Competitive Price Cycles

Kai Fischer, Simon Martin and Karl Schlag

No 11971, CESifo Working Paper Series from CESifo

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.

Keywords: price cycles; tacit collusion; coordination; gasoline markets (search for similar items in EconPapers)
JEL-codes: D43 D83 L11 L41 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_11971

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