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Asymmetric pricing dynamics with market power: investigating island data of the retail gasoline market

  • Woo-Hyung Hong
  • Daeyong LeeEmail author
Article
  • 45 Downloads

Abstract

This paper investigates how and why a link between market power and asymmetric pricing occurs. Analyzing unique island panel data of the Korean gasoline market, we exploit geographic separation as a reliable measure of market power. Our findings confirm a positive correlation between market power and price-response asymmetry. The empirical results on sticky pricing behaviors suggest that tacit collusion is the main channel through which market power influences asymmetric pricing. In addition, we examine the effect of station heterogeneity on asymmetric pricing to provide further evidence of tacit collusion in a localized market.

Keywords

Asymmetric pricing Market power Geographic separation Tacit collusion Consumer search Sticky pricing 

JEL Classification

D43 D82 L11 L13 

Notes

Acknowledgements

We are grateful for valuable comments from Fahad Khalil, Neil Bruce, Robert Halvorsen, Stephen Turnovsky, Christopher Anderson, David Layton, Rachel Heath, Seik Kim, and seminar participants at the University of Washington, Iowa State University, Hansung University, Peking University, KAIST, and the Canadian Economics Association conference. We also appreciate the constructive feedback suggested by the editor and review team. We gratefully acknowledge the Grover and Creta Ensley Fellowship and the Henry T. Buechel Fellowship for financial support.

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Department of EconomicsHansung UniversitySeoulRepublic of Korea
  2. 2.Department of Human Development and Family StudiesIowa State UniversityAmesUSA

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