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Price Ceilings as Focal Points for Tacit Collusion: Evidence from Credit Cards

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Author Info
Christopher R. Knittel
Victor Stango

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Abstract

We test whether a nonbinding price ceiling may serve as a focal point for tacit collusion, using data from the credit card market during the 1980's. Our empirical model can distinguish instances when firms match a binding ceiling from instances when firms tacitly collude at a nonbinding ceiling. The results suggest that tacit collusion at nonbinding state-level ceilings was prevalent during the early 1980's, but that national integration of the market reduced the sustainability of tacit collusion by the end of the decade. The results highlight a perverse effect of price regulation.

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File URL: http://hdl.handle.net/10.1257/000282803322655509
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File URL: http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=93&issue=5&article=12&issue_date=December2003
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 93 (2003)
Issue (Month): 5 (December)
Pages: 1703-1729
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Handle: RePEc:aea:aecrev:v:93:y:2003:i:5:p:1703-1729

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  1. Natalya Y. Shelkova, 2008. "Low-Wage Labor Markets and the Power of Suggestion," Working papers 2008-33, University of Connecticut, Department of Economics, revised Dec 2008. [Downloadable!]
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  2. repec:bep:eapcon:v:7:y:2007:i:1:p:1764-1764 is not listed on IDEAS
  3. Juan Pablo Montero, 2004. "Forward Contracting and Collusion in Oligopoly," Documentos de Trabajo 271, Instituto de Economía. Pontificia Universidad Católica de Chile.. [Downloadable!]
  4. Li Gan & Roberto Mosquera, 2008. "An Empirical Study of the Credit Market with Unobserved Consumer Typers," NBER Working Papers 13873, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Jonathan Beck, 2004. "Fixed, Focal, Fair? Book Prices Under Optional Resale Price Maintenance," CIG Working Papers SP II 2004-15, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG). [Downloadable!]
  6. Elena Argentesi & Lapo Filistrucchi, 2007. "Estimating market power in a two-sided market: The case of newspapers," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(7), pages 1247-1266. [Downloadable!]
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  7. Matti Liski & Juan-Pablo Montero, 2004. "Forward trading and collusion in oligopoly," Working Papers 0412, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research. [Downloadable!]
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  8. Adam B. Ashcraft & Astrid A. Dick & Donald P. Morgan, 2007. "The Bankruptcy Abuse Prevention and Consumer Protection Act: means-testing or mean spirited?," Staff Reports 279, Federal Reserve Bank of New York. [Downloadable!]
  9. Riemer P. Faber & Maarten C.W. Janssen, 2008. "On the Effects of Suggested Prices in Gasoline Markets," Tinbergen Institute Discussion Papers 08-116/1, Tinbergen Institute. [Downloadable!]
  10. Maria Demertzis & Nicola Viegi, 2004. "Inflation Targets as Focal Points," DNB Working Papers 017, Netherlands Central Bank, Research Department. [Downloadable!]
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