Testing for Asymmetric Pricing in the French Retail Industrial Fuel Oil Market

Abstract

This study investigated the French industrial fuel oil market for evidence of asymmetric price adjustment and rent-seeking following changes in crude oil prices. The study adopted the nonlinear autoregressive distributed lag (NARDL) framework recently advanced for modeling cointegrating relationships. The study also used monthly time series data for the period January 2005 to December 2015. The results indicate that French industrial fuel oil market is fraught with sluggish speed of adjustment, which is typical of markets witnessing uncompetitive pricing and other irregular behaviours by retail firms. The results further indicate that French industrial fuel oil market is bedeviled by the problem of short-run asymmetric price transmission from crude oil market, which is consistent with the rockets and feathers effect. However, the results did not show any evidence of rent-seeking since the observed short-run asymmetry is not obscured at pump. The study concludes that in view of the prevailing problem of rockets and feathers effect, policies that encourage continuous monitoring of the market in order to preserve competition and the overall social welfare should be embraced by policymakers and regulators in this market.

Keywords: Rockets and Feathers effect; Rent-seeking; Asymmetric Price Adjustment; Nonlinear ARDL model; France

JEL Codes: Q43; D40; C22; N94.

DOI: 10.7176/JETP/9-2-03