scholarly journals Learning to Coordinate: A Study in Retail Gasoline

2019 ◽  
Vol 109 (2) ◽  
pp. 591-619 ◽  
Author(s):  
David P. Byrne ◽  
Nicolas de Roos
Keyword(s):  
Price Competition ◽  
Equilibrium Selection ◽  
Price Leadership ◽  
Market Prices ◽  
Retail Gasoline ◽  
Gasoline Industry ◽  
Urban Market ◽  
Dominant Firms ◽  
Equilibrium Transition ◽  
Detection Strategies

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 G34, L12, L13, L71, L81, Q35)

scholarly journals Price competition and nominal illusion: experimental evidence and a behavioural model

SERIEs ◽  
2021 ◽  
Author(s):  
Antonio J. Morales ◽  
Enrique Fatas
Keyword(s):  
Exchange Rate ◽  
Housing Market ◽  
Experimental Evidence ◽  
Price Competition ◽  
Empirical Studies ◽  
Nominal Exchange Rate ◽  
Local Market ◽  
Market Prices ◽  
Economic Agents ◽  
Money Illusion

AbstractThe standard approach to nominal illusion in Economics sees it as a transitory phenomenon, as economic agents eventually see through the nominal veil, making the right choices. Recent empirical studies suggest that money illusion may persist, distorting real prices in a variety of economic environments, including the housing market and the stock market. In this paper, we explore the emergence and persistence of nominal illusion in an experimental entry game where firms must choose which local market to enter, and then compete in prices. All local markets are equivalent in real terms and they only differ in the currency the price competition is run under. Our experimental results show a positive, persistent and monotone effect of the nominal exchange rate on market prices, statistically significant for large enough exchange rate. We provide an explanation in terms of players simplifying the choice set using discrete grids.

scholarly journals Price Competition and Setup Cost

Mathematics ◽  
2021 ◽  
Vol 9 (3) ◽  
pp. 289
Author(s):  
Rui Ota ◽  
Hiroshi Fujiu
Keyword(s):  
Price Competition ◽  
Product Market ◽  
New Product ◽  
Government Policies ◽  
Differentiated Products ◽  
Setup Cost ◽  
Price Leadership ◽  
Setup Costs ◽  
Bertrand Price Competition

Few studies analyze the endogenous emergence of price competition in a new product market. This paper analyzes two differentiated products, an existing product and a newly introduced substitutable product, and investigates conditions under which a price competition endogenously emerges in a new product market in the context of a choice between engaging in price competition and holding price leadership. We demonstrate that Bertrand price competition emerges when the setup cost for the new product is high enough. This result implies that government policies reducing setup costs such as subsidies could change the type of competition to price leadership in a new product market.

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