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Competitive Price Cycles

Author

Listed:
  • Kai Fischer
  • Simon Martin
  • Karl Schlag

Abstract

We develop a tractable model of competitive price cycles where prices are chosen alternatingly and consumers have heterogenous information. The model yields sharp empirical predictions about price patterns, impact of captive consumers and pass-through. Using rich station-level price data from the German retail gasoline market, we test these predictions. Consistent with the model, we find price cycles, characterized by frequent small price cuts and infrequent sharp increases. These cycles shorten as costs rise and are more likely to be initiated by firms with more captive consumers. Pass-through of input costs is incomplete, in contrast to alternative theories.

Suggested Citation

  • Kai Fischer & Simon Martin & Karl Schlag, 2025. "Competitive Price Cycles," CESifo Working Paper Series 11971, CESifo.
    • Handle: RePEc:ces:ceswps:_11971
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    File URL: https://www.ifo.de/DocDL/cesifo1_wp11971.pdf
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    More about this item

    Keywords

    price cycles; tacit collusion; coordination; gasoline markets;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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