Rockets, Feathers, and Market Structure Changes : Asymmetric Price Adjustment in the Western Australian Gasoline Market

This paper investigates the asymmetric response of gasoline prices to changes in input costs, otherwise known as the rockets and feathers hypothesis. Using daily data for Western Australia, I estimate a multi-level error correction model (ECM) to investigate the relationship between upstream and downstream prices. Estimation results for the full sample uncover evidence of asymmetry in the long-run relationships between crude oil and pay-at-pump prices as well as wholesale and pay-at-pump prices, but no evidence in the short-run dynamics. Furthermore, the fact that firms adopt a uniform price cycle within the sample allows me to explore how changes in pricing patterns and market institutions affect the ECM estimates. Indeed, evidence of rockets and feathers is found for the pre-tacit collusion sample but not after firms adopt a uniform price cycle