Gas stations have "price wars" for years just to figure out how to work together and jack up prices for everyone else.
We usually see price wars as a win for consumers and a sign of competition. This study shows that for retailers using digital pricing, these turbulent periods are actually 'negotiations' where competitors learn each other's strategies to eventually reach a stable, higher-profit equilibrium.
Negotiating Coordination: A Study in Retail Gasoline
SSRN · 6338858
<div> We examine a unique five-year equilibrium transition in the retail gasoline industry using hourly station-level price data. In an attempt to increase profit margins under a focal pricing structure, price leaders alter asymmetrically sized retailers' incentives to coordinate on prices, spurring bargaining over transfers that support coordination. Such bargaining occurs in near real-time through platform-enabled, price-based communication under strategic uncertainty. After three turbulent ye