TY  - JOUR
AU  - Borenstein,Severin
AU  - Shepard,Andrea
TI  - Sticky Prices, Inventories, and Market Power in Wholesale Gasoline      Markets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5468
PY  - 1996
Y2  - February 1996
UR  - http://www.nber.org/papers/w5468
L1  - http://www.nber.org/papers/w5468.pdf
N1  - Author contact info:
Severin Borenstein
Haas School of Business
University of California, Berkeley
Berkeley, CA 94720-1900
Tel: 510/642-3689
E-Mail: borenste@haas.berkeley.edu

Andrea Shepard
Graduate School of Business
Stanford University
Stanford, CA 94305-5015
Tel: 650/725-4864
Fax: 650/725-7979
E-Mail: ashepard@cornerstone.com
AB  - We present and test an explanation for lags in the adjustment of wholesale gasoline prices to changes in crude oil prices.  Our simple model with costly adjustment of production and inventories implies that output prices will respond with a lag to cost shocks even in the absence of menu costs, imperfect information, and long-term buyer/seller relationships.  The model predicts that futures prices for gasoline will adjust incompletely to crude oil price shocks occurring close to the expiration date of the futures contract.  We test and confirm this implication.  The model also predicts that firms with market power will choose a different price adjustment path than would perfectly competitive firms.  We examine the responses of prices in 188 local wholesale gasoline markets and find evidence that greater market power leads to slower output price adjustment.
ER  -