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

48 Pages Posted: 12 Dec 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

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Date Written: December 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). 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. The 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, they attempt to tank during low price windows. By its very nature, this shrink consumers' ability to compare prices at several outlets. Consequently, more attention to when to buy may soften price competition.

Keywords: firm performance, Gasoline markets, Pricing cycles

JEL Classification: D22, L25, L42, L81

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 (December 2017). CEPR Discussion Paper No. DP12477. Available at SSRN: https://ssrn.com/abstract=3082343

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)

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