Abstract:
In this study, I test for tacit collusion in retail gasoline markets by testing for sticky
downward pricing and price leadership. Using an extensive dataset consisting of
twenty-five gasoline markets located in the greater Willamette Valley region of
Oregon, I find evidence of sticky downward pricing in every market. I also find
strong evidence that suggests several firms are using a price leader to coordinate
prices. Further analysis suggests that the firms using a price leader to coordinate
prices do not earn a greater average margin when compared to firms that do not
coordinate prices with a price leader. Using past estimates of own-price elasticity for
retail gas stations, I project the profit-maximizing price that station could charge and
find that it is below the observed price charged by every station in every market.
This result suggests that the tacit collusion observed in these markets is not an
attempt by gas station managers to earn anti-competitive profits.
