DP6783 Gasoline prices jump up on Mondays: An outcome of aggressive competition?

Author(s): Øystein Foros, Frode Steen
Publication Date: April 2008
Keyword(s): gasoline, intertemporal price discrimination, price coordination
JEL(s): D40, L11, L42
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6783

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. We also show that gasoline prices follow a fixed weekly pattern, with prices increasing significantly every Monday at noon, and that gasoline companies appear to use the recommended price as a coordination device with a fixed link between the retail and recommended prices. Moreover, the weekly pattern changed in April 2004; whereas Thursday had been the high-price day, Monday now became the high-price day. The price?cost margin also increased significantly after the weekly pattern changed in April 2004.