Testing Optimal Punishment Mechanisms under Price Regulation: the Case of the Retail Market for Gasoline

Robert Gagné (), Simon van Norden () and Bruno Versaevel
Additional contact information
Robert Gagné: IEA, HEC Montréal, http://www.hec.ca/iea/

No 06-12, Cahiers de recherche from HEC Montréal, Institut d'économie appliquée

Abstract: We analyse the effects of a price floor on price wars (or deep price cuts) in the retail market for gasoline. Bertrand supergame oligopoly models predict that price wars should last longer in the presence of price floors. In 1996, the introduction of a price floor in the Quebec retail market for gasoline serves as a natural experiment with which to test this prediction. We use a Markov Switching Model with two latent states to simultaneously identify the periods of price-collusion/price-war and estimate the parameters characterizing each state. Results support the prediction that price floors reduce the intensity of price wars but increase their expected duration.

Keywords: price regulation; oligopoly supergame; Markov switching model; gasoline (search for similar items in EconPapers)
JEL-codes: C32 L13 L81 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2006-10
New Economics Papers: this item is included in nep-com, nep-ene, nep-mic and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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http://www.hec.ca/iea/cahiers/2006/iea0612_rgagne.pdf (application/pdf)

Related works:
Working Paper: Testing Optimal Punishment Mechanisms under Price Regulation: the Case of the Retail Market for Gasoline (2006)
Working Paper: Testing Optimal Punishment Mechanisms under Price Regulation: the Case of the Retail Market for Gasoline (2006)
Working Paper: Testing Optimal Punishment Mechanisms Under Price Regulation: the Case of the Retail Market for Gasoline (2003)
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