An Empirical Investigation of the Determinants of Asymmetric Pricing

This paper empirically investigates the cause of asymmetric pricing: retail prices responding faster to cost increases than decreases. Using daily price data for over 11,000 retail gasoline stations I find that prices fall slower than they rise as a consequence of firms extracting informational rents from consumers with positive search costs. Premium gasoline prices are shown to fall slower than regular fuel prices but rise at the same pace, and this pricing pattern supports theories based upon competition with consumer search. Further testing also rejects focal price collusion as an important determinant of asymmetric pricing.