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

  • Christopher R. Knittel
  • Victor Stango

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.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/000282803322655509
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 93 (2003)
Issue (Month): 5 (December)
Pages: 1703-1729

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Handle: RePEc:aea:aecrev:v:93:y:2003:i:5:p:1703-1729
Note: DOI: 10.1257/000282803322655509
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