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Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?

Severin Borenstein, A. Colin Cameron and Richard Gilbert
The Quarterly Journal of Economics
Vol. 112, No. 1 (Feb., 1997), pp. 305-339
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/2951284
Page Count: 35
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Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?
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Abstract

We test and confirm that retail gasoline prices respond more quickly to increases than to decreases in crude oil prices. Among the possible sources of this asymmetry are production/inventory adjustment lags and market power of some sellers. By analyzing price transmission at different points in the distribution chain, we attempt to shed light on these theories. Spot prices for generic gasoline show asymmetry in responding to crude oil price changes, which may reflect inventory adjustment effects. Asymmetry also appears in the response of retail prices to wholesale price changes, possibly indicating short-run market power among retailers.

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