Asymmetric Retail Gasoline and Diesel Price Reactions in Slovak Market
Asymmetric Retail Gasoline and Diesel Price Reactions in Slovak Market

Summary/Abstract: In the paper we respond a question, if Slovak retail gasoline and diesel prices respond more quickly when crude oil price rises rather than when it decreases. A theoretical explanation of asymmetric retail gasoline and diesel price reactions is addressed by examining the theory of strategic interactions between firm and its consumers. By investigating the traditional approach based on error correction models and vector error correction models, we reject the asymmetric gasoline and diesel price reaction hypotheses in the Slovak market. Considering the theory of strategic interactions between a firm and its consumers, a firm is minimising its adjustment cost function in a linear exponential form. Solving the problem of firm, we derive an econometric specification of a gasoline and diesel price reaction function. Estimating the specification we do not reject asymmetric gasoline and diesel price reaction hypotheses in Slovak market.

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