Retail Gasoline Prices Research Articles

The Effects of Post-Katrina Gasoline Price Regulations: The Contrast between New Brunswick and Nova Scotia

I test for the effects on retail gasoline prices of a price regulation introduced in Nova Scotia and New Brunswick in July 2006. Using a difference-in-differences empirical model, I find that prices decreased (relative to the control group) only in New Brunswick after the regulation's introduction. Further analysis suggests that prices could also have decreased in Nova Scotia if the regulation in that province had been better designed.

The Determinants and Consequences of Search Cost Heterogeneity: Evidence from Local Gasoline Markets

Information frictions play a key role in an array of economic activities and are frequently incorporated into formal models as search costs. However, little is known about the underlying source of consumer search costs and how heterogeneous they are across consumers and markets. This paper documents the sources and magnitude of heterogeneity in consumer search costs and analyzes how the heterogeneity shapes firms' pricing and consumers' search behavior. By identifying hundreds of geographically isolated markets, we are the first to estimate the distribution of consumer search costs for many geographic markets. We directly recover the distribution of consumer search costs market by market using retail gasoline price data in the United States. We find that the distribution of consumer search costs varies significantly across geographic markets and that the distribution of household income is closely associated with the search cost distribution. We find that a policy that reduces both the standard deviation and mean of the search cost distribution has heterogeneous and potentially unintended consequences on prices across markets.

Crude Oil Price and Retail Price of Gasoline: An Empirical Analysis of Asymmetric Relationship

In this study, we provide empirical evidence on the asymmetric relationship between the cost of crude oil and retail price of gasoline in Turkey. We disentangle the cost channel into two parts: the crude oil price in foreign currency and exchange rate. Then, we estimate the determinants of retail prices via an NARDL model that addresses asymmetry in both the long-run and the short-run. We show that the impacts of the two channels differ in a significant way. In particular, the transmission of an exchange rate shock to the retail price is more rapid and more significant in magnitude compared to that of a shock to crude oil price in foreign currency. Our results show that the source of asymmetric relationship is mainly exchange rate. While the response of retail price to currency depreciation is more rapid and larger in magnitude compared to that of appreciation, its response to the movements in crude oil price in foreign currency is largely symmetric. Finally, the estimation results reveal that moderate changes in exchange rate and international price of crude oil are hardly reflected to the retail price.

Refining the Evidence: British Columbia's Carbon Tax and Household Gasoline Consumption

The impact of carbon prices on consumer behavior is a central element in current policy debates dealing with mitigation of greenhouse gas emissions. In this article, we examine the impact of British Columbia’s carbon tax on household consumption of gasoline for private automobile use. Our use of household-level data on gasoline expenditures allows us to control for several factors that influenced gasoline demand during our study period, including local public transit improvements and increased cross-border shopping in Washington State. Overall, our results suggest that a 5 cent per litre carbon tax reduced gasoline consumption by 8%. We find that households residing in Vancouver and other cities responded to the carbon tax, whereas households in small towns and rural areas did not respond. We perform several sensitivity analyses accounting for carbon leakage and the potential that the carbon tax was not fully passed through to the retail price of gasoline. Even our most conservative lower bound estimate suggests that a 5 cent per litre carbon tax reduced gasoline consumption by 5%.

Public's willingness to pay a premium for bioethanol in Korea: A contingent valuation study

Bioethanol (BE), a renewable energy, is well-known to mitigate the greenhouse gas emissions compared with conventional gasoline. Thus, the Korean government is considering the introduction of a BE mandate in which the legal blend is 5% BE and 95% gasoline (E5) until 2020 in order to expand BE use. We should examine the public acceptability of the introduction, which incurs a rise in the fuel price. This study attempts to assess the public's willingness to pay (WTP) a premium for introducing the E5 program in Korea. To this end, a contingent valuation (CV) survey of 1000 randomly selected consumers was conducted in 2014 across the nation. We used a one-and-one-half-bound dichotomous choice question in the CV survey and applied the spike model to handle the WTP data with zeros. The mean WTP, a premium for the E5 per liter, is estimated to be KRW 290 (USD 0.27), which is statistically meaningful at the 1% level. This value amounts to 15.6% of the gasoline retail price in 2014 (KRW 1856 or USD 1.70) and can be interpreted as the external benefit of BE. We can conclude that gasoline consumers in Korea are ready to pay a significant premium for the E5.

