Equilibrium selection

Repeated game

Biology

Economics

Exploit

Microeconomics

Game theory

Ecology

Tacit collusion

Commodity

Price fixing

Computer science

Collusion

Market economy

Computer security

Industrial organization

Competition (biology)

American Economic Review

This paper studies equilibrium selection in the retail gasoline industry. We exploit a unique dataset that contains the universe of station-level prices for an urban market for 15 years, and that encompasses a coordinated equilibrium transition mid-sample. We uncover a gradual, three-year equilibrium transition, whereby dominant firms use price leadership and price experiments to create focal points that coordinate market prices, soften price competition, and enhance retail margins. Our results inform the theory of collusion, with particular relevance to the initiation of collusion and equilibrium selection. We also highlight new insights into merger policy and collusion detection strategies. (JEL G34, L12, L13, L71, L81, Q35)

Learning to Coordinate: A Study in Retail Gasoline