Learning to Coordinate: A Study in Retail Gasoline

Abstract

This paper studies equilibrium selection in the retail gasoline industry. We exploit a unique dataset that contains the universe of station-level prices for an urban market for 15 years, and that encompasses a coordinated equilibrium transition mid-sample. We uncover a gradual, three-year equilibrium transition, whereby dominant firms use price leadership and price experiments to create focal points that coordinate market prices, soften price competition, and enhance retail margins. Our results inform the theory of collusion, with particular relevance to the initiation of collusion and equilibrium selection. We also highlight new insights into merger policy and collusion detection strategies. (JEL G34, L12, L13, L71, L81, Q35)

State-aided Price Coordination in the Dutch Mortgage Market

“…Banks and intermediaries worked on commission from the ultimate seller, so that customers had negligible search costs and paid no explicit fees for mortgage advice. 10 Otherwise similar mortgage contracts are somewhat di¤erentiated between providers, due to customer loyalty, borrower con…dence, and local presence. 11 The market is concentrated.…”

“…Clark and Houde (2013) …nd delays in price following in a documented cartel case in gasoline in Canada, which they interpret as a transfer mechanism to sustain collusion amongst heterogeneous …rms. Byrne and De Roos (2019) in Australian gasoline show that price leadership signals focal points that coordinate market prices.…”

“…End of 2012, these totals were e538, 82% of GDP, and e55 billion. Source: De Nederlandsche Bank (DNB) Statistics 10. Commissions were prohibited in the 2013 mortgage reforms 11 Degryse and Ongena (2005).…”

Calendar synchronization of gasoline price increases

“…Noel shows that, if a Delayed Start occurs and goes on for too long, the best course of action for the first firm is to abandon its price increase altogether and rejoin the war of attrition at the bottom of the cycle, causing what is known as a False Start. Atkinson () first verified the existence of False Starts empirically and, since then, high‐frequency price gasoline price data reveal that False Starts are commonplace in many markets (e.g., Byrne & de Roos, ; Noel, ).…”

Collusion with intertemporal price dispersion

“…Second, evidence of collusion has emerged. Explicit communication is evident in Ballarat, Australia (Wang, 2008) and Québec (Clark and Houde, 2013), whereas Byrne and de Roos (2019) provide evidence of tacit collusion in Perth, Australia.…”