With market prices surging forward, Indiana, Michigan and Ohio are looking ripe for a spike. Last time the Spike Line was this high, prices surged to near $3.70. We may not see the spike until Thursday, the most spiked day in the history of The Gas Game. But be aware it could happen tomorrow.
Month: January 2012
With some stations going below $3, we are unfortunately seeing an upward push in the markets today. That will cause a spike, most likely tomorrow, historically the most spiked day in TheGasGame history. The spike shouldn’t reach more than $3.35-$3.39, less depending where you are.
Tuesday, January 24, 2012, 9:30AM: OK, let’s get our game plan set for the rest of the week. Wholesale prices have dropped 36 cents since January 10, and we have been seeing retail prices drifting lower in tandem. That puts us down to around $3.15 before we’ll see a price hike, as long as wholesale prices remain stable. With the low in town being $3.29 in Kentwood, it appears we’ll be OK for the rest of the week. –Ed Aboufadel
Thanks to GasBuddy Patrick DeHaan, I now have in my possession two recent academic papers by economists that analyze gas price behavior in the Midwest and, with a strong dose of statistics, reach the type of conclusions that we’ve been writing about for a decade.
Prof. Matthew S. Lewis of Ohio State University has written, “Price Leadership and Coordination in Retail Gasoline Markets with Price Cycles“, which will appear in the International Journal of Industrial Organization. Here is the first half of the abstract of his paper:
This study examines the coordination mechanism used by gasoline stations in the midwestern United States where prices exhibit highly cyclical fluctuations known as Edgeworth cycles. Stations in these markets repeatedly coordinate large marketwide price increases following periods of aggressive price undercutting. By studying these periodic price jumps both over time and across cities, I find that a particular retail chain in each city acts as a price leader initiating each price restoration. The leader signals the new price level to competitors by simultaneously jumping prices at all its stations to a single price. Competitors follow quickly with a large majority of stations jumping to the exact same price within a 24 hour period.
The “particular retail chain” he refers to for Michigan and nearby states is Speedway. What a surprise!
The second paper is written by three economists at the Federal Trade Commission — Paul R. Zimmerman, John M. Yun, Christopher T. Taylor. Here is an excerpt from the abstract for their paper:
Like others who have examined cycling, we show that a relatively small number of U.S. cities in contiguous upper Midwestern states evidence price cycling. However, our lengthy data set allows us to see that these cities began cycling in 2000. Thus, we can examine prices in cycling and non-cycling cites before and after cycling and, controlling for other factors, find prices are lower in cities that began cycling.
The charts in this paper, showing the change in pricing behavior before and after 2000, are compelling. As we continue our celebration of the 10 years of The Gas Game, we now understand our secret origin — we started gas price hike predictions two years after cycling began in the Midwest.
Message to Prof. Lewis and the FTC writers: What took you so long to figure all this out? Why can’t I find a reference to the The Gas Game in either of your papers? I’m a professor — I know how the credit thing works in academia. I have priority! Actually, thanks for providing the statistical proof of what we’ve observed for a long time.
Comment on this morning’s prediction: Here is Grand Rapids, prices jumped to $3.69 today, so I hope you filled up. CORRECT!
Wednesday, January 11, 2012, 6:00PM: OK, things are bizarre today. After the weekly energy report from the Feds, gasoline future prices plunged in Chicago, dropping 13 cents a gallon according to Bloomberg. Meanwhile, here in Grand Rapids, prices were soaring to $3.69 a gallon. Driving home from work this evening, the Citgo in Standale is at $3.59 and the Speedway on Lake Michigan Drive is $3.41 (and packed with cars), where it was this morning. I keep an eye on Fort Wayne prices (that’s my hometown), and it looks like there was no hike there at all, so prices are still $3.38. Is this turning into a failed price hike? If I was Speedway, I’d put in a system-wide reset to $3.55 tomorrow and move on. -Ed A.
Wednesday, January 11, 2012, 7:30AM: A belated Happy New Year! I was traveling in Boston last week, and was out of the loop for that stupid hike. I’m posting today because I agree with Bill: I am afraid that another price hike is coming today or tomorrow, as wholesale prices continue to work their way higher (again in line with stock market). Fill up before the price is $3.65 a gallon. –Ed A.