Learning to Coordinate: A Study in Retail Gasoline

30 Pages Posted: 27 Feb 2015 Last revised: 14 Oct 2017

David P. Byrne

The University of Melbourne

Nicolas de Roos

University of Sydney

Date Written: October 12, 2017

Abstract

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.

Keywords: Price Leadership; Focal Points; Experimentation; Learning; Communication; Collusion; Retail Gasoline

JEL Classification: D22, D43, D83, L12, L41

Suggested Citation

Byrne, David P. and de Roos, Nicolas, Learning to Coordinate: A Study in Retail Gasoline (October 12, 2017). Available at SSRN: https://ssrn.com/abstract=2570637 or http://dx.doi.org/10.2139/ssrn.2570637

David P. Byrne (Contact Author)

The University of Melbourne ( email )

Level 4
111 Barry Street
Melbourne, Victoria 3010
Australia

HOME PAGE: http://sites.google.com/view/dprbyrne/

Nicolas De Roos

University of Sydney ( email )

University of Sydney
Sydney NSW 2006, NC
Australia

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