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Testing Optimal Punishment Mechanisms under Price Regulation: the Case of the Retail Market for Gasoline

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Author Info

  • Robert Gagné

    (CIRANO - Centre interuniversitaire de recherche en analyse des organisations - Université de Montréal)

  • Simon Van Norden

    (CIRANO - Centre interuniversitaire de recherche en analyse des organisations - Université de Montréal)

  • Bruno Versaevel

    ()
    (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)

Abstract

We analyse the effects of a price floor on price wars (or deep price cuts) in the retail market for gasoline. Bertrand supergame oligopoly models predict that price wars should last longer in the presence of price floors. In 1996, the introduction of a price floor in the Quebec retail market for gasoline serves as a natural experiment with which to test this prediction. We use a Markov Switching Model with two latent states to simultaneously identify the periods of price-collusion/price-war and estimate the parameters characterizing each state. Results support the prediction that price floors reduce the intensity of price wars but increase their expected duration.

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Bibliographic Info

Paper provided by HAL in its series Post-Print with number halshs-00142516.

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Date of creation: Oct 2006
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Handle: RePEc:hal:journl:halshs-00142516

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Keywords: gasoline prices ; Markov switching model ; oligopoly supergame ; price regulation;

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References

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Citations

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Cited by:
  1. Etienne Billette de Villemeur & Laurent Flochel & Bruno Versaevel, 2009. "Optimal Collusion with Limited Severity Constraint," Working Papers 0909, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  2. Etienne Billette de Villemeur & Laurent Flochel & Bruno Versaevel, 2013. "Optimal collusion with limited liability," International Journal of Economic Theory, The International Society for Economic Theory, vol. 9(3), pages 203-227, 09.
  3. Flochel, Laurent & Versaevel, Bruno & de Villemeur, Étienne, 2009. "Optimal Collusion with Limited Liability and Policy Implications," IDEI Working Papers 547, Institut d'Économie Industrielle (IDEI), Toulouse, revised Jul 2011.

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