Frequency of Price Adjustment and Market Power

The present paper analyzes the role of market power in determining the frequency of price adjustment using daily data on retail prices for a major Austrian gasoline retailer. In particular, we investigate the effects of consumer information, production costs and competitive pressure on the likelihood of frequent price changes using survival analysis. In light of recent regulatory attempts on the retail gasoline market, the present paper complements the literature dealing with the speed of adjustment by specifically focusing on the duration of stable prices (the subject of the aforementioned regulation). Similarly to findings of the literature on the speed of adjustment we observe that negative cost shocks lead to a lower frequency of price changes than cost increases. Furthermore, we find support for consumer search theories, which suggest that the share of informed consumers increases the frequency of price changes and decreases pass-through asymmetry. Weak evidence for theories of tacit collusion is also present in the data.