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Dynamic Pricing in Retail Gasoline Markets

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  • Severin Boreinstein
  • Andrea Shepard

Abstract

Supergame models of tacit collusion show that supportable price-cost margins increase with expected future collusive profits, ceteris paribus. As a result, collusive margins will be larger when demand is expected to increase or marginal costs are expected to decline. Using panel data on sales volume and gasoline prices in 43 cities over 72 months, we find behavior consistent with tacit collusion in retail gasoline markets. Controlling for current demand and cost, current margins increase with expected next-month demand and decrease with expected next-month cost. The results are not consistent with intertemporal l inkages due to inventory behavior or customer loyalty.

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  • Severin Boreinstein & Andrea Shepard, 1996. "Dynamic Pricing in Retail Gasoline Markets," RAND Journal of Economics, The RAND Corporation, vol. 27(3), pages 429-451, Autumn.
    • Handle: RePEc:rje:randje:v:27:y:1996:i:autumn:p:429-451
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