The Costs and Benefits of Price Leadership - Evidence from Retail Gasoline

Abstract

This paper studies the costs and benefits of price leadership in a retail gasoline market with asymmetric price cycles. A unique dataset with high frequency price and volume data for almost all Norwegian gas stations coupled with a particular pricing pattern allow me to provide the first concrete evidence on the costs and benefits of leading price jumps. The main result is that the leader’s volume loss ensuing from being alone with a high price until the other firms match the price increase, is small compared to the large margin increases and profit gains resulting from the price jumps. Furthermore, I find that the leader is not worse off than the non-leading firms.