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Price Ceilings as Focal Points for Tacit Collusion: Evidence from Credit Cards

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  • Christopher R. Knittel
  • Victor Stango

Abstract

We test whether a nonbinding price ceiling may serve as a focal point for tacit collusion, using data from the credit card market during the 1980's. Our empirical model can distinguish instances when firms match a binding ceiling from instances when firms tacitly collude at a nonbinding ceiling. The results suggest that tacit collusion at nonbinding state-level ceilings was prevalent during the early 1980's, but that national integration of the market reduced the sustainability of tacit collusion by the end of the decade. The results highlight a perverse effect of price regulation.

Suggested Citation

  • Christopher R. Knittel & Victor Stango, 2003. "Price Ceilings as Focal Points for Tacit Collusion: Evidence from Credit Cards," American Economic Review, American Economic Association, vol. 93(5), pages 1703-1729, December.
  • Handle: RePEc:aea:aecrev:v:93:y:2003:i:5:p:1703-1729
    Note: DOI: 10.1257/000282803322655509
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