Asymmetric Price Adjustments Under Ever-Increasing Costs - Evidence from the Retail Gasoline Market in Colombia

20 Pages Posted: 10 Oct 2009

See all articles by Marc Hofstetter

Marc Hofstetter

Universidad de los Andes

Jorge Tovar

Universidad de los Andes, Colombia - Department of Economics

Date Written: October 20, 2008

Abstract

There is abundant empirical evidence showing that asymmetric price adjustments exist in a wide variety of markets. Prices tend to grow faster when costs rise relative to the rate at which prices drop when costs fall. The objective of this paper is to empirically test whether asymmetric price adjustments exist in a scenario where costs are increasing every period.

The Colombian retail gasoline market offers an excellent case study due to a specific regulation, something discussed further in this paper. Our results suggest that when costs rise above the reference price – a government suggested retail price – retail prices tend to rise less relative to when costs grow below the reference price. Thus, asymmetry does exist.

Keywords: Asymmetric price adjustments, Gasoline retail markets, Search, Reference Prices

JEL Classification: D43, D82, D83

Suggested Citation

Hofstetter, Marc and Tovar, Jorge, Asymmetric Price Adjustments Under Ever-Increasing Costs - Evidence from the Retail Gasoline Market in Colombia (October 20, 2008). Available at SSRN: https://ssrn.com/abstract=1485710 or http://dx.doi.org/10.2139/ssrn.1485710

Marc Hofstetter (Contact Author)

Universidad de los Andes ( email )

Carrera Primera # 18A-12
Bogota, DC D.C. 110311
Colombia

Jorge Tovar

Universidad de los Andes, Colombia - Department of Economics ( email )

Carrera 1a No. 18A-10
Santafe de Bogota, AA4976
Colombia

HOME PAGE: http://economia.uniandes.edu.co/profesores/planta/tovar_jorge

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