The Effects of a Day Off from Retail Price Competition: Evidence on Consumer Behavior and Firm Performance in Gasoline Retailing

46 Pages Posted: 11 Jul 2017

See all articles by Øystein Foros

Øystein Foros

Norwegian School of Economics (NHH) - Department of Business and Management Science

Mai Nguyen

Norwegian School of Economics (NHH) - Department of Business and Management Science

Frode Steen

Norwegian School of Economics (NHH) - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: July 6, 2017

Abstract

First, we analyze how regular days off from competition and a time-dependent price pattern affect firm performance. Second, we examine the effects on firms' profitability from consumers’ changing search- and timing behavior. We use microdata from gasoline retailing in Norway. Since 2004, firms have practiced an industry-wide day off from competition, starting on Mondays at noon, by increasing prices to a common level given by the recommended prices (decided and published in advance). Hence, firms know when and to what level to raise their price. In areas without local competition, retail prices are always equal to the recommended prices. Hinged on this, we regard recommended prices as the monopoly price level. In turn, a foreseeable low-price window is open before every restoration. During the data period, we observe an additional weekly restoration on Thursdays at noon. We show that an additional day off from competition increases firm performance. As expected, a conventional price search of where to buy reduces firms’ profitability. In contrast, consumers who are aware of the cycle and spend effort on when to buy have a positive impact on firms’ profitability. If consumers spend effort on when to buy rather than where to buy, price competition might be softened even in the low-price windows.

Keywords: Consumer Behavior, Firm Performance, Gasoline Retailing

JEL Classification: L00

Suggested Citation

Foros, Øystein and Nguyen, Mai and Steen, Frode, The Effects of a Day Off from Retail Price Competition: Evidence on Consumer Behavior and Firm Performance in Gasoline Retailing (July 6, 2017). NHH Dept. of Business and Management Science Discussion Paper No. 2017/9. Available at SSRN: https://ssrn.com/abstract=2997956 or http://dx.doi.org/10.2139/ssrn.2997956

Øystein Foros (Contact Author)

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Mai Nguyen

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Frode Steen

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway
+47 55 959 259 (Phone)
+47 55 959 543 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
26
Abstract Views
279
PlumX Metrics