Asymmetric Price Adjustment and the Effects of Structural Reforms in a Low Income Environment : The Case of the Gasoline Market in Greece

The pricing mechanism in the gasoline market has often been the subject of public debate inGreece during the crisis years. Inefficient pricing could imply oligopolistic practices in themarket and losses to consumers’ welfare in a period characterised by a dramatic fall inconsumers’ income and standard of living. A way to test whether pricing is efficient in themarket is by testing for asymmetries in the adjustment of domestic gasoline prices to worldoil price changes. The present paper has two aims: (a) The first is to investigate the existenceof asymmetric adjustment of gasoline prices to oil price variations in the Greek market, thuscontributing to the relevant literature. (b) The second is to examine whether the structuralreforms that took place in the gasoline market and the large fall in income, which characteriseconsumers’ behaviour in the recent period, had any impact on the pricing dynamics in themarket. To this end, the analysis: (i) applies the TAR-ECM threshold cointegration technique,which assumes asymmetric adjustment towards the long-run equilibrium; (ii) makes use ofobservations at the highest frequency available; and (iii) uses the most recent data. Theresults provide evidence in favour of symmetric behaviour just for the crisis period. This mayreflect competitive behaviour by suppliers who had to interact in a low demand environmentand under a new institutional framework following the reforms, along with a change inconsumers’ search behaviour who had to deal with a severe fall in their income