Sticky Prices, Inventories, and Market Power in Wholesale Gasoline Markets

Borenstein, Severin; Shepard, Andrea

doi:10.2307/2696378

Cited by 179 publications

(111 citation statements)

References 21 publications

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“…The GAO (2004) concludes that mergers and increased market concentration generally led to higher wholesale gasoline prices in the United States from the mid-1990s through 2000. Examining wholesale price responses in 188 gasoline markets in the U.S., Borenstein and Shepard (2002) find that refinery firms with market power generally choose a different adjustment rate and adjust prices more slowly than do competitive firms.…”

Section: Previous Workmentioning

confidence: 99%

The Impact of Ethanol Production on U.S. and Regional Gasoline Prices and on the Profitability of the U.S. Oil Refinery Industry

Hayes

2008

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Using pooled regional time-series data and panel data estimation, we quantify the impact of monthly ethanol production on monthly retail regular gasoline prices. This analysis suggests that the growth in ethanol production has caused retail gasoline prices to be $0.29 to $0.40 per gallon lower than would otherwise have been the case. The analysis shows that the negative impact of ethanol on gasoline prices varies considerably across regions. The Midwest region has the biggest impact, at $0.39/gallon, while the Rocky Mountain region had the smallest impact, at $0.17/gallon. The results also indicate that ethanol production has significantly reduced the profit margin of the oil refinery industry. The results are robust with respect to alternative model specifications. Keywords AbstractUsing pooled regional time-series data and panel data estimation, we quantify the impact of monthly ethanol production on monthly retail regular gasoline prices. This analysis suggests that the growth in ethanol production has caused retail gasoline prices to be $0.

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Section: Previous Workmentioning

confidence: 99%

The Impact of Ethanol Production on U.S. and Regional Gasoline Prices and on the Profitability of the U.S. Oil Refinery Industry

Hayes

2008

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“…Among other topics considered in the literature concerning gasoline markets are the wholesale-price response to crudeprice fluctuation (e.g. Borenstein and Shepard, 2002;Bachmeier and Griffin, 2003) and vertical relationships (e.g. Hastings, 2002).…”

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confidence: 99%

Consumer and Competitor Reactions: Evidence from a Field Experiment

Barron¹,

Umbeck²,

Waddell

2007

SSRN Journal

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In response to a price change by a single seller, it is common for the density of sellers in the market to influence both the quantity response of consumers and the price response of other sellers. Using field experiment data collected around a series of exogenously imposed price changes we find that an individual retailer with a larger number of competitors faces a more-responsive demand. This finding is fundamental to a predicted inverse relationship between market prices and the number of competitors. We also examine the reaction of rival stations to exogenous price changes, and find that the magnitude of a competitor's response is inversely related to the density of stations in the market. © 2007 Elsevier B.V. All rights reserved. In changing a price, a seller must confront two key questions: What will be the reaction of consumers to a price change and what will be the reaction of competitors? A common feature of many models that consider price-setting is that answers to both questions depend on the number of competitors in the market. This paper draws on a field experiment that was conducted in three urban areas of California to see whether the number of competitors does indeed determine the extent of the reaction by a seller's potential customers as well as the extent of the reaction by competitors. The experiment set for short time intervals retail prices at 54 company-operated gasoline stations of a major retailer. In particular, prices at two alternating subsets of stations were changed and then fixed at these new levels for one-week periods over a three-month period. The result was to create exogenous deviations in the prices at "treatment" stations from what they otherwise would have been. During this period, information on the daily volumes of gasoline sold at the treatment stations was collected, as well as the daily prices at competitor stations within two miles of each of the 54 treatment stations.1 Barron et al. (2004) considered the effect of the number of sellers ("seller density") on aggregate price levels and on price dispersion across markets using single-day

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“…Other features of this stickiness can be explained by the market power of OPEC. This phenomenon is already indicated by Borenstein and Shepard (2002) through the analysis of crude oil price shocks on the wholesale gasoline prices. 15 The US supply of light, sweet crude continues to outpace that of medium and heavy crude through 2015 and reduce the share markets of Russia and OPEC producers.…”

Section: Fig 1a Conditional and Permanent Cgarch-tar Of Opec And Nonmentioning

confidence: 95%

Long run dynamic volatilities between OPEC and non-OPEC crude oil prices

Ghassan

Alhajhoj

2016

Applied Energy

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Understanding the long-run dynamics of OPEC and non-OPEC crude oil prices is important in an era of increased financialization of petroleum markets. Utilizing an ECM within a threshold cointegration and CGARCH errors framework, we provide evidence on the cointegrating relationship and estimate how and to what extent the respective prices adjust to eliminate disequilibrium. Our findings suggest that the adjustment process of OPEC prices to the positive discrepancies is slow which implies that OPEC producers do not prefer moderate oil prices; however, the reverse holds for non-OPEC producers. These results reflect distinct competitive behaviors between OPEC and non-OPEC producers.

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Sticky Prices, Inventories, and Market Power in Wholesale Gasoline Markets

Cited by 179 publications

References 21 publications

The Impact of Ethanol Production on U.S. and Regional Gasoline Prices and on the Profitability of the U.S. Oil Refinery Industry

The Impact of Ethanol Production on U.S. and Regional Gasoline Prices and on the Profitability of the U.S. Oil Refinery Industry

Consumer and Competitor Reactions: Evidence from a Field Experiment

Long run dynamic volatilities between OPEC and non-OPEC crude oil prices

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