Simple robust tests for the specification of high-frequency predictors of a low-frequency series

Abstract Two variable addition test statistics aimed at the specification of a high-frequency predictor of a series observed at a lower frequency are proposed. Under the null, the high-frequency predictor is aggregated to the low frequency versus mixed-frequency alternatives. The first test statistic is similar to those in the extant literature, but its robustness to conditionally biased forecast error and cointegrated and deterministically trending covariates is shown. It is feasible and consistent even if estimation is not feasible under the alternative. However, its size is not robust to nuisance parameters when the high-frequency predictor is stochastically trending, and size distortion may be severe. The second test statistic is a simple modification of the first that sacrifices power in order to correct this distortion. An application to forecasting and nowcasting monthly state-level retail gasoline prices illustrates how the test statistics may be utilized when the presence of nuisance parameters and orders of integration are unknown.

Environmental preferences and consumer behavior

This paper demonstrates that environment-conscious consumers have lower gasoline retail (tax-exclusive) price and excise tax elasticities, suggesting that they are less sensitive to changes in prices and taxes than their less environmental counterparts. These results on an American state-year dataset are robust to the use of two environmental proxies and to the instrumentation of gasoline retail prices. These findings support the existence of heterogeneous environmental preferences by demonstrating that certain consumers incorporate environmental ideology into their utility functions distinctly from income considerations. The implication that environmental preferences contribute to differential responsiveness to pecuniary signals has repercussions for the forecasting of consumer behavior and for the ease of implementation of environmental policy.

Is the German Retail Gasoline Market Competitive? A Spatial-Temporal Analysis Using Quantile Regression

We explore whether noncompetitive pricing prevails in Germany’s retail gasoline market by examining the influence of the crude oil price on the retail gasoline price, focusing specifically on how this influence varies according to the brand and to the degree of competition in the vicinity of the station. Our analysis identifies several factors other than cost—including the absence of nearby competitors and regional market concentration—that play a statistically significant role in mediating the influence of the oil price on the retail gas price, suggesting moderate price-setting power among stations.

The Impact of Tax Burden Overshifting on the Pigovian Taxation

The objective of this paper is to analyze the impact of excise duty increases on the retail price of gasoline and diesel in the Czech Republic. This study is primarily concerned with the issue of tax burden shifting because of transport fuel excise duties. This paper analyses the tax shifting process by focusing on periodic excise duty increases to identify whether overshifting occurs and what the consequences are for the Pigovian principle of environmental taxation. The research results show that overshifting of tax burden occurs with gradual tax rate increases in selected countries. Therefore, this enables it to be emphasized that overshifting violates the rationale of corrective taxation, increasing the distortionary effects of environmental taxes and substantially decreasing taxes’ efficiency in pollution abatement.

Rockets and feathers meet markup margins: Applications to the oil and gasoline industry

AbstractThis article investigates the existence of asymmetric price transmission between crude oil, rack (wholesale) and retail gasoline prices. A threshold cointegration technique is used, with regime switches being triggered by the size of the markup margin. There is consistent evidence of band‐TAR in which the crude, rack and retail prices are free to diverge until the markup margin is squeezed or stretched beyond a lower or upper critical threshold. This finding indicates that abnormally high markup margins cannot be sustained, which provides evidence against market power exertion. The threshold error correction models indicate that there is no systematic relationship between the speed of adjustment back to the long‐run relationship and the markup margin, which rules out the existence of “rockets and feathers.”

