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Dynamic Pricing in Retail Gazoline Markets

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Author Info

  • Borenstein, S.
  • Shepard, A.

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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Bibliographic Info

Paper provided by California Davis - Institute of Governmental Affairs in its series Papers with number 93-22.

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Length: 31 pages
Date of creation: 1993
Date of revision:
Handle: RePEc:fth:caldav:93-22

Contact details of provider:
Postal: UNIVERSITY OF CALIFORNIA DAVIS, INSTITUTE OF GOVERNMENTAL AFFAIRS, RESEARCH PROGRAM IN APPLIED MACROECONOMICS AND MACRO POLICY, DAVIS CALIFORNIA 95616 U.S.A.

Related research

Keywords: oil industry ; market ; prices ; cartels;

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References

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  1. John Haltiwanger & Joseph E. Harrington Jr., 1991. "The Impact of Cyclical Demand Movements on Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 89-106, Spring.
  2. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
  3. Dahl, Carol & Sterner, Thomas, 1991. "Analysing gasoline demand elasticities: a survey," Energy Economics, Elsevier, vol. 13(3), pages 203-210, July.
  4. Gilbert, Richard & Newbery, David M G, 1988. "Regulation Games," CEPR Discussion Papers 267, C.E.P.R. Discussion Papers.
  5. Jeffrey D. Karrenbrock, 1991. "The behavior of retail gasoline prices: symmetric or not?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 19-29.
  6. Porter, Robert H, 1985. "On the Incidence and Duration of Price Wars," Journal of Industrial Economics, Wiley Blackwell, vol. 33(4), pages 415-26, June.
  7. Shepard, Andrea, 1991. "Price Discrimination and Retail Configuration," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 30-53, February.
  8. Borenstein, Severin & Cameron, A Colin & Gilbert, Richard, 1997. "Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 305-39, February.
  9. Robert H. Porter, 1983. "A Study of Cartel Stability: The Joint Executive Committee, 1880-1886," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 301-314, Autumn.
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