The dynamics pattern of price dispersion in retail fuel markets

Highlights: • The dynamics of price dispersion in retailing fuel is empirically investigated. • Price dispersion increases if wholesale price changes are positive (and conversely). • Asymmetries in the short run dynamics are revealed. • Price dispersion returns to its steady state some days after wholesale price changes. • The fastest behavior of the main brands contributes to temporal changes in dispersion. - Abstract: This paper empirically investigates the dynamics of price dispersion in retail fuel markets as a response to the corresponding wholesale price changes. For this purpose we take advantage of a daily dataset of prices fixed by gas stations in two Spanish regions. It is consistently found that retail price dispersion is temporarily enlarged as a consequence of wholesale price increases, while it is reduced due to decreases. The presence of asymmetries in the short-run dynamics is also revealed. The impact of positive changes in the wholesale price is, in the first days of adjustment, clearly greater. The dynamics pattern could be explained, at least in part, by the faster response of prices in the stations associated with the two vertically integrated companies that have the largest market share (i.e. Repsol and Cepsa).