NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Edgeworth Cycles Revisited

Joseph J. Doyle, Jr., Erich Muehlegger, Krislert Samphantharak

NBER Working Paper No. 14162
Issued in July 2008
NBER Program(s):   EEE   IO

Some gasoline markets exhibit remarkable price cycles, where price spikes are followed by a string of small price declines until the next price spike. This pattern is predicted from a model of competition driven by Edgeworth cycles, as described by Maskin and Tirole. We extend the Maskin and Tirole model and empirically test its predictions with a new dataset of daily station-level prices in 115 US cities. One innovation is that we also examine cycling within cities, which allows controls for city fixed effects. Consistent with the theory, and often in contrast with previous empirical work, we find that the least and most concentrated markets are much less likely to exhibit cycling behavior; and the areas with more independent retailers that have convenience stores are more likely to cycle. We also find that the average gasoline prices are relatively unrelated to cycling behavior.

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Document Object Identifier (DOI): 10.3386/w14162

Published: Doyle, Joseph & Muehlegger, Erich & Samphantharak, Krislert, 2010. "Edgeworth cycles revisited," Energy Economics, Elsevier, vol. 32(3), pages 651-660, May.

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