Edgeworth Price Cycles and intertemporal price discrimination

In a retail gasoline market exhibiting Edgeworth Price Cycles, prices change asymmetrically with many small decreases interrupted by occasional large increases. The result is a de facto menu of prices from which consumers can choose based on exactly when they buy. This article introduces four classes of purchase timing strategies designed to systematically shift consumer purchases towards the cycle troughs. It shows in the study market of Toronto, Canada, the monetary gains to consumers from optimized timing strategies are as high as 3.9%. Markups earned from these consumers fall up to 82%. In spite of the gains from timing strategies, surprisingly few consumers use them. Evidence is presented that a main reason is that consumers are not well informed about the cycles. Policy implications are discussed.

Research highlights► In retail gasoline markets with Edgeworth Cycles, prices follow asymmetric cycle. ► Prices can rise 15% at once, usually once per week, falling gradually other days. ► Price cycle troughs are predictable even though few consumers know how to do so. ► Well designed timing strategies can reduce price paid by 4% and markups by 82%. ► Significant welfare gains are being left on the table by uninformed consumers.