Symmetric or asymmetric price adjustments in the oil market. An empirical analysis of the relations between international and domestic prices in the Federal Republic of Germany, 1972-89

German consumer and wholesale prices for gasoline and light heating oil are studied to reveal how they react to changes in the corresponding Rotterdam prices. Rotterdam prices are used because the Rotterdam international spot market is particularly important to Germany. Monthly data from 1972 to 1989 are employed, and the subperiod of the 1970s - 1972 to 1979 - and 1980s - 1980 to 1989 - are distinguished. Error correction models are estimated to separate long-run equilibrium relations and short-run adjustment processes. For the 1980s, rapid, symmetric, and full adjustment of the German prices to the Rotterdam prices is found, whereas during the 1970s, asymmetries are found, and, at least for gasoline, the adjustment processes took considerably more time. Observed regional price differences might be an indication of cartel behavior on local or small regional markets.