This thesis presents an analysis of the pricing behaviour of firms in Canadian retail
gasoline markets. The time series of retail prices for certain Canadian cities can be
categorized as exhibiting one of two distinct patterns. In many cities, retail prices
remain unchanged for many weeks at a time, despite frequent changes to the
wholesale gasoline price. In other cities, retail prices cycle, increasing sharply, and
declining more slowly. This thesis addresses questions arising from the observation
of these patterns.
The first essay considers a theoretical model of price setting behavior, and asks
whether the number of stations operated by each firm in a market can determine
whether constant prices or price cycles are observed. Constant prices are found to
exist only when firms are of similar size. On the other hand, cycle equilibria can be
constructed when the firms are of similar size, but also when their sizes differ
greatly. Evidence of a negative relationship between price stability and the presence
of small firms is also found through an examination of a panel data set of retail
prices for a number of Canadian cities.
The second essay examines the response of retail prices to wholesale price
movements in the presence of a retail price cycle. A simple model based on the
predictions of the theory is constructed, and estimated using data for the city of
Windsor, Ontario. I find that a new cycle is initiated by a price increase whenever
the distance between the previous retail price and the current wholesale price
becomes sufficiently small. In addition, retail prices are found to be more
responsive to wholesale prices over the increasing portion of the cycle. Finally,
when the asymmetric error correction model of Borenstein, Cameron, and Gilbert
(1997) is estimated, a more rapid response to wholesale price increases than to
decreases is indicated. This asymmetry is shown to be consistent with my structural
model, which thus provides an additional potential explanation for the regularities
found in previous studies.
| Identifer | oai:union.ndltd.org:LACETR/oai:collectionscanada.gc.ca:BVAU.2429/9962 |
| Date | 11 1900 |
| Creators | Eckert, Andrew |
| Source Sets | Library and Archives Canada ETDs Repository / Centre d'archives des thèses électroniques de Bibliothèque et Archives Canada |
| Language | English |
| Detected Language | English |
| Type | Electronic Thesis or Dissertation |
| Relation | UBC Retrospective Theses Digitization Project [http://www.library.ubc.ca/archives/retro_theses/] |
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