RETAIL GASOLINE PRICE DYNAMICS AND LOCAL MARKET POWER*

Using monthly data from the 48 contiguous states (except Nevada) for the 1988–2002 period, it is shown that retail gasoline prices respond faster to wholesale price increases than to equivalent wholesale price decreases. Moreover, markets with high average retail‐wholesale margins experience a slower adjustment and a more asymmetric response. Since gasoline is the only variable input, average margins in a state likely reflect the degree of retail market power. This suggests that sticky prices and response asymmetries in the gasoline market are, at least partially, a consequence of retail market power.