Liquid fuel price adjustment in Greece: A two-stage, threshold cointegration approach

In Greece, there is a widespread belief among consumers that fuel prices in the domestic market respond faster to crude oil price increases than decreases and they attribute this pricing pattern to exploitation of market power on behalf of the companies. This article attempts to investigate the issue of asymmetries in a two-stage price-adjusting mechanism able to identify the source of price asymmetries, either in the refining or in the distribution stage. The sample consists of daily data covering the period of January 2012 to November 2018 and has been split into two subsamples due to a structural break in October 2014. Employing threshold and momentum models of cointegration at the two stages linking crude oil to retail prices, we find that transmission is mostly symmetric for unleaded95 gasoline between 2012 and 2014 and asymmetric in the stage of refining for diesel. Between 2014 and 2018 asymmetry exists for both types of fuel in the refining stage, while the retail market presents symmetric pricing.