Rockets and Feathers in the Gasoline Market: Evidence from South Korea

Abstract

This study analyzes how changes in oil prices are transmitted to gasoline prices in Korea. We attempt to identify the main causes of the observed price asymmetry and offer plausible theories by investigating price transmission at different levels of the distribution process. Retail prices react faster to increases in the Singapore spot market prices than decreases. We also find asymmetry in the price transmission from spot gasoline to wholesale gasoline, but in the opposite direction. Additionally, there is little evidence of asymmetry in the pass-through from wholesale prices to retail prices. Therefore, the observed asymmetry of retail prices is due mainly to the transmission of prices from spot gasoline to retail gasoline, and theories related to the cost of search for consumers seem to be the most relevant in explaining the asymmetry. Finally, the results indicate that the asymmetric pricing results in a substantial loss to consumers.

Research on the Effect of Marketization Reform on the Price of Aviation Kerosene in China

“…Therefore, regardless of whether the variable is I (0) or I (1), if the calculated F statistic is greater than the upper limit of the critical value, the null hypothesis that there is no co-integration relationship will be rejected. The next step is to estimate long-term parameters by using ARDL models based on R 2 , F statistics, DW statistics and AIC information criteria [42,43].…”

Comparing Price Transmissions between a High Blend Ethanol Fuel and a Conventional Fuel: An Application of Seemingly Unrelated Regressions

“…The author found support for asymmetry in this study. Cha and Le [11] used weekly data to assess price transmission asymmetry at several levels of the gasoline distribution system in South Korea. The results from this study indicated the presence of pricing asymmetry and that consumer search costs are the likely causes of this outcome.…”

“…where WP t is wholesale price in dollars per gallon (either E10 or E85) in period t, C t is the crude oil price in dollars per gallon in period t, and E t is the ethanol price in dollars per gallon in period t. To account for the potential effects of price inflation in fuel markets, a trend variable has been added as advised by Borenstein et al [4] as well as several other authors [2,11]. The next steps are to determine if the data underlying Equation (1) are cointegrated which will allow the ECM methodology to proceed and proper inferences to be made about the long-run relationships between the variables.…”