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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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  • Andreoli-Versbach, Patrick & Franck, Jens-Uwe, 2015. "Endogenous price commitment, sticky and leadership pricing: Evidence from the Italian petrol market," International Journal of Industrial Organization, Elsevier, vol. 40(C), pages 32-48.
    • Handle: RePEc:eee:indorg:v:40:y:2015:i:c:p:32-48
    DOI: 10.1016/j.ijindorg.2015.02.006
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    Cited by:

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    2. Becker, Maike & Pfeifer, Gregor & Schweikert, Karsten, 2021. "Price Effects of the Austrian Fuel Price Fixing Act: A Synthetic Control Study," Energy Economics, Elsevier, vol. 97(C).
    3. Mark Dijkstra & Maarten Pieter Schinkel, 2019. "State-aided Price Coordination in the Dutch Mortgage Market," Tinbergen Institute Discussion Papers 19-014/VII, Tinbergen Institute, revised 13 Jul 2019.
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    5. Marc Escrihuela‐Villar & Walter Ferrarese, 2022. "Asymmetric input contracts under price leadership," Manchester School, University of Manchester, vol. 90(1), pages 77-91, January.
    6. González, Xulia & Moral, María J., 2019. "Effects of antitrust prosecution on retail fuel prices," International Journal of Industrial Organization, Elsevier, vol. 67(C).
    7. David P. Brown & Andrew Eckert & James Lin, 2018. "Information and transparency in wholesale electricity markets: evidence from Alberta," Journal of Regulatory Economics, Springer, vol. 54(3), pages 292-330, December.
    8. Palencia-González, Francisco J. & Navío-Marco, Julio & Juberías-Cáceres, Gema, 2020. "Analysis of brand influence in the rockets and feathers effect using disaggregated data," Research in International Business and Finance, Elsevier, vol. 52(C).
    9. Bergantino, Angela S. & Capozza, Claudia & Intini, Mario, 2020. "Empirical investigation of retail fuel pricing: The impact of spatial interaction, competition and territorial factors," Energy Economics, Elsevier, vol. 90(C).
    10. Koski, Heli, 2018. "How Do Competition Policy and Data Brokers Shape Product Market Competition?," ETLA Working Papers 61, The Research Institute of the Finnish Economy.

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    More about this item

    Keywords

    Tacit collusion; Leadership pricing; Sticky pricing; Endogenous commitment;
    All these keywords.

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels

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