Price Ceilings as Focal Points for Tacit Collusion: Evidence from Credit Cards

Christopher Knittel and Victor Stango

American Economic Review, 2003, vol. 93, issue 5, 1703-1729

Abstract: We test whether a nonbinding price ceiling may serve as a focal point for tacit collusion, using data from the credit card market during the 1980's. Our empirical model can distinguish instances when firms match a binding ceiling from instances when firms tacitly collude at a nonbinding ceiling. The results suggest that tacit collusion at nonbinding state-level ceilings was prevalent during the early 1980's, but that national integration of the market reduced the sustainability of tacit collusion by the end of the decade. The results highlight a perverse effect of price regulation.

Date: 2003
Note: DOI: 10.1257/000282803322655509
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Working Paper: Price ceilings as focal points for tacit collusion: evidence from credit cards (2001)
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