|Andreoli-Versbach, Patrick; Franck, Jens-Uwe (July 2013): Endogenous Price Commitment, Sticky and Leadership Pricing: Evidence from the Italian Petrol Market. Discussion Papers in Economics 2013-9|
This article studies dynamic pricing strategies in the Italian gasoline market before and after the market leader unilaterally announced its commitment to adopt a sticky-pricing policy. Using daily Italian firm level prices and weekly average EU prices, we show that the effect of the new policy was twofold. First, it facilitated price alignment and coordination on price changes. After the policy change, the observed pricing pattern shifted from cost-based to sticky-leadership pricing. Second, using a dif-in-dif estimation and a synthetic control group, we show that the causal effect of the new policy was to significantly increase prices through sticky-leadership pricing. Our paper highlights the importance of price-commitment by a large firm in order to sustain (tacit) collusion.
|Item Type:||Paper (Discussion Paper)|
|Keywords:||tacit collusion, leadership pricing, sticky pricing, endogenous commitment|
Economics > Munich Discussion Papers in Economics
|Subjects:||300 Social sciences > 330 Economics|
|JEL Classification:||K21, K42, L13, L41, L71|
|Deposited On:||30. Jul 2013 12:54|
|Last Modified:||29. Apr 2016 09:50|
Abadie, Alberto, and Javier Gardeazabal (2003). The Economic Costs of Conflict: A Case Study of the Basque Country. American Economic Review 93(1), 113–132.
Abadie, Alberto, Alexis Diamond, and Jens Hainmueller (2010). Synthetic Control Methods for Comparative Case Studies: Estimating the Effect of California's Tobacco Control Program. Journal of the American Statistical Association 105(490), 493–505.
Abrantes-Metz, Rosa M., and Patrick Bajari (2009). Screens for Conspiracies and Their Multiple Applications. Antitrust Magazine 24(1), 66–71.
Abrantes-Metz, Rosa M., Luke M. Froeb, John F. Geweke, and Christopher T. Taylor (2006). A Variance Screen for Collusion. International Journal of Industrial Organization 24(3), 467–486.
Athey, Susan, and Kyle Bagwell (2001). Optimal Collusion with Private Information. RAND Journal of Economics 32(3), 428–465.
Athey, Susan, and Kyle Bagwell (2008). Collusion with Persistent Cost Shocks. Econometrica 76(3), 493–540.
Athey, Susan, Kyle Bagwell, and Chris Sanchirico (2004). Collusion and Price Rigidity. Review of Economic Studies 71(2), 317–349.
Bachmeier, Lance J., and James M. Griffin (2003). New Evidence on Asymmetric Gasoline Price Responses. Review of Economics and Statistics 85(3), 772–776.
Blanckenburg, Korbinian von, Alexander Geist, and Konstantin Kholodilin (2011), The Influence of Collusion on Price Changes: New Evidence from Major Cartel Cases. German Economic Review 13(3), 245–256.
Bolotova, Yuliya V. (2009). Cartel overcharges: An empirical analysis. Journal of Economic Behavior & Organization 70(1-2), 321–341.
Borenstein, Severin, A. Colin Cameron, and Richard Gilbert (1997). Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes? Quarterly Journal of Economics 112(1), 305–339. Christie, William G., and Paul H. Schultz (1994). Why Do Nasdaq Market Makers Avoid Odd-Eighth Quotes? Journal of Finance 49(5), 1813–1840.
Connor, John M. (2005). Collusion and Price Dispersion. Applied Economics Letters 12(6), 335–338. Duso, Tomaso, Lars-Hendrik Röller, and Jo Seldeslachts (2012). Collusion through Joint R&D: An Empirical Assessment. Review of Economics and Statistics, forthcoming.
Eckert, Andrew (2003). Retail Price Cycles and the Presence of Small Firms. International Journal of Industrial Organization 21(2), 151–170
Fonseca, Miguel A., and Hans-Theo Normann (2012). Explicit vs. Tacit Collusion – The Impact of Communication in Oligopoly Experiments. European Economic Review, forthcoming.
Harrington, Joseph E., Jr. (2008). Detecting Cartels. In Paolo Buccirossi (ed.), Handbook in Antitrust Economics, MIT Press, 213–258.
Imbens, Guido W., and Jeffrey M. Wooldridge (2009). Recent Developments in the Econometrics of Program Evaluation. Journal of Economic Literature 47(1), 5–86.
Knittel, Christopher R., and Victor Stango (2003). Price Ceilings as Focal Points for Tacit Collusion: Evidence from Credit Cards. American Economic Review 93(5), 1703–1729.
Levenstein, Margaret C., and Valerie Y. Suslow (2006). What Determines Cartel Success? Journal of Economic Literature 44(1), 43–95. 21
Lewis, Matthew S. (2012). Price Leadership and Coordination in Retail Gasoline Markets with Price Cycles. International Journal of Industrial Organization 30(4), 342–351.
Marshall, Robert C., Leslie M. Marx, and Matthew E. Raiff (2008). Cartel Price Announcements: The Vitamins Industry. International Journal of Industrial Organization 26(3), 762–802.
Maskin, Eric, and Jean Tirole (1988). A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles. Econometrica 56(3), 571–599.
Mouraviev, Igor, and Patrick Rey (2011). Collusion and Leadership. International Journal of Industrial Organization 29(6), 705–717.
Noel, Michael D. (2007). Edgeworth Price Cycles, Cost-based Pricing, and Sticky Pricing in Retail Gasoline Markets. Review of Economics and Statistics 89(2), 324–334.
Pöyry (2009). Survey of the Competitive Aspects of Oil and Oil Product Markets in the EU. A report to Directorate-General Energy and Transport of the European Commission.
Porter, Robert, and Douglas Zona (1999), Ohio School Milk Markets: An Analysis of Bidding, RAND Journal of Economics 30(2), 263–288.
Rotemberg, Julio J., and Garth Saloner (1990). Collusive Price Leadership. Journal of Industrial Economics 39(1), 93–111.
Scherer, Frederic M., and David Ross (1990). Industrial Market Structure and Economic Performance. 3rd ed., Houghton Mifflin.
Slade, Margaret E. (1992). Vancouver's Gasoline-Price Wars: An Empirical Exercise in Uncovering Supergame Strategies. Review of Economic Studies 59(2), 257–276.
Tappata, Mariano (2009). Rockets and Feathers: Understanding Asymmetric Pricing. RAND Journal of Economics 40(4), 673-687.
Wang, Zhongmin (2009). (Mixed) Strategy in Oligopoly Pricing: Evidence from Gasoline Pricing Cycles Before and Under a Timing Regulation. Journal of Political Economy 117(6), 987–1030.
Zitzewitz, Eric (2012). Forensic economics. Journal of Economic Literature 50(3), 731–769.