Regulating Gasoline Prices: Experimental Evidence' presented by Dr Prof Justus Haucap on 24 Jan 2013

Abstract

If retail gasoline prices are to be regulated, is it better to allow only one price increase per day (while price cuts are always possible) as in Austria, impose a maximum retailer mark-up as in Luxembourg , or allow only one daily price change (either up or down) as in Western Australia? Indeed, is price regulation the best way to increase consumer welfare in retail gasoline markets characterised by oligopoly market structures, frequent interactions, highly transparent prices, rather inelastic demand and collusive behaviour? A recent German inquiry backed suspicions of tacit collusion and suggested adoption of regulatory price rules for gas stations similar to those implemented in Austria, parts of Australia, Luxembourg or parts of Canada. Whilst intuition suggests the proposed rules will raise consumer welfare, theoretical evidence is mixed and empirical evidence rare. In this seminar, Justus Haucap discusses evidence obtained using an experimental gasoline market in a laboratory experiment which suggests that these rules tend to decrease rather than increase consumer welfare. Whilst no rule tends to induce lower retail prices, some rules are less harmful than others.