Testing Optimal Punishment Mechanisms under Price Regulation: the Case of the Retail Market for Gasoline

Robert Gagné (1) , Simon van Norden (1) , Bruno Versaevel (2)

1 CIRANO - Centre interuniversitaire de recherche en analyse des organisations
2 GATE - Groupe d'analyse et de théorie économique

We analyse the effects of a price floor on price wars (or deep price cuts) in the retail market for gasoline. Bertrand supergame oligopoly models predict that price wars should last longer in the presence of price floors. In 1996, the introduction of a price floor in the Quebec retail market for gasoline serves as a natural experiment with which to test this prediction. We use a Markov Switching Model with two latent states to simultaneously identify the periods of price-collusion/price-war and estimate the parameters characterizing each state. Results support the prediction that price floors reduce the intensity of price wars but increase their expected duration.

Mots clés: gasoline prices; Markov switching model; oligopoly supergame; price regulation

Mots clés: collusion; prix de l'essence; régulation

Domaines: Economies et finances

Robert Gagné, Simon van Norden, Bruno Versaevel. Testing Optimal Punishment Mechanisms under Price Regulation: the Case of the Retail Market for Gasoline. 2006. ⟨halshs-00142516⟩