Journal
REVIEW OF ECONOMICS AND STATISTICS
Volume 89, Issue 2, Pages 324-334Publisher
M I T PRESS
DOI: 10.1162/rest.89.2.324
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This paper examines dynamic pricing behavior in Canadian retail gasoline markets. I find three distinct pricing patterns: cost-based pricing, sticky pricing, and sharp asymmetric retail price cycles that resemble the Edgeworth cycles of Maskin and Tirole (1988). I use a Markov-switching regression to estimate the prevalence of the regimes and the structural characteristics of the cycles themselves. I find cycles are more prevalent when there are more small firms and are accelerated and amplified with very many small firms. In markets with few small firms, sticky pricing dominates. The findings are consistent with the theory of Edgeworth cycles.
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