Price Coordination with Prior Announcements in Retail Gasoline Markets

Abstract: This paper examines how price coordination, and importantly, coordination on price restorations, is carried out in retail gasoline markets. In the studied market, one firm breaches a fourteen-year lasting regular price cycle overnight by publicly announcing a change to its retail price policy. Prior to the announcement, the regular cycle occurred across brands and all over the country. I show that the recommended price of this particular company, which is publicly available on the company’s website, serves two functions for its network of retail stations. First, it determines the price restoration level. Second, it serves as a signal of when to implement a restoration day: Every time this company announces an adjustment to the recommended price in the early morning, price restoration is implemented the following forenoon. I further show that other companies are following the new practice as well. Hence, a new way to coordinate on prices and synchronize price restorations inter-brand and across local markets has emerged, using prior announcements of the price leader’s recommended price as a signaling device.