Korean Energy Economic Review ISSN:1599-7057(Print) 에너지경제연구

This Paper explored whether the price pattern of gasoline prices in Korea follows the Edgeworth price cycle. The Edgeworth price cycle represents the pattern of price change in the Markov Nash equilibrium of the dynamic price competition (Maskin and Tirole, 1988). Prices in the cycle decline gradually but increases very rapidly. When the movements of gasoline retail prices in Seoul were investigated, it was found that the frequency of price change is higher in the periods of price decline than the those of price increase but the magnitude of the change was greater during the price hikes. The asymmetric price changes coincides with the price behaviors predicted by the Edgeworth price cycle. A policy implication is that the asymmetric behaviors of prices in price upturns and downturns do not necessarily results from collusion among competitors but they can be the outcome of price cutting competition in the process of long-run profit maximization.