Rockets & Feathers: The Asymmetric Speed of Adjustment of UK Retail Gasoline Prices to Cost Changes

The determination of retail gasoline prices in the UK has long been the subject of debate. There have been three inquiries by the Monopolies and Mergers Commission (MMC), leading to the publication of the reports MMC (1965), (1979) and (1990), in which the industry was examined for evidence of non-competitive pricing and collusive behaviour. In the most recent inquiry a major point of concern was the suggestion that companies used their market power to set prices unjustifiably high relative to costs. In particular, it was suggested that when faced with cost increases companies rapidly adjusted prices upwards, but when faced with cost decreases they adjusted prices downwards more slowly, thus permitting a temporary level of high profits. This hypothesis was examined informally by the MMC, which found no evidence that the average delays of adjusting to cost increases and cost decreases were different. It also argued that in the cost increase case there was an initial delay followed by a rapid adjustment, while in the cost decrease case downward price adjustment started sooner but in a series of smaller steps. This
asymmetrical pattern of adjustment, termed “rockets and feathers”, was not established through econometric work but with the help of descriptive and graphical analysis of weekly company data for the period 1987-9 (MMC (1990) paras. 4.69-4.79).

By: R. Bacon

Latest Tweets from @OxfordEnergy

  • New OIES study on China’s use of natural gas and LNG to tackle air pollution: Natural gas has witnessed growth in a… https://t.co/s0ZlK3iQAp

    December 11th

  • The Outlook for Natural Gas and LNG in China in the War against Air Pollution https://t.co/8whN19JPBl

    December 10th

  • OIES’s @thierry_bros in @ru_rbc "...it is going to be difficult but essential to move to € denominated commodity tr… https://t.co/9wCsJakTpS

    December 7th

Sign up for our Newsletter

Register your email address here and we will send you notification of new publications, comment, articles etc. automatically.