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Endogenous Price Commitment, Sticky and Leadership Pricing: Evidence from the Italian Petrol Market

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  • Andreoli-Versbach, Patrick
  • Franck, Jens-Uwe

Abstract

This article studies dynamic pricing strategies in the Italian gasoline market before and after the market leader unilaterally announced its commitment to adopt a sticky-pricing policy. Using daily Italian firm level prices and weekly average EU prices, we show that the effect of the new policy was twofold. First, it facilitated price alignment and coordination on price changes. After the policy change, the observed pricing pattern shifted from cost-based to sticky-leadership pricing. Second, using a dif-in-dif estimation and a synthetic control group, we show that the causal effect of the new policy was to significantly increase prices through sticky-leadership pricing. Our paper highlights the importance of price-commitment by a large firm in order to sustain (tacit) collusion.

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Bibliographic Info

Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 16182.

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Date of creation: Jul 2013
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Handle: RePEc:lmu:muenec:16182

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Keywords: tacit collusion; leadership pricing; sticky pricing; endogenous commitment;

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References

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Cited by:
  1. Andreoli-Versbach, Patrick & Franck, Jens-Uwe, 2013. "Actions Speak Louder than Words: Econometric Evidence to Target Tacit Collusion in Oligopolistic Markets," Discussion Papers in Economics 16179, University of Munich, Department of Economics.

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