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Price Leadership and Uncertainty About Future Costs

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  • Jorge Lemus
  • Fernando Luco

Abstract

Does uncertainty about future wholesale prices facilitate coordination among firms? To address this question, we exploit a policy intervention (Mepco) that limited the week‐to‐week variation in wholesale prices in the Chilean retail gasoline industry. We show that Mepco caused a decrease in retail gasoline margins in Chile. Further, using price leadership intensity as a proxy for the strength of market coordination, we show that margins decreased more in markets with higher leadership intensity. We rationalize these findings through a repeated‐game framework.

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  • Jorge Lemus & Fernando Luco, 2021. "Price Leadership and Uncertainty About Future Costs," Journal of Industrial Economics, Wiley Blackwell, vol. 69(2), pages 305-337, June.
    • Handle: RePEc:bla:jindec:v:69:y:2021:i:2:p:305-337
    DOI: 10.1111/joie.12248
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    References listed on IDEAS

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    Cited by:

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