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On the Effects of Suggested Prices in Gasoline Markets
Author(s) -
Faber Riemer P.,
Janssen Maarten C. W.
Publication year - 2019
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/sjoe.12289
Subject(s) - gasoline , economics , point (geometry) , monetary economics , spot contract , market price , microeconomics , financial economics , physics , mathematics , thermodynamics , futures contract , geometry
There is a widespread suspicion that suggested prices act as a focal point for individual firms when setting their prices. Oil companies announce suggested prices for gasoline stations in the Dutch retail market. We show that, compared to the gasoline spot market price, suggested prices contain additional information that explains retail price changes. We conclude that suggested prices have a horizontal coordinating effect in the sense that retail prices react to information that suggested prices contain and that is unrelated to firms’ costs (i.e., the information that firms use under normal competitive conditions).