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Transportation oil demand, consumer preferences and asymmetric prices

David C. Broadstock (Research Institute of Economics and Management (RIEM), Southwestern University of Finance and Economics, Chengdu, China and Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey, Guildford, UK)
Alan Collins (Department of Economics, Portsmouth Business School, University of Portsmouth, Portsmouth, UK)
Lester C. Hunt (Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey, Guildford, UK)

Journal of Economic Studies

ISSN: 0144-3585

Article publication date: 27 September 2011

Abstract

Purpose

The aim of this paper is to establish the role of asymmetric price decompositions in UK road transportation fuel demand, make explicit the impact of the underlying energy demand trend, and disaggregate the estimation for gasoline and diesel demand as separate commodities.

Design/methodology/approach

Dynamic UK transport oil demand functions are estimated using the Seemingly Unrelated Structural Time Series Model with decomposed prices to allow for asymmetric price responses.

Findings

The importance of starting with a flexible modelling approach that incorporates both an underlying demand trend and asymmetric price response function is highlighted. Furthermore, these features can lead to different insights and policy implications than might arise from a model without them. As an example, a zero elasticity for a price‐cut is found (for both gasoline and diesel), implying that price reductions do not induce demand for road transportation fuel in the UK.

Originality/value

The paper illustrates the importance of joint modelling of gasoline and diesel demand incorporating both asymmetric price responses and stochastic underlying energy demand trends.

Keywords

Citation

Broadstock, D.C., Collins, A. and Hunt, L.C. (2011), "Transportation oil demand, consumer preferences and asymmetric prices", Journal of Economic Studies, Vol. 38 No. 5, pp. 528-536. https://doi.org/10.1108/01443581111161797

Publisher

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Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited