DEFINITION of 'Sticky-Down'

The tendency of a price to move up easily but prove quite resistant to moving down. Sticky-down is an extension of “price stickiness,” which is the resistance of a price or set of prices to change. Sticky-down prices may be due to imperfect information or poor decisions made by management. Sticky-down prices for goods that consumers know should be substantially lower may foster anger and resentment, since these prices will be perceived as an attempt to “gouge” consumers.

BREAKING DOWN 'Sticky-Down'

Fuel prices at the petrol pump or gas station are a great example of the sticky-down phenomenon. When crude oil rises beyond $100 per barrel, pump prices in Canada rise in tandem with the price of crude (or sometimes even faster). Say the price is $1.40 per liter when crude oil is at $110. But if crude oil falls by $10 overnight because the fear premium embedded in the price has dissipated, the pump price will not adjust for a while. At best, it may stay at $1.40 per liter even if crude oil continues to fall.

Sticky-down may be more of an issue for goods and products that consumers cannot do without, and where price volatility can be exploited. In the case of petrol or gasoline, consumers are not likely to return from the pump without filling their vehicles because the price of fuel is a few cents higher than it should be. In addition, most consumers are well aware that global crude oil prices are quite volatile, and this volatility is exploited by pump-owners in keeping prices at higher levels.

RELATED TERMS
  1. Benchmark Crude Oil

    Benchmark crude oil is crude oil that serves as a pricing reference, ...
  2. Price Stickiness

    The resistance of a price (or set of prices) to change, despite ...
  3. West Texas Intermediate - WTI

    Light, sweet crude oil commonly referred to as "oil" in the Western ...
  4. Crude Oil

    Crude oil is a naturally occurring, unrefined petroleum product ...
  5. Downstream

    The oil and gas operations that take place after the production ...
  6. Excess Crude Account

    A Nigerian government account used to save oil revenues above ...
Related Articles
  1. Small Business

    Understanding Sticky Wage Theory

    The sticky wage theory states that workers’ earnings respond slowly to changes in the performance of the company or the economy.
  2. Financial Advisor

    Is Now the Right Time to Buy Oil Stocks?

    Learn about the oil industry and how crude oil effects the prices of oil stock. Understand if now is a good time to purchase oil stock.
  3. Investing

    American Oil Production's Amazing, Crude Future

    Is America producing more crude oil than it is consuming? How is technology changing the American oil industry? What will domestic oil industry look like in the near future?
  4. Investing

    How Low Can Oil Prices Go?

    Record low oil prices are a welcome development for consumers, but oil companies are struggling with choosing market share over profitability.
  5. Financial Advisor

    Learn How To Trade Crude Oil in 5 Steps

    Crude oil and energy markets are specialized venues. Here are five steps to take to build consistent profits.
  6. Investing

    The Reasons for the Mexican-U.S. Oil Swap

    The U.S. government is getting close to a historic deal to allow U.S. producers to swap the light, sweet crude oil that is in too much supply with Mexico, in return for heavy crude.
  7. Financial Advisor

    Oil & Currencies: Understanding Their Correlation (USD, UUP)

    Crude oil shows tight correlation with movements in many currency pairs.
  8. Investing

    Ending The Limits On U.S. Crude Oil Exports

    As US storage capacity reaches its limit, industry participants and their lobby groups in Washington are calling for an end to the crude oil exports ban.
  9. Investing

    4 Reasons Why the Price of Crude Oil Dropped

    Understand what drives the oil industry and how the price of crude oil is affected. Learn about five reasons why the price of crude oil has declined.
  10. Investing

    Why Low Oil Prices Don't Always Mean Low Gas Prices

    Find out why gasoline prices do not always decline with oil prices. Learn about the impact of the refining process, taxes and marketing, and distribution.
RELATED FAQS
  1. If oil producers run out of room to store oil, will the price of gasoline plummet?

    Learn about what happens to gasoline price when room to store oil runs out and whether this creates a good situation for ... Read Answer >>
  2. Why are stocks and oil so correlated right now?

    Learn whether the stock market and oil prices will continue their highly correlated price relationship or decouple again ... Read Answer >>
  3. Do all oil companies received the quoted price of West Texas Intermediate for their ...

    Learn about the three benchmark oil prices, the primary factors that determine the quality of crude oil and the price it ... Read Answer >>
  4. What is a heavy oil differential and how does it affect oil producers?

    Learn what the phrase "heavy oil differential" refers to and the significance of heavy oil differentials for oil production ... Read Answer >>
  5. How are oil reserves accounted for on an oil company's balance sheet?

    Oil reserves are estimated quantities of crude oil that have a high degree of certainty, usually 90%, of existence and exploitability. ... Read Answer >>
Hot Definitions
  1. IRS Publication 970

    A document published by the Internal Revenue Service (IRS) that provides information on tax benefits available to students ...
  2. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  3. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  4. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  5. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  6. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
Trading Center