Thursday, Mar. 24, 2022
Do gasoline prices rise faster than they fall?
Gasoline prices have been observed to be asymmetrical: they rise more quickly in response to increases in the price of crude than they fall in response to decreases in the price of crude.
On average, retail gasoline prices rise more than four times as fast as they fall, according to a working paper written for the Federal Trade Commission's Bureau of Economics.
Experts offer numerous explanations for this "rockets and feathers" phenomenon. One is that uncertainty about future oil prices causes retailers to refrain from immediately dropping prices. Another is that retailers use crude price decreases to recoup earlier losses from crude price increases.
Sometimes, however, there is no technical explanation. The Federal Reserve Bank of St. Louis cited economists that noted retailers will refrain from lowering prices to boost profits, taking advantage of consumers' acclimation to higher prices.
This fact brief is responsive to conversations such as this one.
Sources
- Federal Trade Commission Asymmetric Pass-Through in U.S. Gasoline Prices
- Penn State Rockets and feathers: Understanding asymmetric pricing
- Marketplace Oil prices soared, then dropped. But gasoline is still expensive. Why?
- KTLA (Los Angeles) Oil prices dropped, so why haven’t gas prices?
- Federal Reserve Bank of St. Louis Why Gas and Oil Prices Don't Always Move in Sync
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