An alternative semiparametric approach to the modelling of asymmetric gasoline price adjustment

In this paper we revisit the wholesale and retail gasoline price adjustments to fluctuations in the input cost prices for a monthly panel dataset of 48 US states over the period 1994 to 2011. In doing so, we employ for the first time in the empirical literature nonlinear semiparametric models with local Generalized Method of Moments (GMM) estimators. Our findings indicate that wholesale and retail gasoline prices adjust more rapidly in an upward than a downward direction, confirming the “rockets and feathers” hypothesis.

The relationship between U.S. retail gasoline and crude oil prices during the Great Recession: “Rockets and feathers” or “balloons and rocks” behavior?

Previous studies of the relationship between crude oil and gasoline prices have often found “rockets and feathers” behavior: a scenario where gasoline prices increase more rapidly when crude oil prices rise than they fall when crude oil prices drop. While we find this behavior in times of generally rising crude oil prices, we find the opposite to be true during times of generally falling crude oil prices, a phenomenon we call “balloons and rocks” behavior. This result was obtained by testing for parameter stability in error-correction models which were estimated for periods of significant variability in both crude oil and gasoline prices. The data used to estimate these results is unique in the literature as it is comprised of daily U.S. retail gasoline prices and daily crude oil prices. The sample was taken during the Great Recession, an exceptional period of time that saw both sharp increases and decreases in gasoline and crude oil prices.

Dynamic Fuel Price Pass-Through: Evidence from a New Global Retail Fuel Price Database

This paper assesses the dynamic pass-through of crude oil price shocks to retail fuel prices using a novel database on monthly retail fuel prices for 162 countries. The impulse response functions suggest that on average, a one cent increase in crude oil prices per liter translates into a 1.2 cent increase in the retail gasoline price at peak level six months after the shock. However, the estimates vary significantly across country groups, ranging from about 0.5 cent in MENA countries to two cents in advanced economies. The results also show that positive oil price shocks have a larger impact than negative price shocks on the retail gasoline price. Finally, the paper underscores the importance of the new dataset in refining estimates of the fiscal cost of incomplete pass-through.

Dynamic Fuel Price Pass-Through: Evidence from a New Global Retail Fuel Price Database

This paper assesses the dynamic pass-through of crude oil price shocks to retail fuel prices using a novel database on monthly retail fuel prices for 162 countries. The impulse response functions suggest that on average, a one cent increase in crude oil prices per liter translates into a 1.2 cent increase in the retail gasoline price at peak level six months after the shock. However, the estimates vary significantly across country groups, ranging from about 0.5 cent in MENA countries to two cents in advanced economies. The results also show that positive oil price shocks have a larger impact than negative price shocks on the retail gasoline price. Finally, the paper underscores the importance of the new dataset in refining estimates of the fiscal cost of incomplete pass-through.

Inside the Crystal Ball: New Approaches to Predicting the Gasoline Price at the Pump

Although there is much interest in the future retail price of gasoline among consumers, industry analysts, and policymakers, it is widely believed that changes in the price of gasoline are essentially unforecastable given publicly available information. We explore a range of new forecasting approaches for the retail price of gasoline and compare their accuracy with the no-change forecast. Our key finding is that substantial reductions in the mean-squared prediction error (MSPE) of gasoline price forecasts are feasible in real time at horizons up to two years, as are substantial increases in directional accuracy. The most accurate individual model is a VAR(1) model for real retail gasoline and Brent crude oil prices. Even greater reductions in MSPEs are possible by constructing a pooled forecast that assigns equal weight to five of the most successful forecasting models. Pooled forecasts have lower MSPE than the EIA gasoline price forecasts and the gasoline price expectations in the Michigan Survey of Consumers. We also show that as much as 39% of the decline in gas prices between June and December 2014 was predictable.

