Browse > Article
http://dx.doi.org/10.15266/KEREA.2015.24.2.311

Market Structure and Pricing Behavior in the Korean Transportation Fuel Market  

Moon, Choon-Geol (College of Economics & Finance, Hanyang University)
Publication Information
Environmental and Resource Economics Review / v.24, no.2, 2015 , pp. 311-342 More about this Journal
Abstract
We evaluate two main rationales of massive policy intervention of Lee Administration in the Korean transportation fuel market: high market share of domestic refineries, perceived by the Administration as the result of high market concentration, and asymmetry in price adjustment, perceived as the result of collusion. Domestic refineries, huge in capacity and located at seaports, maintain international competitiveness in price. Considering market openness offering preferential treatment to importers, they set domestic prices competitively on the basis of MOPS prices. Yet, the price competitiveness of domestic refineries is so high that they are able to sustain high market share. We confirm that the Korean before-tax consumer prices of gasoline and diesel are lower than Japan's and the weighted averages of 27 EU countries by as much as 159KRW and 21KRW per liter in the case of gasoline and 170KRW and 63KRW in the case of diesel. Price asymmetry is caused by diverse economic and managerial reasons and, as FTC (2005) states, price asymmetry does not immediately imply exercise of market power or collusion. We analyzed price asymmetry in Korea, Japan and 14 EU countries, and found asymmetry in Korea and 11 EU countries in the case of gasoline and in Korea and 8 EU countries in the case of diesel.
Keywords
Refineries; Transportation fuel market; Oligopoly; Contestable market; Price asymmetry; Downward price rigidity; Consumer surplus; Economies of scale; HHI; Market share; Net-of-tax prices at the pump; Error correction model (ECM); Asymmetric ECM; Threshold ECM; Threshold asymmetric ECM; Dynamic OLS (DOLS);
Citations & Related Records
연도 인용수 순위
  • Reference
1 Godby, R., A. M. Lintner, T. Stengos, and B. Wandschneider, "Testing for asymmetric pricing in the Canadian retail gasoline market," Energy Economics, Vol. 22, 2002, pp. 349-368.
2 Karrenbrock, J. D., "The behavior of retail gasoline prices: Symmetric or not?" Federal Reserve Bank of St. Louis, July/August 1991, pp. 19-29.
3 Kuper, Gerard H., "Inventories and wholesale gasoline price dynamics," mimeographed paper, Department of Economics and Econometrics, University of Groningen, October 2008.
4 Lewis, Matthew, "Asymmetric price adjustment and consumer search: An examination of the retail gasoline market," Journal of Economics & Management Strategy, Vol. 20(2), Summer 2011, pp. 409-449.   DOI
5 Manning, D. N., "Petrol prices, oil price rises and oil price falls: Some evidence for the UK since 1972," Applied Economics, Vol. 23, pp. 1535-1541.
6 Meyer, J. and S. von Cramon-Taubadel, "Asymmetric price transmission: A survey," Journal of Agricultural Economics, Vol. 55(3), 2004, pp. 581-611,   DOI
7 Peltzman, S., "Prices rise faster than they fall," Journal of Political Economy, Vol. 108(3), 2000, pp. 466-501.   DOI
8 Pindyck, R. S., "Volatility and commodity price dynamics," The Journal of Futures Markets, Vol. 24(11), 2004, pp. 1029-1047.   DOI   ScienceOn
9 Reilly, B. and R. Witt, "Petrol price asymmetries revisited," Energy Economics, Vol. 20, 1998, pp. 297-308.   DOI
10 Room, Tairi and Aurelijus Dabusinskas, "How wages respond to shocks: Asymmetry in the speed of adjustment," Working Paper Series No. 1340, European Central Bank, May 2011.
11 Speight, James G., An Introduction to Petroleum Technology, Economics, and Politics, Scrivener Publishing LLC and John Wiley & Sons, Inc., 2011.
12 Stock, James H. and Mark W. Watson, "A simple estimator of cointegrating vectors in higher order integrated systems," Econometrica, Vol. 61(4), 1993, pp. 783-820.   DOI
13 Stock, James H. and Mark W. Watson, Introduction to Econometrics, Third Edition, 2012.
14 공정거래위원회, "정유 4사 주유소 나눠먹기 담합... 과징금 4,348억원", 보도자료, 2011년 5월 26일.
15 Baye, Michael R., Managerial Economics and Business Strategy, Seventh Edition, McGraw- Hill/Irwin, 2009.
16 Borenstein, S., A. C. Cameron and R. Gilbert, "Do gasoline prices respond asymmetrically to crude oil changes," Quarterly Journal of Economics 112, Spring 1997, 305-339.   DOI
17 Borenstein, S. and A. Shephard, "Dynamic pricing in retail gasoline markets," Rand Journal of Economics, Vol. 27, 1996, pp. 429-451.   DOI
18 Brown, S. P. A. and M. K. Yucel, "Gasoline and crude oil prices: Why the asymmetry," Economic and Financial Review, Third Quarter 2000, pp. 1-11.
19 Chesnes, Matthew, "Asymmetric pass-through in U.S. gasoline prices," Working Paper No. 302, Bureau of Economics, Federal Trade Commission, Washington, DC, June 2010.
20 Econ Poyry AB, Survey of the Competitive Aspects of Oil and Oil Product Markets in the EU, A Report to Directorate-General Energy and Transport of the European Commission, December 2009.
21 Federal Trade Commission, Gasoline Price Changes: The Dynamic of Supply, Demnand, and Competition, 2005.