Rockets and Feathers : Asymmetric Petroleum Product Pricing in Developing Countries
This paper aims to provide those working in developing countries with a review of the issues that can help address the four questions: 1) are petroleum product margins excessively high at certain times?; 2) Does asymmetry of price responses to cost...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2010/06/12674738/rockets-feathers-asymmetric-petroleum-product-pricing-developing-countries http://hdl.handle.net/10986/18287 |
| Summary: | This paper aims to provide those working
in developing countries with a review of the issues that can
help address the four questions: 1) are petroleum product
margins excessively high at certain times?; 2) Does
asymmetry of price responses to cost changes exist and, if
so, what are the possible reasons that could account for
it?; 3) If there is asymmetry of petroleum product price
responsiveness, how large is the cost to consumers compared
with symmetric pricing?; And 4) what policies can combat
excessive petroleum product margins? The discussion focuses
mainly on liberalized markets, because, in markets subject
to price control, the pattern of responses of prices to cost
changes will be determined partially or largely by the
Government. Chapter one describes asymmetric pricing and the
structure of the oil market, focusing in particular on the
links between the retail sector and the rest of the chain of
supply. The chapter next briefly reviews types of
legislation that exist in liberalized markets to protect
consumers from monopolistic or collusive behavior in
petroleum products pricing. Chapter two describes different
types of firms' pricing behavior, including both
collusive and non collusive behavior, and provides an
overview of how lags in pricing behavior arise and the
reasons they can lead to asymmetry. Following this section
on theories, econometric studies testing for the presence of
asymmetric pricing are reviewed, with special reference to
those studies carried out in developing countries. Based on
these models, a sample calculation of the extra costs to the
consumer of asymmetric pricing relative to those under
symmetric pricing is given, including an illustration based
on a specially constructed estimate for Guatemala. Chapter
three provides an overview of policy responses to asymmetric pricing. |
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