Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Thursday, October 12, 2017

Nonlinear and asymmetric pricing behaviour in the Spanish gasoline market

Torrado, María and Escribano Sáez, Álvaro examine Nonlinear and asymmetric pricing behaviour in the Spanish gasoline market.

ABSTRACT: Over the last decades a transition from a state-own monopoly to a private business took placein the Spanish fuel sector. To figure out whether downstream prices react differently toupstream price increases than to price decreases, alternative dynamic nonlinear andasymmetric error correction models are applied to weekly price data. This paper analyse theexistence of price asymmetries in the fuel market in Spain during the 2011-2016 period. Incomparison with traditional asymmetric price theory literature, this paper introduces a newdouble threshold error correction (ECM) model (DT-ECM) and new double logistic ECMmodels and compares them with more common linear ECM, time varying parameter models(TV-ECM), threshold autoregressive models (T-ECM), smooth transition autoregressive(STAR) models and nonlinear error correction (Logistic-ECM) and double threshold Logistic(DT-Logistic ECM). The nonlinear and asymmetric results found show that sophisticatedbivariate long-run asymmetries are present in the prices of the fuel sector and that those pricereactions depend on whether the oil price increases or decreases, on the stage of theproduction, the distribution chain as well as on the period considered.

http://lawprofessors.typepad.com/antitrustprof_blog/2017/10/nonlinear-and-asymmetric-pricing-behaviour-in-the-spanish-gasoline-market.html

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