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Gasoline prices jump up on Mondays : an outcome of aggressive competition?

Foros, Øystein; Steen, Frode
Working paper
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URI
http://hdl.handle.net/11250/163965
Date
2009-04
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  • Discussion papers (FOR) [514]
Abstract
This paper examines Norwegian gasoline pump prices using daily station-specific

observations from March 2003 to March 2006. Whereas studies that have analyzed

similar price cycles in other countries find support for the Edgeworth cycle theory

(Maskin and Tirole, 1988), we demonstrate that Norwegian gasoline price cycles

involve a form of coordinated behavior. Retail gasoline prices follow a fixed weekly

pattern, where retail outlets all over Norway simultaneously increase their prices to

the same level every Monday at noon. Consequently, the sharp price increase is tied to

time rather than the current price level. The gasoline companies’ headquarters publish

a recommended price that de facto is a RPM arrangement towards the retail outlets.

The vertical arrangement is industry-wide adopted, and is used to coordinate the time

and the level for retail price increases among the big four gasoline companies.

Monday changed from being the low-price day to becoming the high-price day almost

‘overnight’ in April 2004, and we empirically establish that the change corresponds to

a significant jump in the gross margin.
Publisher
Norwegian School of Economics and Business Administration. Department of Finance and Management Science
Series
Discussion paper
2009:2

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