Exploring asymmetric behavior pattern from Indian oil products prices using NARDL and GHSOM approaches

The present work endeavors to explore the potential asymmetries in the pricing of oil products in India where prices are not only affected by the crude oil price changes in the international markets but are also subject to government interventions. In order to protect domestic consumers from this volatility, historically the government of India tried to control the domestic price of petroleum products by cross subsidization and giving subsidies. In this paper, we analyze the impact of crude oil price on domestic oil prices by applying nonlinear autoregressive distributed lag (NARDL) and Growing Hierarchical Self-Organizing Map (GHSOM) approaches for the period of April, 2005-July, 2014. The GHSOM has been explored through pattern analysis on the asymmetric behavior using similarity measures. From the study it can be interpreted that the prices of products left to be determined by the market exhibit a strong asymmetry. However, pricing of the products that are monitored and controlled by the government do not exhibit any such asymmetry. Hence, the question still remains - should the government intervene in pricing petroleum products when monopolistic attitudes of large oil companies are detrimental to the interest of retail consumers?