This paper aims to provide those workingin developing countries with a review of the issues that canhelp address the four questions: 1) are petroleum productmargins excessively high at certain times?; 2) Doesasymmetry of price responses to cost changes exist and, ifso, what are the possible reasons that could account forit?; 3) If there is asymmetry of petroleum product priceresponsiveness, how large is the cost to consumers comparedwith symmetric pricing?; And 4) what policies can combatexcessive petroleum product margins? The discussion focusesmainly on liberalized markets, because, in markets subjectto price control, the pattern of responses of prices to costchanges will be determined partially or largely by theGovernment. Chapter one describes asymmetric pricing and thestructure of the oil market, focusing in particular on thelinks between the retail sector and the rest of the chain ofsupply. The chapter next briefly reviews types oflegislation that exist in liberalized markets to protectconsumers from monopolistic or collusive behavior inpetroleum products pricing. Chapter two describes differenttypes of firms' pricing behavior, including bothcollusive and non collusive behavior, and provides anoverview of how lags in pricing behavior arise and thereasons they can lead to asymmetry. Following this sectionon theories, econometric studies testing for the presence ofasymmetric pricing are reviewed, with special reference tothose studies carried out in developing countries. Based onthese models, a sample calculation of the extra costs to theconsumer of asymmetric pricing relative to those undersymmetric pricing is given, including an illustration basedon a specially constructed estimate for Guatemala. Chapterthree provides an overview of policy responses to asymmetric pricing.
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