Working Paper: CEPR ID: DP15823
Authors: Lus M. B. Cabral; Niklas Duerr; Dominik Schober; Oliver Woll
Abstract: On May 27, 2015, the Shell network of gas stations in Germany introduced a Price Matching Guarantee (PMG) available to its card-carrying members. In the ensuing weeks, a series of attempts at tacit collusion took place, typically with stations increasing prices at around 12 noon by 3 cents. In this paper, we argue that the juxtaposition of these two events is not a mere coincidence. We first present a theoretical model to argue that a PMG can be a collusion enacting practice. We then test various predictions of our theoretical model. Our source of identification is geographical variation in the presence of Shell stations (the chain that enacted the PMG) as well consumer demographics. Our empirical tests are consistent with the theoretical predictions, showing effects that are both statistically and economically significant.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Introduction of Shell's PMG (Y20) | Increase in midday price increases at gas stations (L97) |
| Distance to nearest Shell station (L71) | Increase in midday price increases at gas stations (L97) |
| PMG reduces opportunity cost of collusion (D43) | Facilitates tacit collusion among gas stations (D43) |
| Likelihood of price increase by one firm (L11) | Followed by price increase from a rival (if part of PMG) (D41) |