Is the price effect on fuel consumption symmetric? Some evidence from an empirical study

We generally consider that the price elasticity of the energy demand is quite small. But it appears that strong increases in gasoline price lead to modifications in consumer behaviors. The high volatility of petroleum prices and the strong increases since the beginning of 2000 justify an analysis of price effects on gasoline consumption. We estimate the effects of price variations on gasoline consumption, in the United States and India. We use a co‐integration modelling to test for long‐run relationship between gasoline consumption, income, price and vehicle ownership in the two countries. We use an error correction model to test for short‐run prices effects and more precisely for asymmetric effects on demand of increases and decreases in gasoline prices. The main conclusions are the following. Concerning the United States, the long‐term price elasticity is relatively high for an industrialised country because gasoline taxes are low, but we show that households are more sensitive to a price increase than a price decrease. About India, price elasticity in the long‐run is quite high but is quite small in the short‐run. It is not surprising for an emergent country. It seems that there is no asymmetric effect of price variations on gasoline consumption.