Gasoline Prices in Market Equilibrium

Gasoline retail markets in some areas in Norway exhibit weekly price cycles: Prices tend to rise at the start of the week and gradually fall towards the weekend. Some claim the pattern is due to unlawful price collusion. If they are right, the detrimental welfare implications are important for several reasons. One is that the retail gasoline market is by itself an important part of the economy. Furthermore, gasoline is an important input factor to a considerable number of separate markets in the economy. The economic repercussions across markets of collusive gasoline prices are likely substantial. There are, however, competing explanations of the cycles. The price cycles reported internationally are broadly consistent with competitive markets. If so, mark et interventions may cause more harm than good. Market regulations are unlikely succesful without a thorough understanding of the causes of the price cycles. The literature have not been able to test the competitive versus the collusive hypotheses of the price cycles, in part because of a lack of data on sales in addition to prices. A key question is why there are price cycles in some areas, while not in others. The project will investigate the functioning of the Norwegian retail gasoline market by constr ucting and exploiting a unique dataset of disaggregated data on prices and sales crossed with demographic and geographic data. The main research challenge is to develop and test a theory of collusive markets against their competitive alternatives. The emp irical strategy is briefly put to exploit variations in sales and prices between local markets over time, controlled for exogenous cost factors and geographic and demographic factors, to identify the competitive conduct in the retail gasoline market. The richness of the dataset will hopefully provide an understanding of the causes of the price cycles. On the basis of the findings, potential market regulations may be evaluated.