Asymmetric Price Adjustments in the Fuel Market

Abstract

The purpose of the article is to verify a hypothesis about the asymmetric
pass-through of crude oil prices to the selling prices of refinery products
(unleaded 95 petrol and diesel oil). The distribution chain is considered at three
levels: the European wholesale market, the domestic wholesale market and the
domestic retail market. The error correction model with threshold cointegration
proved to be an appropriate tool for making an empirical analysis based on the
Polish data. As found, price transmission asymmetry in the fuel market is
significant and its scale varies depending on the level of distribution. The only
exception is the wholesale price transmission to the domestic refinery price. All
conclusions are supported by the cumulative response functions. The analysis
sheds new light on the price-setting processes in an imperfectly competitive fuel
market of a medium-sized, non-oil producing European country in transition.