a given level of demand, prices should be higher when demand is increasing than when it is decreasing, as the losses from the collapse of the agreement are more severe. Borenstein and Shepard (1996) find evidence of this sort of a seasonal pattern in retail gasoline markets in U.S. cities.…”