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.