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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.

Suggested Citation

  • 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:

    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.
    2. Harrington, Joseph E., 2017. "A theory of collusion with partial mutual understanding," Research in Economics, Elsevier, vol. 71(1), pages 140-158.

    More about this item

    Keywords

    Tacit collusion; Leadership pricing; Sticky pricing; Endogenous commitment;

    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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