Pattern Asymmetry in the Pass-Through of Input Price Shocks in the Road Fuels Sector: New Evidence on the United Kingdom

It is widely believed that fuel prices tend to rise swiftly when oil prices increase, but take longer to fall after oil prices decrease. This ¡°rockets and feathers¡± pattern could be due to tacit collusion at some level of the supply chain. We test the ¡°rockets and feathers¡± hypothesis for the UK market, at the national level and for a set of local markets. Specifically, we estimate an error-correction model and test for the symmetry in the speed of adjustment of fuels prices to fluctuations in the input prices. In contrast with previous empirical literature on the UK, we reject the existence asymmetric pass-through, as positive shocks are not transmitted along the supply chain at a higher speed than negative ones. Some evidence of asymmetry is found at the retail level in a few local markets, though this evidence is not clear-cut.