Using a natural experiment from a retail gasoline antitrust case, we study how asymmetric information sharing affects oligopoly pricing. Empirically, price competition softens when, following case settlement, information sharing shifts from symmetric to asymmetric, with one firm losing access to high-frequency, granular rival price data. We provide theory and empirics illustrating how strategic ignorance creates price commitment, leading to higher price-cost margins. Using a structural model, we quantify the impact of asymmetric information sharing on firms' profits, finding substantial profit-enhancing effects. These results provide a cautionary tale for antitrust agencies regarding the potential unintended consequences of limiting price information sharing.
We decompose product comparability into a price component and a design component relating to preference matches, and examine the incentives for price-setting firms to manipulate each component. First, we analyse price competition for given product comparability. Improved price (design) comparability leads to more (less) intense price competition. We then examine message and price competition. If messages are impactful on equilibrium comparability, firms associate higher relative prices with messages that increase design comparability and decrease price comparability.
This chapter discusses the Informed Sources matter from the Australian retail gasoline industry. Informed Sources is a data and analytics platform that facilitates near real-time, station-level price sharing among major gasoline retailers. In 2014, the government initiated proceedings against Informed Sources and major gasoline retailers that subscribed to it, contending that the platform likely substantially lessened competition by enabling price signaling and monitoring. Through a narrative example, we frame the Informed Sources matter and the key economic issues at play. Then, using rich real-time pricing data from the industry, we provide evidence on how such information sharing platforms facilitate anticompetitive conduct by reducing the cost of price signaling and enhancing its effectiveness in coordinating prices. Lastly, we discuss the matter and our empirics in the context of emerging research and antitrust cases, focusing on how cartels operate and how price-sharing platforms can serve as facilitating devices. In contrast to the extensive literature focusing on the role of monitoring in sustaining collusion, our results expand our understanding of how platforms enable low-cost, effective price signaling, making prices a medium of communication.
In many contests, a participant's choices can influence the value of the prize on offer. However, in the standard contest model, the value of the prize is exogenous and participants have discretion only over the effort they exert. This paper proposes a new type of N-player contest in which each participant chooses both her own prize and effort. We present a general model and establish sufficient conditions for equilibrium existence. We then describe sufficient conditions for the existence of symmetric equilibria, and discuss comparative statics with respect to the number of players. Finally, we discuss asymmetric contests.
We exploit a high-stakes quasi-field setting to estimate attitudes towards both risk and strategic ambiguity. Participants make a sequence of binary choices, either between a sure thing and a risky alternative, or between a sure thing and an alternative that is contingent on the unobserved strategies of rivals. Payoffs range up to 250 000 Swiss Francs. Our econometric model allows for both stochastic choice and preference heterogeneity across contestants. We consider several models of ambiguity attitudes. We find substantial ambiguity aversion and moderate risk aversion; ambiguity attitudes are best captured by the Klibanoff et al. (2005) smooth ambiguity model; and heterogeneity is important at the decision and participant level.
We study contests in which the prize depends on the number of participants, and show that equilibrium effort can be increasing, decreasing, or non-monotonic in the number of participants. This contrasts with the standard result for contests with fixed prizes in which effort is decreasing in the number of participants.
How does the Internet effect retail pricing? In contrast to previous empirical research that focuses on price dispersion and static margins, this paper examines how the Internet and web-based price clearing houses effect dynamic asymmetric pricing adjustment (e.g., "rockets and feathers"). We exploit a unique policy intervention in the context of the retail gasoline market that introduced a price clearinghouse in some markets but not others. We find stark evidence that the policy eliminated asymmetric price adjustment and increase the rate of passthrough of falling costs to retail prices. These results support search-based explanations for asymmetric price adjustment.
We show that the multi-nomial logit model of demand implies a constant markup of price above marginal cost for multi-product oligopolists. Further, for the random coefficients discrete choice model of demand, a multi-product oligopolist optimally sets the same markup for two products if they share the same form of consumer heterogeneity, even if product characteristics differ markedly.
In a recent high profile case of collusion in the market for vitamin C, the cartel initially accommodated a fringe competitor before ultimately collapsing under the competitive burden. In this paper, the cartel's decision of when to dissolve is endogenised within a dynamic model of collusion. Demand estimates and cost information from the vitamin C market are used to calibrate the model. Results are intimately linked to the dynamic nature of the model. A cartel is found to persist only while fringe competitors remain small; fringe competitors invest heavily while a cartel is operating; entry deterrence is mitigated if cartel members are able to accommodate entry; and firms of an intermediate size are the most likely to accommodate entry.