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Price Caps and Coordinated Effects: Evidence from Retail Gasoline

Author

Listed:
  • Martin, Simon
  • Verboven, Frank

Abstract

Price caps are commonly used to protect consumers from excessive price increases, yet their consequences remain understudied. This paper analyzes the Belgian retail gasoline market, using daily price data from 2016–2019 for around 3,000 gasoline stations. We examine whether price caps are effective at constraining prices, or instead serve as focal points that encourage coordinated price-setting behavior. We first document several key facts: pervasive price rigidity and the wide presence of prices at the caps or at integer discounts below the caps. We subsequently develop a framework to show that the price caps constrain only a limited fraction of stations, and induce a large fraction to coordinate on higher prices at or below the caps. Removing price caps would substantially reduce prices and profit margins by an amount comparable in magnitude to that associated with the collapse of an explicit cartel.

Suggested Citation

  • Martin, Simon & Verboven, Frank, 2026. "Price Caps and Coordinated Effects: Evidence from Retail Gasoline," CEPR Discussion Papers 21297, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:21297
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    File URL: https://cepr.org/publications/DP21297
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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • 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

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