RETAIL GASOLINE PRICE DYNAMICS AND LOCAL MARKET POWER -super-*

Using monthly data from the 48 contiguous states (except Nevada) for the 1988-2002 period, it is shown that retail gasoline prices respond faster to wholesale price increases than to equivalent wholesale price decreases. Moreover, markets with high average retail-wholesale margins experience a slower adjustment and a more asymmetric response. Since gasoline is the only variable input, average margins in a state likely reflect the degree of retail market power. This suggests that sticky prices and response asymmetries in the gasoline market are, at least partially, a consequence of retail market power. Copyright 2008 The Authors. Journal compilation 2008 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics.