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Vertical Control and Horizontal Coordination in Dynamic Oligopoly Pricing: Empirical Evidence from a Natural Supergame Experiment in Gasoline Markets

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  • Zhongmin Wang

Abstract

This paper examines empirically the players’ intrabrand vertical price control, interbrand horizontal pricing coordination, and their learning process to equilibrium in a rare natural experiment of supergame where a well defined simultaneous-move price setting stage game is repeated every 24 hours. The experiment occurred in Western Australia where a state law forces all gasoline service stations to report to the government, by 2:00 pm each day, their next-day retail prices. With a dataset that includes the daily price of virtually every retail outlet in a metropolitan area for 34 months, this paper shows that various forms of vertical price restraints are used by the upstream firms to control and synchronize intrabrand price, price leadership and short-term commitment are used to enable the upstream firms to effectively set prices sequentially, and punishment of short-duration and trial-and-error are used to get onto the nonsynchronization equilibrium

Suggested Citation

  • Zhongmin Wang, 2004. "Vertical Control and Horizontal Coordination in Dynamic Oligopoly Pricing: Empirical Evidence from a Natural Supergame Experiment in Gasoline Markets," Econometric Society 2004 Australasian Meetings 42, Econometric Society.
    • Handle: RePEc:ecm:ausm04:42
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    More about this item

    Keywords

    vertical restraint; horizontal coordination; price leadership; dynamic game;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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