Wednesday, July 27, 2016

Gasoline Price Wars: Spatial Dependence Awakens

Eleftheriou, Konstantinos and Polemis, Michael explore Gasoline Price Wars: Spatial Dependence Awakens.

ABSTRACT: We build an Asymmetric Spatial Error Correction Model (ASpECM) to investigate the role of spatial dependence at the retail gasoline price adjustment mechanism. We find evidence that the symmetric price pattern is fully reversed when we account for spatial spillover effects, indicating that retail prices adjust more rapidly in an upward than a downward direction. This finding raises the possibility that retailers are more likely to engage in anti-competitive practices which may be ignored when the regulators bypass the role of spatial dependence.

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