Abstract
This paper empirically studies how consumers respond to retail gasoline price cycles. Our analysis uses new station-level price data from local markets in Ontario, Canada, and a unique market-level measure of consumer responsiveness based on web traffic from gasoline price reporting websites. We first document how stations use coordinated pricing strategies that give rise to large daily changes in price levels and dispersion in cycling gasoline markets. We then show consumer responsiveness exhibits cycles that move with these price fluctuations. Through a series of tests we find that forward-looking stockpiling behavior by consumers plays a central role in generating these patterns.
Highlights
In many gasoline markets, retail prices exhibit cycles that involve large, weekly or biweekly price jumps, and price undercutting between jumps
This largely reflects the fact that while daily retail price data is available to researchers, daily data on volumes of fuel sold at the station- or market-level are not
We find price reporting intensity exhibits cycles that move with retail price cycles
Summary
Retail prices exhibit cycles that involve large, weekly or biweekly price jumps, and price undercutting between jumps. This largely reflects the fact that while daily retail price data is available to researchers, daily data on volumes of fuel sold at the station- or market-level are not. The dataset consists of every station-level price report submitted to GasBuddy’s websites over the sample period.
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