Retail fuel price adjustment in Germany: A threshold cointegration approach. (March 2015)

• Record Type: Journal Article
• Authors: Asane-Otoo, Emmanuel; Schneider, Jan
• Is Part Of: Energy policy. Volume 78(2015)
• Page Start: 1
• Page End: 10
• Publication Date: 2015-03
• Subjects: Asymmetry -- Error correction models -- Threshold cointegration -- Retail fuel price; Energy policy -- Periodicals; Politique énergétique -- Périodiques; Electronic journals; 333.79
• DOI: 10.1016/j.enpol.2014.12.013
• Languages: English
• ISSNs: 0301-4215

Abstract

Abstract: Consumers in Germany often complain that retail fuel prices usually adjust quickly to crude oil price increases than decreases and characterize this pricing pattern as market power exploitation. In this paper, we use both weekly national and daily city-specific (Berlin, Hamburg, Munich and Cologne) data to investigate the extent to which retail fuel prices in Germany adjust to changes in the international crude oil price. At the national level with weekly prices, we find positive asymmetries for both gasoline and diesel within the period 2003–2007, reflecting that retail prices react more swiftly to crude oil price increases than decreases. In contrast, for 2009–2013, we observe symmetric adjustment and negative asymmetry for retail diesel and gasoline prices, respectively. The city level analysis supports our findings in the latter time period. Thus, regulatory measures aimed at the retail fuel market over recent years seem to have been effective, and, contrary to consumers' perception, we find no evidence for excessive market power or collusion. Highlights: The paper examines the adjustment of German retail fuel (gasoline and diesel) prices to international crude oil price changes. An error correction model with threshold cointegration is used to investigate the price dynamics. The findings generally point to a competitive retail fuel pricing, notwithstanding the oligopolistic market structure.