Price Transmission and Local Market Power: Empirical Evidence from the Austrian Gasoline Market

Christoph Weiss, Birgit Koch, Jens-Peter Loy, Carsten Steinhagen

Publication: Scientific journalJournal articlepeer-review

Abstract

We analyse the impact of local market power on price margins and different dimensions of price adjustment dynamics (speed and asymmetry of price transmission) using data for a large number of individual gasoline stations in Austria. Specific attention is paid to threshold effects in price adjustment. Our results clearly suggest that the speed of price transmission between the Brent crude oil index and retail diesel prices is higher in a more competitive environment. While evidence on the relationship between local market power and asymmetries in the speed of price adjustment is mixed, our findings regarding asymmetries in price thresholds are clear: in regions where competition from neighbouring rivals is weak and/or consumers’ price elasticity of demand is low (stations located on the highway), positive thresholds significantly exceed negative ones, which corresponds to the ‘rockets and feathers phenomenon’. As expected, we observe that prices are lower in more competitive local markets.
Original languageEnglish
Pages (from-to)5728 - 5746
JournalApplied Economics
Volume50
Issue number53
DOIs
Publication statusPublished - 2018

Austrian Classification of Fields of Science and Technology (ÖFOS)

  • 502013 Industrial economics

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