What drives the weekly pattern of gasoline prices in US cities?

This is a fascinating piece of research. There are certain midwest cities in US like Denver, St Louis etc which have this cyclical pattern of gasoline (petrol)  prices. Prices rise on weekends and then fall on the weekdays. Why should this be the case?

Cyclical gas pricing is consistent with what are known as Edgeworth cycles: Gas stations undercut each other on price to gain business. When retail gas prices approach the wholesale cost of gasoline, a more-dominant firm will increase its prices. Other gas stations follow suit, thereby resetting the cycle.

Many studies have focused on the relationship between the market structure of gasoline retailers and Edgeworth cycles. The degree of concentration in a given market—that is, the number of gas station owners and their relative market shares—seems to determine whether gas pricing is cyclical. High concentration indicates a small number of relatively dominant firms, while low concentration indicates many firms and greater competition. Doyle, Muehlegger, and Samphantharak (2010) show that markets with considerably high or low market concentration are less likely to support cyclical gas pricing. Dominant firms in highly concentrated markets have little incentive to decrease prices, and firms in competitive markets lack the ability to reset the cycle by increasing prices. Markets with intermediate concentration have been shown more likely to support cyclical gas pricing, which seems to be the case in the Midwest.

Midwestern cities, such as St. Louis, appear to have an intermediate concentration of gasoline retailers. Lewis (2012) finds that two specific independent midwestern retail chains2 contribute to cyclical gas pricing in many of the cities. These firms have enough market influence to act as price leaders and often are the first to increase prices from cycle to cycle. He finds that cyclical pricing occurs in nearly every city where these chains have a significant presence in the retail gasoline market. We suspect, however, that these firms do not have enough influence to set a high steady market price, but rather can only start a cycle that keeps prices above cost temporarily. One of the indepen­dent chains has a substantial presence in St. Louis, making it a likely contributor to the sawtooth pattern in St. Louis gas prices.

It is not entirely clear why cyclical pricing in St. Louis follows a roughly weekly timetable with peaks on Thursdays, Fridays, and Saturdays. It is possible that demand for gasoline is higher during the weekend, and gas stations raise prices to take advantage of this effect. Overall, customers may not notice a pricing pattern and, even if they did, some may not find it significant enough to change behavior, thus creating an incentive for gas stations to raise prices on these days relative to others.

Cyclical pricing may not be bad for consumers, however. Zimmerman, Yun, and Taylor (2013) show that once cyclical pricing started in a metropolitan statistical area, average gas prices tended to decline in that area compared with areas with no cyclical pricing, controlling for other factors. This finding suggests that cyclical pricing is a form of competition. In addition, consumers can save if they identify the cycle floor and buy then. Given the regularity of the cycle in St. Louis over the past six months, residents can likely save a few bucks if they fill up earlier in the week.

We obviously do not see such things in India where for a long time prices were fixed by govt. And now there is a relook/revision on fortnightly basis where all the main retailers raise or reduce petrol prices.

But to see how the number of players impact oil pricing in US cities is interesting bit..


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