Testing for Asymmetric Pricing Behaviour in Irish and UK Petrol and Diesel Markets

Abstract

This paper empirically tests whether Irish and UK petrol and diesel markets are characterised by asymmetric pricing behaviour. The econometric assessment uses threshold autoregressive models and a dataset of monthly refined oil and retail prices covering the period 1997 to mid-2009. A methodological note is included on the importance of the specification of the number of possible regimes. In particular, the possibility of conflicting price pressures arising from short-run dynamics in retail prices and responses to disequilibrium errors needs to be explicitly modelled. For both the Irish and UK liquid fuel markets at national levels, the paper concludes that there is no evidence to support the “rockets and feathers” hypothesis that retail prices rise faster than they fall in response to changes in oil prices. It is still possible that a lack of competition at a more local level may accommodate asymmetric pricing behaviour.