Monday, September 12, 2011
Posted by D. Daniel Sokol
David P. Byrne, University of Melbourne and Roger Ware, Queen's University discuss Price Cycles and Price Leadership in Gasoline Markets: New Evidence from Canada.
ABSTRACT: This paper studies the determinants of Edgeworth Cycles, price leadership and coordination in retail gasoline markets using daily station-level price data for 110 markets in Ontario, Canada for 2007-2008. We find an "inverse-U" relationship between markets' propensity to exhibit price cycles and their size. More concentrated markets are less likely to exhibits cycles and we highlight regional clustering among cycling and non-cycling markets. Within cycling markets, we find brands' stations (Esso, Shell, Petro-Canada, Sunoco) lead price jumps and coordinate market prices, while independents (Ultramar, Pioneer, Olco, MacEwen) aggressively undercut prices over the cycle.