Price Cycles and Price Leadership in Gasoline Markets: Evidence from Rural and Urban Canada

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.