DYNAMIC PRICING IN RETAIL GASOLINE MARKETS

Supergame models of tacit collusion show that supportable price-cost m argins increase with expected future collusive profits, ceteris paribu s. As a result, collusive margins will be larger when demand is expect ed to increase or marginal costs are expected to decline. Using panel data on sales volume and gasoline prices in 43 cities over 72 months, we find behavior consistent with tacit collusion in retail gasoline ma rkets. Controlling for current demand and cost, current margins increa se with expected next-month demand and decrease with expected next-mon th cost. The results are not consistent with intertemporal linkages du e to inventory behavior or customer loyalty.