Markets Take Breaks: Dynamic Price Competition with Opening Hours

63 Pages Posted: 4 Dec 2016 Last revised: 28 Jul 2017

See all articles by Steffen Eibelshäuser

Steffen Eibelshäuser

Goethe University Frankfurt, Department of Management and Applied Microeconomics

Sascha Wilhelm

Goethe University Frankfurt, Department of Management and Applied Microeconomics

Date Written: July 27, 2017

Abstract

We develop a model of dynamic price competition in which the intraday interaction among retailers is paused at regular closing times and resumed the next day. In this non-stationary market environment, there exists a Nash equilibrium with repeating price cycles of deterministic length. The equilibrium is salient in the sense that is is a repeated version of the unique subgame perfect equilibrium of the daily stage game and, as such, does not require collusive behavior. We test and verify the equilibrium prediction as well as a number of additional model predictions using an extensive dataset on the German retail gasoline market. Furthermore, we perform a structural estimation of the model to evaluate several policy counterfactuals. At the estimates, regulatory interventions such as price setting restrictions or increased market transparency lead to higher average retail prices and harm consumer welfare.

Keywords: Spatial competition, Dynamic pricing, Edgeworth cycle, Gasoline

JEL Classification: D43; L11; L13; L81

Suggested Citation

Eibelshäuser, Steffen and Wilhelm, Sascha, Markets Take Breaks: Dynamic Price Competition with Opening Hours (July 27, 2017). Available at SSRN: https://ssrn.com/abstract=2879392 or http://dx.doi.org/10.2139/ssrn.2879392

Steffen Eibelshäuser

Goethe University Frankfurt, Department of Management and Applied Microeconomics ( email )

Germany

Sascha Wilhelm (Contact Author)

Goethe University Frankfurt, Department of Management and Applied Microeconomics ( email )

Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
289
rank
98,143
Abstract Views
755
PlumX