Learning to Coordinate: A Study in Retail Gasoline

David Byrne and Nicolas de Roos

American Economic Review, 2019, vol. 109, issue 2, 591-619

Abstract: This paper studies equilibrium selection in the retail gasoline industry. We exploit a unique dataset that contains the universe of station-level prices for an urban market for 15 years, and that encompasses a coordinated equilibrium transition mid-sample. We uncover a gradual, three-year equilibrium transition, whereby dominant firms use price leadership and price experiments to create focal points that coordinate market prices, soften price competition, and enhance retail margins. Our results inform the theory of collusion, with particular relevance to the initiation of collusion and equilibrium selection. We also highlight new insights into merger policy and collusion detection strategies.

JEL-codes: G34 L12 L13 L71 L81 Q35 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.1257/aer.20170116
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Citations: View citations in EconPapers (91)

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