Temporary Wholesale Gasoline Price Spikes Have Long-Lasting Retail Effects: The Aftermath of Hurricane Rita

I study U. S. gasoline prices following Hurricane Rita to show that short-lived geographical differences in the severity of wholesale gasoline price spikes are associated with long-lasting geographical differences in retail prices. In most U. S. cities, wholesale prices spiked significantly for roughly 2 weeks following the hurricane. However, in cities where this spike was particularly large, retail margins remained higher than in other cities for nearly 2 months. High retail margins dissipated more quickly after the hurricane in cities where competition between stations tends to generate cyclical retail price fluctuations independent of wholesale cost movements. I discuss why prices may have fallen faster in cities exhibiting retail price cycles and present additional results identifying differences in market characteristics between cities with and without price cycles. I find that cycling cities tend to have higher population density and have independent (nonrefinery brand) stations that are more highly concentrated into large retail chains.