Asymmetric Pass-Through in U.S. Gasoline Prices

This paper presents new evidence of asymmetric pass-through, the notion that upward cost shocks are passed through faster than downward cost shocks, in U.S. gasoline prices. Much of the extant literature comes to seemingly contradictory conclusions about the existence and causes of asymmetry, though the differences may be due to different aggregation (both over time and geographic markets) and the use of different price series including crude oil, wholesale, and retail gasoline prices. I utilize a large and detailed dataset to determine where evidence of a passthrough asymmetry exists, and how it depends on the aggregation and price series chosen by the researcher. Using the error correction model, I find evidence of pass-through asymmetry based on spot, rack and retail prices, though the largest effect is found in the rack to retail relationship. I find more asymmetry in branded prices compared with unbranded prices, consistent with a consumer search explanation for asymmetry. However, I also find evidence consistent with explanations based on market power as the magnitude of asymmetry is positively associated with retail concentration. On average, retail prices rise three to four times as fast as they fall.

Compliance Path and Impact of Ethanol Mandates on Retail Fuel Market in the Short Run

Past studies have examined the impact of ethanol mandates with a long‐run perspective and were thus able to assume away short‐run rigidities and some of the specifics of the biofuel mandates. These studies have been of limited use in informing current policy debates because the short‐ to medium‐run reality is one of strong regulatory and infrastructure rigidities that restrict how ethanol can be consumed in the United States. Our objectives in this paper are to provide a more coherent framework than currently exists to model and understand how compliance with ethanol mandates in the short run cannot be met with conventional gasoline blends, how compliance impacts fuel prices and consumer and producer welfare, and also to measure the size of the transfer that occurs between refineries and ethanol producers through the market's Renewable Identification Numbers (RINs). In a model calibrated to 2015 data, we find that the effects of increasing ethanol mandates that are physically feasible are close to zero on the retail price of gasoline. This result is robust to different gasoline prices, supply elasticities, and export‐demand elasticities. Increased mandates can have a large negative effect on the price of high‐level ethanol gasoline blends such as E85 if the mandates are increased to approach consumption capacity.

Oil prices, exchange rate, and the price asymmetry in the Taiwanese retail gasoline market

This study used the asymmetric autoregressive distributed lag model to evaluate the influence of oil price and exchange rate fluctuations on retail gasoline prices in Taiwan. Unlike the numerous previous studies, we considered the unit root tests with a structural break and suggested that all price variables were stationary series. We also showed that the adjustments of retail gasoline price follow a politico-economic asymmetry. Moreover, gasoline price responses to exchange-rate shocks were slow and complex and exhibited reverse adjustments during periods of initial exchange-rate depreciation. This is potentially because domestic petroleum companies must purchase foreign currency before purchasing crude oil.

Asymmetric evidence of gasoline price responses in France: A Markov-switching approach

It has been documented that retail gasoline prices respond more quickly to increases in wholesale prices than they do to decreases in wholesale prices. However, there is little empirical evidence that identifies the link between the pass-through of oil prices to gasoline in different volatility regimes. Using a Markov-switching model on weekly observations of fuel prices from 1990 to 2011, we find that fuel prices respond significantly faster to increases in crude oil prices than to decreases in crude oil prices. However, when volatility is low, the transmittal of a price change from crude oil to retail fuel is higher compared to periods of high volatility. These results provide important information on the behavior of retailers. The findings of this paper therefore provide clues for better understanding the recent dynamics of fuel prices and some policy implications.

Revisiting asymmetric price transmission in the U.S. oil-gasoline markets: A multiple threshold error-correction analysis

This paper revisits the asymmetric price transmission in the U.S. oil-gasoline markets by a multiple threshold error-correction model. Unlike the previous studies, the regimes and thresholds are endogenously determined by sequential model selection. A nonlinear asymmetric pattern is discovered in the short-run price transmission from crude oil to retail gasoline, via both the commodity and financial markets. For medium movements in both oil prices, increases demonstrate a significantly stronger impact on retail gasoline prices than decreases. However, asymmetry is detected for neither large nor small oil price movements. Nonlinear asymmetric transmission via the refinery markets is excluded. Nevertheless, the long-run speed towards equilibrium does not exhibit asymmetry between any paired regimes. We discuss the economic interpretations and implications of the detected nonlinear asymmetry.