Department of Economics

Faculty of Arts and Social Sciences


Seminar - Upcoming

2013 Asia Summer Institute in Behavioral Economics
Asian Meeting of the Econometric Society 2013
Past Events
Department Seminar


Learning to Coordinate: A Study in Retail Gasoline


David Byrne
University of Melbourne
Date: Sep 29, Thu
Time: 4 - 5:30 pm

Venue: Lim Tay Boh Seminar Room (AS2 03-12)
National University of Singapore
1 Arts Link, Singapore 117570

Chair: Alberto Salvo


Theories of collusion have long focused on the implementation and stability of tacitly collusive agreements, yet are silent on how these agreements are initiated. We present a novel empirical study of the initiation and implementation of a tacitly collusive agreement. Our analysis exploits a unique dataset from a retail gasoline market that includes the universe of station-level prices for 15 years. We document the initiation of a collusive pricing structure that involves focal points for daily price cuts and price jumps that serve to coordinate market prices and improve margins by more than 100%. Price leadership and experimentation are key mechanisms for establishing the pricing structure. Prior to initiating the collusive arrangement, the market leader – BP – runs a series of pricing experiments to test the focal points, communicates it intention to collude, and learns about its rivals’ willingness to tacitly coordinate.