Year: 1996
Type: report
Abstract: A model with costly adjustment of production and costly inventories implies that wholesale gaso-line prices will respond with a lag to crude oil cost shocks. Unlike explanations that rely upon menu costs, imperfect information, or long-term buyer/seller relationships, this model also pre-dicts that futures prices for gasoline will adjust incompletely to crude oil price shocks that occur close to the expiration date of the futures contract. We test and confirm this implication. Examin-ing wholesale price responses in 188 gasoline markets, we also find that firms with market power adjust prices more slowly than do competitive firms, consistent with the model. 1.
DOI: 10.3386/w5468
Authors: Severin Borenstein, Andrea Shepard
Institution: Stanford University
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3024477906