Price Ceilings as Focal Points for Tacit Collusion: Evidence from Credit Cards
American Economic Review
vol. 93,
no. 5, December 2003
(pp. 1703-1729)
Abstract
We test whether a nonbinding price ceiling may serve as a focal point for tacit collusion, using data from the credit card market during the 1980's. Our empirical model can distinguish instances when firms match a binding ceiling from instances when firms tacitly collude at a nonbinding ceiling. The results suggest that tacit collusion at nonbinding state-level ceilings was prevalent during the early 1980's, but that national integration of the market reduced the sustainability of tacit collusion by the end of the decade. The results highlight a perverse effect of price regulation.Citation
Knittel, Christopher, R., and Victor Stango. 2003. "Price Ceilings as Focal Points for Tacit Collusion: Evidence from Credit Cards." American Economic Review, 93 (5): 1703-1729. DOI: 10.1257/000282803322655509JEL Classification
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G28 Financial Institutions and Services: Government Policy and Regulation
- L13 Oligopoly and Other Imperfect Markets
- L51 Economics of Regulation