Learning to Coordinate: A Study in Retail Gasoline

65 Pages Posted: 27 Feb 2015 Last revised: 19 Jan 2017

David P. Byrne

University of Melbourne

Nicolas de Roos

University of Sydney

Date Written: January 19, 2017

Abstract

Theories of collusion study the implementation of collusive agreements, yet are silent on how such agreements are initiated. We study the initiation of tacit collusion using a unique dataset from an urban gasoline market that contains the universe of station-level prices for 15 years. We uncover a gradual process whereby dominant firms engage in price leadership to create focal points that coordinate market prices, soften competition, and enhance margins. We show how price leaders can use price experiments to tacitly communicate collusive intentions, resolve strategic uncertainty, and create mutual understanding among rivals over a collusive strategy.

Keywords: Price Leadership, Experimentation, Communication, Learning, Coordinated Effects, Tacit 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 (January 19, 2017). Available at SSRN: https://ssrn.com/abstract=2570637 or http://dx.doi.org/10.2139/ssrn.2570637

David P. Byrne (Contact Author)

University of Melbourne ( email )

185 Pelham Street, Carlton, Victoria 3053
Melbourne, Victoria 3010
Australia

HOME PAGE: http://www.economics.unimelb.edu.au/

Nicolas De Roos

University of Sydney ( email )

University of Sydney
Sydney NSW 2006, NC
Australia

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