Asymmetric adjustment of diesel or petrol retail prices to crude oil price movements: New Zealand evidence Fardous Alom* and Neil Ritson** *Contract Lecturer and Doctoral Research Fellow, Department of Accounting, Economics and Finance, Faculty of Commerce, PO Box 84, Lincoln University, Lincoln 7647, Canterbury, New Zealand. Email: fardousalom@gmail.com; md.fardous.alom@lincolnuni.ac.nz **Senior Lecturer, Department of Business Management, Law and Marketing, Faculty of Commerce, PO Box 84, Lincoln University, Lincoln 7647, Canterbury, New Zealand. Email: neil.ritson@lincoln.ac.nz Abstract This study has twofold objectives. Firstly, to examine the short- and long-run relationships between diesel or petrol retail prices in New Zealand and crude oil prices and, secondly, to assess the response of retail sector price movements to changes in crude oil prices. The study uses both standard and hidden asymmetric cointegration methods. The major findings are as follows: the prices of diesel and petrol maintain both short- and long-run relationships with crude oil prices although the pass- through rates differ. Diesel prices are found to be symmetric in response to the changes in crude oil prices, while petrol prices respond asymmetrically to changes in crude oil prices. When crude oil prices increase, petrol prices in New Zealand increase immediately and not vice versa. The reasons for the asymmetric pricing behaviour might include higher demand for petrol than diesel, individual and tourist-type customers rather than commercial and industrial customers, search costs, revenue- maximising behaviour of retailers based on high demand, and government taxes and levies. 1. Introduction Beginning with the pioneering work of Bacon (1991), energy researchers have made sig- nificant efforts in investigating the retail pricing behaviour of petroleum products in response to the movement of crude oil price levels. It is still unsettled whether diesel and petrol prices respond symmetrically or asymmetrically to crude oil prices. Many studies focus on this issue because asymmetric behaviour is important for several reasons includ- ing consumers’ welfare, competition among retailers and the scope for abnormal profits. The reasons for asymmetry have also been identified in several studies and include retail- ers’ market power, asymmetric role of inventories, consumer search costs, refinery utilisa- tion rates and so on (Brown andYucel, 2000; Kaufmann and Laskowski, 2005; Honarvar, 2009b). These causes and consequences of asymmetry are not, in general, applicable to every context and, hence, more studies are warranted. 230 © 2012 The Authors. OPEC Energy Review © 2012 Organization of the Petroleum Exporting Countries. Published by Blackwell Publishing Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.