Odd Prices at Retail Gasoline Stations: Focal Point Pricing and Tacit Collusion

22 Pages Posted: 29 Jul 2015

See all articles by Matthew S. Lewis

Matthew S. Lewis

Clemson University - John E. Walker Department of Economics

Date Written: Fall 2015

Abstract

This study empirically investigates the theory that odd‐numbered pricing points can be used as focal points to facilitate tacit collusion. Like other retailers, gasoline stations in the United States disproportionately sell at prices ending in odd digits. I show that station prices are higher and change less frequently in locations using more odd prices (particularly those ending in 5 or 9), even after controlling for other market characteristics. The evidence suggests that the use of pricing points can be an effective mechanism for tacitly coordinating prices, providing an alternative explanation for the widespread use of odd prices in retail markets.

Suggested Citation

Lewis, Matthew S., Odd Prices at Retail Gasoline Stations: Focal Point Pricing and Tacit Collusion (Fall 2015). Journal of Economics & Management Strategy, Vol. 24, Issue 3, pp. 664-685, 2015, Available at SSRN: https://ssrn.com/abstract=2637080 or http://dx.doi.org/10.1111/jems.12103

Matthew S. Lewis (Contact Author)

Clemson University - John E. Walker Department of Economics ( email )

Clemson, SC 29634
United States

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