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September 09, 2008

Do gas prices rise faster than they fall?

As oil prices have come down recently, it seems as if it takes a much longer time for gas prices to drop. In contrast, when oil prices rise, it seems like pump prices jump almost immediately. Is this the case, and if so, what's going on? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, first of all, studies do show that there's what we call an asymmetric relationship in gas prices. They go up much faster than they come down. So the question is why, what's going on? And economists think that it really comes down to our behavior, buyers' behavior. Because when gas prices go down, first of all, we're going to feel a little richer. We're going to feel like, well, I'm going to add a couple of more gallons at the pump when I'm buying gas. And so demand - usage - tends to go up, and that tends to elevate prices a little bit, or in other words, keep them from falling as fast. The second thing that we do is when gas prices go down - again, we're happy - and we don't shop around as much for cheap gas. You know, we remember when gas prices we're going up, everyone was in a tizzy about where can I get the cheapest gas. When gas prices go down, you don't hear that as much, and again, because we're not as watchful, because we're not shopping around, that means there's a little less competition for gas and, again, that holds up the price. So I think the bottom line here to consumers is, behave the same when gas prices go down as when they go up, and if you do, you'll see a faster drop in those prices."

Posted by Dave at September 9, 2008 08:00 AM