Edgeworth Price Cycles in Gasoline: Evidence from the United States

Studies of gasoline prices in multiple countries have found sequences of a sharp price increase followed by gradual decreases. This pattern is linked to Maskin and Tirole (Econometrica 56: 571-599,1988) duopoly pricing game and labeled Edgeworth price cycles. We examine data on average daily MSA-level retail gasoline prices for 350 MSAs in the US from 1996-2010. We confirm the finding of others and show that a relatively small number of US MSAs in contiguous upper Midwestern states evidence price cycling. However, our lengthy data set allows us to see that these MSAs began cycling in 2000. Thus, we can examine prices in cycling and non-cycling MSAs before and after cycling and find that prices are lower in MSAs that began cycling.