Discussion Papers, Department of Finance and Management Science, Norwegian School of Economics (NHH)
No 2009/2:
Gasoline prices jump up on Mondays: An outcome of aggressive competition?
Øystein Foros ()
and Frode Steen ()
Abstract: This paper examines Norwegian gasoline pump prices using
daily station-specific observations from March 2003 to March 2006. Whereas
studies that have analyzed similar price cycles in other countries find
support for the Edgeworth cycle theory (Maskin and Tirole, 1988), we
demonstrate that Norwegian gasoline price cycles involve a form of
coordinated behavior. Retail gasoline prices follow a fixed weekly pattern,
where retail outlets all over Norway simultaneously increase their prices
to the same level every Monday at noon. Consequently, the sharp price
increase is tied to time rather than the current price level. The gasoline
companies’ headquarters publish a recommended price that de facto is a RPM
arrangement towards the retail outlets. The vertical arrangement is
industry-wide adopted, and is used to coordinate the time and the level for
retail price increases among the big four gasoline companies. Monday
changed from being the low-price day to becoming the high-price day almost
‘overnight’ in April 2004, and we empirically establish that the change
corresponds to a significant jump in the gross margin.
Keywords: Gasoline Prices; Resale Price Maintenance; (follow links to similar papers)
JEL-Codes: E30; E32; (follow links to similar papers)
42 pages, April 14, 2009
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