| My dissertation studies the Edgeworth price cycles found in the Perth metropolitan area, utilizing a rich, publically available data source collected and maintained by the Australian Department of Commerce. My dissertation documents the regular price cycles in the liquefied petroleum gas (LPG) market and finds they are well characterized by the theoretical Edgeworth price cycle model first formalized by Maskin and Tirole (1988) . I then analyze the effect on average market offer price and price-cost margin after cycles permanently collapse nine years later, and finally I conduct a retrospective on the 24-hour rule, a regulation intended to increase the transparency and competition of retail fuel markets in the Perth metropolitan area.;The first chapter, co-written with Dr. Zhongmin Wang and titled "Regular Price Cycles in Liquefied Petroleum Gas," documents the regular price cycles in the LPG market and compares them to the price cycles observed in gasoline. We find that the cycles are consistent with the theoretical Edgeworth price cycle model. Similar to Wang's (2009) findings in the gasoline market, we find evidence of strong intra-brand coordination, allowing fuel brands to coordinate despite the large number of retail locations. We also find that the LPG price cycles are longer and more asymmetric than those found in gasoline. These findings are consistent with Noel's (2008) prediction that these cycle characteristics are exhibited when aggregate demand is more elastic. LPG is likely more price-elastic than gasoline because most LPG-capable vehicles are dual-fuel, allowing users to easily substitute between the two fuels.;The second chapter, titled "Prices Cycles and the Level of Margin in Retail Fuel Markets," uses the difference-in-difference framework to compare the retail margin between two fuel markets in the Perth metropolitan area, one of which (LPG) experiences a permanent collapse in the tacitly collusive Edgeworth price cycle equilibrium while the other (gasoline) does not. I take advantage of Fuelwatch's collection of both retail prices and wholesale benchmarks to calculate average market price and margin. I find that both average price and average margin increase after price cycles cease in the market for LPG. My findings are consistent with previous literature that suggests markets exhibiting Edgeworth price cycles are more competitive than markets with prices that do not fluctuate often.;The third and final chapter, titled "Spatial Competition and Edgeworth Price Cycles," analyzes the effect of a novel price law on the intensity of spatial competition in the Perth metropolitan area. This law, which enables Fuelwatch, requires stations to announce future price changes and maintain each price for at least 24 hours. To investigate the effect of this law on competition between stations, I construct numerous spatial weight matrices and select the optimal spatial scope of competition. I then utilize demographic data from the Australian Census Bureau to fit a 2SLS model using the appropriate spatial scope to estimate consistent coefficients for time-invariant station characteristics. I find that while the law fails to destabilize the Edgeworth price cycles found in this area, the law does intensify the scope of spatial competition. Paradoxically, this increase in cross-price elasticity leads to less aggressive undercutting behavior, a finding that is unintuitive but consistent with Maskin and Tirole's (1988) model. |
