Scandinavian Working Papers in Economics

Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science

No 2009/2: Gasoline prices jump up on Mondays: An outcome of aggressive competition?

Øystein Foros () and Frode Steen ()
Additional contact information
Øystein Foros: Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway
Frode Steen: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway

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

JEL-codes: E30; E32

42 pages, April 14, 2009

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