High profits and cost shocks in the fuel market : the role of demand adjustment costs

DOI zum Zitieren der Version auf EPub Bayreuth: https://doi.org/10.15495/EPub_UBT_00009093
URN to cite this document: urn:nbn:de:bvb:703-epub-9093-6

Title data

Herz, Bernhard ; Roeger, Werner:
High profits and cost shocks in the fuel market : the role of demand adjustment costs.
Bayreuth , 2026 . - 22 S.

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Abstract

This paper shows that, with demand-adjustment frictions, firms can increase short-run profits in the presence of cost shocks. Firms exploit short-term price inelasticity by balancing current markups against future demand. We further examine the incidence of temporary profit taxes and find that, due to dynamic price-setting, the classic neutrality result no longer holds: firms temporarily lower prices to shift profits across tax periods, thereby increasing consumer welfare. We use this model to compare a profit tax, a price cap, and a fuel discount to the case of no policy intervention.

Further data

Item Type:	Working paper, discussion paper
Keywords:	Excess profit; demand adjustment friction; endogenous markup; profit tax; oil price shock
Subject classification:	JEL: E3, E31, E32, H25
DDC Subjects:	300 Social sciences > 330 Economics
Institutions of the University:	Faculties Faculties > Faculty of Law, Business and Economics Faculties > Faculty of Law, Business and Economics > Department of Economics Faculties > Faculty of Law, Business and Economics > Department of Economics > Former Professors
Language:	English
Originates at UBT:	Yes
URN:	urn:nbn:de:bvb:703-epub-9093-6
Date Deposited:	14 Apr 2026 07:02
Last Modified:	14 Apr 2026 07:02
URI:	https://epub.uni-bayreuth.de/id/eprint/9093

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