David Byrne (Melbourne): Negotiating Coordination: A Study in Retail Gasoline
Abstract: We examine a unique five-year equilibrium transition in the retail gasoline industry using hourly station-level price data. In an attempt to increase profit margins under a focal pricing structure, price leaders alter asymmetrically sized retailers' incentives to coordinate on prices, spurring bargaining over transfers that support coordination. Such bargaining occurs in near real-time through platform-enabled, price-based communication under strategic uncertainty. After three turbulent years of bargaining without resolution, which entail multiple price wars and experimentation that enable firms to reveal their pricing strategies and learn rivals', price leaders gradually adapt to a new price-signaling structure that ultimately yields stable, shared long-run profit growth. We discuss implications for the theory of collusion and for antitrust policies aimed at limiting the anticompetitive effects of digital information-sharing and pricing algorithms.
Economics
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