Retail Margin Adjustments to Changes in International Gasoline Prices in the Korean Gasoline Market

Abstract

Does retail gasoline price respond to a change in international gasoline price asymmetrically? If it does, what causes this asymmetric price change? The existence of market power in the gasoline market could be one of the reasons for asymmetric price adjustment. Using weekly price data for gas stations in South Korea, we explore the existence of an asymmetric margin adjustment in the retail gasoline market and ask if the asymmetric adjustment could be explained by the difference in competition intensity. Our results show that the response of retail margins to international gasoline price changes is asymmetric. To see if the difference in competition intensity causes this asymmetric behavior, we compared the margin adjustment of gas stations located in urban and rural areas. We find that the difference in competition intensity may explain the different asymmetric behaviors in the retail gasoline market in South Korea.