Asymmetric price effects on gasoline consumption: evidence and Implications

ABSTRACT

The increased volatility of gasoline prices in the last 10 years has renewed the interest in how gasoline demand responds to new changes. Using recent urban household survey and Metropolitan Statistical Areas (MSA) level gasoline prices, this paper examines whether rising and falling fuel prices have symmetric effects on gasoline consumption. The findings indicate that an increase in gasoline prices induces larger behavioural responses than a decrease in gasoline prices would do. These results not only challenge the perfect price reversibility assumption used in many energy demand models, but also bear important implications for evaluating gasoline tax policies and demand projections.

KEYWORDS:

• Asymmetry
• gasoline demand
• price elasticity
• income elasticity

JEL CLASSIFICATION:

• C51
• Q41

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ To isolate the impacts of these factors, the state average gasoline prices (2007–2011) from the Energy Information Administration are collected to estimate Model (2) and several alternatives. The results are available upon request.

Additional information

Funding

This work was supported by the Texas Christian University Research and Creative Activities Fund [60814].