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Dynamic Pricing in Retail Gazoline Markets

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  • Borenstein, S.
  • Shepard, A.

Abstract

Supergame models of tacit collusion show that supportable price-cost margins increase with expected future collusive profits, ceteris paribus. As a result, collusive margins will be larger when demand is expected to increase or marginal costs are expected to decline. Using panel data on sales volume and gasoline prices in 43 cities over 72 months, we find behavior consistent with tacit collusion in retail gasoline markets. Controlling for current demand and cost, current margins increase with expected next-month demand and decrease with expected next-month cost. The results are not consistent with intertemporal l inkages due to inventory behavior or customer loyalty.
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Suggested Citation

  • Borenstein, S. & Shepard, A., 1993. "Dynamic Pricing in Retail Gazoline Markets," Papers 93-22, California Davis - Institute of Governmental Affairs.
  • Handle: RePEc:fth:caldav:93-22
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    References listed on IDEAS

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