Abstract
Edgeworth price cycles refer to an asymmetric pattern of prices that result from a dynamic pricing equilibrium among competing oligopolists. The resulting time series takes on a sawtooth shape – many small price decreases interrupted only by occasional large price increases. Maskin and Tirole (Econometrica 56(3): 571–599, 1988) formalized the theory, and later extensions were provided by Eckert (International Journal of Industrial Organization 21(3): 151–170, 2003) and Noel (Journal of Economics and Management Strategy 17(2): 345–377, 2008). Edgeworth price cycles are the leading theory for explaining the asymmetric price cycles that appear in many US, Canadian, Australian and European retail gasoline markets (e.g. Noel (Review of Economics and Statistics 89(2): 324–334, 2007a), Eckert (Canadian Journal of Economics 35(1): 52–77, 2002), Doyle et al. (Energy Economics 32(3): 651–660, 2010), Wang (Journal of Political Economy 117(6): 987–1030, 2009b)). While the gasoline cycles continue to generate public concern with claims of collusion often raised, the current evidence favours Edgeworth price cycles being the result of stronger competition and the source of lower retail gasoline prices.
Keywords
JEL Classifications
This chapter was originally published in The New Palgrave Dictionary of Economics, Online edition, 2011. Edited by Palgrave Macmillan
This is a preview of subscription content, log in via an institution.
Bibliography
Allvine, F., and J. Patterson. 1974. Highway robbery: An analysis of the gasoline crisis. Bloomington: Indiana University Press.
Atkinson, B. 2009. Retail gasoline price cycles: Evidence from Guelph, Ontario using bi-hourly station-specific retail price data. Energy Journal 30(1): 85–110.
Borenstein, S., A. Cameron, and R. Gilbert. 1997. Do gasoline markets respond asymmetrically to crude oil price change. Quarterly Journal of Economics 112: 305–339.
Castanias, R., and H. Johnson. 1993. Gas wars: Retail gasoline price fluctuations. Review of Economics and Statistics 75(1): 171–174.
Doyle, J., E. Muehlegger, and K. Samphantharak. 2010. Edgeworth cycles revisited. Energy Economics 32(3): 651–660.
Eckert, A. 2002. Retail price cycles and response asymmetry. Canadian Journal of Economics 35(1): 52–77.
Eckert, A. 2003. Retail price cycles and presence of small firms. International Journal of Industrial Organization 21(3): 151–170.
Eckert, A., and D. West. 2004. Retail gasoline price cycles across spatially dispersed gasoline stations. Journal of Law and Economics 22: 997–1015.
Edgeworth, F.Y. 1925. The pure theory of monopoly. In Papers relating to political economy, vol. I, ed. F.Y. Edgeworth, 111–142. London: Macmillan.
Erutku, C., and V. Hildebrand. 2010. Conspiracy at the pump. Journal of Law and Economics 53(1): 223–237.
Foros, O., and F. Steen. 2008. Gasoline prices jump up on Mondays? An outcome of aggressive competition? CEPR Working Paper DP6783.
Leufkens, K., and R. Peeters. 2008. Focal prices and price cycles in an alternating price duopoly experiment. METEOR Working Paper RM/08/021.
Lewis, M. 2009a. Temporary wholesale gasoline price spikes have long lasting retail effects: The aftermath of Hurricane Rita. Journal of Law and Economics 52(3): 581–606.
Lewis, M. 2009b. Price leadership and coordination in retail gasoline markets with price cycles. The Ohio State University Working Paper.
Lewis, M., and M. Noel. In press. The speed of gasoline price response in markets with and without Edgeworth cycles. Review of Economics and Statistics.
Maskin, E., and J. Tirole. 1988. A theory of dynamic oligopoly II: Price competition, kinked demand curves and Edgeworth cycles. Econometrica 56(3): 571–599.
Noel, M. 2002. Edgeworth price cycles in retail gasoline markets. PhD dissertation, MIT.
Noel, M. 2007a. Edgeworth price cycles, cost-based pricing and sticky pricing in retail gasoline retail markets. Review of Economics and Statistics 89(2): 324–334.
Noel, M. 2007b. Edgeworth price cycles: Evidence from the Toronto retail gasoline market. Journal of Industrial Economics 55(1): 69–92.
Noel, M. 2008. Edgeworth price cycles and focal prices: Computational dynamic Markov equilibria. Journal of Economics and Management Strategy 17(2): 345–377.
Noel, M. 2009. Do gasoline prices respond asymmetrically to cost shocks? The effect of Edgeworth cycles. RAND Journal of Economics 40(3): 582–595.
Noel, M. 2010a. Edgeworth cycles and intertemporal price discrimination. UCSD Working Paper.
Noel, M. 2010b. Edgeworth cycles, competition, and antitrust. UCSD Working Paper.
Wang, Z. 2008. Collusive communication and pricing coordination in a retail gasoline market. Review of Industrial Organization 32(1): 35–52.
Wang, Z. 2009a. Station level gasoline demand in an Australian market with regular price cycles. Australian Journal of Agricultural and Resources Economics 53: 467–483.
Wang, Z. 2009b. Mixed strategies in oligopoly pricing: Evidence from gasoline price cycles before and under a timing regulation. Journal of Political Economy 117(6): 987–1030.
Zhang, M. 2005. Finding Edgeworth cycles in online advertising auctions. MIT mimeo.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Copyright information
© 2011 The Author(s)
About this entry
Cite this entry
Noel, M.D. (2011). Edgeworth Price Cycles. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95121-5_2982-1
Download citation
DOI: https://doi.org/10.1057/978-1-349-95121-5_2982-1
Received:
Accepted:
Published:
Publisher Name: Palgrave Macmillan, London
Online ISBN: 978-1-349-95121-5
eBook Packages: Springer Reference Economics and FinanceReference Module Humanities and Social SciencesReference Module Business, Economics and Social Sciences