Edgeworth Cycles Revisited

45 Pages Posted: 16 Jul 2008 Last revised: 14 Mar 2021

See all articles by Joseph J. Doyle

Joseph J. Doyle

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA); National Bureau of Economic Research (NBER)

Erich Muehlegger

Harvard University - Harvard Kennedy School (HKS)

Krislert Samphantharak

University of California, San Diego - School of Global Policy and Strategy

Date Written: July 2008

Abstract

Some gasoline markets exhibit remarkable price cycles, where price spikes are followed by a string of small price declines until the next price spike. This pattern is predicted from a model of competition driven by Edgeworth cycles, as described by Maskin and Tirole. We extend the Maskin and Tirole model and empirically test its predictions with a new dataset of daily station-level prices in 115 US cities. One innovation is that we also examine cycling within cities, which allows controls for city fixed effects. Consistent with the theory, and often in contrast with previous empirical work, we find that the least and most concentrated markets are much less likely to exhibit cycling behavior; and the areas with more independent retailers that have convenience stores are more likely to cycle. We also find that the average gasoline prices are relatively unrelated to cycling behavior.

Suggested Citation

Doyle, Joseph John and Muehlegger, Erich and Samphantharak, Krislert, Edgeworth Cycles Revisited (July 2008). NBER Working Paper No. w14162, Available at SSRN: https://ssrn.com/abstract=1161085

Joseph John Doyle (Contact Author)

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA) ( email )

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Erich Muehlegger

Harvard University - Harvard Kennedy School (HKS) ( email )

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Krislert Samphantharak

University of California, San Diego - School of Global Policy and Strategy ( email )

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United States
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