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

Title data

Herz, Bernhard ; Roeger, Werner:
High profits and cost shocks in the fuel market : the role of demand adjustment costs.
Bayreuth , 2026 . - 22 p.
DOI: https://doi.org/10.15495/EPub_UBT_00009093

Official URL:

Abstract in another language

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
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 Faculties > Faculty of Law, Business and Economics > Department of Economics > Former Professors > Chair Economics I - International Economics and Finance - Univ.-Prof. Dr. Bernhard Herz
Result of work at the UBT:	Yes
DDC Subjects:	300 Social sciences > 330 Economics
Date Deposited:	18 Apr 2026 21:00
Last Modified:	20 Apr 2026 05:28
URI:	https://eref.uni-bayreuth.de/id/eprint/96840