Why don't gasoline prices move one-for-one with oil prices

 

With the significant increases in oil prices, consumers have been more aware of changes to gasoline pump prices. Consumers are sensitive to the fact that gasoline prices seem to rise quickly in response to crude increases and fall slowly when crude oil prices decline.

This asymmetric pass-through pricing appears in many markets and is called the rocket and feathers pricing behavior – up like a rocket and down like a feather. There is nothing new here and there is no recent change in gas station behavior. Gasoline sensitivities may differ by region and type of station, but the asymmetric pricing is found in many markets. 

The behavior can be explained by the Edgeworth price cycle whereby once one firm raises prices all will follow quickly, but a decline will be slow as competitors attempt to slowly undercut to marginal costs. See "Edgeworth Price Cycles". This behavior occurs even in competitive environment and can be viewed as a form of tacit collusion in a market characterized as homogenous where competitors engage in a war of attrition. The changing of prices to consumers are obviously based on demand and supply inputs but also on the behavior of other competitors, the price of inputs, and the margins generated. Retail gasoline prices will closely track crude oil in the longer run; however short-run prices will have this asymmetric behavior.