Might as well jump! Coordinating on more frequent price hikes in a retail gasoline market

Abstract

This paper studies price leadership and coordination in the retail gasoline market.
Its main contribution is to show how large retail chains use price leadership to
both agree on and sustain a new margin-enhancing equilibrium. A unique dataset
spanning 14 years with exact timing of price changes for almost all Norwegian gasoline
stations is employed to study a transition led by the largest chain to regular
Monday price jumps, and later a transition led by the second largest chain to additional
Thursday price jumps. By combining the price data with volume and cost
data, I estimate that the transition to more frequent price jumps has a substantial
positive effect on volume-weighted retail margins.

Keywords: price leadership, coordination, retail gasoline, Edgeworth cycles

JEL Classification: K21; D43; L44; L81