A comparison of regular price cycles in gasoline and liquefied petroleum gas

Abstract

Regular and asymmetric gasoline price cycles are observed in a number of countries. While most studies found that such price cycles are well characterized by the theoretical Edgeworth price cycle, some studies suggest alternative explanations. This paper contributes to this literature by being the first to compare regular price cycles in a nongasoline product—liquefied petroleum gas (LPG)—with gasoline price cycles. Our main finding is that LPG price cycles in the Perth area of Western Australia are much longer and more asymmetric than gasoline price cycles in the same market. This finding is consistent with Noel's (2008) prediction that Edgeworth cycles are longer and more asymmetric when aggregate demand is more elastic—the aggregate demand for LPG is presumably more elastic than the demand for gasoline.