Do petrol prices rise faster than they fall when the market shows significant disequilibria?

- This paper examines if petrol prices in Australia rise faster than they fall.
- This paper identifies in which locations the “rocket-and-feather” hypothesis applies.
- Retailers in 28 out of 111 locations are more likely to exhibit asymmetric behaviour.
- Both the sign and magnitude of disequilibria determine the extent of such behaviour.
- The asymmetry is mainly observed when the market shows sizable disequilibria.

This paper examines if the long-run relationship between retail and wholesale petrol prices is subject to adjustment asymmetric behaviour using weekly Australian data (2007-2012) across 111 locations. A short-run dynamic model is specified in which three feedback coefficients capture three different types of disequilibria: large and positive; large and negative; small positive/negative. Significant evidence of asymmetric behaviour is found in 28 locations, which are mainly in Tasmania, Queensland and New South Wales. In these locations when prices are conspicuously above the equilibrium path, retailers sluggishly lower their prices but when prices are substantially below the equilibrium values, the adjustment speed is significantly faster.