Temporary Wholesale Gasoline Price Spikes Have Long‐Lasting Retail Effects: The Aftermath of Hurricane Rita

I study U.S. gasoline prices following Hurricane Rita to show that short‐lived geographical differences in the severity of wholesale gasoline price spikes are associated with long‐lasting geographical differences in retail prices. In most U.S. cities, wholesale prices spiked significantly for roughl...

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Bibliographic Details
Published in:The Journal of law & economics 2009-08, Vol.52 (3), p.581-605
Main Author: Lewis, Matthew S.
Format: Article
Language:English
Subjects:
Cities
Energy market
Gasoline
Gasoline prices
Hurricanes
Market prices
Oil price
Petrol
Price changes
Price formation
Price increases
Regression analysis
Retail prices
Retailing
Statistical median
Studies
U.S.A
Wholesale prices
Wholesale trade
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Summary:I study U.S. gasoline prices following Hurricane Rita to show that short‐lived geographical differences in the severity of wholesale gasoline price spikes are associated with long‐lasting geographical differences in retail prices. In most U.S. cities, wholesale prices spiked significantly for roughly 2 weeks following the hurricane. However, in cities where this spike was particularly large, retail margins remained higher than in other cities for nearly 2 months. High retail margins dissipated more quickly after the hurricane in cities where competition between stations tends to generate cyclical retail price fluctuations independent of wholesale cost movements. I discuss why prices may have fallen faster in cities exhibiting retail price cycles and present additional results identifying differences in market characteristics between cities with and without price cycles. I find that cycling cities tend to have higher population density and have independent (nonrefinery brand) stations that are more highly concentrated into large retail chains.
ISSN:0022-2186
1537-5285
DOI:10.1086/592056