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Exploring the life of fuel price responses in retail markets. The effect of cross-sectional aggregation

Author:
Balaguer, Jacint, Ripollés, Jordi
Source:
Energy policy 2018 v.119 pp. 495-501
ISSN:
0301-4215
Subject:
gasoline, markets, prices, retail marketing
Abstract:
Empirical studies on vertical price transmission in retail fuel markets commonly use average group data of petrol stations. In this paper a simulation approach is employed to illustrate that, in this case, the persistence of price responses tends to be overestimated. To explore the real extent of the problem, we apply the mean group (MG) and the mean group with common correlated effects (MG-CCE) estimators to individual data from petrol stations. When heterogeneity in the pricing dynamics is captured by MG and MG-CCE estimators, persistence of retail price responses becomes considerably lower than the typical OLS estimations from average group data would suggest.
Agid:
5973501