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Do Gas Prices Rise Faster Than They Fall?The economics of rockets and feathers.

By Martha C. WhitePosted Tuesday, July 29, 2008, at 6:27 PM ET

Gas pumps Do gas prices rise faster than they fall?Oil prices have dropped to about $125 a barrel this week after reaching a peak of $147.27 earlier this month. Meanwhile, gas prices are still hovering around the $4 mark, down just a few cents from an all-time record average of $4.11 two weeks ago. Why does it seem like gas prices go up faster than they come down?

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Because they do. Analyses of gasoline economics show that when the price of oil rises, it takes up to four weeks for gas station prices to catch up, with most of the increase taking place within the first two weeks. But when oil prices sink, it takes up to eight weeks for the savings to be passed along to consumers. The phenomenon is known as "asymmetric price adjustment" (PDF) or, more informally, "rockets and feathers."

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Daniel Engber explained why gas is priced at nine-tenths of a cent and whether oil companies really put their oil in barrels. Robert Bryce argued that gas is cheap at $4 a gallon. Tim Harford made the case that oil speculators help keep prices stable. Daniel Gross questioned the existence of a "terror premium" on oil prices, revealed why rising oil prices might make gas cheaper, and accounted for the refinery shortage in the United States. In "Today's Pictures," Magnum Photos presents a photo gallery of gas stations around the world.

A busy gas retailer will take delivery on a daily basis, so there's some pressure to pass along price hikes without too much delay. The stations can't raise prices too much, though, because consumers tend to be extra-vigilant about shopping for bargains when oil prices are on the rise. When the newspapers start reporting upwardly mobile barrel prices, drivers tend to comparison shop down to the penny. This keeps gas prices from rocketing even further.

The asymmetry that economists cite comes into play as soon as oil prices start to deflate. Freed from the constant reminders about rising fuel costs, drivers become less invested in looking for a bargain—and retailers don't have to worry as much about the competition. As a result, station owners can keep drivers happy by knocking just a few cents off the "old" price.

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Explainer thanks Severin Borenstein of the University of California-Berkeley, Matthew Lewis of Ohio State University, Mariano Tappata of the University of British Columbia, and Bart Wilson of Chapman University.