TY  - JOUR
AU  - Borenstein,Severin
AU  - Shepard,Andrea
TI  - Dynamic Pricing in Retail Gasoline Markets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4489
PY  - 1993
Y2  - October 1993
UR  - http://www.nber.org/papers/w4489
L1  - http://www.nber.org/papers/w4489.pdf
N1  - Author contact info:
Severin Borenstein
Haas School of Business
University of California, Berkeley
Berkeley, CA 94720-1900
Tel: 510/642-3689
E-Mail: borenste@haas.berkeley.edu

Andrea Shepard
Graduate School of Business
Stanford University
Stanford, CA 94305-5015
Tel: 650/725-4864
Fax: 650/725-7979
E-Mail: ashepard@cornerstone.com
AB  - This paper tests for price patterns in retail gasoline markets consistent with those predicted by models of implicit collusion among firms.  Recent supergame models show that the highest supportable collusive price is a function of today's profit relative to expected future profit:  collusive prices are higher when predictable changes in demand or cost lead firms to expect that collusive profits are increasing rather than declining.  Ceteris paribus, collusive profits will be expected to increase when demand is expected to increase and/or costs are expected to decline.  Using panel data on sales volume, and retail and wholesale prices in 59 cities over 72 months, we find results consistent with these predictions.  Controlling for current demand and input price, the elasticity of current retail margins with respect to expected next-month demand is about 0.37.  The elasticity of current margins with respect to next-month wholesale price is about -0.37.  The results are inconsistent with inventory effects.
ER  -