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Price Leadership and Uncertainty About Future Costs

Jorge Lemus and Fernando Luco

Journal of Industrial Economics, 2021, vol. 69, issue 2, 305-337

Abstract: Does uncertainty about future wholesale prices facilitate coordination among firms? To address this question, we exploit a policy intervention (Mepco) that limited the week‐to‐week variation in wholesale prices in the Chilean retail gasoline industry. We show that Mepco caused a decrease in retail gasoline margins in Chile. Further, using price leadership intensity as a proxy for the strength of market coordination, we show that margins decreased more in markets with higher leadership intensity. We rationalize these findings through a repeated‐game framework.

Date: 2021
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Journal of Industrial Economics is currently edited by Pierre Regibeau, Yeon-Koo Che, Kenneth Corts, Thomas Hubbard, Patrick Legros and Frank Verboven

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