This paper proposes a general model of asymmetric price transmission at the retail level to examine the  volatility of retail spreads in vertical markets, with endogenous overshooting of the wholesale spreads. The model is tested with Indian data and detects significant levels of asymmetry in price transmission. In addition it is found that endogenising the instability at the wholesale level is significant in explaining volatilities of retail spreads. JEL Classification: C32, D43, Q13. Q18