Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Wednesday, September 25, 2013

Endogenous Price Commitment, Sticky and Leadership Pricing: Evidence from the Italian Petrol Market

Patrick Andreoli-Versbach, International Max Planck Research School for Competition and Innovation, Munich Center for Innovation and Entrepreneurship Research and Ludwig-Maximilians-Universitat Munchen and Jens-Uwe Franck, Ludwig-Maximilians-Universitat Munchen describe Endogenous Price Commitment, Sticky and Leadership Pricing: Evidence from the Italian Petrol Market.

ABSTRACT: 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.

http://lawprofessors.typepad.com/antitrustprof_blog/2013/09/endogenous-price-commitment-sticky-and-leadership-pricing-evidence-from-the-italian-petrol-market.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef0192aca4dfe0970d

Listed below are links to weblogs that reference Endogenous Price Commitment, Sticky and Leadership Pricing: Evidence from the Italian Petrol Market:

Comments

Post a comment