A paper by Riemer Faber (CRA) and Maarten Janssen (University of Vienna) on the effects of suggested prices in gasoline markets has been accepted for publication in The Scandinavian Journal of Economics.
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. The authors show that, compared to the gasoline spot market price, suggested prices contain additional information that explains retail price changes. They 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).
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