Price leadership and coordination in retail gasoline markets with price cycles
AbstractThis study examines the coordination mechanism used by gasoline stations in the midwestern United States where prices exhibit highly cyclical fluctuations known as Edgeworth cycles. Stations in these markets repeatedly coordinate large marketwide price increases following periods of aggressive price undercutting. By studying these periodic price jumps both over time and across cities, I find that a particular retail chain in each city acts as a price leader initiating each price restoration. The leader signals the new price level to competitors by simultaneously jumping prices at all its stations to a single price. Competitors follow quickly with a large majority of stations jumping to the exact same price within a 24 hour period. The characteristics of the leading firms and the nature of observed price coordination suggest that successful price jumps may be facilitated by the existence of a retailer controlling the prices of a significant number of stations in a city. Identifying the important role of these firms in the market contributes to a broader understanding of price leadership and coordination and highlights another potential reason why price cycles exist in some in retail gasoline markets and not others.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal International Journal of Industrial Organization.
Volume (Year): 30 (2012)
Issue (Month): 4 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505551
Price leadership; Coordination; Gasoline; Edgeworth Cycle;
Find related papers by JEL classification:
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rotemberg, Julio J & Saloner, Garth, 1990. "Collusive Price Leadership," Journal of Industrial Economics, Wiley Blackwell, vol. 39(1), pages 93-111, September.
- Deneckere, Raymond J & Kovenock, Dan, 1992.
Review of Economic Studies,
Wiley Blackwell, vol. 59(1), pages 143-62, January.
- Andrew Eckert & Douglas S. West, 2004. "A tale of two cities: Price uniformity and price volatility in gasoline retailing," The Annals of Regional Science, Springer, vol. 38(1), pages 25-46, 03.
- Benjamin Atkinson, 2009. "Retail Gasoline Price Cycles: Evidence from Guelph, Ontario Using Bi-Hourly, Station-Specific Retail Price Data," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 85-110.
- Eckert, Andrew, 2003. "Retail price cycles and the presence of small firms," International Journal of Industrial Organization, Elsevier, vol. 21(2), pages 151-170, February.
- Deneckere, R. & Kovenock, D. & Lee, R.E., 1988.
"A Model of Price Leadership Based on Consumer Loyalty,"
Purdue University Economics Working Papers
947, Purdue University, Department of Economics.
- Deneckere, Raymond J & Kovenock, Dan & Lee, Robert, 1992. "A Model of Price Leadership Based on Consumer Loyalty," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 147-56, June.
- Doyle, Joseph & Muehlegger, Erich & Samphantharak, Krislert, 2010. "Edgeworth cycles revisited," Energy Economics, Elsevier, vol. 32(3), pages 651-660, May.
- Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles," Econometrica, Econometric Society, vol. 56(3), pages 571-99, May.
- Zhongmin Wang, 2008. "Collusive Communication and Pricing Coordination in a Retail Gasoline Market," Review of Industrial Organization, Springer, vol. 32(1), pages 35-52, February.
- Matthew S. Lewis, 2009. "Temporary Wholesale Gasoline Price Spikes Have Long-Lasting Retail Effects: The Aftermath of Hurricane Rita," Journal of Law and Economics, University of Chicago Press, vol. 52(3), pages 581-605, 08.
- Michael D. Noel, 2008. "Edgeworth Price Cycles and Focal Prices: Computational Dynamic Markov Equilibria," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(2), pages 345-377, 06.
- Michael D. Noel, 2007. "Edgeworth Price Cycles, Cost-Based Pricing, and Sticky Pricing in Retail Gasoline Markets," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 324-334, May.
- Andreoli-Versbach, Patrick & Franck, Jens-Uwe, 2013. "Endogenous Price Commitment, Sticky and Leadership Pricing: Evidence from the Italian Petrol Market," Discussion Papers in Economics 16182, University of Munich, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.