Price Caps and Coordinated Effects: Evidence from Retail Gasoline

Simon Martin and Frank Verboven

No 21297, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Price caps are commonly used to protect consumers from excessive price increases, yet their consequences remain understudied. This paper analyzes the Belgian retail gasoline market, using daily price data from 2016–2019 for around 3,000 gasoline stations. We examine whether price caps are effective at constraining prices, or instead serve as focal points that encourage coordinated price-setting behavior. We first document several key facts: pervasive price rigidity and the wide presence of prices at the caps or at integer discounts below the caps. We subsequently develop a framework to show that the price caps constrain only a limited fraction of stations, and induce a large fraction to coordinate on higher prices at or below the caps. Removing price caps would substantially reduce prices and profit margins by an amount comparable in magnitude to that associated with the collapse of an explicit cartel.

JEL-codes: D22 D83 L13 L41 (search for similar items in EconPapers)
Date: 2026-03
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