Regional Comparisons, Spatial Aggregation, and Asymmetry of Price Pass-Through in U.S. Gasoline Markets

Abstract

Spot to retail price pass-through behavior of the U.S. gasoline market was investigated at the national and regional levels, using weekly wholesale and retail motor gasoline prices from January 2000 to the present. Asymmetric pass-through was found across all regions, with faster pass-through when prices are rising. Pass-through patterns, in terms of speed and time for completion, were found to vary from region to region. Spatial aggregation was investigated at the national level and the East Coast with the aggregated cumulative pass-through being greater than the volume-weighted regional pass-through when spot prices increase. These results are useful to the petroleum industry, consumers, and policy makers by providing a basis to estimate the retail price effects that result from a change in spot price. Copyright International Atlantic Economic Society 2005Q400, C50,

Price Pass-Through in US Gasoline Markets

“…The previous study examining the difference between PADDs utilized dummy variables on the entire data set (Ye et al 2005). The seemingly unrelated regression (SUR) model is superior to this approach because it allows testing for differences in intra-PADD price pass-through patterns for positive and negative changes in input prices and the speed of these adjustments; 7 The SBC allows for testing model specification.…”

“…Since each stage of the supply chain incurs costs and is assumed to be profit maximizing, the price increases at each intermediate step. As such, any change in the price of petroleum inputs, the cost of refining, or cost changes at intermediate stages would be expected to affect the prices at any stage further downstream (Ye, Zyren, Shore, and Burdette 2005).…”

New York Mark‐ups on Petroleum Products*

“…Ye et al . (2005) continue the research into the effect of geographical aggregation on asymmetric price transmission.…”

“…Just like in the case to intertemporal aggregation, the lack of transaction‐level data makes a certain degree of spatial aggregation unavoidable. Unfortunately, the impact of spatial data aggregation on price transmission has not been studied in detail so far, although Ye et al . (2005) claim that spatial aggregation might adversely affect reliability of the results.…”

Price dynamics in European petroleum markets

“…Again, despite using multinational data, the analysis is done in a piece-wise manner disregarding the cross-country dynamics. Ye et al (2005) analyse regional dynamics in the USA over the period January 2000-December 2003 for five Petroleum Administration for Defence Districts, the state of California and US. The analysis is focused on the asymmetries in price transmission and the only finding related to intra-regional dynamics was that individual trade between regions might be present as the speed of adjustment estimated for one region is higher than the weighted average of corresponding values for the sub-regions.…”