Dynamic Pricing in Retail Gazoline Markets
AbstractSupergame 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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Bibliographic InfoPaper provided by California Davis - Institute of Governmental Affairs in its series Papers with number 93-22.
Length: 31 pages
Date of creation: 1993
Date of revision:
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Postal: UNIVERSITY OF CALIFORNIA DAVIS, INSTITUTE OF GOVERNMENTAL AFFAIRS, RESEARCH PROGRAM IN APPLIED MACROECONOMICS AND MACRO POLICY, DAVIS CALIFORNIA 95616 U.S.A.
oil industry ; market ; prices ; cartels;
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